The Federal Court has found for the Commissioner in holding that mortgages granted by the first respondent over 2 valuable residential properties in suburban Perth in favour of the second respondent, Mercury Services Limited, were void pursuant to s 89(1) of the Property Law Act 1969 (WA) (PLA) as being an alienation of property with intent to defraud her creditors, one of whom was the Commissioner to the tune of $186.3 million in tax debts re the years ended 30 June 2007 and 2010, judgment for which was given by the Federal Court in August 2011.

The 2 mortgages were granted by one mortgage document. The Court noted that, at the time of execution of the Mortgage, Mrs Oswal had also executed several securities in favour of Australian and New Zealand Banking Group Limited (ANZ).

The Court noted that a threshold argument was advanced by both respondents that, as the Mortgage is registered under the Transfer of Land Act 1893 (WA) (TLA), Mercury’s interest, as mortgagee, is indefeasible by reason of s 68(1) of that Act and cannot be impugned by operation of s 89 of the PLA. Should that argument fail, the Court said that Mrs Oswal’s defence was that the requisite intent under s 89 of the PLA has not been made out. Each respondent also contended that the provision in s 89(3) of the PLA is not a defence in respect of which they carry the onus of proof, but rather it is for the Commissioner to prove that the Mortgage did not fall within the reach of that provision.

After review of the matter, the Court concluded that there should be judgment for the Commissioner. The Court rejected the submissions that the suit must fail because there was “no evidence that Mrs Oswal was aware of the existence of any creditors or potential creditors at the time she executed the Mortgage, nor evidence that she was aware of any potential liability to the Commissioner”. Proof of such knowledge was not, in the Court’s opinion, necessary to obtain relief under s 89(1). “Indeed it is not necessary to prove the existence of any creditor or that there will be creditors in the future” Gilmour J said.

In the result, the Court found that “Mrs Oswal intended to defraud not merely the ANZ but her creditors generally, whether present or future”.  The Court was of the view that Mrs Oswal executed each mortgage the subject of the Mortgage in respect of the Properties “with intent to defraud her creditors”. Thereby, each mortgage was voidable pursuant to s 89(1) of the PLA at the instance of the Commissioner.

(FCT v Oswal (No 6) [2016] FCA 762, Federal Court, Gilmour J, 29 June 2016.)

[LTN 127, 5/7/16]

Extract from the Federal Court decision

Section 89 Property Law Act 1969 (WA) 

  1. Section 89 of the PLA provides:

(1)  Except as provided in this section, every alienation of property made, whether before or after the coming into operation of this Act, with intent to defraud creditors is voidable, at the instance of any person thereby prejudiced.
(2)  This section does not affect the law of bankruptcy for the time being in force.
(3)  This section does not extend to any estate or interest in property alienated for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the alienation, notice of the intent to defraud creditors.

  1. Section 89 replaced, in Western Australia, the statute 13 Eliz 1 c 5, the Fraudulent Conveyances Act 1571, entitled “An Act against Fraudulent Deeds, Gifts, Alienations, etc” (the Elizabethan Statute). The Elizabethan Statute provided that transfer of property for the purpose of defrauding creditors was to be “clearly and utterly void, frustrate and of none [e]ffect” and provided that the statute did not extend to transfers of property to a bona fide purchaser for value without notice.
  2. The Elizabethan Statute was replaced by s 172 of the Law of Property Act 1925 (UK). This has been subsequently replaced by ss 423 – 425 of the Insolvency Act 1986 (UK). Provisions equivalent to s 172 have been enacted in all Australian States, the Australian Capital Territory, the Northern Territory and New Zealand: Conveyancing Act 1919 (NSW) s 37AProperty Law Act 1958 (Vic) s 172Law of Property Act 1936 (SA) s 86Property Law Act 1974 (Qld) s 228Conveyancing and Law of Property Act 1884 (Tas) s 40Civil Law (Property) Act 2006 (ACT) s 239Law of Property Act 2000 (NT) s 208; Property Law Act 2007 (NZ) ss 344 – 350. Further, prior to its amendment by the Bankruptcy Legislation Amendment Act 1996 (Cth), s 121 of the Bankruptcy Act 1966 (Cth) was also in similar terms, providing that a disposition of property “made with intent to defraud creditors” by a bankrupt previously to his or her bankruptcy was voidable.


Intention to defraud creditors applicable principles

  1. The leading authority in Australia on the modern iterations of the Elizabethan Statute is Marcolongo. This case considered s 37A of the Conveyancing Act 1919 (NSW), which is relevantly an analogue for s 89 of the PLA.
  2. The following principles emerge from the plurality judgment. The expression “intent to defraud creditors” in s 89(1) refers to an intention to hinder or delay creditorsMarcolongo at [12], [19], [22] – [23] and [28]. The intention required by the statute is an actual intention, but ordinarily the existence of that fact will be inferred: Marcolongo at [26]; Petrovic v Brett Grimley Sales Pty Ltd [2014] VSCA 99 at  [27]; Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1 at [9105]. The determination of whether that intent existed requires a consideration of all relevant circumstances: Williams v Lloyd; In re Williams [1934] HCA 1;  (1934) 50 CLR 341 at 372; Cannane v J Cannane Pty Ltd [1998] HCA 26;  (1998) 192 CLR 557 at  [12] per Brennan CJ and McHugh J, [92(4)] per Kirby J.
  3. It is not necessary to prove “the actual content of the relevant person’s mind”Puglia v Basol [2005] NSWSC 1271 at  [12]. Proof of an intention to hinder or delay creditors of itself establishes relevant dishonesty. Accordingly, an intention to hinder or delay creditors is the relevant species of fraud: Marcolongo at [29]-[33] and [56]. In addition, it is not necessary to show that a disponor wanted creditors to suffer a loss, that the disponor had a purpose of causing loss or that the disponor had an “awareness that the transaction would have an effect on the ability of [his or her] creditors to recover”: Marcolongo at [28], [31]-[32]The intention to hinder or delay creditors need not be the sole, or even the predominant or primary purpose of the conveyance or assignment, and it does not matter if the relevant intention was formed because of, or at the instigation of, another.
  4. However, where, as here, all of the facts concerning a disposition are within the knowledge of the disponor and the disponee, “a very slight degree of proof should be sufficient to shift that burden” to the disponorAndrew (as trustee for the estate of Ward (dec’d)) v Zant Pty Ltd (rec and mgr apptd) [2004] FCA 1716 at  [20] and [110], citing authority including Michael v Thompson [1894] VicLawRp 107;  (1894) 20 VLR 548 at 522. I apprehend Hill J in Andrew to have been referring to the shifting of an evidentiary burden not the ultimate burden of proof. This principle was also acknowledged in Westpac v Bell Group (No 3) [2012] WASCA 157;  (2012) 44 WAR 1 at  [513] referring to a decision of a Full Court of this Court in PT Garuda Indonesia Ltd v Grellman [1992] FCAFC 188;  (1992) 35 FCR 515 at  [527]- [528].
  5. I do not accept the submissions put on behalf of Mrs Oswal that Michael v Thompson is no longer good law having regard to the decision in Briginshaw v Briginshaw [1938] HCA 34;  (1938) 60 CLR 336. It was well established before 1938, indeed before Michael v Thompson was decided, that fraud required to be proved clearly, unequivocally, strictly, or with certainty, as Dixon J observed in Briginshaw at p 362.
  6. There are various circumstances in which it is recognised that the Court will move readily to infer the existence of the requisite intention. These include where:

(1) the “natural and probable consequences” of the disposition is the defeat or delay of creditors: Freeman v Pope (1870) 5 Ch App 538 at 541; Marcolongo at [24]; Bell Group Ltd (in liq) at [9146];
(2) the alienation is made voluntarilyLloyds Bank Ltd v Marcan [1973] 1 WLR 1387 at 1390-1 per Russell LJ, referred to with approval by the plurality in Marcolongo at [32]; Marcolongo at [25];
(3) the alienation is made, relevantly, for no consideration by a person in financial difficultiesCannane at [13];
(4) the alienation is made in favour of a family memberNoakes v J Harvy Holmes & Son (1979) 37 FLR 5 at 10; Cannane at [92(4)] per Kirby J; and
(5) the alienation is made in haste or proximately to one or more events indicating financial stress on the part of the disponorPT Garuda [1992] FCAFC 188;  35 FCR 515 at 525 and 527; Marcolongo at [46], [80], [83], [84]; and Green v Schneller at [86].

  1. Each of these circumstances is engaged in the present case. They are individually and together relevant to the factual inquiry as to Mrs Oswal’s intent in granting the Mortgage.
  2. As the Commissioner submits, correctly, the word “creditors” in s 89(1) does not refer to any one or more particular creditors of a defendant at the time the impugned alienation occurred. Rather, “creditors” includes present and future creditors, whether individually or collectively: Cannane at 566, 574; Barton v Deputy Federal Commissioner of Taxation [1974] HCA 43;  (1974) 131 CLR 370 at 374; Chen v Marcolongo [2009] NSWCA 326;  (2009) 260 ALR 353 at  [180]. As Young JA noted in Chen at [180] in a passage not doubted by the High Court on appeal and agreed with by the other members of the New South Wales Court of Appeal:

The word “creditors” in the section has been held on more than one occasion to mean present or future creditors, so that if a person fears that his or her activities may generate creditors and puts property out of the reach of such possible persons, the transfer of the property can be attacked under the section.”

  1. Illustrative of this, in Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 at [32], the Court accepted that the Commissioner was a “creditor” for the purposes of s 121 of the Bankruptcy Act 1966 (Cth) in respect of impugned transactions occurring in August 1987. This conclusion was reached notwithstanding that notices of assessment were not issued by the Commissioner to the defendant until 2000 and those assessments related to years postdating August 1987 (being the 1992 to 1999 income years).
  2. Senior counsel for Mrs Oswal, in closing oral submissions eschewed, correctly, any requirement, for the purpose of s 89(1), that the Commissioner identify particular creditors.