Exelden Pty Ltd v Australia & New Zealand Banking Group Ltd & Anor [1992] QSC 366

IN THE SUPREME COURT OF QUEENSLAND No. 712 of 1992 Before the Hon. Mr. Justice de Jersey BETWEEN: EXELDEN PTY. LTD. Applicant THE AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED First Respondent DENNIS CHARLES MARL Second Respondent JUDGMENT - de JERSEY J. Delivered the /3tZ day of ~ 1992 CATCHWORDS: ~·v~~ Alienation of property with ineerest to defraud creditors: s. 228 Property Law Act. Counsel: Solicitors: Mr. Conrick for the applicant Ms Dalton for the first respondent Mr. Zillman for the second respondent Barker and Associates for the applicant Minter Ellison first respondent Morris Fletcher Virgil Power for the second respondent for ·the Hearing dates: 9th, 10th, 11th September, 1992 -- 1 of 15 -- IN THE SUPREME COURT OF QUEENSLAND BETWEEN: AND: No. 712 of 1992 EXELDEN PTY. LTD. Applicant THE AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED First Respondent DENNIS CHARLES MARL Second Respondent JUDGMENT - de JERSEY J. Delivered the day of 1992 This case concerns the validity of an instrument (ex. 2) dated 1st July, 1991 styled a "deed of release and discharge" between Exelden Pty. Ltd. and Mr. Marl, and eight contracts dated 27th March, 1992 (exs. 3 to 6) by which Mr. Marl agreed to sell eight lots in his subdivision at Twyford Street, Bundaberg to Exelden for a stated consideration of $240,000. Exelden was the trustee of Mr. Marl's family trust. Mr. Marl gave evidence that over some years, he and his wife borrowed money from Exelden which they used to purchase properties in their own name, and for other purposes. The tax returns of the trust (ex. 1) show that the debt increased over the years from 1985 to 1988 to the sum of $629,871. In that instrument ex. 2, dated 1st July, 1991 (and made on that day, although it says it was made on 25th July), the -- 2 of 15 -- 2 parties recited that the debt was then $626,881.12, and set out a scheme for its reduction. By the instrument, Mr. Marl agreed to subdivide the Twyford Street land. He was to be at liberty to sell so many lots as should be necessary to discharge the secured liability. (There was then a mortgage to the ANZ Bank, replaced in December, 1 9 91 by a mortgage to Esanda.) But Mr. Marl acknowledged that he held the land "for and to the use of Exelden" (cl. 4), which was, in broad terms, entitled to apply the land in diminution of the debt, preserving its rights against Mr. Marl for any deficit. I accept the evidence of the valuer, Mr. Browning, that in a subdivided state, as at 1st July, 1991, the land would have been worth approximately $640, 000 - 20 lots at $32, 000 each. It was eventually necessary to sell twelve lots to realise enough to pay out Esanda. (Eleven of those have settled, and it is not certain that settlement of the twelfth would completely discharge the debt to Esanda.) The remaining eight lots went to Exelden by the contracts exs. 3 to 6. The consideration of $240,000 was not to be paid of course, but set off against Mr. Marl' s debt to Exelden. Those contracts have not been completed because of the lodgment by the Australian and New Zealand Banking Group Ltd. of a writ of fi fa on the title on 19th May, 1992. Neither has the last of the twelve other contracts, for that reason. As is obvious, the Bank had obtained a judgment against Mr. Marl. sum of The date of the judgment is 6th May, 1992, in the $335,308.74. It is 'the Bank which now seeks a declaration that the instrument ex. 2 and the contracts exs. 3 -- 3 of 15 -- 3 to 6 constitute voidable dispositions of property, because made "with intent to defraud creditors" within the meaning of s. 228 of the Property Law Act. The primary applicant is however Exelden, which seeks declarations that it is beneficial owner of the land referred in the contracts, and that the writ of fi fa confers no right on the Sheriff to deal with that land, because there is no interest available for sale. The Sheriff abides the order of the court. Mr. Marl and his late wife had four children, two sons David and James, and two daughters Caroline and Julie, all now adults. Mr. Marl developed a very successful manufacturing business in Bundaberg, run by the family company Alloyweld Pty. Ltd. He commenced that business in 1966. In the mid- 1980s, Mrs Marl fell ill, and she died from cancer in August, 1990. After she fell ill, Mr. and Mrs Marl decided to move to the Gold Coast where they purchased a motel, run in the name of Exelden. The sons continued to run the Bundaberg· business, and the daughters ran the motel. It was sold in 1987 at a substantial profit. Mr. Marl gave evidence before me that he and his wife then determined that the daughters should have Exelden, and the sons Alloyweld, on the basis of a roughly equal financial split. I accept that evidence. As I have said, Mrs Marl died in August, 1990. Mr. Marl said that he believed he should implement the arrangement following his wife's death, so he revamped the family trust to exclude himself and vest control of Exelden in his daughters (see the revised deed his debt to Exelden. ex. 7), and then set about satisfying (He expected the balance of that debt -- 4 of 15 -- 4 would be forgiven. ) That meant realising the Twyford Street land and applying the residue, after discharge of the secured debt to Esanda, in part-payment of his debt to Exelden. Hence the instrument of 1st July, 1991 and the contracts in furtherance of that plan. He indicated that he executed that instrument and those contracts to give effect to the arrangement he had reached with his wife prior to her death for an approximately equal division of the family assets among the children. The Bank's interest arises from Mr. Marl' s debt to it reflected in the judgment and the writ of fi fa. The case was conducted on the basis that if exs. 2 and 3 to 6 are valid, then there is nothing left for the Bank, because the value of the eight lots is substantially less than the recited debt owed by Mr. Marl to Exelden. But the Bank also disputes the genuineness of that debt recited in the instrument ex. 2. The Bank further contends that at the time of ex. 2, that is 1st July, 1991, the financial interests of Mr. Marl and Alloyweld were in very poor shape, and that by the time of the contracts exs. 3 to 8 27th March, 1992 they were desperate. The Bank queried the claim that these things were done to implement the agreement reached between the spouses, asserting as the more likely explanation, a wish in Mr. Marl to keep the eight lots within the family and out of the Bank's reach. As to the revamping of the family trust, and the change in control of Alloyweld, in each case to exclude involvement by Mr. Marl, the Bank contended that that was all -- 5 of 15 -- 5 done to give an appearance of legitimacy to what was otherwise a fraudulent design. As to the legitimacy of the debt recited in ex. 2, Mr. Marl is supported by the progressive references to that in Exelden's trust returns from 1985-1988 (ex. 1). I note on the other hand that the debt is not included as an asset in Exelden's return dated 31st December, 1991 (ex. 9). There was no precise evidence as to what made up the substantial amount recorded in ex. 2. There was an issue whether the debt asserted in the tax returns and verified by the oral evidence of Mr. Marl was genuine. Especially in view of the reference in the trust returns, I do accept Mr. Marl 1 s evidence about that debt, notwithstanding the lack of detail as to its composition. It may be said that a certain casual informality nevertheless attended this debt. As Mr. Marl explained, money passed from one family interest to another as required (p. 53). There is no suggestion that Mr. and Mrs Marl were required to pay interest on this debt. Further, there is his expectation that more than $380,000 of it would ultimately be forgiven following transfer of the eight lots worth $240,000 (p. 351. 50). An important element of the Bank 1 s case was to show a parlous financial condition in Mr. Marl and Alloyweld as at the time of ex. 2, 1st July, 1991, and exs. 3 to 6, 27th March, 1992. The related important issue is Mr. Marl 1 s knowledge of the financial condition of the company and himself, which may in theory bear upon an assessment of his intention when entering into the challenged transactions. -- 6 of 15 -- 6 As to the later time, 27th March, 1992, Alloyweld was by then in receivership. Alloyweld itself requested the appointment of a receiver by the Bank on 13th March, (ex. 27), although Mr. Marl later withdrew that request and the Bank proceeded independently on 16th March, 1992 (ex. 57). I accept Mr. Levi's evidence that the company was then insolvent. Mr. Marl gave evidence that he was then in a desperate financial plight himself (p. 38 1. 5). As to the earlier time, 1st July, 1991, an examination of Alloyweld's letters exs. 10-15, written to the Bank over the preceding six months, shows that Alloyweld needed continual injections of cash from the Bank to be able to keep going. For example, on 8th May, 1991 it needed $100,460 (ex. 11). On 17th May, 1991 it required an overdraft increase by $136,810 (ex. 12). By the time of ex. 13 - 30th May, 1991 - the Bank Manager, Mr. Kropp was asking Mr. Marl to sell properties to reduce the overdraft, and was requiring regular financial information about the company. By the time of ex. 14, 6th June, 1991, Mr. Marl conceded that the Bank was being "lenient" to him (p. 51 1. 20). As at 10th June, 1991 (ex. 15), Alloyweld could not pay its debts without overdraft extension (p. 51), and Mr. Marl was acknowledging that borrowings were inappropriately high. The company's financial records for the three month period to 30th June, 1991, ex. 40, showed an operating loss of $32,176, and an excess of liabilities over assets of $278,846. The conclusion is compelling that Alloyweld was in a very tightly stretched financial position as at July, 1991, and that Mr. Marl's -- 7 of 15 -- 7 personal finances were similarly stretched. I also infer that Mr. Marl must have appreciated the existence and extent of those financial difficulties. In his oral evidence, he expressed optimistic views, pointing out that the company operation was expanding, but especially in context of his communication with the Bank, he must have appreciated the tightness of the situation. Mr. Kropp gave evidence, which I accept, that the Marl family, including their companies, owed the Bank $2,325,958.37 as at 30th June, 1991, and $1,737,505.84 as at 26th March, 1992. $852,516.80 is still owing. The Bank had substantial security for this debt, but it does seem likely that after the last available property is sold, there will remain a substantial unsatisfied debt. Through his cross-examination of the Bank Manager Mr. Kropp, Mr. Conrick, who appeared for Exelden, brought to light a number of statements in the Bank's records suggesting that it regarded itself as sufficiently protected, for t, example, that the shortfall was considered "safe". See especially the "Shortfall" sections of exs. 52, 53 and 54. I accepted Mr. Kropp's explanation in relation to those matters. As I see the matter, the Bank tended to fall in with Mr. Marl 's optimistic forecast. It was also concerned not to contribute to the loss of 40 jobs in Bundaberg. See Mr. Kropp' s evidence at p. 145. It is significant that to keep the Bank's support, Alloyweld had to engage in an "asset reduction programme" ( p. 145 1. 36) . It could hardly be said that to all appearances, Alloyweld was operating in a normal -- 8 of 15 -- 8 commercial way. Whether or not, for compassionate reasons, the Bank was unduly supportive, the facts are that the company, already in overdraft to the tune of approximately $500,000 (its limit being $450,000), was needing substantial additional moneys from the Bank, and needing to sell off assets, to keep afloat. Indeed, its total debt to the Bank-as at 30th June, 1991 was $1,301,609.86, and as at 27th March, 1992, $1,403,360.20. Mr. Harris, the accountant, said that in June/July, 1991 the company was "prima facie insolvent". One infers that in these circumstances, as generally known to Mr. Marl, he would naturally have been concerned, at relevant times, to protect such assets as he could keep from the Bank. The issue is whether he went to the point of disposing of the Twyford Street lots with the intention of defrauding the Bank. It may be said that Mr. Marl' s conduct after 1st July, 1991 was not uniformly consistent with a view that the instrument ex. 2 was effective. For example, in a declaration to Esanda on 10th December, 1991, ex. 36, he failed to declare an interest in the Twyford Street land in favour of Exelden. Exelden had acquired an interest on 1st July, 1991 because of ex. 2, although Mr. Marl said that he believed that Exelden would not gain its interest until after the subdivision had been completed, and that occurred in March, 1992. I did not find that explanation particularly convincing. It may be however that Mr. Marl, in completing ex. 36, overlooked the effect of ex. 2. -- 9 of 15 -- 9 But then, more significantly, on 18th February, 1992, in discussions with the Bank Manager, Mr. Kropp, Mr. Marl contemplated applying the proceeds of sale of some nine lots at Twyford Street (remaining after satisfying Esanda) in payment of Alloyweld' s debts to the Bank. That involved Mr. Marl treating the Twyford Street land as if Exelden then had no right to it and would gain no right to it, or at least that Exelden would be prepared to forego any such right, and that obviously would be inconsistent with a view that the instrument ex. 2, executed previously in July, 1991, involved an efficacious disposition of the property in favour of Exelden. I am satisfied that if Mr. Marl believed that there had been an effective reservation of that land to Exelden, then he would have been anxious to preserve that right, not foresake it. Other matters apart, he was an experienced businessman, and apparently concerned to secure the future financial position of his children. There was some difference between Mr. Marl and Mr. Kropp as to the conversation that day. Mr ~ Marl' s recollection, explored through cross-examination, was rather vague. On the other hand, Mr. Kropp's recollection was aided by a diary note ex. 50 . During the evidence, I drew attention to the 1 imi ts of that diary note. But I am nevertheless satisfied, having heard Mr. Kropp, that Mr. Marl said then to the effect that the balance of the proceeds of sale of the 20 lots, after satisfaction of the debt to Esanda, would be available to reduce the debt to the Bank. I do not accept Mr. Marl' s contrary account, that he could approach his daughters to see -- 10 of 15 -- 10 if they would, as the then controllers of Exelden, allow the money to go to the Bank. Of course even that concession would create some difficulty for Mr. Marl. I infer that when Mr. Marl executed the instrument ex. 2, and the contracts exs. 3 to 6, he was driven primarily by a desire to ensure, at times of considerable financial difficulty within his family, that the Twyford Street lots would, as far as possible, be kept within the family and beyond the reach of the Bank. He was intending to deny the Bank recourse to that land, appreciating the enormity of the debt to the Bank and that the Bank would, in the ordinary course, be looking to that land for part-satisfaction of that debt. His evidence was to the effect that he did these things to implement the arrangement he had made with his late wife. He had certainly taken a long time to do that, although I found his explanation for that acceptable (p. 118). But his statement in evidence: "I got around to it eventually because there were pressing problems." (p. 118 1. 50) was telling. I am convinced that the "pressing problems" to which he referred were the then' current financial difficulties. No doubt he was pleased that in doing what he did, he could also be seen to be giving effect to that earlier arrangement, but I do not accept that that was his primary motivation. As would be clear from what I have said already, one of the circumstances on which I rely in drawing those inferences is the conversation on 18th February, 1992. Mr. Marl thereby betrayed doubt in his own mind as to the efficacy of ex. 2, -- 11 of 15 -- 11 and that doubt is explicable by his own view of what truly motivated him in executing the instrument and the contracts. One may assume that an experienced businessman would know that a person in financial difficulty may not alienate his property to defeat creditors and thereby benefit his family. I find that Mr. Marl' s intention, when entering into these arrangements, was to defraud the Bank, by denying it recourse to those eight lots when seeking satisfaction of its debt. He sought to prefer his family, utilising a "debt" which, though as I have found was owing, may very well never have been called up. He did thereby act fraudulently as that concept is illustrated in Williams v. Lloyd (1933) 50 C.L.R. 341 and explained in Lloyds Bank Ltd. v. Marcan (1973) 1 W.L.R. 1387. Mr Conrick referred me to ex parte Games (1879) 12 Ch.D. 314, but it is factually quite distinct from this case. It follows that the instrument ex. 2 and the contracts exs. 3 to 6 are void because of s. 228. As was agreed before me, a consequence is that the caveat lodged by Exelden should be removed. There was mention in the evidence of on-sales of some of these lots by Exelden. But there was no precise evidence about that, or evidence that Exelden has received any monies in respect of any such further sales. I would therefore not grant the relief sought by paras. (d) or (e) on pp. 9-10 of the counter-claim. I dismiss the summons of Exelden Pty. Ltd. with costs to be taxed. On the counter-claim of the respondent, Australia and New Zealand Banking Group Ltd., there will be a -- 12 of 15 -- 12 declaration that the deed referred to in para. 6 of the points of claim, a copy of which is ex. 2, and the contracts referred to in para. 13 of the points of claim, copies being exs. 3 to 6, involved alienations of property with intent to defraud creditors, in terms of s. 228 of the Property Law Act, and are void; and there will be an order that Exelden Pty. Ltd. remove the caveat referred to in para. 19 of the points of claim. Exelden Pty. Ltd. will pay the respondent's taxed costs of and incidental to the counter-claim. -- 13 of 15 -- State Reporting Bureau TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION de JERSEY J No 712 of 1992 EXELDEN PTY LTD and THE AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED and DENNIS CHARLES MARL BRISBANE . .. DATE 15/09/92 .. JUDGMENT 1 Applicant First Respondent Second Respondent -- 14 of 15 -- 150992 HIS HONOUR: I dismiss the swrunons of Exelden Pty Ltd with costs to be taxed. On the count-.e:r:-cla.im of the respondent Australia and New Zealand Banking Group Limited, there will be a declaration that the deed referred to in paragraph six of the points of claim, a copy of which is Exhibit 2, and the contracts referred to in paragraph 13 of the points of claim, copies being Exhibits 3 to 6, involved alienations of property with an intent to defraud creditors in terms of section 228 of the Property Law Act and are void. There will be an order that Exelden Pty Ltd remove the caveat referred to in paragraph 19 of the points of claim. Exelden Pty Ltd will pay the respondent's taxed costs of and incidental to the counter-claim. I publish reasons for my judgment. HIS HONOUR: I will include in each order for costs, then, the addition of reserved costs, if any. JUDGMENT 2 10 20 30 40 50 60 -- 15 of 15 --