Marcolongo v Chen

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: French CJ,Gummow,Crennan,Kiefel JJ,Heydon J
• Judgment Date: 09 March 2011
• Neutral Citation: [2011] HCA 3,2011-0309 HCA A
• Docket Number: S114/2010
• Date: 09 March 2011

[2011] HCA 3

HIGH COURT OF AUSTRALIA

French CJ, Gummow, Heydon, Crennan and Kiefel JJ

S114/2010

Leonilda Marcolongo

Appellant

and

Yu Po Chen & Anor

Respondents

Representation

T A Alexis SC with D H Mitchell for the appellant (instructed by Dunstan Legal)

No appearance for the first respondent

T S Hale SC with D J A Mackay for the second respondent (instructed by Unsworth Legal Pty Ltd)

Conveyancing Act 1919 (NSW), s 37A.

An Act against fraudulent Deeds, Gifts, Alienations, etc 1571 (Imp) (13 Eliz I c 5).

Marcolongo v Chen

Real property — Conveyancing — Conveyancing Act 1919 (NSW), s 37A — Voluntary alienation to defraud creditors — Appellant sought to set aside registered transfer of land from second respondent to first respondent — Whether intent to defraud creditors satisfied by proof of ‘actual’ or ‘predominantly’ fraudulent intent — Whether satisfied by proof that transfer would ‘delay, hinder or defraud’ creditors — Whether intent may be inferred where transfer is voluntary.

Words and phrases —‘delay, hinder or defraud’.

ORDER

Appeal allowed.

Dismiss the summons filed by the second respondent seeking to file a notice of contention out of time.

Set aside paragraphs 1, 2, 3, 4 and 5 of the order of the New South Wales Court of Appeal made on 12 November 2009, and in their place order that:

• (a) the appeal to the New South Wales Court of Appeal be dismissed;

• (b) Yu Po Chen pay Leonilda Marcolongo's costs in the New South Wales Court of Appeal; and

• (c) the sum of $60,000 paid into the New South Wales Supreme Court by Yu Po Chen as security for Leonilda Marcolongo's costs in the New South Wales Court of Appeal, together with interest thereon, be paid out forthwith to Leonilda Marcolongo's solicitor.

The first and second respondents pay the appellant's costs of the appeal to this Court.

The second respondent pay the appellant's costs of the summons filed by the second respondent seeking to file a notice of contention out of time.

1 French CJ, Gummow, Crennan and Kiefel JJ. This appeal from the Court of Appeal of the Supreme Court of New South Wales (Allsop P, Giles and Young JJA) 1 turns upon the application of the New South Wales legislation (s 37A of the Conveyancing Act 1919 (NSW) (‘the Conveyancing Act’)) which replaced in that State the statute 13 Eliz I c 5. This had been passed in 1571 and was generally identified by reference to the words in the long title ‘An Act against fraudulent Deeds, Gifts, Alienations, etc’ (‘the Elizabethan Statute’). As elsewhere in the British Empire 2, the Elizabethan Statute had been received as part of the law of England applicable in New South Wales 3.

The course of the litigation

2 The appellant, Mrs Marcolongo, challenges the decision of the Court of Appeal which set aside the decision in her favour of the primary judge (Hamilton J) 4 in the Equity Division of the Supreme Court. Mrs Marcolongo had on foot in the District Court an action for damages against the second respondent, Lym International Pty Limited (‘Lym’), and in the Supreme Court she had relied upon s 37A to achieve a result of Lym retaining a substantial asset to meet its obligations under any decision in her favour in the District Court litigation.

3 At the suit of Mrs Marcolongo, Hamilton J applied s 37A to a contract for sale of land under the provisions of the Real Property Act 1900 (NSW) (‘the RP Act’) and to the registered transfer in completion of that contract. Lym was the vendor and the purchaser was the first respondent, Mr Chen. Ms Limin Yang was a director of Lym and Mr Chen was their fiduciary adviser in the transaction as well as purchaser.

4 Two proceedings were heard together by Hamilton J. In the first, Lym and Ms Yang and her daughter, Ms Yang Liu, successfully made good their claim that Mr Chen had acted in breach of his fiduciary duty. His Honour set aside the transfer to Mr Chen and made consequential orders.

5 In her Supreme Court action against Lym and Mr Chen, Mrs Marcolongo had pleaded an intention by Lym to defraud her, and Lym joined issue on that pleading. Notwithstanding this defence, at trial Lym did not actively dispute Mrs Marcolongo's claim, directing its energies to its claim against Mr Chen for breach of his fiduciary duty. Mr Chen appealed to the Court of Appeal against the decisions in both proceedings and Lym filed a submitting appearance in the Marcolongo appeal. In the Court of Appeal Mr Chen failed on all grounds relating to his liability to Lym.

6 However, the Court of Appeal reversed the decision in favour of Mrs Marcolongo and set aside the orders declaring the contract and the transfer to be voidable at her instance and requiring Mr Chen to transfer the property back to Lym. The result is that although, by reason of the failure of Mr Chen's appeal in the Lym litigation, the subject land is to be restored to Lym and thus will be available to answer claims by Mrs Marcolongo in enforcement of her District Court action, unless she succeeds in this Court, she will be left to bear the burden of costs in her Supreme Court litigation.

7 In this Court, Mr Chen did not appear by counsel but the Court received his written submissions resisting the appeal. The burden of the oral advocacy supporting the outcome in the Court of Appeal thus fell upon counsel for Lym.

8 The Court of Appeal allowed the appeal in the Marcolongo litigation essentially on the basis that s 37A was enlivened only by an ‘actual’ 5 or ‘predominantly’ fraudulent 6 intent or purpose to deprive creditors of their rights or of the fruits of their rights and that this required an ‘element of dishonesty’ by Lym which the Court of Appeal held to be absent 7.

9 For the reasons which follow the appeal should be allowed and the decision of Hamilton J in favour of Mrs Marcolongo restored. The issues on the appeal best appear after consideration of the provenance of s 37A, which in turn involves consideration of the place of fraud in the framework of general legal principle.

The varieties of fraud

10 In the joint reasons of the whole Court in SZFDE v Minister for Immigration and Citizenship8 their Honours observed:

‘In his celebrated speech in Reddaway v Banham9, Lord Macnaghten spoke of the various guises in which fraud appears in the conduct of human affairs, saying “fraud is infinite in variety”. A corollary, expressed by Kerr in his Treatise on the Law of Fraud and Mistake10, is that:

“The fertility of man's invention in devising new schemes of fraud is so great, that the courts have always declined to define it … reserving to themselves the liberty to deal with it under whatever form it may present itself.”

Nevertheless, much judicial effort has been expended in exploring different shades of meaning, and sometimes deeper distinctions, in the constituents of “fraud” in various areas of the law. Recent decisions in this Court respecting “fraud” concern criminal law 11, the tort of deceit 12,

registered designs law 13, the law of agency 14, statutes of limitation 15 and dealings in Torrens title land 16.

Professor Hanbury 17 described the common law and equity as having “quarrelled over the possession of the word ‘fraud’ like two dogs over a bone, off which neither side was sufficiently strong to tear all the meat”, and said that the word fraud applied “indifferently to all failures in relations wherein equity set a certain standard of conduct”. Hence the attachment of the term “fraud” to the exercise of powers of appointment, and of other powers, such as those of company directors, in a fashion of which equity disapproved 18.’

11 Hanbury went on 19 to refer to English decisions in the latter part of the 19th century manifesting ‘appalling confusion’ between the quite different senses in which the common law used the term ‘fraud’, exemplified by the tort of deceit, and in which equity used the term ‘fraud’ in its exclusive jurisdiction. The phrase ‘actual fraud’ captures the sense of the common law and ‘constructive fraud’ that in equity. The Elizabethan Statute had been said by Lord Mansfield to represent the common law 20, and thus to require proof of a ‘real’ rather than ‘constructive’ fraud. But, as will appear below, the distinction has not always been well appreciated.

The provenance of s 37A

12 The Elizabethan Statute with respect to the transferor used the terms ‘purpose and intent’ and contained a proviso in favour of what might be called innocent third parties, who purchased without ‘any manner of notice or knowledge of such … fraud or collusion’. A succinct description of the operation of the Elizabethan Statute as understood in 1912 was given by Parker J in Glegg v Bromley21. His Lordship said:

‘Now the scheme of that statute is this: By it all conveyances and assignments made with intent to hinder and delay creditors are rendered void against all creditors hindered or delayed by their operation. There is, however, a proviso for the protection of a purchaser for good consideration without notice of the illegal intention. In the authorities which deal with the statute it is not always clear whether the judges are dealing with the operative part of the Act or with the proviso. The illegal intent under the operative part is a question of fact for the jury or the judge sitting as a jury. On the one hand the want of consideration for the conveyance or assignment is a material fact in considering whether there was any illegal intent, but it is not conclusive that there existed any such intent. In the same way consideration was by no means conclusive that there was no illegal intent. When, however, one comes to deal with the proviso, it is quite clear that any person relying on the proviso must prove both good consideration and the fact that he had no notice of the illegal intent.’

13 In England, the Elizabethan Statute was...