FEDERAL COURT OF AUSTRALIA

Royal v El Ali; In the Matter of the Bankrupt Estate of El Ali [2014] FCA 834

IN THE MATTER OF THE BANKRUPT ESTATE OF NATHAN EL ALI

THE COURT ORDERS THAT:

1.    By 5.00 pm on 12 August 2014, the applicants lodge with the Associate to Foster J and serve upon the respondents and the solicitors for Ottoman Investments Pty Ltd and Otsi Stojanovski Short Minutes of Order giving effect to Reasons for Judgment published this day by Foster J.

2.    By 5.00 pm on 13 August 2014, the respondent parties, Ottoman Investments Pty Ltd and Otsi Stojanovski:

(a)    Inform the solicitors for the applicants and the Associate to Foster J whether they have any objection to any of the orders contained in the said Short Minutes of Order; and

(b)    If so, by the same time, lodge with the Associate to Foster J and serve upon the solicitors for the applicants a Written Submission of no more than three (3) pages setting out their objections and the reasons for them.

3.    Thereafter the form of orders will be decided on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF THE BANKRUPT ESTATE OF NATHAN EL ALI

REASONS FOR JUDGMENT

1    On 23 June 2011, an Associate Justice of the Supreme Court of New South Wales awarded judgment in favour of the first and second applicants (the Royals) against the first respondent, Nathan El Ali, in the amount of $1,099,456.74 plus costs. That judgment included pre-judgment interest.

2    By order made on 16 December 2011 by a Federal Magistrate upon the petition of the Royals, the estate of Nathan El Ali was sequestrated. On the same day, the third applicant, Michael Gregory Jones, was appointed as the trustee of Mr El Ali’s bankrupt estate.

3    On 23 August 2013, the Royals and Mr Jones, in his capacity as the trustee of Mr El Ali’s bankrupt estate, commenced the present proceeding. In this proceeding, the applicants originally sought the following orders by way of final relief:

1    A declaration pursuant to section 30(1) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) that the transfer of shares in Saracen Holdings Pty Limited (the Fourth Respondent) from the bankrupt (the First Respondent) to his nephew (the Second Respondent) on 1 November 2011 is void and/or voidable against the Trustee, pursuant to section 121 of the Bankruptcy Act and/or section 37A of the Conveyancing Act 1919 (NSW) (the Conveyancing Act).

2    A declaration pursuant to section 30(1) of the Bankruptcy Act that the transfer of the land situated at 1 Sirius Road, Voyager Point NSW 2172 described in certificate of title folio identifier Lot 72 in Deposit Plan 661069 from the Fourth Respondent to the Third Respondent on 8 December 2011 is void and/or voidable, pursuant to section 37A of the Conveyancing Act.

3    Further and in the alternative to prayer 2 above, a declaration pursuant to section 30(1) of the Bankruptcy Act that the First Respondent’s exercise of his power of appointment of a new trustee on 8 December 2011 is void and/or voidable, pursuant to section 37A of the Conveyancing Act.

4    An order against the Third Respondent pursuant to Rule 7.35(5)(b) of the Federal Court Rules 2011, limited to a period terminating on … and on such terms and conditions as the Court deems fit, such order to be in the form of orders annexed as A to this Application.

5    An order pursuant to section 109(10) of the Bankruptcy Act on such terms as the Court thinks just and equitable with respect to the distribution of the land situated at 1 Sirius Road, Voyager Point NSW 2172 described in certificate of title folio identifier Lot 72 in Deposit Plan 661069, giving the First and Second Applicants (being indemnifying creditors) an advantage over others in consideration of the risk assumed by the First and Second Applicants.

6    An order that the Respondents pay the costs of and incidental to this application pursuant to Rule 13.01 of Federal Court (Bankruptcy) Rules 2005 and Part 40 of the Federal Court Rules 2011.

7.    Such further or other orders as the Court thinks appropriate.

4    The second to fourth respondents in the proceedings are Mahmoud El Ali, Mahmoud Zreika and Saracen Holdings Pty Limited (Saracen). Mahmoud El Ali is a nephew of Nathan El Ali.

5    Thus, the transactions which were originally challenged in this proceeding were:

(a)    A transfer of all shares held by Nathan El Ali in Saracen from Nathan El Ali to Mahmoud El Ali for the sum of $10.00 (the Saracen share transfer). That transfer took place on 1 November 2011. It is said to have been made for consideration which was significantly less than the true value of the shares. That transfer followed earlier transactions which took place in August and October 2011 whereby Nathan El Ali transferred the same shares to Mahmoud El Ali and Mahmoud El Ali transferred those shares back to Nathan El Ali. Each of these latter transactions was for a total consideration of $10.00.

(b)    A transfer of the real property known as 1 Sirius Road, Voyager Point, NSW, from Saracen to Mahmoud Zreika for $1.00 (the Voyager Point transfer). That transfer took place on 8 December 2011.

(c)    In the alternative to (b), the appointment by Nathan El Ali of a new trustee to an unspecified trust. That appointment is said to have taken place on 8 December 2011.

6    By Order 4 in their Originating Application, the applicants sought broad freezing orders against Mahmoud Zreika.

7    In October 2010, the Supreme Court made asset preservation orders against both Nathan El Ali and Saracen. Those orders were continued in force in July 2011 and varied in November 2011. They remain in place. The applicants contend that the transfers of property which were originally sought to be set aside in this proceeding and those additional transactions now sought to be set aside in this proceeding (as to which, see [13] below) were all effected in breach of those orders.

8    On 11 September 2013, Yates J ordered that:

The third respondent [Mahmoud Zreika] be restrained until 5.00 pm on 18 September 2013 from removing from Australia or, in any way, transferring or disposing of, dealing with or diminishing in value the proceeds of the sale of the property known as 1 Sirius Road, Voyager Point, New South Wales, being Lot 72 in Deposited Plan 661069.

(See Royal v El Ali, In the Matter of the bankrupt estate of El Ali [2013] FCA 923.)

9    On 19 September 2013, Yates J ordered that that freezing order be continued until further order. I shall refer to his Honour’s order made on 19 September 2013 as the Voyager Point freezing order.

10    The orders made by Yates J on 11 and 19 September 2013 were supported by the usual undertaking as to damages given to the Court by the Royals.

11    By Interim Application filed on 17 October 2013, the applicants sought the following orders:

1    An order pursuant to section 601AH(2) of the Corporations Act 2001 (Cth) to reinstate the registration with the Australian Securities and Investments Commission of Ottoman Investments Pty Limited, ACN 139 438 074, of Nexia Court & Co, Tower Building Australia Square, Level 29, 264-278 George Street, Sydney NSW 2000 (Ottoman Investments).

2    Leave of the Court pursuant to Rule 8.21 of the Federal Court Rules 2011 to amend the Application and Statement of Claim filed in these proceedings on 28 August 2013 in the terms as scheduled at annexure A to this Interim Application.

3    Leave of the Court pursuant to Rule 9.05(1)(b) of the Federal Court Rules 2011 that the following be joined as a party to the proceedings:

a.    Ottoman Investments.

b.    Mr Otsi Stojanovski of 920A Forest Road, Peakhurst NSW 2210.

4    An order against the Second Respondent pursuant to Rule 7.32(1) and/or Rule 7.35(4) of the Federal Court Rules 2011, until further order of the Court and on such terms and conditions as the Court deems fit, such order to be in the form of orders annexed as B to this Application.

5    An order against the Third Respondent pursuant to Rule 7.32(1) and/or Rule 7.35(4) of the Federal Court Rules 2011, until further order of the Court and on such terms and conditions as the Court deems fit, such order to be in the form of orders annexed as C to this Application.

6     An order against Otsi Stojanovski pursuant to Rule 7.35(5) of the Federal Court Rules 2011, until further order of the Court and on such terms and conditions as the Court deems fit, such order to be in the form of orders annexed as D to this Application.

7    Costs reserved pursuant to Rule 13.01 of the Federal Court (Bankruptcy) Rules 2005 and Part 40 of the Federal Court Rules 2011.

8    Such further or other orders as the Court thinks appropriate.

12    On 24 October 2013, with the consent of all relevant parties, I made Order 1 as sought in the Interim Application. Ottoman Investments was thereafter restored to the register by the Australian Securities and Investments Commission (ASIC).

13    The amendments which the applicants now seek to make to their Originating Application and Statement of Claim involve the following matters:

(a)    The addition of a claim for a declaration that the August 2011 transfer of 100 shares in Ottoman Investments from Nathan El Ali to Mahmoud El Ali for $100.00 is void as against the trustee pursuant to s 121 of the Bankruptcy Act and voidable at the suit of the applicants pursuant to s 37A of the Conveyancing Act.

(b)    The addition of a claim for declaratory relief in respect of the transfer of the commercial unit property known as Unit 2, 4 Hogben Street, Kogarah, NSW, being Lot 2 in Strata Plan 80767 (Kogarah Unit 2) from Ottoman Investments to Mr Stojanovski on 16 December 2010. As with the Voyager Point property, the allegation is that the Kogarah property was transferred at a significant undervalue with the consequence that it is liable to be set aside under s 121 of the Bankruptcy Act and/or under s 37A of the Conveyancing Act.

(c)    In the alternative to (b), a declaration that Nathan El Ali’s exercise of his power of appointment on 16 December 2010 to appoint a new trustee to an unspecified trust is voidable at the suit of the applicants pursuant to s 37A of the Conveyancing Act.

(d)    The addition of a claim for declaratory relief in respect of the transfer of the land situated at 2 Woodlands Road, Taren Point, NSW, described in Certificate of Title Folio Identifier 1/847333 (the Taren Point property) from Ottoman Investments to Mahmoud Zreika on 21 April 2011. As with the Voyager Point property and Kogarah Unit 2, the allegation is that the Taren Point property was transferred at a significant undervalue with the consequence that it is liable to be set aside under s 121 of the Bankruptcy Act and/or s 37A of the Conveyancing Act.

(e)    In the alternative to (d), a declaration that Nathan El Ali’s exercise of his power of appointment on 21 April 2011 to appoint a new trustee to an unspecified trust is voidable at the suit of the applicants pursuant to s 37A of the Conveyancing Act.

(f)    The making of consequential amendments to the applicants’ claims for relief under s 109 of the Bankruptcy Act.

14    By their Interim Application, the applicants also seek broad freezing orders against each of Ottoman Investments and Mr Stojanovski. They also seek an increase in the quantum protected by the Voyager Point freezing order from $1,099,456.17 to $2,326,748.89. The latter amount comprises $1,060,851.98, being the amount said to be owing to the unsecured creditors of Nathan El Ali (excluding the first and second applicants) and $1,265,896.91 being the amount owed to the Royals as at the end of 2013.

15    At the conclusion of the hearing of the applicants’ Interim Application before me, and in order to maintain the status quo while judgment remained reserved, Mahmoud El Ali, Mahmoud Zreika and Ottoman Investments, by their Counsel, gave the following undertaking to the Court:

Upon the first and second applicants by their Counsel giving to the Court the usual Undertaking as to Damages, the undertaking given to the Court by Counsel for the second and third respondents and for Ottoman Investments Pty Limited, which company is represented in Court today, that up to and including delivery of judgment on the applicants’ Interlocutory Application filed on 17 October 2013, the second and third respondents will not deal with the shares in Ottoman Investments Pty Limited and the second and third respondents and Ottoman Investments Pty Ltd will not deal with the property known as Unit 1, 4 Hogben Street, Kogarah, New South Wales, or the property known as 2 Woodlands Rd, Taren Point, New South Wales, without giving to the solicitors for the applicants 14 days’ prior written notice of such intention to deal.

That undertaking was given on a temporary basis and without admissions.

16    On 13 December 2013, the solicitor for the fourth respondent, Mr Stojanovski, forwarded to my Associate a written undertaking proffered by his client to the Court in respect of Kogarah Unit 2. That undertaking is in the following terms:

I, Otsi Stojanovski of 920A Forest Road Peakhurst, NSW 2210 and the registered proprietor of unit 2, 4 Hogben Street, Kogarah (“the Property”) undertake to the court that I will not deal with the property without giving the Solicitors for the Applicant 2 weeks prior written notice.

I hereby give notice that the Property is for sale and I will advise the Applicants’ Solicitor of any intention to accept an offer to purchase the Property within 2 business days of receiving an offer.

Dated: 12th December 2013

That undertaking was also given on a temporary basis and without admissions.

17    By these Reasons for Judgment I determine the claims for relief made by the applicants in their Interim Application.

The Relevant Facts

18    The applicants proved a number of facts and matters upon which they relied for the purposes of the relief claimed by them in their Interim Application. As is common when interlocutory injunctive relief is sought, the picture painted by the facts proven before me is almost certainly incomplete. Most of the primary facts were not seriously in dispute. However, the second, third and fourth respondents and Ottoman Investments took issue with the complexion placed upon those facts by the applicants and with the inferences which the applicants urge the Court to draw from those facts. Nathan El Ali did not offer any real opposition to the relief claimed by the applicants in their Interim Application.

19    The summary of the relevant facts which follows is largely drawn from submissions made on behalf of the applicants.

20    On 14 September 2009, Ottoman Investments was registered with ASIC. At that time, Nathan El Ali was the sole director and shareholder of Ottoman Investments. He remained as the sole director of that company until 19 October 2010. On that date, he was replaced by John Rene Nazloomian.

21    On 14 December 2010, Nathan El Ali was reappointed as the sole director of Ottoman Investments. Mr Nazloomian resigned his directorship on the same day. Nathan El Ali continued as sole director until 22 August 2011.

22    The Ottoman Investments Unit Trust (OIUT) was established by Unit Trust Deed executed on 17 September 2009 (OIUT Trust Deed). Under that Trust Deed, Ottoman Investments was appointed as trustee of that Unit Trust. When the OIUT was established, the sole unit holder of units in that Trust was a company called Isaac & Jacob Pty Ltd (ACN 123 431 103) (Isaac & Jacob). At that time, Isaac & Jacob held all 50 units which had been issued. Each unit had a nominal value of $1.00. According to the evidence before me, Isaac & Jacob remains the sole unit holder in the OIUT.

23    Isaac & Jacob held and continues to hold all of the units in the OIUT as trustee for the Second El Ali Family Trust (SEAFT). This latter Trust is a discretionary trust which was established by Discretionary Trust Deed (SEAFT Trust Deed) executed on 17 September 2009. Nathan El Ali was the sole shareholder and director in Isaac & Jacob from 17 September 2009 until 26 October 2010. Under the terms of the SEAFT Trust Deed, Nathan El Ali was designated as the Appointor. Under that Deed, the Appointor has significant powers, including the power to remove and appoint the trustee of the SEAFT. Nathan El Ali is also within the class of persons designated as Beneficiaries for the purposes of the SEAFT. The principal beneficiaries are his children. Under cl (b) of the definition of Beneficiary in the SEAFT Trust Deed, the parents of those children (which would include Nathan El Ali) are specified as being within the relevant classes of persons who can be Beneficiaries of the SEAFT. Although, by reason of the operation of a definition of Excluded Person in cl 1.1 of the SEAFT Trust Deed, an attempt has been made to exclude as Beneficiaries persons who have committed an act of bankruptcy or who are undischarged bankrupts under the Bankruptcy Act, that exclusion is very likely void by reason of the operation of s 302B of the Bankruptcy Act. In the view that I ultimately take in relation to the applicants’ Interim Application, I do not need to decide this question. However, the applicants filed a detailed Written Submission in Reply which dealt with the point fully. I found that Submission persuasive.

24    The solicitor for Mahmoud El Ali, Mahmoud Zreika, Saracen and Ottoman Investments gave evidence before me to the effect that, by Deed of Retirement and Appointment of New Trustee and Indemnity executed on or about 21 April 2011, Ottoman Investments retired as Trustee of the OIUT and appointed in its stead Mahmoud Zreika. An unexecuted copy of the relevant Deed was tendered before me. It was asserted that a document in the form of the unexecuted version had been executed on or about 21 April 2011 but that the executed version could not be located. This evidence was not challenged although it was submitted on behalf of the applicants that it was not supported by any direct evidence from Nathan El Ali or Mahmoud Zreika.

25    On or about 23 or 26 August 2010, Ottoman Investments acquired the property known as Units 1 and 3, 4 Hogben Street, Kogarah, NSW, described in Certificates of Title Folio Identifiers Lots 1 and 3 in SP80767 (Kogarah Units 1 and 3). At about the same time, Ottoman Investments also acquired Kogarah Unit 2.

26    On 7 September 2010, the Royals commenced the proceeding in the Supreme Court of New South Wales to which I have referred at [1] above. In that proceeding, they sought to recover from Nathan El Ali loans totalling $925,000 plus interest. This is the proceeding in which the judgment was awarded which was ultimately the foundation of the Bankruptcy Notice and the Bankruptcy Petition issued against Nathan El Ali by the Royals.

27    On 19 October 2010 and on 26 October 2010 respectively, Nathan El Ali transferred all of the shares held by him in Ottoman Investments and in Isaac & Jacob respectively. The transferee was Mr Nazloomian. Mr Nazloomian remains the sole shareholder and office holder in Isaac & Jacob but has transferred the shares in Ottoman Investments which were transferred to him in October 2010 back to Nathan El Ali. This retransfer took place on 14 December 2010.

28    On 22 November 2010, Nathan El Ali swore an affidavit in the Supreme Court proceeding in which he set out his assets and liabilities. The applicants contend that that affidavit was deficient in a number of respects. In particular, they assert that Nathan El Ali failed to disclose his prior interests in Isaac & Jacob as well as the existence of the OIUT and the SEAFT.

29    As I have already mentioned at [27] above, on 14 December 2010, after Nathan El Ali had sworn the assets and liabilities affidavit which he was required to swear in the Supreme Court proceeding, Mr Nazloomian transferred all of the shares in Ottoman Investments back to Nathan El Ali.

30    By Transfer apparently dated 16 December 2010 and signed by Nathan El Ali on behalf of Ottoman Investments, Ottoman Investments transferred Kogarah Unit 2 to Mr Stojanovski for a consideration of $1.00. That transfer was subjected to nominal duty by reason of the operation of s 54(3) of the Duties Act 1997 (NSW) (Duties Act). In the assets and liabilities affidavit which Nathan El Ali had previously sworn, he estimated that Kogarah Unit 2 had a value of approximately $670,000.

31    In about September 2010, Ottoman Investments acquired the Taren Point property.

32    By Transfer dated on or about 21 April 2011 and registered on 5 May 2011, Ottoman Investments transferred the Taren Point property to Mahmoud Zreika. The consideration for that transfer shown on the Transfer is $1.00. The Transfer was also stamped with nominal duty on 21 April 2011 under s 54(3) of the Duties Act. At the time when that Transfer was signed, Nathan El Ali was the sole director and shareholder of Ottoman Investments and thus controlled it. The Taren Point property was valued by him in his assets and liabilities affidavit at more than $2.025 million.

33    On or about 22 August or 26 August 2011, Nathan El Ali transferred all shares owned by him in Ottoman Investments to his nephew, Mahmoud El Ali. Mahmoud El Ali remained the sole director and shareholder in Ottoman Investments until it was deregistered by ASIC on 27 January 2013.

34    On or about 23 August 2011, Nathan El Ali transferred all 10 shares owned by him in Saracen to his nephew Mahmoud El Ali. The consideration shown for that transfer was $10.00. On or about 17 October 2011, Mahmoud El Ali transferred those shares back to Nathan El Ali.

35    On or about 1 November 2011, Nathan El Ali again transferred all shares held by him in Saracen to Mahmoud El Ali, again for consideration in the sum of $10.00. Mahmoud El Ali remains the sole director and shareholder of Saracen.

36    On 8 December 2011, Saracen transferred the Voyager Point property to Mahmoud Zreika. The consideration shown on the Transfer is $1.00. That property was valued by the first respondent in his assets and liabilities affidavit at $3.1 million. That transfer was stamped with nominal duty on 8 December 2011 under s 54(3) of the Duties Act.

37    On or about 22 November 2012, Saracen transferred the property known as 1A McDonald Lane, Potts Point, being Lot 46 in Deposited Plan 2436, to Mr Nazloomian. The consideration shown on the relevant Transfer is $1.00. That property was shown in the assets and liabilities affidavit sworn by Nathan El Ali to have a value of approximately $700,000. The property appears to have been valued at $30,000 for stamp duty purposes.

38    After his appointment, Mr Jones required Nathan El Ali and Mahmoud El Ali to effect a transfer of the shares in Saracen to him. His demands were ignored.

39    On 17 May 2013, Mahmoud Zreika transferred the Voyager Point property to Pronto Properties (NSW) Pty Ltd (Pronto Properties).

40    On or about 3 December 2013, Ottoman Investments transferred Kogarah Unit 3 to Kogarah Medical Specialists Pty Ltd for the sum of $750,000. This transaction appears to be an arm’s length transaction.

Consideration

41    The issues to be determined by these Reasons for Judgment are all connected. I propose to deal with them together and to address the substance of the matter.

42    The initial claims made by the applicants in this proceeding were confined to the Saracen share transfer and the Voyager Point transfer. Those claims were resolved on an interlocutory basis by the orders made by Yates J in September 2013. The evidence before his Honour established that, after the transfer of the Voyager Point property from Saracen to Mahmoud Zreika, Mahmoud Zreika sold the property to Pronto Properties for $1,700,000. It would appear that the net proceeds of the sale of the Voyager Point property are in the hands of Mahmoud Zreika.

43    The new causes of action sought to be added by the applicants to their Originating Application and Statement of Claim are described at [13] above. I shall put to one side for the moment the proposed challenges to any actions effected by Nathan El Ali to remove and/or replace the trustee of either the OIUT or the SEAFT. There are real difficulties with the case which the applicants seek to make in respect of the actions allegedly taken by Nathan El Ali in this regard.

44    The applicants’ case in respect of the balance of the transactions is quite simple: They argue that Nathan El Ali transferred all of the issued capital in Ottoman Investments to Mahmoud El Ali in August 2011 thereby causing ownership and control of Ottoman Investments to pass to Mahmoud El Ali. This transfer took place after Nathan El Ali had caused Ottoman Investments to transfer the Taren Point property to Mahmoud Zreika for $1.00 and after Nathan El Ali had caused Ottoman Investments to transfer Kogarah Unit 2 to Mr Stojanovski for $1.00 on 16 December 2010. It also took place after the Supreme Court had awarded judgment in favour of the Royals against Nathan El Ali and in the shadow of Nathan El Ali’s impending bankruptcy.

45    The applicants point to the fact that each of those properties apparently was worth significantly more than the nominal consideration paid for them at the time when each transfer took place.

46    Counsel for Mahmoud El Ali, Mahmoud Zreika, Saracen and Ottoman Investments (the relevant respondents) opposed all of the relief sought by the applicants in their Interim Application.

47    At the heart of those parties’ opposition was the proposition that Ottoman Investments did not acquire any of Kogarah Unit 1, Kogarah Unit 2, Kogarah Unit 3 or the Taren Point property in its own right but rather did so as trustee of the OIUT. It was then submitted on behalf of those parties that the sole unit holder in and thus the sole beneficiary of that Unit Trust is and has always been Isaac & Jacob. It was then submitted that Isaac & Jacob holds and has always held all of the issued units in the OIUT in its capacity as the trustee of the SEAFT which is a discretionary trust established under the SEAFT Trust Deed. That being so, so it was submitted, the Court must look to the terms of the SEAFT Trust Deed in order to ascertain whether Nathan El Ali ever had an interest in the property the subject of the SEAFT (viz the units held by Isaac & Jacob in the OIUT) of a kind which constituted divisible property of Nathan El Ali under s 58(1) of the Bankruptcy Act.

48    It was submitted on behalf of the relevant respondents that, whatever interest Nathan El Ali may have had under the SEAFT Trust Deed, he never had any relevant proprietary interest in the property of the SEAFT with the consequence that the transactions affecting that property about which complaint is now made in the present proceeding did not concern the property of Nathan El Ali.

49    The primary submission made on behalf of the relevant respondents was that, prior to his bankruptcy, Nathan El Ali was merely the object of a discretionary trust (viz the SEAFT) and had no interest in the property the subject of that Trust. They also submitted that, in any event, once Nathan El Ali became a bankrupt, he became an Excluded Person within the definition of that expression under the SEAFT Trust Deed. For that reason, he ceased to fall within the class of eligible beneficiaries provided for under that Deed.

50    By way of contrast with the submissions made on behalf of the relevant respondents, the applicants regard the case as a simple one. It is no part of their case to involve themselves in the intricacies of the trust arrangements put in place by Nathan El Ali. For the relevant respondents, however, it is critical to all of their arguments that I accept for present purposes that Ottoman Investments acquired the Kogarah Units and the Taren Point property in its capacity as trustee of the OIUT.

51    In support of that ultimate contention, the relevant respondents tendered in evidence before me a copy of the OIUT Trust Deed and a copy of the SEAFT Trust Deed. They also pointed to the circumstance that, in the case of each of the transfers of Kogarah Unit 2 and the Taren Point property which are now sought to be attacked in the present proceeding, the Chief Commissioner of State Revenue (NSW) had apparently accepted that those transfers were transfers from one trustee to a replacement trustee within the meaning of s 54(3) of the Duties Act.

52    In order for the Chief Commissioner of State Revenue (NSW) to have been satisfied about that matter, the parties to the transfer would need to have submitted to the Chief Commissioner satisfactory evidence (usually in the form of Statutory Declarations) to the effect that the properties had been originally acquired by Ottoman Investments in its capacity as trustee of the OIUT and that the transfers now sought to be stamped were merely transfers upon the appointment of a new trustee.

53    The relevant respondents did not tender in evidence before me the material which had been submitted to the Chief Commissioner of State Revenue (NSW) in order to persuade him to assess the relevant transfers to nominal duty.

54    Nor did they tender banking records, minutes of resolutions and executed Deeds of Retirement and Appointment of New Trustee in order to substantiate their assertions that Ottoman Investments had acquired the relevant properties in its capacity as trustee and that it had been replaced as trustee by Mahmoud Zreika and/or Mr Stojanovski. It was contended on behalf of the relevant respondents that Mahmoud Zreika had replaced Ottoman Investments as the trustee of the OIUT on 21 April 2011, at about the time when the Taren Point property was transferred to Mahmoud Zreika. But, curiously, five months before 21 April 2011, on 16 December 2010, Ottoman Investments had transferred Kogarah Unit 2 to Mr Stojanovski, also, so it seems, as a consequence of his having replaced Ottoman Investments as the trustee of the OIUT or perhaps as a consequence of his being appointed as an additional trustee of that Trust. Yet, it was only Ottoman Investments which purported to appoint Mahmoud Zreika as trustee of the OIUT in April 2011. The alleged appointments of two new trustees were not the subject of any direct evidence from any of the respondents and no primary documentary evidence as to what occurred was produced at the hearing before me. All of the difficulties which I have outlined above remained unexplained at the conclusion of the hearing. For the reasons explained above, I am not satisfied that Ottoman Investments ever ceased to be a trustee of the OIUT nor am I satisfied that either Mahmoud Zreika or Mr Stojanovski was ever appointed a trustee of that Trust. After all, these matters were easily capable of proof. Furthermore, none of the respondents gave evidence which addressed this matter directly.

55    In reality, the only evidence tendered by the respondents which was directed to the question of whether Ottoman Investments had acquired Kogarah Unit 2 and the Taren Point property as trustee of the OIUT was a copy of the OIUT Trust Deed, a copy of the SEAFT Trust Deed and, in some cases, the relevant transfers. Upon the basis of that material alone, I was asked to infer that the properties had been acquired by Ottoman Investments as trustee.

56    No explanation was offered by the relevant respondents as to why more cogent proof and comprehensive evidence was not brought forward by them directed to this critical matter.

57    In light of the state of the evidence at present, I am satisfied that the applicants have established a prima facie case in respect of the challenges which they seek to make to the transfers of Kogarah Unit 2 and the Taren Point property for nominal value.

58    As an independent matter, and in light of the state of the evidence, I am also satisfied that the applicants have established a prima facie case or a serious question to be tried in respect of the transfer of 100 shares in Ottoman Investments from Nathan El Ali to Mahmoud El Ali in August 2011.

59    The applicants relied upon r 7.35(4)(b)(ii) and r 7.35 of the Federal Court Rules 2011 (FCR). They then submitted that they had a good arguable case on an accrued or prospective cause of action justiciable in this Court within the meaning of r 7.35(1)(b)(i) FCR. They relied upon the following statements made by Edmonds J in Curtis v NID Pty Limited [2010] FCA 1072 at [6]:

… The threshold is a very low one: in Ninemia Maritime Corp v Trave Schiffahrtsgesselschaft mbH und Co KG (The Niedersachsen) [1983] Com LR 234 at 235 (affirmed on appeal: [1983] 1 WLR 1412), Mustill J (as his Lordship then was) said that a good arguable case is one ‘which is more than barely capable of serious argument, and yet not necessarily one the judge considers would have better than a fifty per cent chance of success’. This test has since been applied in numerous domestic cases: Errigal Ltd v Equatorial Mining Ltd [2006] NSWSC 953 (White J); Pure Logistics Pty Ltd v Scott [2007] NSWSC 595 (McDougall J); Westpac Banking Corporation v McArthur [2007] NSWSC 1347 (Barrett J).

60    They also relied upon Bhushan Steel Ltd v Severstal Export GmbH [2012] NSWSC 583 at [102] and MG Corrosion Consultants Pty Ltd v Gilmour (2012) 202 FCR 354 at 363–364 [47] per Barker J.

61    The particular rules invoked by the applicants essentially embody the general law concepts applicable to the grant of a Mareva injunction. As I said in Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2012] FCA 746 at [31]–[36]:

31    It is well established that this Court has jurisdiction to grant Freezing Orders in an appropriate case. However, the grant of such orders is an exceptional interlocutory remedy and must be granted only when the circumstances of the case justify such a significant interference in the personal affairs of a citizen. As was said by the New South Wales Court of Appeal in Frigo v Culhaci [1998] NSWCA 88 (BC9803225) at 9–10 in the BC report:

Its function is to minimise the possibility of an unscrupulous defendant seeking to render himself or herself “Judgment proof” by taking steps to ensure that no assets within the jurisdiction can be found on the day of judgment: see generally Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 622. However it is a drastic remedy which should not be granted lightly. We agree with the comment in Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 3rd ed § [2188] that:

“It is obvious that by obtaining a Mareva injunction even an innocent plaintiff can wreak havoc with the defendant’s business, and an unscrupulous plaintiff can ruin his opponent ....”

A mareva injunction is an interlocutory order which, if granted, imposes a severe restriction upon a defendant’s right to deal with his or her assets. It is granted at the suit of a plaintiff whose status as a creditor is in dispute and who need not be a secured creditor. Its purpose is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to “provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied; nor is it to improve the position of the plaintiff in the event of the defendant’s insolvency.” (Abella v Anderson (1987) 12 Qd R 1 at 2–3 per McPherson J)

32    In Frigo, the Court went on to observe that the point of the exercise is not to create additional rights in favour of a putative judgment creditor, but rather to enable a court to protect its process from abuse in relation to the enforcement of its orders. A Mareva injunction is not a species of anticipatory execution nor does it provide a form of security for any judgment which may ultimately be awarded.

33    In New South Wales, the leading case in which the principles upon which this extraordinary remedy will be granted were explained, is Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319. In that case, Gleeson CJ (when he was Chief Justice of New South Wales) at 321–322 said:

The remedy is discretionary, but it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and secondly, a danger that, by reason of the defendant’s absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied.

34    At 323, the Chief Justice went on to explain what was meant by the element requiring a risk to the assets. In that passage, his Honour referred to a number of cases where different expressions such as “a ‘real risk’”, “a ‘risk demonstrated by solid evidence’” and “a real cause to apprehend” were used to describe the necessary degree of risk. The phrases chosen by the Chief Justice suggest that the risk must be palpable and demonstrated by evidence, not reside, only as a suspicion, in the mind of an overly anxious plaintiff.

35    In Frigo, the Court of Appeal looked at a number of aspects of what had occurred in the District Court of New South Wales when a judge of that Court had granted a Mareva injunction in circumstances which the Court of Appeal ultimately held did not justify the grant of such relief. In Frigo, there was a suggestion that, from the mere fact that a parcel of real property had been put on the market, the Court should infer that the defendant was moving to dispose of his assets in order to render himself judgment proof. In dealing with that point, the Court said the following:

A plaintiff must establish, by evidence and not assertion, that there is a real danger that, by reason of the defendant absconding or removing assets out of the jurisdiction or disposing of assets within the jurisdiction, the plaintiff will not be able to have the judgment satisfied if successful in the proceedings. There has been much debate as to the precise degree of risk which must be shown: see generally Patterson. What is clear is that mere assertions that the defendant is likely to put assets beyond the plaintiffs reach will not be enough: Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398; Patterson.

The evidence relied upon at the contested hearing fell far short. The admissions in the “without prejudice” correspondence should have been ignored. The sale of an encumbered home unit at a figure above market value does not, standing alone, imply disposal of assets in order to defeat a prospective judgment, even where the purchaser is a close relative. Even if, which is doubtful, the appellant's suspension of work in the building contract could have been regarded as evidence of financial difficulties, it was not argued below that it had such effect. More importantly, that alone is not enough. A mareva injunction is not designed to stop a person from sliding into insolvency.

36    Another element in Frigo which attracted strong criticism from the Court of Appeal was the form of orders which had been sought by the plaintiff and granted by the District Court Judge. The orders did not recognise the long-held view that Mareva orders should be expressed by reference to the amounts claimed in the substantive proceedings and should allow a person affected by them to keep specified amounts in order to meet reasonable expenses, both for living purposes and in order to enable him to defend the proceedings. It is not appropriate, and never has been appropriate, for blanket orders restricting the disposition of assets to be made under these principles. The constraints on the litigant’s freedom to deal with his assets imposed by such orders must not exceed those which are reasonably necessary to protect the applicant’s legitimate claims.

62    I have already concluded that the applicants have established a prima facie case or serious question to be tried in respect of the transactions which they now seek to attack.

63    The many transactions which I have catalogued at [18]–[40] above indicate a willingness on the part of Nathan El Ali and his associates to take steps to put valuable assets beyond the reach of Nathan El Ali’s bankruptcy trustee. There is more than enough evidence to demonstrate that, if left unrestrained, Nathan El Ali, Ottoman Investments, Mahmoud Zreika and Mr Stojanovski might take further steps to place those assets beyond the reach of Nathan El Ali’s bankruptcy trustee.

64    For these reasons, I am satisfied that the applicants should have leave to join Ottoman Investments and Mr Stojanovski as sixth and seventh respondents respectively and that, in addition, they should have leave to amend their Originating Application and Statement of Claim in accordance with the proposed Amended Originating Application and Amended Statement of Claim attached to their Interim Application.

65    This leaves the question of whether the balance of convenience and justice favours the grant of freezing orders along the lines of those sought by the applicants in their Interim Application.

66    The relevant respondents oppose the grant of any additional injunctive relief or freezing orders upon the basis that the applicants have failed to demonstrate a prima facie case or a serious question to be tried and also upon the basis that the applicants have failed to demonstrate a threat to the assets sought to be protected by the freezing orders (viz the shares in Ottoman Investments, Kogarah Unit 2 and the Taren Point property). They also oppose the grant of such relief on discretionary grounds, mainly to do with delay.

67    I am satisfied that the evidence establishes a sufficient threat to the relevant assets. In addition, I do not think that the applicants have been guilty of delay. They appear generally to have moved as quickly as was reasonably possible having regard to their state of knowledge at various points in time.

68    In the circumstances, I am satisfied that I should grant freezing orders broadly along the lines of those sought by the applicants. The amount to be protected should be the larger amount now sought by them. As a corollary of that fact, the undertaking as to damages which I will require will need to be given by all three applicants.

69    I propose to direct the applicants to bring in Short Minutes of Order giving effect to these Reasons for Judgment. In the meantime, I will enquire of the relevant respondents and of the legal representative of Mr Stojanovski as to whether the undertakings currently in place will be continued until I have finalised the form of orders to be made consequent upon delivery of these Reasons for Judgment. In the event that those undertakings are not continued, I will consider making interlocutory injunctions in the terms of those undertakings pending finalisation of appropriate orders.

Associate:

Dated:    7 August 2014