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Supreme Court 12 April 2001

Langdon v Gruber

[2001] NSWSC 276

Fraud & dishonesty
REAL PROPERTY MEANING OF 'INTENT TO DEFRAUD' MEANING OF 'CREDITORS' MEANING OF 'PURCHASER'

Citation: Langdon v Gruber [2001] NSWSC 276
Court: Supreme Court of New South Wales, Equity Division
Date: 12 April 2001
Judge(s): Austin J

Background

The plaintiff obtained a judgment in British Columbia for approximately Cdn$900,500 against her father, the second defendant, for damages arising from childhood sexual abuse. The father had been convicted in Canada of multiple serious sexual offences against his daughter and sentenced to 11 years' imprisonment. Only $240 of the judgment debt was ever paid.

The father and his second wife, the first defendant, had co-owned a residential property in Ramsgate, New South Wales as joint tenants since 1976. While the father was in prison in Canada, consent orders were made in the New South Wales Local Court that transferred his interest in the Ramsgate property to his wife. The plaintiff commenced proceedings in 1996 alleging that this transfer was a fraudulent conveyance designed to defeat her claim as a creditor.

The central dispute was whether the transfer of the father's interest in the property to his wife should be set aside under s 37A of the Conveyancing Act 1919 (NSW), which voids alienations of property made with intent to defraud creditors.

  • Whether the transfer of the Ramsgate property was made with intent to defraud creditors within the meaning of s 37A of the Conveyancing Act 1919 (NSW)
  • Whether the plaintiff qualified as a "creditor" for the purposes of s 37A at the time of the transfer, given that no judgment had yet been entered in New South Wales
  • Whether the wife, as transferee, was a "purchaser" within the meaning of s 37A and, if so, whether she had notice of the intent to defraud
  • What orders were appropriate given the transfer had been effected by Local Court consent orders rather than a direct private transaction

Decision

Austin J found that the father did intend to defraud creditors when he arranged the transfer of his interest in the Ramsgate property to his wife. The father had written letters to the Canadian civil court expressly acknowledging his desire to protect the property from his daughter's claim. He was aware of the Canadian civil proceedings when the transfer was arranged, and the court was satisfied that defeating that claim was a substantial purpose of the transfer.

The court accepted that the plaintiff qualified as a "creditor" for the purposes of s 37A even though no judgment had been entered at the time of transfer. A person with a present cause of action, even if unquantified, can be a creditor in this context. The tort claim for the sexual assaults had accrued before the transfer occurred.

On the question of notice, Austin J found that the wife was aware of the intent to place the property beyond the reach of the plaintiff's claim. She had accompanied her husband to Canada, attended his criminal trial, visited him weekly in prison, and was closely involved in the management of the property. The consent orders in the Local Court did not insulate the transfer from scrutiny under s 37A. The court held that the wife held the husband's undivided one-half share on trust for him.

The court declined to make some of the more extensive orders sought by the plaintiff, including orders for an immediate forced sale, concluding that a more measured approach was preferable. It stood the proceedings over to allow the parties an opportunity to agree on an orderly arrangement to satisfy the judgment debt before any execution against the property was forced.

Orders Made

The orders section provided in the text does not set out the final formal orders made by the court. However, from the judgment's concluding paragraphs, the following key outcomes were identified:

  • Mrs Gruber was found to hold an undivided one-half share in the Ramsgate property on trust for Mr Gruber
  • An order restraining Mr and Mrs Gruber from dealing with the Ramsgate property was to be made, pending registration of the Canadian judgment in New South Wales and thereafter requiring one month's written notice to the plaintiff's attorney before any dealing
  • Orders for an immediate forced sale and certain other relief sought in the amended statement of claim were refused
  • The plaintiff was directed to bring in short minutes of orders at the next hearing, consistent with the court's conclusions
  • Costs were to be argued at the next hearing, with the court indicating an inclination to order Mrs Gruber to pay the plaintiff's costs, and no costs order for or against Mr Gruber given his limited role

Key Takeaways

  • Under s 37A of the Conveyancing Act 1919 (NSW), a person with an accrued but unquantified cause of action in tort can qualify as a "creditor," meaning the protection of that provision is not limited to those who already hold a formal judgment.
  • A transfer of property effected through Local Court consent orders is not automatically beyond challenge as a fraudulent conveyance. The form of the transaction does not determine whether s 37A applies.
  • Where a transferee has actual knowledge of a transferor's intent to put property beyond the reach of a creditor, the transferee cannot rely on the "purchaser without notice" defence under s 37A.
  • The Supreme Court retained flexibility in fashioning relief, declining to order an immediate forced sale and instead standing proceedings over to permit the parties to negotiate a less disruptive resolution.
  • A Mareva-style restraining order may be appropriate in fraudulent conveyance proceedings where there is an established risk that the defendants will deal with property in a manner that defeats a creditor's ability to satisfy a judgment.

Legislation and Cases Referenced

Legislation
- Conveyancing Act 1919 (NSW), ss 7, 37A
- Bankruptcy Act 1966 (Cth), ss 40, 121
- Family Law Act 1975 (Cth), ss 46(1), 79
- Local Court (Civil Claims) Act 1970 (NSW), s 69

Cases
- Barton v Deputy Commissioner of Taxation (Cth) (1974) 131 CLR 370
- Cadogan v Kennett (1776) 2 Cowp 434
- Cannane v J Cannane Pty Ltd (In Liq) (1998) 192 CLR 557
- Freeman v Pope (1870) 5 Ch App 538
- Jones v Dunkel (1959) 101 CLR 298
- Koop v Smith (1915) 25 DLR 355
- Laurentian Bank of Canada v Glover (Ontario High Court, unreported, 28 July 1998)
- PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515
- Patterson v BTR Engineering (Aust) Ltd (NSWCA, unreported, 7 December 1989)
- Re Baxter; ex parte The Official Receiver (1986) 10 FCR 398
- Re Trautwein (1944) 14 ABC 61
- Rickards v Attorney-General (1844) 12 Cl&F 42
- Silvera v Savic (1999) 46 NSWLR 124
- SS Pharmaceutical Co Ltd v Qantas Airways Ltd [1991] 1 Lloyd's Rep 288
- Williams v Lloyd (1934) 50 CLR 341