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Supreme Court 31 July 2002

Green v Schneller

[2002] NSWSC 671

Fraud & dishonesty
CONVEYANCING POSITION AFTER COMPLETION CONVEYANCE BY WIFE TO HUSBAND NO EXPLANATION OFFERED INTENTION TO DEFRAUD CREDITIORS ORDER AVOIDING ALIENATION OF PROPERTY

Citation: Green v Schneller [2002] NSWSC 671
Court: Supreme Court of New South Wales, Equity Division
Date: 31 July 2002
Judge(s): Barrett J

Background

A plaintiff who had obtained costs orders against a defendant in defamation proceedings sought to set aside a transfer of real property that she had made to her husband shortly before those proceedings concluded. The property was a jointly owned family home at Northwood, NSW. By a transfer registered in May 1998, the wife conveyed her entire interest in the property to her husband for consideration of one dollar.

The transfer was made in purported compliance with consent orders obtained from the Local Court at Manly under s 79 of the Family Law Act 1975 (Cth). Those orders, made on 6 April 1998, directed the wife to transfer her interest in the property to the husband in exchange for the husband's shareholding in a company. The wife had by that point already accumulated several costs orders against her arising from the defamation litigation, and judgment on the substantive claim was ultimately entered against her in June 2000.

The plaintiff commenced Supreme Court proceedings in June 2001 seeking a declaration that the transfer was voidable under s 37A of the Conveyancing Act 1919 (NSW), which renders void any alienation of property made with intent to defraud creditors. The wife and husband offered no evidence in opposition.

  • Whether the transfer of the wife's interest in the Northwood property to her husband was made with intent to defraud creditors within the meaning of s 37A of the Conveyancing Act 1919 (NSW).
  • Whether the husband could rely on the good faith purchaser protection in s 37A(3) to defeat the plaintiff's claim.
  • Whether the fact that the transfer was carried out pursuant to orders made under s 79 of the Family Law Act 1975 (Cth) prevented the Supreme Court from making an order avoiding the transfer.
  • What form of orders should be made following a finding that s 37A was engaged.

Decision

Barrett J found that the transfer was made with intent to defraud creditors. Several cost orders had already been made against the wife before the transfer was registered, the transfer was executed for nominal consideration of one dollar, no explanation was offered for the transaction, and the timing placed the transfer in close proximity to the accumulation of liabilities against the wife. The absence of any evidence from the defendants left the inference of fraudulent intent unchallenged.

The husband could not rely on the good faith purchaser defence in s 37A(3). The consideration of one dollar did not constitute genuine value sufficient to establish him as a "purchaser" in any meaningful sense, and in any event the circumstances negated good faith.

On the Family Law Act issue, Barrett J held that the existence of consent orders under s 79 did not shield the transfer from challenge under s 37A. The Family Law Act did not operate to immunise a transaction that was otherwise voidable for fraud on creditors. The Local Court orders did not deprive the Supreme Court of jurisdiction to grant relief under the Conveyancing Act.

Because the Official Trustee in Bankruptcy had not participated in the proceedings (the wife had become bankrupt), Barrett J declined to make final orders at this stage. His Honour directed that the Official Trustee be provided with a copy of the reasons and listed the matter for further mention to receive submissions on the precise form of orders, including the possibility of joining the Official Trustee as a party.

Orders Made

  • A clear finding was made that the transfer of the wife's interest in the Northwood property to her husband is voidable under s 37A of the Conveyancing Act 1919 (NSW).
  • Final orders as to the form of relief were deferred pending further submissions.
  • Barrett J directed that the plaintiff provide a copy of the judgment to the Official Trustee in Bankruptcy by 2 August 2002.
  • The proceedings were listed for mention to hear any application to join the Official Trustee in Bankruptcy and to receive submissions on the precise orders to be made to reverse the effect of the transfer.
  • The anticipated relief, in the form sought, was that Mr Schneller hold an undivided one-half share in the property on trust for the Official Trustee in Bankruptcy, with an order that he transfer that share to the Official Trustee as tenant in common.

Key Takeaways

  • Under s 37A of the Conveyancing Act 1919 (NSW), a transfer of property for nominal consideration made in close temporal proximity to the crystallisation of significant liabilities can support a finding of intent to defraud creditors, particularly where the transferring party offers no explanation.
  • A one-dollar consideration does not constitute sufficient value to attract the good faith purchaser defence in s 37A(3), leaving the transferee exposed to an avoidance order.
  • Consent orders made under s 79 of the Family Law Act 1975 (Cth) do not insulate a property transfer from avoidance under state legislation where the transfer was effected with intent to defraud creditors. The Family Law Act does not override the operation of s 37A in those circumstances.
  • Where a judgment debtor is bankrupt and the Official Trustee in Bankruptcy has not participated in proceedings, the Supreme Court may defer making final orders on the form of relief to allow the Trustee an opportunity to be heard and potentially be joined as a party.
  • Reversing the effect of a fraudulent transfer does not necessarily require recreating the original co-ownership structure. Barrett J indicated the joint tenancy need not be restored, with it being sufficient to sever the title and return one undivided half share to the pool of assets available to creditors.

Legislation and Cases Referenced

Legislation:
- Conveyancing Act 1919 (NSW), s 37A
- Family Law Act 1975 (Cth), ss 79, 79A
- Bankruptcy Act 1966 (Cth), s 58(1)(b)
- Real Property Act 1900 (NSW)
- Duties Act 1997 (NSW)
- De Facto Relationships Act 1984 / Property (Relationships) Act 1984 (NSW)
- Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth)

Cases:
- Ash Street Properties Ltd v Pollnow (1987) 8 NSWLR 8
- Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370
- Brady v Stapleton (1952) 88 CLR 322
- Green v Official Trustee in Bankruptcy; Re Schneller (Bankrupt) [2001] FCA 1644
- Green v Schneller (2001) 164 FLR 82
- Langdon v Gruber [2001] NSWSC 276
- Official Trustee in Bankruptcy v Higgins (2000) 109 FCR 1
- Re Sabri; Ex parte Sabri v Brien (1995) 60 FCR 131
- Silvera v Savic (1999) 46 NSWLR 124
- Williams v Lloyd (1934) 50 CLR 341
- PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515
- Re Trautwein; Richardson v Trautwein (1944) 14 ABC 61
- Re Baxter; Ex parte Official Receiver in Bankruptcy (1986) 10 FCR 398
- Re Mateo (Bankrupt); Mateo v Official Receiver in Bankruptcy [2002] FCA 344
- Official Trustee in Bankruptcy v Edwards (1997) 139 FLR 104
- Noakes v J Harvy Holmes & Son (1979) 37 FLR 5