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Supreme Court 21 October 2003

Nick Houvardas v George Zaravinos and Anor

[2003] NSWSC 387

Fraud & dishonesty
[REAL PROPERTY] [BANKRUPTCY] [ORDERS]

Citation: Nick Houvardas v George Zaravinos and Anor [2003] NSWSC 387
Court: Supreme Court of New South Wales, Equity Division
Date: 21 October 2003
Judge(s): Bergin J

Background

The plaintiff was a creditor of the first defendant, a man who in March 1997 transferred his half-interest in three properties to his former wife, the second defendant. The plaintiff alleged those transfers were made not in good faith but with the deliberate intention of defeating him as a creditor, contrary to s 37A of the Conveyancing Act 1919 (NSW).

The three properties in dispute were a residential property at Colson Crescent, Werrington County, a property at Union Road, and a property at Castlereagh Street. The transfers were registered approximately ten months before consent orders were made in the Local Court exercising Family Law jurisdiction in January 1998, which included a declaration about the parties' property interests under s 78 of the Family Law Act 1975 (Cth).

The litigation was protracted and complex. It spanned multiple hearing dates between September 2002 and April 2003, involved a co-plaintiff who died during proceedings, and raised a late constitutional question after judgment was reserved: whether the Bankruptcy Act 1966 (Cth) entirely displaced the plaintiff's right to proceed under the state provision, given that the first defendant had since become bankrupt. The NSW Attorney-General intervened on that constitutional question.

  • Whether the first defendant's transfers of his half-interests in the three properties were made with intent to defraud creditors within the meaning of s 37A of the Conveyancing Act 1919 (NSW), rendering those transfers void.
  • Whether the Bankruptcy Act 1966 (Cth) "covers the field" in relation to creditor-defeat transfers where the transferor has become bankrupt, thereby precluding any reliance on the state provision.
  • Whether the plaintiff was estopped from pursuing relief under s 37A, in light of the earlier Local Court proceedings being "withdrawn and dismissed" by consent.
  • Whether orders made under s 37A would conflict with the consent orders made in the Local Court exercising Family Law jurisdiction on 15 January 1998.

Decision

Fraudulent Intent Under s 37A

Bergin J was satisfied that the transfers of the three properties were registered with intent to defraud creditors and were therefore void under s 37A of the Conveyancing Act. The court accepted the plaintiff's case that the alienations were not made in good faith. Although the second defendant gave evidence that she had funded the property purchases from her own savings, the court's findings on credibility and the circumstances of the transfers supported the conclusion that the dominant purpose was to place assets beyond the reach of creditors.

The Bankruptcy Act "Covers the Field" Argument

The second defendant argued, after judgment was reserved, that the Bankruptcy Act 1966 (Cth) exhaustively covered the area of creditor-defeat transfers once the transferor became bankrupt, leaving no room for a concurrent state remedy. Bergin J rejected this argument. The plaintiff had already been granted leave by the Federal Court to proceed against the first defendant under s 37A of the Conveyancing Act, and the Federal Court's grant of leave was made on the specific basis that any benefit obtained would flow to the Official Trustee in Bankruptcy rather than to the plaintiff personally. The court held that proceeding on this basis did not produce an inconsistency with the federal bankruptcy scheme.

Estoppel

The court was not persuaded that the plaintiff was estopped from pursuing relief merely because earlier Local Court Family Law proceedings had been withdrawn and dismissed by consent. The dismissal of those proceedings did not, in the circumstances, preclude the plaintiff from bringing the present s 37A claim.

Conflict with Consent Orders

Rather than finding an irresolvable conflict with the January 1998 Local Court consent orders, the court fashioned orders requiring the defendants to apply to set aside those consent orders, so that the reconveyance orders made in the present proceedings could take effect without contradiction.

Orders Made

  • Declarations that the transfers of the three properties (Castlereagh Street, Union Road, and Colson Crescent) were registered with intent to defraud creditors and are void.
  • Orders that the second defendant re-transfer to the first defendant his half-interest in each of the three properties.
  • An order requiring both defendants, by 28 November 2003, to sign an Application and Consent Order to be filed in the Local Court at Penrith or the Family Court, seeking to set aside the declaration and sale order made on 15 January 1998 in relation to the Castlereagh Street property; a copy of the Supreme Court judgment and orders is to be annexed to that Consent Order.
  • If either defendant fails to sign that Application and Consent Order, the Registrar in Equity is authorised to sign it on their behalf.
  • The parties are to provide a copy of the judgment to the Official Trustee forthwith, with the matter listed on 4 November 2003 for filing of Short Minutes of Order and to allow the Trustee to make submissions, including on costs.

Key Takeaways

  • Section 37A of the Conveyancing Act 1919 (NSW) remains available to a creditor seeking to void a fraudulent transfer even where the transferor has subsequently become bankrupt, provided the Federal Court has granted leave and any benefit of the orders flows to the Official Trustee rather than to the creditor personally.
  • The Bankruptcy Act 1966 (Cth) does not, of itself, "cover the field" so as to extinguish a state creditor-defeat remedy in every case involving a bankrupt transferor; the constitutional question turns on whether the particular exercise of the state remedy produces genuine inconsistency with the federal scheme.
  • Where consent orders made in Family Law proceedings stand as a potential obstacle to reconveyance orders under s 37A, a court can require the parties to seek to set aside those consent orders rather than declining relief altogether.
  • Dismissal by consent of earlier Family Law proceedings does not necessarily give rise to an estoppel that bars a subsequent creditor-defeat claim under state legislation.
  • Sufficient evidence of fraudulent intent under s 37A can be established even where a transferee asserts that property was funded entirely from their own resources, if the surrounding circumstances and credibility findings support the conclusion that the transfers were designed to defeat creditors.

Legislation and Cases Referenced

Legislation
- Conveyancing Act 1919 (NSW), s 37A
- Bankruptcy Act 1966 (Cth)
- Family Law Act 1975 (Cth), ss 78, 78B
- Judiciary Act 1903 (Cth), s 78B
- Bankruptcy Act 1924-1932 (Cth)
- Conciliation and Arbitration Act 1904-1961 (Cth)
- Commonwealth of Australia Constitution Act
- District Court Act 1973 (NSW)
- Trade Practices Act 1974 (Cth)

Cases
- Kattirtzis & Anor v Zaravinos [2001] FCA 1158
- Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502
- Clyne v Deputy Commissioner of Taxation & Ors (1984) 154 CLR 589
- Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
- Ex parte McLean (1930) 43 CLR 472
- Williams & Ors v Lloyd & Anor (1933-1934) 50 CLR 341
- Official Trustee in Bankruptcy v Higgins (2000) 109 FCR 1
- Official Trustee in Bankruptcy v Mateo (2003) 30 Fam LR 122
- Mateo v Official Receiver in Bankruptcy (2002) 117 FCR 179
- Green v Schneller (2002) 29 Fam LR 346
- Fraser v Commissioner of Taxation & Anor (1996) 69 FCR 99
- Silvera v Savic & Anor (1999) 46 NSWLR 124
- Langdon v Gruber [2001] NSWSC