Car Mojo Pty Ltd v Lin[2021] QDC 184

DISTRICT COURT OF QUEENSLAND

Introduction

1. [1]
   On 13 October 2017, the Applicant commenced proceedings against the First Respondent for, inter alia, misleading and deceptive conduct and breach of contract. These became proceedings 2162/20 of this District Court.
2. [2]
   The dispute arose from the First Respondent’s alleged misleading and deceptive conduct in selling the Applicant a panel beating business in Brisbane.
3. [3]
   Those proceedings resulted in a trial, heard by Reid DCJ on various dates throughout the first half of 2021. His Honour delivered his decision in those proceedings on Wednesday, 11 August 2021. Judge Reid gave judgment for the Applicant/Plaintiff.
4. [4]
   On 8 March 2021, an originating application in these proceedings 532/21, was filed by the Applicant (the ‘532/21 application’), seeking:

   1. (a)
      a declaration that the transfer of the First Respondent’s shares in the Third Respondent to the Second Respondent was done with the intent to defraud creditors;
   2. (b)
      that the Second Respondent’s shares in the Third Respondent be transferred back to the First Respondent pursuant to s 228 of the Property Law Act 1974 (Qld) (the ‘PLA’); and
   3. (c)
      the Respondents pay the Applicant’s costs of this application.
5. [5]
   A corresponding application was filed in proceedings 2162/20, seeking freezing orders in relation to the assets of the First Respondent (the ‘2162/20 application’).
6. [6]
   These applications were brought in response to the Applicant’s discovery that the First Respondent had transferred all of his shares in the Third Respondent to the Second Respondent, that the Second respondent had been appointed a director of the Third Respondent and that the First Respondent seemed to have disposed of all of his unencumbered real property.
7. [7]
   On 11 March 2021, I heard both applications, ex parte, and made orders in respect of both applications.  In relation to the 532/21 application, I made orders that:

   1. (a)
      the Second Respondent is restrained from dealing with or disposing of any of its shares in the Third respondent; and
   2. (b)
      the Second Respondent and Third Respondent are restrained from intentionally devaluing the business known as Strathfield Autobody, carried on at 47/49 Cosgrove Rd, Strathfield South NSW (the ‘Business’) or any of the Business’ assets save for in discharging obligations bona fide and properly incurred in the ordinary and proper course of the Business.

I also made orders granting the freezing orders sought in the 2162/20 application and ordering that a further hearing of that matter take place on 1 April 2021.

8. [8]
   On 1 April 2021, at the further hearing of the 2162/20 application, the Respondents sought to make arguments, disputing the Court’s jurisdiction to make orders in relation to the 532/21 application and, relatedly, the 2162/20 application.
9. [9]
   On that occasion I ordered that the freezing orders made in the  2162/20 application remain in force until further order of Reid DCJ, on the delivery of his judgment in respect of the substantive proceedings and that a further hearing of the 532/21 application take place on 7 April 2021.
10. [10]
    Both parties were given the opportunity to make further written submissions in advance of that hearing and ultimately, this resulted in the Respondents bringing an application pursuant to r 16(a) of the Uniform Civil Procedure Rules 1999 (Qld) (the ‘UCPR’). Written submissions were received from both parties.
11. [11]
    On 7 April 2021 I heard further oral submissions from both Counsel as to whether the Court had jurisdiction to make orders under the 532/21 application. This is the issue that I must now determine.

The Law

12. [12]
    The 532/21 application was brought pursuant to s 228 of the PLA. The crux of the issue before me is whether the District Court has the power to make the orders pursuant to s 228 of the PLA, in the circumstances arising in this case.
13. [13]
    This section provides:

“228 Voluntary conveyances to defraud creditors voidable

1. (1)
   Subject to this section, every alienation of property, made whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person prejudiced by the alienation of property.

2. (2)
   This section does not affect the law of bankruptcy for the time being in force.

3. (3)
   This section does not extend to any estate or interest in property conveyed for valuable consideration and in good faith to any person not having, at the time of the conveyance, notice of the intent to defraud creditors.”

14. [14]
    The starting point for determining the jurisdiction of the District Court is the District Court of Queensland Act 1967 (Qld) (the ‘District Court Act’).
15. [15]
    Sections 8 and 8A of the District Court Act provide:

“8 Court to be of record

The District Court is a court of record and has civil and criminal jurisdiction as provided under this or another Act.

8A Statewide jurisdiction

 The District Court has jurisdiction throughout Queensland.”

16. [16]
    Sections 68 and 69 of the District Court Act further provide:

“68 Civil Jurisdiction

1. (1)
   The District Court as jurisdiction to hear and determine –

1. (a)
   all personal actions, where the amount, value or damage sought to be recovered does not exceed the monetary limit including the following—

1. (i)
   any equitable claim or demand for recovery of money or damages, whether liquidated or unliquidated;

2. (ii)
   any claim for detention of chattels;

3. (iii)
   any claim for rent or mesne profits;

4. (iv)
   any claim for any debt, damages or compensation arising under any Act; and

2. (b)
   the following actions and matters—

…

2. (ii)
   for relief against fraud or mistake, where the damage sustained or the estate or fund in respect of which relief is sought does not exceed in amount or value the monetary limit;

…

4. (iv)
   for rectifying, delivering up or cancelling any agreement, where the amount in dispute or the value of the property affected does not exceed the monetary limit;

  …

2. (2)
   In this section—

monetary limit means $750,000.

…

69 Powers of District Court

1. (1)
   Subject to this Act and to the rules of court, the District Court has, for the purposes of exercising the jurisdiction conferred by this part, all the powers and authorities of the Supreme Court, including the powers and authorities conferred on the Supreme Court by an Act, and may in any proceeding in like manner and to like extent—

1. (a)
   grant such relief or remedy; and

2. (b)
   make any order, including an order for attachment or committal in consequence of disobedience to an order; and

3. (c)
   give effect to every ground of defence or matter of set-off whether equitable or legal;

as may and ought to be done in like cases by a judge of the Supreme Court.

Example of power conferred on the Supreme Court by an Act—

the power of the Supreme Court under the Land Title Act 1994, section 127 (Removing a caveat) to order that a caveat be removed

2. (2)
   Without affecting the generality of subsection (1), the District Court shall, in any proceedings in which jurisdiction is conferred under this part, have power to grant relief—

1. (a)
   by way of a declaration of rights of the parties; and

2. (b)
   by way of injunction, whether interim, interlocutory or final, in the proceedings; and

3. (c)
   by staying the proceedings or part thereof; and

4. (d)
   by appointing a receiver including an interim receiver.

3. (3)
   To remove any doubt, it is declared that the District Court may grant a Mareva injunction or Anton Piller order in proceedings in which jurisdiction is conferred under this part.

…”

Respondents’ submissions

17. [17]
    The Respondents contend that the District Court does not have jurisdiction to determine the 532/21 application, making the orders of 11 March 2021 a nullity. The Respondents ultimately seek that the orders of 11 March 2021 be set aside and the 532/21 application be dismissed.
18. [18]
    The Respondents raise five matters as to why the District Court lacks the jurisdiction to determine the 532/21 application.

No extra-territorial jurisdiction

19. [19]
    Firstly, with reference to s 8 of the District Court Act, the Respondents submit that the Court does not have jurisdiction because of a lack of connection between the relevant transaction and Queensland.
20. [20]
    It was submitted that the share transfer occurred between two individuals, resident in New South Wales, in a company that is registered in and trades in New South Wales and occurred wholly within New South Wales.
21. [21]
    It was submitted that the District Court of Queensland has no extra-territorial power in respect of a transaction undertaken in New South Wales, between persons resident in New South Wales in respect of a New South Wales based company and that the transfer has no causal connection to Queensland.
22. [22]
    Rather, the Respondents submit that the proper forum for the relief sought would be in New South Wales, pursuant to s 37A of the Conveyancing Act 1919 (NSW)

Monetary jurisdiction

23. [23]
    Secondly, the Respondents submit that the Applicant has not provided evidence that the value of the shares that were transferred was, in fact, less than the monetary jurisdiction of the District Court.

No jurisdiction in respect of the PLA

24. [24]
    It is thirdly submitted by the Respondents that the District Court does not have jurisdiction under the PLA, as no express power is granted to the District Court other than in respect of de facto property under Part 19.
25. [25]
    The Respondents raise that s 68(1)(b)(vi) of the District Court Act grants the District Court power in respect of de facto property. This relates to Part 19 of the PLA, which s 228 does not come under. It was submitted that no other provision grants the District Court jurisdiction over other parts of the PLA and the definition of ‘Court’ in schedule 6 means the Supreme Court, not the District Court.
26. [26]
    The Respondents submit that the fact that there is an express jurisdiction in respect of Part 19, but no other part, implies an intention that the District Court not have jurisdiction in respect of other parts of the PLA.
27. [27]
    The Respondents submit that the Applicant was erroneous in implying that s 68(1)(b)(iv) of the District Court Act could be used as ancillary to s 228 of the PLA.
28. [28]
    The Respondents referred to the case of Terrblanche v Jewell & Anor [2013] QCA 205 (‘Terrblanche’). This was an appeal from the decision of a District Court judge to refuse to adjourn the District Court proceedings to permit the Applicant to bring an application in the Supreme Court to challenge the transfer of property from the respondents to another party as a transaction to defeat creditors. Reference was made in that case to comments by the District Court Judge that there was:

“nothing in section 68 [of the District Court Act] which enables me to set aside the transaction between the first and second defendants, and … unless there is a claim under … section 68 I can’t exercise an equitable jurisdiction under section 69”.^[1]

29. [29]
    The Court of Appeal in that case upheld the primary judge’s decision. The Respondents highlight that the Court of Appeal did not make any comment that the primary judge had erred in his belief that he did not have jurisdiction to hear a challenge to the transfer of property on the basis that it was a transaction to defeat creditors. The Respondents submit that an inference can be drawn from this that the Court of Appeal agreed with the primary judge.
30. [30]
    It should be noted that the Applicant disputes that Terrblanche can be used as an authority in this way. The Applicant submits that, rather, the comments made by the primary judge in Terrblanche is in relation to freezing orders and is authority that one cannot commence a District Court proceeding seeking freezing orders, unless the proceeding invokes s 68 of the District Court Act. The Applicant submits that this isn’t relevant to these proceedings, as the 532/21 application is not seeking freezing orders.

Contrary to Family Court proceedings

31. [31]
    The Respondents claim that the share transfer was made pursuant to an order of the Family Court of Australia for an adjustment of interests between the First and Second Respondent and, as such, any order to undo the transaction would be contrary to the prevailing orders in the Family Court proceedings.

Applicant not a party

32. [32]
    The Respondents final ground is that the Applicant is not a party to any agreement to transfer shares in the company and, as a non-party, the Applicant did not have standing under s 68(1)(b)(iv) of the District Court Act to rectify, deliver or cancel that agreement.
33. [33]
    The Respondents argue that, as a matter of statutory interpretation, the scope of the Court’s jurisdiction under s 68(1)(b)(iv) is to be construed in accordance with:

    1. (a)
       the common law approaches; the literal rule, the golden rule, the purpose approach and interpretation in context; and
    2. (b)
       the Acts Interpretation Act 1954 (Qld).
34. [34]
    The Respondents submit that, by contract and given the law of contract, the standing of a party to have any agreement rectified, delivered up or cancelled is dependent on the person being a party to the agreement, that is, a person who has privity of contract. It was submitted that an expanded interpretation, to allow a person without privity of contract, to bring an action to cancel a contract because the person is a potential creditor is contrary to long established principles of contract law.

Applicant’s submissions

35. [35]
    The Applicant reiterated that the basis of the relief it is seeking is, in essence, that the First Respondent has transferred his shares in the Third Respondent to the Second respondent with an intention to defraud creditors. It is on this basis that the Applicant seeks the return of the shares in the Third Respondent, back to the First Respondent, pursuant to s 228 of the PLA.

Territorial jurisdiction

36. [36]
    The Applicant argues that the causal connection with Queensland is that the Applicant is a “creditor”, for the purposes of s 228, who is being defrauded, who is located in Queensland. The Applicant submits that this is sufficient to enliven the territorial jurisdiction of the District Court of Queensland.
37. [37]
    The Applicant argues that there is no requirement that the conveyance sought to be set aside needs to have been undertaken in Queensland.

Monetary jurisdiction

38. [38]
    In response to the Respondents’ argument that the Applicant has provided no evidence to support the fact that the value of the shares is within the monetary jurisdiction of the District Court, the Applicant argues that the Respondents are the only party in the position to know the value of the shares and that the Respondents have not led any evidence to suggest that the value is not within the Court’s monetary jurisdiction.
39. [39]
    The Applicant submits that the Court may draw an assumption from this that the Respondents could not bring such evidence and, as such, the shares must be within the monetary jurisdiction of the District Court.

Jurisdiction in respect of the PLA

40. [40]
    The Applicant argues that an allegation that the District Court does not have the power to make orders pursuant to s 228 is contrary to established authority.
41. [41]
    The Applicant pointed to the case of Hilchrist Pty Ltd v Visual Integrity Pty Ltd [2018] QDC 97 (‘Hilchrist’), in which McGill SC DCJ (as he then was), made a declaration pursuant to s 228 of the PLA that a transfer by a defendant of shares in a company and units in a unit trust was void, as against creditors of that defendant.
42. [42]
    The Respondent’s reply to this argument was that this case is insufficient authority that the District Court has jurisdiction in relation to s 228, as the learned judge was not alerted to the fact that jurisdiction may be an issue and it therefore was not a matter for determination in that case.

Discussion

Jurisdiction in respect of the PLA s 228

43. [43]
    I am satisfied that I have jurisdiction to determine an application under s 228 of the PLA, pursuant to s 68(1)(b)(ii) of the District Court Act. I note that the Applicant relies on s 68(1)(b)(iv), which may also confer power, however, I consider s 68(1)(b)(ii) to be the more appropriate source of jurisdiction for the following reasons.  
44. [44]
    The wording of s 228 of the PLA says that “Every alienation of property … with intent to defraud creditors, shall be voidable, at the instance of any person prejudiced by the alienation of property [emphasis added]”. 
45. [45]
    As to the phrase “intent to defraud” I note that in Hardie v Hanson [1960] HCA 8; 105 CLR 451 at 456 Dixon CJ said: “the  phrase ‘intent to defraud creditors of the company’ suggests that present or future creditors of the company will, if the  intent is effectuated, be cheated of their rights”.
46. [46]
    In this case it appears the share transfer has occurred during the trial.  It is open to conclude that the share transfer was made with a possible adverse finding in mind, with the intent to defraud the potential creditor (the Applicant) of the fruits of any judgement in its favour.
47. [47]
    Section 68(1)(b) (ii) of the District Court Act gives the District Court jurisdiction to hear and determine actions for “relief against fraud”. In this case it is clear that the application under s 228 of the PLA is based in obtaining relief against fraud.
48. [48]
    The Defendant has pointed to the case of Hilchrist as authority for the District Court exercising jurisdiction in respect of s 228. I agree with that submission. In that case his Honour noted when discussing s 228 as follows:

“[157] The section has considerable history, being based on a statute from 1571, as explained by the High Court in Marcolongo v Chen (2011) 242 CLR 546. The court endorsed an interpretation of the equivalent section in New South Wales that the term “defraud” should be understood as if it read “delay, hinder or otherwise defraud”: [19]. As well the court said that that intention was shown if a debtor “disposes of an asset which would be available to his creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach…”: [32]. The issue was not whether the transaction effected by the debtor was otherwise legal. It is also not necessary to show that that was the only or the dominant motivation or intention in undertaking the transaction: [57]. The court also noted that the statutory provision has long been held to require a liberal construction: [58].

[158] That decision was considered by Jackson J in Ashala Model Agency Pty Ltd v Featherstone [2017] 2 Qd R 1  at [150] – [156], where he also considered the decision of the full court of South Australia in Johnson v Leader Computers Pty Ltd (2014) 118 SASR 408. In that case that court rejected the proposition that an intention to prefer one creditor over other creditors was inconsistent with the intent to defraud required by the Act. The application of such a section was also summarised in Patel v Lal [2011] NSWSC 603 at [6], and in Deputy Commissioner of Taxation v Peter Sleiman Investments Pty Ltd [2016] NSWSC 1657 at [42]-[49].”

49. [49]
    His honour went on to note:

“[164] … Whatever the shares and units may be worth, about which I have no reliable evidence, plainly the first defendant is in a better position to satisfy the judgement with them than without them

[165] …  But the function of section 228 is not to make available property for that purpose; it is to make the property amenable to execution of a judgment, that is a money judgment, against the debtor which has alienated the relevant property. In terms of execution on a judgement by the plaintiff against the first defendant, those shares, although in the hands of the fourth defendant, are to be treated as if they were the property of the first defendant, and hence amenable to that execution.[155]The court can make consequential orders upon the avoidance of a transfer of property that are necessary to give effect to the superior title of creditors claiming the benefit of the statute against the party whose title was acquired under the transfer.[156]One consequential order which can be made is a freezing order: Puglia v Basol [2005] NSWSC 1271. There is no entitlement to damages against the fourth defendant. …”

50. [50]
    I note the respondent’s submission that the issue of jurisdiction was not brought to his Honour attention in that case, however, in my view, this was not necessary. His Honour clearly took the view, as I have, that jurisdiction is conferred by the District Court Act.
51. [51]
    The Respondent seeks to rely on the decision of Terrblanche as authority that the District Court does not have jurisdiction to hear matters based on s 288 of the PLA. However, this submission is misled, as that decision does not relate to s 228. Rather, in that case, the Court of Appeal was considering whether the District Court had the power to make freezing orders in those proceedings, by virtue of s 69(3) of the District Court Act. This is irrelevant in respect of the 532/21 application, as this application does not seek freezing orders.

Monetary jurisdiction

52. [52]
    In relation to the Respondents’ argument that the monetary jurisdiction of the District Court has not been proved, I have not been told whether or not the shares exceed the value of $750,000. This is plainly because the Applicant is not privy to that information. If indeed the value exceeds the limit and jurisdiction is not enlivened because of that, the First Respondent should say so.  To date they have not, so I must act on the assumption that the monetary jurisdiction has not been exceeded.

Territorial jurisdiction

53. [53]
    I am also satisfied that there is sufficient territorial connection with Queensland. The Applicant, being the potential creditor, is a Queensland resident and the transaction the subject of the litigation is also in Queensland.  I am satisfied that I am not precluded from making the order, because the respondent lives out of Queensland.

Family Court proceedings

54. [54]
    I was informed by the Respondents that the transfer of the shares and other property to his wife were pursuant to a consent order filed in the Family Court of Australia, subsequent to a separation.  The Applicant suggests that this agreement is a sham, once again to avoid the consequences of any order made in the claim.  I am not in a position to make any determination about this. 
55. [55]
    On the surface, the timing of these consent orders do appear to fit in with the Applicant’s contention that the First Respondent is once again attempting to defraud creditors.
56. [56]
    However, I do not need to come to a final conclusion about this, in the context of the application before me.  No doubt this issue will be put to the test in due course, at the final determination of this application.

Applicant not a party to the contract

57. [57]
    I am satisfied that it is irrelevant that the Applicant is not a party to the share transfer.  To suggest that the application should fail on this basis misconstrues the nature of these proceedings, which is to protect property which would otherwise be available to any Judgement Creditor to recover.

Conclusion

58. [58]
    For these reasons I am satisfied that I have jurisdiction to make the orders sought by the 532/21 application.  The orders made on 11 March 2021 will therefore remain in place until final determination of the application.

Allegations of breach of professional duties

59. [59]
    At paragraph 15 and following to paragraph 26 of her written submissions, Counsel for the Respondents makes allegations of misconduct against Counsel for the Applicant, Mr de Waard.  These are titled “Duties of candour to the court”, “Duty to identify the DCQ’s lack of jurisdiction under the PL Act” and “Duty to identify whether the DCQ had power to grant ancillary relief where such orders were made in support of the OA”.
60. [60]
    Mr de Waard rightly in my view took exception to these submissions labelling them “scandalous”.    He sought a retraction failing which the submissions from paragraph [15] through to [26] be struck out.
61. [61]
    Mr de Waard has, in my view, acted appropriately and in accordance with his duty to the Court throughout the proceedings. He has been frank and open in his submissions, putting to the Court both his case’s strengths and weaknesses, as he is required to do.
62. [62]
    I suspect these allegations may be the consequence of animosity arising between Counsel from the trial, but that does not in my view justify the unfounded allegations. The submissions by Counsel for the First Respondent are scandalous and as they have not been retracted are struck out.

Costs

63. [63]
    The first respondent challenged the jurisdiction of the Court to make the order it did on 11 March 2021.  I have determined that the court did have jurisdiction.  In those circumstances, I order the First Respondent pay the Applicants costs of and incidentally to the hearing of the jurisdiction issue on the standard basis.

Orders

1. Order that the orders of 11 March 2021 remain in force until the final determination of the application.
2. Order that paragraphs [15]-[26] of the Respondents written submission be struck out from the Court file.
3. Order that the First Respondent pay the Applicant’s costs of and incidental to this application on the standard basis.