Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Super Vision Resources Ltd BVI Registered No 1810534 v AC Holdings Co Pty Ltd [2020] NSWCA 319 Hearing dates: 6, 7 and 8 October 2020 Decision date: 10 December 2020 Before: Basten JA at [1]; Meagher JA at [2]; White JA at [138] Decision: (1) Direct the parties attempt to agree the orders, including declarations, to be made by way of final relief to give effect to the conclusions in the reasons of Meagher JA. In the event of agreement, the form of orders should be provided to Meagher JA's associate within 28 days. (2) Direct that failing such agreement, the orders contended for by each party, and written submissions supporting the making of those orders (not exceeding 5 pages), be exchanged within a further 14 days. The matters remaining in issue will then be dealt with on the papers. Catchwords: CIVIL PROCEDURE – notices to admit – where formal admission made by the transferring party that transfer made with intent to defraud – whether admission binding on other parties to proceeding against whom intent to defraud must be proved CONVEYANCING – transfers in fraud of creditors – Conveyancing Act 1919 (NSW), s 37A – where partly encumbered properties transferred at undervalue – whether transferred with intent to defraud creditors – whether appellant a person prejudiced by transfers – whether transferee had notice of intent to defraud – meaning of "notice" in s 37A(3) Legislation Cited: Bankruptcy Act 1996 (Cth), s 121 Conveyancing Act 1919 (NSW), ss 37A, 164 Fraudulent Conveyances Act 1571 (13 Eliz I c 5) Law of Property Act 1925 (UK), s 172 Uniform Civil Procedure Rules 2005, r 17.3(2) Cases Cited: Abalos v Australian Postal Commission (1990) 171 CLR 167; [1990] HCA 47 Barton v Vanheythuysen (1853) 68 ER 1215; 11 Hare 126 Bott v Smith (1856) 21 Beav. 511; 52 ER 957 Brady v Stapleton (1952) 85 CLR 322; [1952] HCA 62 Cadogan v Kennett (1776) 98 ER 1171; 2 Cowp 423 Camm v Linke Nominees Pty Ltd (2010) 190 FCR 193; [2010] FCA 1148 Coghlan v Alexander (1905) 5 SR (NSW) 441 CSR Ltd v Maddalena [2006] HCA 1; (2006) 80 ALJR 458 DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431; [1982] HCA 14 Ex parte Chaplain; In Re Sinclair (1884) 26 Ch D 319 Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 French v French (1855) 4 De GM & G 95; 43 ER 1166 Glegg v Bromley [1912] 3 KB 474 Golden J Wealth Pty Ltd v AC Holdings Co Pty Ltd [2019] NSWSC 1342 Halfey v Tait [1875] 1 VLR (E) 8 In re Fasey; ex parte Trustees [1923] 2 Ch 1 In re Gunsbourg [1920] 2 KB 426 In re Johnson; Golden v Gillam (1881) 20 Ch D 389 In re Maddever; Three Towns Banking Company v Maddever (1884) 27 Ch 523 In re Mouat; Kingston Cotton Mills v Mouat [1899] 1 Ch 831 In re Reis; ex parte Clough [1904] 2 KB 769 In re Simms [1930] 2 Ch 22 Jerome v Kelly (Inspector of Taxes) [2004] 1 WLR 1409 Kern Corp Ltd v Walker Reid Trading Pty Ltd (1987) 163 CLR 164; [1987] HCA 20 Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 Lloyds Bank Ltd v Marcan [1973] 1 WLR 339 Lo Pilato (Trustee) v Kamy Saeedi Lawyers Pty Ltd Re Adzic (Bankrupt) (2017) 249 FCR 69; [2017] FCA 34 Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 30 Nguyen v Corbett [2017] NSWSC 1689 PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 522; 107 ALR 199 Re Hyams; Official Receiver v Hyams (1971) 19 FCR 232 Re Kelly; ex parte Young (1932) 4 ABC 258 Rolle v Ryall (1749) 26 ER 107; 1 Atk 165 Ross v Vaughan [2016] NSWCA 188 Silvera v Savic (1999) 46 NSWLR 124; [1999] NSWSC 83 Taylor v Coenen (1876) 1 Ch D 636 The English and Scottish Mercantile Investment Co Ltd v Brunton [1892] 2 QB 700 Wentworth v Rogers [2004] NSWCA 340 Texts Cited: Halsbury's Laws of England (1st ed, London: Butterworth, 1911) May and Worthington, A treatise on the statutes of Elizabeth against fraudulent conveyances (2nd ed, London: Stevens and Haynes, 1887) Category: Principal judgment Parties: Super Vision Resources Ltd BVI Registered No 1810534 (Appellant) AC Holdings Co Pty Ltd (First Respondent) Qiao Wang (Second Respondent) Lawrence Xu (Third Respondent) Representation: Counsel: A Leopold SC with J P Knackstredt (Appellant) D Pritchard SC with B M Zipser (First and Second Respondents) Solicitors: Ashurst Australia (Appellant) Zhang Shijing Lawyers (First and Second Respondents) File Number(s): 2020/57328 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2020] NSWSC 65 Date of Decision: 14 February 2020 Before: Stevenson J File Number(s): 2019/76024 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] Mr Lawrence Xu and Ms Qiao Wang were close business associates involved in a property development project in Hurstville undertaken by a company, Hua Cheng International Holdings Group Ltd (Hua Cheng), of which Mr Xu was the sole shareholder and director. Ms Wang was the sole shareholder and director of the company with responsibility for the construction works. From time to time she provided funds (typically sourced from other family members in China) to assist the development project, described as loans to Mr Xu. In July 2014 the appellant, Super Vision, made a loan of $52 million to Hua Cheng, which Mr Xu guaranteed. The loan facility was not repaid, and in December 2017 Super Vision commenced recovery proceedings against Mr Xu as guarantor for in excess of $28 million. In July 2018, the proceedings were fixed for hearing in early 2019. At that point in time, Mr Xu's only assets in Australia of any significant value were two properties at Milsons Point and Sandringham. The first respondent, ACH, was incorporated on 29 May 2018, with Ms Wang as the sole shareholder and director. By contracts for sale dated 31 August 2018, Mr Xu agreed to sell his two properties to ACH for a sum of $8.8 million (a sum now agreed to be $1.1 million below their market value at the relevant time). ACH borrowed $7.21 million to fund the purchases, described as 70% of the lender's valuation. The balance of the purchase price and additional expenses involved in the transaction, including stamp duty and borrowing fees, were treated as deposits already paid and set off against the debt owing by Mr Xu to Ms Wang. On settlement none of the purchase money was paid to Mr Xu. $400,000 was paid to a creditor of a company owned and controlled by Ms Wang and over $1 million was paid to Mr Xu's father. Super Vision commenced proceedings to avoid the transfers under s 37A of the Conveyancing Act 1919 (NSW), contending that the transfers had been made by Mr Xu with intent to defraud his creditors, that Super Vision was prejudiced by them, and that ACH had notice of Mr Xu's fraudulent intention. The primary judge found that Mr Xu had intended to defraud his creditors on the basis that Mr Xu's failure to respond to a notice to admit facts served by Super Vision was a formal admission binding on ACH and Ms Wang. However, his Honour held that Super Vision had not been prejudiced by the transfers. In so concluding his Honour assumed, contrary to the facts, that each of NAB and ANZ had security over both properties so that Ms Wang, who had a registered mortgage over the Milsons Point property which his Honour held secured a debt of $5 million, could have compelled the banks to marshal their securities. It followed, on his Honour's reasoning, that both of the properties were fully encumbered and Super Vision was not prejudiced by their alienation. His Honour also found that ACH (through Ms Wang) did not have notice of Mr Xu's intent to defraud his creditors. Super Vision appealed. The principal issues on appeal were: 1. Whether Mr Xu made the transfers with intent to defraud his creditors; 2. Whether Super Vision was a person "prejudiced" by the transfers; 3. Whether ACH was a purchaser in good faith not having notice of Mr Xu's intent to defraud his creditors; and, if so, 4. The relief to which Super Vision was entitled. The Court held (per Basten and Meagher JJA, White JA dissenting in part), that the transfers were voidable under s 37A at the instance of Super Vision and that ACH was not a purchaser in good faith not having notice of Mr Xu's intent to defraud: In relation to the first issue: 1. The formal admission made by a failure to dispute a notice to admit facts is made only in favour of the requesting party and then only by the admitting party. There is no admission in favour of the requesting party by or binding on any other party. It was necessary for Super Vision to establish against ACH, and accordingly against Ms Wang as its guiding mind, that Mr Xu had made the transfers with intent to defraud his creditors: at [1] (Basten JA); [26]-[28] (Meagher JA); [141] (White JA). Uniform Civil Procedure Rules 2005, r 17.3, considered. 2. In all of the circumstances, including that the transfers were for a substantial undervalue, that Ms Wang and ACH did not provide any of their own funds to undertake the purchase, and that on settlement no moneys were paid to Mr Xu, it was to be inferred that Mr Xu made the transfers with intent to defraud his creditors: at [1] (Basten JA); [44]-[48] (Meagher JA); [141] (White JA). In relation to the second issue: 3. Ms Wang had made a $5 million loan to Mr Xu by transferring that amount into an account Mr Xu was authorised to operate. The loan had not been repaid and, on the proper construction of Ms Wang's registered mortgage over the Milsons Point property, was secured by that mortgage: at [1] (Basten JA); [86]-[91] (Meagher JA); [145] (White JA). 4. The document described as the "July 2015 IOU", which recorded a debt of Mr Xu to Ms Wang of CNY 20 million and his willingness to refer Ms Wang to a lawyer to secure the loan over his two properties, was not an unconditional agreement to grant security over the properties and did not create any equitable interest in the properties: at [1] (Basten JA); [60] (Meagher JA); [148] (White JA). 5. NAB and ANZ did not each have security over both of the properties. NAB had security over the Milsons Point property and ANZ over the Sandringham property. No question of marshalling arose. Accordingly, at the time of its alienation, there was equity of over $2.3 million in the Sandringham property: at [1] (Basten JA); [54] (Meagher JA); [147] (White JA). Per Basten and Meagher JJA: 6. The overall result of the payments made on settlement of the transfers of the two properties, and the set-off arrangement with respect to the deposits, was that moneys which otherwise would have been available to Mr Xu's creditors from the Sandringham property were not, in part because of the sale and transfer of the Milsons Point property. Super Vision was prejudiced by both transfers: at [1] (Basten JA); [94] (Meagher JA). Per White JA, dissenting: 7. The set-off arrangement and the payments made on settlement were separable from the transfers themselves. The Milsons Point property was fully encumbered to Mr Xu's secured creditors; Super Vision was prejudiced only by the transfer of the Sandringham property and the subsequent alienation of Mr Xu's entitlement to the proceeds of sale. The latter was not an alienation of either property to ACH: at [147], [152]-[159] (White JA). In relation to the third issue: 8. It was for ACH to establish that it lacked actual notice of Mr Xu's fraudulent intention. In all the circumstances, including the way in which the "deposits" were calculated and Ms Wang's evidence that she was aware Mr Xu had guaranteed the loan from Super Vision, ACH had not displaced that onus: at [1] (Basten JA); [123]-[126] (Meagher JA); [142] (White JA). Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 30; Cadogan v Kennett (1776) 98 ER 1171; 2 Cowp 423; Coglan v Alexander (1905) 5 SR (NSW) 441, discussed. In relation to relief (White JA not deciding): 9. The legal right of Mr Xu's unsecured creditors under s 37A was to require that the proceeds of the sales of the two properties, net of moneys owing to ACH's secured lender, be transferred to Mr Xu's trustee in bankruptcy. The exercise of that right did not require that the discharges of the registered mortgages over the two properties, or the set-off arrangement between Mr Xu and Ms Wang of which ACH was the beneficiary, be set aside or rescinded: at [1] (Basten JA); [130]-[134] (Meagher JA). Judgment 1. BASTEN JA: I agree with Meagher JA. 2. MEAGHER JA: This appeal is concerned with the application of Conveyancing Act 1919 (NSW), s 37A, the relatively modern equivalent of the Elizabethan statute enacted in 1571 for the protection of creditors against fraudulent conveyances and dispositions of property (13 Eliz I c 5). That statute provided that any conveyance of property was void if made with intent to defeat, hinder or delay creditors. The operation of the statute was subject to a proviso that nothing therein contained should extend to any estate or interest conveyed on good consideration and bona fide to any person not having at the time of conveyance "any manner of notice or knowledge" of such fraud. 3. Section 37A, enacted in 1930, follows the text of the Law of Property Act 1925 (UK), s 172, which ultimately replaced the Elizabethan statute in the UK. It provides: 37A Voluntary alienation to defraud creditors voidable (1) Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be 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 to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors. 1. Like s 172, which was said not to alter the law established by decisions under 13 Eliz I c 5 (Re Kelly; ex parte Young (1932) 4 ABC 258 at 261), s 37A reproduces "the substance of the Elizabethan statute": PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 522; 107 ALR 199 at 205. The legislative history of the UK successors to the Elizabethan statute, considered in Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 30 at [13]-[20], demonstrates that they were intended to "re-express", but not to "alter", the latter. Thus, "the term 'defraud' was designed to reproduce the meaning of the expression 'delay, hinder or defraud' in the Elizabethan Statute. That statute was understood as if it read 'delay, hinder or [otherwise] defraud'": Marcolongo at [19]. 2. The primary judge (Stevenson J) held that the transfers of the relevant properties were made with "intent to defraud creditors", but that the principal unsecured creditor was not a person "thereby prejudiced" so as to be entitled to avoid them. His Honour was also satisfied that the purchaser of the two properties acted in good faith, not having notice of that "intent to defraud": Super Vision Resources Ltd v AC Holdings Co Pty Ltd [2020] NSWSC 65. Each of these conclusions is challenged. In relation to the third, there is no longer a question as to whether "notice" includes constructive or imputed notice. 3. It is necessary first to introduce the parties and summarise the circumstances in which the challenged transactions occurred. I will then identify and address the specific questions raised by the grounds of appeal and the respondents' notice of contention. The parties and the challenged transactions 1. In July 2014 the appellant (SV) as financier entered into a HKD$ Loan Agreement with Hua Cheng International Holdings Group Ltd (Hua Cheng) to fund a mixed residential and commercial strata building development undertaken by the latter in Hurstville. The third respondent (Mr Xu), the sole shareholder and director of Hua Cheng, guaranteed the repayment of that loan, which was drawn down in three tranches totalling A$52.08 million. Responsibility for the construction works was undertaken by DJ Royal Plaza Constructions Pty Ltd (DJ Royal). From July 2007 until 3 June 2017, the second respondent (Ms Wang) was the sole shareholder and director of that company, which she described as having entered into "an agreement with a subcontractor who... acted as project manager and arranged for completion of various construction works for the development" (Judgment [122]). The development was completed in late 2016. On 14 January 2017, the facility – principal, interest and fees – fell due for repayment. As at 21 April 2017, an amount of HKD 194.83 million (then approximately A$35.4 million) remained due and unpaid. On that day, SV appointed a receiver and manager to Hua Cheng. On 1 December 2017 SV commenced recovery proceedings against Mr Xu as guarantor. In July 2018 those proceedings were fixed for hearing in March 2019. In October 2018, Mr Xu's solicitors filed a notice of ceasing to act. Unbeknownst to SV at that time, the challenged transactions had been completed on 17 September 2018. 2. The primary judge described the undoubtedly close business relationship between Ms Wang and Mr Xu as "complex" and as having "unusual aspects" to which it will be necessary to return. At all relevant times Mr Xu's only real property assets in Australia were residential dwellings in Milsons Point and Sandringham, suburbs of Sydney. In mid-2018, each of those properties was subject to registered mortgages – the Milsons Point property to the National Australia Bank as first mortgagee and Ms Wang as second mortgagee, and the Sandringham property to the Australia and New Zealand Banking Group as first mortgagee and a Mr Song as second mortgagee. 3. On 29 May 2018, the first respondent (ACH) was incorporated, with Ms Wang the sole shareholder and director. By contracts for sale dated 31 August 2018, Mr Xu agreed to sell the Milsons Point and Sandringham properties to ACH, the former for $3.9 million and the latter for $4.9 million. The purchases were funded by a secured loan of $7.21 million, being 70% of the lender's valuation of the properties. The lender was Golden J Wealth Pty Ltd (Golden Wealth). Ms Wang described the balance of the purchase price ($1.59 million) as having been "deducted from the debt that Lawrence Xu owed me". In fact, the amount deducted from the total purchase price ($8.8 million) was $2.34 million, which was treated as the sum of deposits paid by ACH. The benefit of a set-off in that amount allowed ACH to pay from the gross amount of the loan ($7,210,000) the first instalment of prepaid interest and loan application fee, the balance of the purchase price, its legal costs and stamp duty on each of the transfers (totalling $7,179,812) leaving, after other small allowances, a balance of $16,551 which was paid to Ms Wang. On settlement, each of the four registered mortgages was discharged. There was no payment to Ms Wang beyond the $16,551 and the set-off, and no evidence of any monies being paid to Mr Song. Out of the proceeds of sale, $400,000 was paid to Aojia Investment Pty Ltd (Aojia), which was not a creditor of Mr Xu or Ms Wang but was a creditor of a company owned and controlled by Ms Wang, and $1,135,687 was paid to Mr Xu's father, Mr Buyuan Xu. There is a question as to whether that payment was made to him as a creditor of Mr Xu. 4. In early November 2018, SV became aware of rumours that Mr Xu had sold the properties. By a notice of motion in the guarantee proceedings it sought freezing orders and consequential relief against Mr Xu and ACH. In December 2018, in compliance with orders for the provision of information, Mr Xu and Ms Wang, the latter on behalf of ACH, swore affidavits. Mr Xu described his only assets in Australia as being shares in Hua Cheng (in receivership), DB International Construction Pty Ltd (DBI) and Hua Cheng Property Pty Ltd. Ms Wang said ACH had borrowed to purchase the two properties, the loan amount having been "determined as 70% of the combined valuation amounts for the two properties". 5. On 8 March 2019, the present proceedings were commenced. Mr Xu filed a submitting appearance. ACH and Ms Wang appeared and defended the proceedings. Later added as defendants were Yang Qun and Yibin Xu, who on 28 August 2019 jointly contracted with ACH for the purchase of the Milsons Point property for $1.88 million and the Sandringham property for $2.7 million, in each case less than half the value of those properties at the time of sale. The completion of those contracts was subsequently restrained. 6. The monies advanced by Golden Wealth were repayable, and not repaid, by 17 September 2019. Earlier (on 1 March 2019), and relying on the making of the freezing and related orders against ACH on 26 November 2018, Golden Wealth commenced proceedings for possession of both properties. Orders for possession were made on 20 September 2019 (Golden J Wealth Pty Ltd v AC Holdings Co Pty Ltd [2019] NSWSC 1342 at [28]). 7. Subsequently, the two properties were sold by Golden Wealth exercising powers of sale – Milsons Point for $7.25 million by contracts exchanged on 29 February 2020 and Sandringham for $5.325 million by contracts exchanged on 7 March 2020. The proceeds of sale from the Milsons Point property, totalling $7,098,249, were applied to reduce the Golden Wealth debt, leaving a balance outstanding of $2,616,360. As at 29 June 2020, the date of settlement of Sandringham, $2,687,564 remained outstanding. After payment of that amount, the surplus available was $2,490,128. That amount, less three amounts paid to ACH and Ms Wang's lawyers for legal fees incurred in responding to this appeal ($67,373, $80,000 and $50,000), is held in an interest bearing controlled money account in the joint names of SV and ACH. As at 7 October 2020, the amount in that account was $2,366,737. 8. The primary judge dismissed SV's claims for relief, which included declarations that the alienations of property by Mr Xu under each of the contracts for sale were void. Although separate declarations were sought in relation to each property, SV's pleaded case was that Mr Xu's intent to defraud creditors required and involved the sale and transfer of both properties to ACH, funded by the loan from Golden Wealth and subject to the "set off" arrangement and the payment away of all the proceeds of sale. There is a question as to whether the condition that the applicant for relief be "thereby prejudiced" is satisfied in this case in respect of the alienation of both properties in circumstances where the objective of Mr Xu's intent could only achieved by those alienations occurring together. The issues in the appeal 1. There are three questions in the appeal. The first is whether the primary judge erred in holding that Mr Xu sold and transferred the properties with intent to defraud his creditors (Judgment [299]). His Honour made this finding by reference to formal admissions made by Mr Xu. Those formal admissions were of facts in two notices to admit facts to which Mr Xu did not respond by serving a notice disputing them. In consequence each of those facts was taken, by Uniform Civil Procedure Rules 2005, r 17.3(2), "to have been admitted by the admitting party in favour of the requesting party only" (at Judgment [294]-[299]). A notice seeking the admission of similar facts by ACH was disputed. 2. By ground 1 of their notice of contention, ACH and Ms Wang challenge that finding. They say that any admission made by Mr Xu was not an admission by, or binding on, ACH or Ms Wang. Accordingly, a finding as to Mr Xu's intent could not be made as against them on the basis of those admissions. They also contend that the admitted facts and Mr Xu's conduct in agreeing to a sale at under market value did not involve an intent to defraud creditors or justify such a finding. 3. The second principal question is whether the primary judge erred in holding that SV was not a person "thereby prejudiced" and accordingly not entitled to set aside the transfers or seek orders achieving that effect (see Silvera v Savic (1999) 46 NSWLR 124; [1999] NSWSC 83 at [72] per Hodgson CJ in Eq). His Honour held that the disposal of the properties was not of assets which would have been available to Mr Xu's unsecured creditors following their sale at market value, with the result that SV was not prejudiced (Judgment [312], [313]). 4. In doing so the primary judge proceeded on the basis that each of NAB and ANZ had security over both properties (Judgment [308]). His Honour then reasoned that as the Milsons Point property was also encumbered by the registered "May 2017 Mortgage" in favour of Ms Wang, under which $5 million plus interest was secured (Judgment [305]), the doctrine of marshalling entitled Ms Wang to compel the banks first to have resort to the property over which each had security but Ms Wang did not, namely Sandringham (Judgment [309]). Assuming that the properties had been sold at their market value (agreed between the parties to be $9.9 million) and that the banks first had recourse to the net proceeds of sale of that property (about $5 million), their combined debts totalling some $4.7 million would have been discharged, leaving Ms Wang's secured debt, in the order of $5.8 million, to be satisfied from the proceeds of sale of the Milsons Point property (about $4.9 million). 5. By grounds of appeal 1, 2 and 3, SV challenges the finding that it was not prejudiced by the alienation of the properties. It contends that it was an unsecured creditor of Mr Xu as guarantor. The primary judge erred in finding that both properties were fully encumbered to Mr Xu's secured creditors, and that on their disposal there would not have been any "equity" remaining in the Sandringham property. Furthermore, by grounds of appeal 4, 5, 6 and 7, the conclusion that the May 2017 Mortgage in favour of Ms Wang secured the repayment of $5.8 million is challenged. It is said that his Honour erred in finding that such an advance was made, in finding that if it was made, it was not repaid before the mortgage was granted, and in not holding that the loan was not secured by the mortgage because it only secured future lending, the loan having been made before the date of the mortgage. 6. ACH and Ms Wang, by grounds of contention 2 and 3, seek to uphold his Honour's finding that SV was not a person thereby prejudiced. They do so on two bases. By contention ground 2 it is said that to the extent there was any prejudice as a result of the payment of part of the proceeds of sale to Mr Xu's father, or because the Milsons Point property was sold at under market value, that prejudice was not by reason of the alienation of the property. In relation to the former, any prejudice was because of Mr Xu's directions as to how the proceeds of sale were to be distributed; and in relation to the latter, because the full value of the property was encumbered to secured creditors in any event. Secondly, by contention 3 it is said that in determining whether SV was prejudiced account must be taken of the "July 2015 IOU" under which Ms Wang was entitled to security in respect of an earlier advance to Mr Xu of CNY 20 million. By reason of that security, or the May 2017 Mortgage, or both, it is said that the Milsons Point property was fully encumbered so that SV was not "prejudiced" by the alienation of that property, thus raising the question referred to in [14] above. 7. The third question is whether the primary judge erred in being satisfied that ACH was a purchaser in good faith not having notice of Mr Xu's intention to defraud his creditors (Judgment [315]-[344]). In so concluding, his Honour found that Ms Wang negotiated the purchase price for the properties without knowing that the agreed price was less than their market value (Judgment [325]); that the deduction of $2.34 million from that agreed price was negotiated "on account of the much larger amount that [Ms Wang] genuinely believed Mr Xu owed her" (Judgment [326]); that Ms Wang did not know that by entering into the transaction Mr Xu intended to delay, hinder or otherwise defraud his creditors (Judgment [334]); that the consideration which Ms Wang (as distinct from ACH) gave for the transaction included the discharge of her second mortgage over the Milsons Point property and the surrender of her right to enforce a promise to provide security over the two properties for an earlier advance of CNY 20 million (Judgment [336], [337]); and that Ms Wang did not know and had not agreed that she knew Mr Xu might be personally liable for Hua Cheng's debts (Judgment [343]). 8. These conclusions and findings are challenged in various respects by grounds of appeal 8, 9, 12, 13, 14 and 15. The argument in support of grounds 10 and 11 that "notice" for the purposes of s 37A(3) includes constructive notice is not pressed. The remaining grounds include that the primary judge erred in finding that ACH had discharged its onus under s 37A(3) (ground 8); and that his Honour erred in concluding that there was no evidence Ms Wang knew that the contract prices were below market value (ground 15). The "time of the alienation" 1. Where the alienation is of Real Property Act land and by a transfer under a contract for sale, there is a question, which does not appear to have been answered in the authorities, as to whether the intention of the vendor, and the purchaser's notice of that intention, is to be assessed at the time of contract or of transfer. The text of s 37A(1) and (3) provides that these questions are to be determined "at the time of the alienation" of property sought to be avoided. The language of "alienation", which replaced that of "conveyance or assurance" in the Elizabethan statute, is more naturally understood as referring to the transfer than to the entry into the contract pursuant to which that transfer is to occur. 2. The attraction of the contrary view depends primarily on the fact that a purchaser under an executory contract of sale has an equitable interest in the property the subject of the contract. But such an analysis is awkward. The equitable interest acquired by a purchaser was never held, and hence not alienated, by a vendor with unqualified legal title: DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 at 463-464 (Aickin J); [1982] HCA 14. (That is not to say that a declaration of trust would not be an "alienation" of the property the subject of the trust.) The equitable interest of the purchaser is, moreover, not fixed: it "reflects the extent to which equitable remedies are available to protect his contractual rights" and "can be viewed as passing to the buyer in stages, as title is made and accepted and as the purchase price is paid in full": see Kern Corp Ltd v Walker Reid Trading Pty Ltd (1987) 163 CLR 164 at 191-192 (Deane J); [1987] HCA 20; and Jerome v Kelly (Inspector of Taxes) [2004] 1 WLR 1409 at [32] (Lord Walker). The accretion of the purchaser's beneficial interest is not readily described as an "alienation" of the property the subject of the contract. 3. On one view, "alienation" is apt to refer to both the contract and subsequent transfer, taken together; in Marcolongo v Chen, the High Court reinstated orders setting aside both a contract of sale and a transfer made pursuant to it, albeit that contract and transfer took place at the same time. There may be a question whether it is strictly necessary to set aside a contract which has been 'spent' by performance when avoiding a transfer made under it. What is, however, tolerably clear is that "the time of the alienation" is not the time of contract alone, and it will suffice for the relevant intention, and notice thereof, to have been present at the time of transfer. A similar view has been taken in relation to the construction of "the time of the transfer" in Bankruptcy Act 1996 (Cth), s 121: Lo Pilato (Trustee) v Kamy Saeedi Lawyers Pty Ltd Re Adzic (Bankrupt) (2017) 249 FCR 69; [2017] FCA 34 at [184]-[185] (Katzmann J); Camm v Linke Nominees Pty Ltd (2010) 190 FCR 193; [2010] FCA 1148 at [40]-[43] (Tracey J). Did Mr Xu transfer his properties to ACH with intent to defraud creditors? (contention grounds 1 and 2(c)) The effect of formal admissions 1. There is a difficulty with the primary judge's finding as against ACH of an intent by Mr Xu to defraud on the basis of formal admissions made by Mr Xu in favour of SV as plaintiff. In their response to the amended commercial list statement ACH and Ms Wang did not admit that fact, which accordingly had to be proved not only against Mr Xu but also against ACH as purchaser and a necessary party to the proceedings seeking to set aside the contracts and transfers. Likewise, it would not have been sufficient for SV in its case against ACH to rely on the pleaded admission of such a fact by Mr Xu, if the matter remained in issue on the pleadings as between SV and ACH and Ms Wang, as it did. 2. By the terms of UCPR r 17.3(2), the formal admission made by the failure to dispute the notice to admit facts is made only in favour of the requesting party, and then only by the admitting party. It follows that there is no admission as in favour of the requesting party by any other party. UCPR r 17.6 also restricts the effect of that admission to the proceedings in which it is made. UCPR r 17.7 proceeds on the basis that the Court may give judgment on admissions made by a party, whether by pleadings or the application of the rules, but only against that party and in favour of the party entitled to the benefit of the admissions. 3. SV makes two responses to this contention. First, it says that because the notice to admit was in the court book, which in turn was received into evidence without objection, "the admissions were in evidence for all purposes". That does not follow. The tender of the notice to admit does no more than prove the terms of the notice, the efficacy of which depends on the application of the UCPR. SV's second response is that the evidence justified the primary judge's conclusion, not a surprising submission in the light of the respondents' acceptance before the primary judge that his Honour "may well find Mr Xu did have an intention" to defraud. This second submission should be accepted, for the reasons which follow. The circumstances at the time of the challenged transactions 1. It is necessary to consider the position as was known to Mr Xu at the time the contracts for sale were made and subsequent transfers occurred between late August and mid-September 2018. At that time, Mr Xu's only assets of value were the Milsons Point and Sandringham properties. It is not likely that his shareholdings in Hua Cheng, DBI or Hua Cheng Property Pty Ltd had any significant value. There were two registered mortgages over each property. It should be inferred that Mr Xu was aware of the true position concerning the amounts secured and owing to each of the banks and the identity of the property over which each had security; after all, he was the owner of the properties and the borrower of the funds secured by the mortgages. It should also be inferred that he knew, or confidently believed, that he could obtain the discharge of the second registered mortgage over the Sandringham property in favour of Mr Song without making any payment. Eventually that undated discharge was signed by Cai Wei Xu as Mr Song's attorney. She was the daughter of Mr Xu's younger brother, and was also the witness to Mr Xu's signature on the May 2017 Mortgage. 2. At the time the contracts were exchanged, SV had commenced recovery proceedings under the guarantee. As at December 2017, the amount claimed was HK $161,376,296 (approximately A$28 million). As at 29 May 2018, when ACH was incorporated, Pancific Legal was acting for Mr Xu in those proceedings. On 5 June 2018, Herald Legal commenced to act in their stead. In late 2018, when notices of ceasing to act were filed, the two properties had been sold and Mr Xu had no assets of any value in Australia. The market value of the two properties 1. The evidence was that on 15 August 2018 both properties were inspected and valued for mortgage purposes by a registered valuer at $10.3 million. Those valuations formed the basis of AIG Capital Mortgages Pty Ltd's (AIG Capital) offer to Ms Wang, dated 28 August 2018, to arrange mortgage finance of $7.21 million, which was described on the first page of the loan offer as being "70% of valuation". For the reasons which follow, it is most likely that by 31 August 2018, the date of the contracts for sale, Mr Xu was aware of those valuations and believed that he was selling the properties to ACH for substantially less than their combined market value. 2. Ms Wang's evidence was that Mr Xu had been offering the properties for sale from at least December 2017. In that context he would have had to form a view as to their market value based in part on information provided by selling agents. More significantly, in July 2018 an application for a loan secured by mortgages over the two properties was made to Prime Capital Securities Pty Ltd (Prime Capital). Ms Wang denied any knowledge of that application (Judgment [253]). The only other person who could have made it was Mr Xu. As a result of doing so, he would have become aware that Prime Capital was prepared to advance $7.9 million to ACH, secured by mortgages over the properties. Significantly for present purposes, that loan approval and offer recorded that the "owner's estimate" of their value was $6,800,000 (Sandringham) and $5,400,000 (Milsons Point). Mr Xu answered that description. 3. At some stage before contracts were exchanged Mr Xu became aware that ACH had secured finance of $7.21 million. Ms Wang's evidence was that the agreement as to the amount of the set-off was made when the combined purchase price ($8.8 million) and gross loan amount ($7.21 million) were known. In her final affidavit she said that the position in relation to the set-off amount was negotiated after the "further expenses associated with the purchase" were also known. Those expenses and the net amount which would be available on settlement were set out in the AIG Capital loan offer, each page of which was signed by Ms Wang. It is more probable than not that Mr Xu was shown or provided with a copy of that loan offer at the time those negotiations were occurring; and understood the basis on which AIG Capital were "only" prepared to advance $7.21 million. The negotiation of the set-off amount 1. The exchanged contracts did not provide for the payment of any deposit in the case of either property, and required completion within 6 weeks. Curiously, the contracts adopt different editions of the Law Society standard form of contract, for Sandringham the 2017 edition and for Milsons Point the 2005 edition, consistent with their having been prepared at different times and by different solicitors. The latter contract in its typewritten form names Ms Wang as purchaser, suggesting that it may have been prepared before ACH was incorporated and for an earlier proposed transaction. That last speculation is consistent with the date of the NAB Discharge of Mortgage, which although produced at a settlement on 17 September 2018 is dated 25 May 2018. 2. According to Ms Wang's evidence, at the time the purchase prices were negotiated it was also agreed that the $2.34 million set-off would be applied as to $1.59 million in reduction of a deposit for the purchase of the Milsons Point property and as to $750,000 in reduction of a deposit for the purchase of the Sandringham property. The latter was not a property over which Ms Wang had security. A declaration signed by Mr Xu and dated 13 September 2018 recorded that he had "received" the full amount of the total deposit payment of $2.34 million, which had been "deducted from the business" between Ms Wang and him. 3. The negotiations between Ms Wang and Mr Xu, as to the purchase prices and the amount of that set-off, apparently took place between Jolina (or Juliana) Jiang on Ms Wang's behalf and Mr Yang Ming, a solicitor, on behalf of Mr Xu. Ms Jiang worked in Mr Xu's office in Forest Road, Hurstville, doing work for Ms Wang as well as for Mr Xu. Those negotiations must have been concluded by 31 August 2018, the date of each contract. ACH's expenses included the loan application fee ($144,200), lender's legal fees ($11,000), pre-paid interest ($66,091) as well as stamp duty on the acquisition of each property (totalling $497,020) and ACH's legal fees ($3,100). 4. One outcome of the set-off arrangement was that Mr Xu's debt to Ms Wang was reduced by $2.34 million. Another was that ACH was treated as having paid deposits totalling the same amount. Ms Wang also 'agreed' to give a discharge of her registered second mortgage over the Milsons Point property, apparently remaining an unsecured creditor of Mr Xu for the balance of the "business" between them. Thus, as between Mr Xu and Ms Wang it was agreed that in consideration of Mr Xu treating the two deposit amounts as paid by ACH under the contracts for sale, Ms Wang would treat payments in the same amounts as having been made by Mr Xu in reduction of his liability to Ms Wang, and discharge the May 2017 Mortgage. There is no evidence of any express arrangement between Ms Wang and ACH in relation to the set-off. The payments made on settlement of the contracts 1. The sale and transfer of the two properties resulted in the distribution of the whole of the proceeds of sale of Mr Xu's only substantial assets in Australia. That the market value of those properties at that time was at least $9.9 million was not disputed (Judgment [4], [256], [257]). The contemporaneous valuations obtained by Golden Wealth as lender to ACH suggested their value for mortgage purposes was $10.3 million. 2. On settlement of the Milsons Point property, after 'payment' of the deposit of $1.59 million, the balance due from ACH was $2,313,545. At the direction of Mr Xu, the payments made from that amount included $750,000 to NAB as first mortgagee, $400,000 to Aojia, $1,099,550 to Mr Buyuan Xu, and $43,240 to Pancific Legal, acting for the outgoing second mortgagees of the properties, Mr Song and Ms Wang. If the full amount owing to NAB ($2,319,512) had been paid out of the proceeds of sale of Milsons Point, the payments to Mr Xu's father and Aojia (totalling $1,499,550) could not have been made. Furthermore, assuming that both of the debts in fact secured over that property were paid out of those proceeds of sale, there would have been no funds remaining to make the payments to Mr Xu's father and Aojia. On the settlement of the Sandringham property, after 'payment' of the deposit of $750,000, the balance due was $4,154,923. At the direction of Mr Xu the payments made included $2,542,225 to ANZ as first mortgagee, $1,569,512 to NAB as first mortgagee of Milsons Point, and $36,136 to Mr Buyuan Xu. 3. Aojia was not a creditor, secured or unsecured, of Mr Xu. Ms Wang's evidence was that Aojia was a design company which sued "Oceania Construction Company", a reference to Oceania Industrial Pty Ltd, of which Ms Wang was sole shareholder and director, rather than Oceania Construction Group Pty Ltd, of which Mr Xu was sole shareholder and director. The former was in some way jointly involved with Hua Cheng in a development project in Melbourne. When the project did not proceed Aojia sued for unpaid fees. Mr Xu's declaration of 13 September 2018 that he "personally" had an outstanding debt to Aojia which he "accepted responsibility for" (cf Judgment [284]-[287]) is to be understood in that context. The payment benefitted Ms Wang by discharging a liability owed to Aojia by a company she owned and controlled. 4. As to the payments totalling $1,135,687 made to Mr Buyuan Xu, the primary judge records at Judgment [91]-[99] that on 9 September 2016 a caveat was lodged over the Milsons Point and Sandringham properties claiming on his behalf an equitable interest under a deed of loan dated 7 September 2016. The deed of loan named each of Hua Cheng and DJ Royal as borrower, the former of the equivalent of CNY 11 million advanced on 30 September 2015, and the latter of the equivalent of CNY 9 million advanced on 8 October 2015. The repayment of each of those loans was guaranteed by Mr Xu. By clause 6(1) of the deed he agreed that the lender could lodge caveats over the two properties. However, there is no agreement to grant any security over the properties and, by cl 6(3), Mr Buyuan Xu agreed to withdraw the caveats once the borrowers had repaid the loans in full. The caveats were withdrawn, that over the Milsons Point property on 7 July 2017, and that over the Sandringham property on 2 May 2017. The discharge of the former allowed the registration of the May 2017 Mortgage in favour of Ms Wang. 5. As the primary judge observed, the dates and amounts of the advances referred to in this deed of loan corresponded with the dates and amounts of monies transferred by Ms Wang's sister, Ying Wang, to nominated accounts in China in 2015 (Judgment [96], [97]). (The primary judge attributed the differences between the sums of the nominated amounts deposited or advanced as due to currency fluctuations (Judgment [95]).) In this state of the evidence, the primary judge did not make any finding as to whether in 2018 Mr Xu owed his father money. One possibility was that the caveats had been withdrawn because the loans to Hua Cheng and DJ Royal had been repaid, consistently with what was agreed by cl 6(3). Another possibility was that the monies lent by Ms Wang's sister to Ms Wang and then to Mr Xu were lent to Mr Buyuan Xu and by him to Hua Cheng and DJ Royal (Judgment [105]). Putting these speculations aside, the evidence does not show that the two cheques drawn in favour of Mr Buyuan Xu were drawn in his favour as a creditor of Mr Xu. 6. Ms Wang was aware before settlement that Mr Xu proposed to make the payments to his father and to Aojia from the proceeds (Judgment [282], [286]); and that all of the proceeds of sale were to be paid away, leaving no funds to be held by Mr Xu and available for his unsecured creditors. The evidence does not indicate when Ms Wang first became aware that the proceeds of sale were to be paid away. However, the conveyancing clerk acting on her behalf (Kevin Lin) received specific instructions concerning the payment directions given by ACH to Golden Wealth, having first provided Ms Wang with a list of all of the cheques to be drawn on settlement. Ms Wang's more general instructions were that no cheque was to be drawn in favour of Mr Xu himself (Judgment [280]-[282]). That instruction confirmed her understanding that the whole of the proceeds of sale were being paid away. Conclusion 1. By way of summary, from Mr Xu's perspective the significant features of the transaction relevantly included: (1) the purchase price was $1.5 million less than the lender's valuation of the properties for mortgage purposes and $3.4 million less than his estimate of the combined value of the properties; (2) the transaction was undertaken at a time when SV was prosecuting debt recovery proceedings against Mr Xu as guarantor claiming in excess of A$28 million; (3) the purchaser was a newly acquired shelf company owned and controlled by Mr Xu's close business associate, who had a registered second mortgage over one of the properties securing an amount in excess of $5 million; (4) neither contract for sale provided for the payment of any deposit; (5) Mr Xu agreed to a set-off arrangement which ensured that ACH and Ms Wang would not have to pay any money from their own funds to undertake the purchases; (6) the treatment and allocation of the set-off amount as a "deposit" paid, as to part under each contract, and the payments made on settlement in discharge of the bank mortgages, did not have regard to the fact that each bank had security over only one of the properties and that Ms Wang's registered security was over the Milsons Point property; (7) on settlement payments were made to persons or entities having family or commercial associations with Mr Xu or Ms Wang, but not to them as creditors of Mr Xu; and (8) all of the proceeds of sale were to be paid away, leaving no monies or other assets in Australia available to SV or any other unsecured creditors. 2. It was submitted by ACH and Ms Wang that there was no evidence that Mr Xu knew the market value of the properties, and that his agreement to a sale price that was about 11% under market value was not otherwise "inherently suspicious". That submission is answered by the findings I consider should be made, namely that Mr Xu saw and was aware of the loan offer made to Ms Wang and ACH by AIG Capital; and that his estimate of the combined value of the properties exceeded $12 million. 3. It is also submitted that the payment to Mr Buyuan Xu and the benefits conferred on Ms Wang were intended to prefer them as creditors, which intention would not be contrary to s 37A (Re Hyams; Official Receiver v Hyams (1971) 19 FCR 232 at 260-261 per Gibbs J). However, the fact that a transaction has the incidental effect of conferring a preference does not show its object was not to defraud, hinder or delay creditors: In re Fasey [1923] 2 Ch 1 at 14 (Lord Sterndale MR). While part of the $2.34 million "deposit" (see above at [37] and [39]) could perhaps be analysed as a preference to Ms Wang (to the extent that sum exceeded the amount which might have been recovered under her registered second mortgage), that cannot be said of her receipt of the properties at an undervalue or the payment to Aojia. And the evidence does not support the conclusion that the payments to Mr Buyuan Xu were made in repayment of a debt owed by Mr Xu. 4. In these circumstances, I am satisfied that in entering into both contracts for sale and transferring the properties to ACH Mr Xu intended to put his only assets of any value beyond the reach of his unsecured creditors, principally SV. He did so by selling them together at an undervalue on terms which included a "set off" of $2.34 million in favour of Ms Wang and, after discharge of the bank debts, resulted in the payment of the remaining proceeds of sale to Mr Xu's father and Aojia, neither or whom was or was shown to be a creditor. In doing so, Mr Xu intended that he or his close business associate benefit from those payments, as well as the transfer of the properties at an undervalue. 5. Mr X's intention to put his only assets and their worth beyond the reach of SV involved the sale and transfer of both properties at the same time to the same purchaser funded by a single lender, the discharge of the bank debts from the combined proceeds of sale, and the application of the "set off" to monies payable under both contracts for sale. The transfers of the Milsons Point and Sandringham properties at the same time made it possible for the payments described in [39] above to be made. In relation to the Sandringham property, those payments reduced the amount which would otherwise have been available to unsecured creditors of Mr Xu. 6. For these reasons, and not for those given by his Honour, Mr Xu's sale and transfer of the two properties to ACH was made with intent to defeat the claims of his creditors within s 37A (see Marcolongo at [32], [87]). This conclusion also addresses and answers contention ground 2(c), that the agreement to sell at under market value did not itself involve an "intent to defraud creditors". Was SV "thereby prejudiced"? (appeal grounds 1 to 7; contention grounds 2(a), (b) and 3) 1. To be entitled to relief under s 37A, the applicant for relief must establish at the final hearing that he or she was "prejudiced" by the alienation sought to be avoided. None of that is controversial in this appeal. 2. For the reasons which follow, SV was "prejudiced" by the alienation of the two properties in accordance with Mr Xu's intent to defeat his creditors, and principally SV. Were the two properties "fully encumbered to secured creditors"? 1. The primary judge held that as an unsecured creditor of Mr Xu, SV was not prejudiced because there were three secured creditors – the two banks and Ms Wang – altogether owed $10.5 million. Assuming that the market value of the properties was $9.9 million, neither of the properties would have been available to unsecured creditors in the event that the transfers did not proceed. That was because the two banks had security over both properties, whereas Ms Wang had a mortgage security only over the Milsons Point property. It followed, his Honour reasoned, that Ms Wang was entitled to have the banks have resort first to the Sandringham property to satisfy their secured debts (Judgment [308], [309]). His Honour treated their doing so as likely both to satisfy their debts from and exhaust that security, leaving Ms Wang entitled to the proceeds of sale of the Milsons Point property, which were less than the amount of her secured debt. 2. On appeal, and accepting that the primary judge's marshalling analysis was correct, SV says that his Honour's calculation as to the value of the equity remaining in the Sandringham property and available to unsecured creditors was incorrect, and that the amount available would have been about $300,000. The respondents suggests that amount would have been as little as $38,262. The differences are explained by disputes as to the net proceeds that would have been available to the secured creditors ($5 million or $4.9 million) and as to the total amount owed to the banks ($4.7 million or $4.861 million). 3. It is not necessary to resolve these disputes because the more fundamental problem with his Honour's analysis is that its underlying premise – that NAB and ANZ had security over both properties – is not correct. It follows, ANZ having the first mortgage security over the Sandringham property, that after discharge of Mr Song's mortgage the amount available to unsecured creditors would have been in excess of $2.358 million. 4. There are three further matters raised by the arguments on appeal which might affect this analysis, either favourably or unfavourably to SV. First, SV contends that the prejudice to unsecured creditors is greater because the primary judge erred in concluding that Ms Wang was a secured creditor under the May 2017 Mortgage (Judgment [305]). As well as taking issue with that argument, the respondents raise a second matter, contending that Ms Wang was also a secured creditor in relation to the CNY 20 million advanced in 2015 from funds provided by her sister. Whether or not that loan was secured depends on the construction of the July 2015 IOU. That advance, as has already been observed, was made in two tranches, which correspond with the advances recorded in the 2016 deed of loan as having been made almost a year earlier by Mr Xu's father to Hua Cheng and DJ Royal. The third matter is ACH and Ms Wang's submission (made in support of contention grounds 2(a) and (b)) that any prejudice resulting from the distribution of the proceeds of sale, or from the sale of the Milsons Point property at under market value, did not arise by reason of the alienation of the properties. In relation to the former it is said to have arisen from Mr Xu's decision as to what to do with the proceeds; and as to the latter from the fact that the debts secured by mortgages over the Milsons Point property exceeded its market value. 5. It is convenient to consider these matters in the order in which the events to which they relate occurred. (1) Did the July 2015 IOU confer an enforceable right to security over the properties? (contention ground 3) 1. The primary judge found that in July 2015 Ms Wang borrowed CNY 20 million from her sister, who at Ms Wang's direction paid specified amounts into various bank accounts in China nominated by Mr Xu (Judgment [85], [86]). The funds were said to be required to enable the completion of the Hurstville development. Ms Wang's sister lived in China. That made it necessary for the transfer of money out of China, which was to be achieved by first transferring the money to a bank account or bank accounts of nominated third parties in China. Mr Xu nominated those accounts by providing two lists of bank accounts to which specified amounts should be paid. In the result, amounts were transferred to such accounts in two tranches – CNY 8.5 million on 30 September 2015 and CNY 11.5 million on 8 October 2015 (Judgment [86]-[88]). In the face of that evidence the primary judge was justified in being satisfied that those funds were thereby "lent" by Ms Wang to Mr Xu (Judgment [90], [324], [337]). On their transfer to the nominated accounts the monies were under the control of Mr Xu. The evidence did not permit any finding as to what he did with the funds (see [42] above). 2. The remaining issue is whether there was an agreement that this loan be secured. SV takes issue with the respondent's contention ground 3 that by the terms of the July 2015 IOU Ms Wang had a "specifically enforceable right" to security over the two properties. Whether Ms Wang had such a right is said to be relevant to the question of "prejudice" and the relief to which SV might be entitled. 3. The relevant part of the July 2015 IOU, as translated, read (Judgment [75]): I, Lawrence Xu … In order to maintain working capital for the construction of the Royal Plaza Project in Hurstville, am borrowing CNY 20 million from [Ms Wang] for a period of nine months from the date the loan is made … The loan has a fixed interest rate of 15% and a penalty interest rate of 25% p.a. … The principal and interest shall be paid back upon the maturity of the loan … I own two Australian properties whose respective addresses are [the Sandringham property] and [the Milsons Point property]. I am willing to refer [Ms Wang] to a lawyer to secure the loan with the two properties. This IOU is hereby established to acknowledge the above details. (emphasis added) 1. The primary judge held that although this language did not create an immediate security interest in the properties, it nevertheless recorded an agreement that "in consideration of Ms Wang lending him CNY 20 million [Mr Xu] would arrange to provide Ms Wang with security for repayment of the loan" over both properties (Judgment [81]). In doing so his Honour construed the statement as to Mr Xu's willingness "to refer [Ms Wang] to a lawyer to secure the loan" as an unconditional promise to do so (Judgment [82]). I respectfully disagree. In terms, it is a statement as to what Mr Xu was prepared to do, should Ms Wang communicate that she required security. That condition or qualification is unstated but implicit. As such, Mr Xu's statement was either an offer to secure the loan "with the two properties", which had to be accepted by Ms Wang, or a conditional agreement to do so, the condition being that Ms Wang indicate that she requires the security. In either event, there had to be a communication from Ms Wang to Mr Xu. That did not occur, either before the monies were advanced in September and October 2015, or at any time before the loan became due for repayment 9 months later. In these circumstances there was no enforceable agreement by Mr Xu to provide security over the two properties in respect of this loan. 2. It is to be noted that when considering whether ACH had discharged its onus under s 37A(3), his Honour took into account that there was such an enforceable agreement (Judgment [337]). However, there was no evidence, and his Honour did not find, that Ms Wang believed at the time of the challenged transactions that she had such an enforceable right to security with respect to the earlier loan. (2) Was Ms Wang a secured creditor under the May 2017 Mortgage? 1. The primary judge addressed the making of this loan between Judgment [143] and [240]. It is convenient to start by summarising the position as it emerges from the documentary evidence and his Honour's findings. (a) The movements of money between 5 and 19 May 2017 1. By April 2017, Hua Cheng was in default under the loan facility. On 24 April, Mr Xu met with representatives of SV's parent company, China Orient Asset Management (International) Holdings Ltd (China Orient), in Hong Kong. It was agreed that Hua Cheng would make a payment of HK$30 million to SV by 9 May 2017. That was roughly equivalent to A$5.15 million. Mr Xu spoke to Ms Wang about her lending all or part of that amount (Judgment [140]-[143]). In late April or early May 2017, Ms Wang agreed to lend A$5 million, with "security" over the two properties (Judgment [147]-[149]). On 7 May 2017, WeChat messages were exchanged referring to the proposed transfer of $5 million to Mr Xu on the following day (Judgment [151]). On the same day, a caveat was lodged on the title of the Milsons Point property on behalf of Ms Wang, describing her as a lender of a sum equivalent to A$5 million. The caveat was endorsed with Mr Xu's consent, he having earlier indicated to Ms Wang that he would "get my lawyer to arrange the security". The caveat referred to a deed of loan dated 1 May 2017. It was accepted that there was no such document. The primary judge concluded in relation to this that Ms Wang understood "no more than that the caveat provided her with some form of security" (Judgment [160]-[169]). 2. The loan was found to have been made as follows. On 5 May 2017, the equivalent of CNY 25.969 million (A$4,997,865) was transferred from a Chinese bank to Ms Wang's Westpac bank account. On 8 May 2017 that amount was transferred to an account styled DJ Royal Investment Account, opened with the Commonwealth Bank on that day, presumably with the involvement of Mr Xu, and according to the evidence without the knowledge of Ms Wang. Ms Wang gave conflicting versions of how that transfer occurred. The first was by the acquisition and delivery of a bank cheque. The second was by means of a telegraphic transfer intended for the DJ Royal cheque account. Ms Wang's evidence was that once that money was transferred into that account, Ms Jiang was to arrange for it to be paid to Mr Xu by the drawing of a cheque (Judgment [178]). 3. On 9 May 2017, a further amount of $1,305,167 was transferred into the DJ Royal Investment Account. The source of those funds is not identified by the primary judge, although on the previous day $1,305,145 was withdrawn from Hua Cheng's cheque account at the same branch of the Commonwealth Bank. From the funds then in that Investment Account, four withdrawals were made, including an amount of $5.7 million which was transferred to an account of Mr Xu in Hong Kong (Judgment [187], [188]). On Ms Wang's case, the loan to Mr Xu was made when the monies became available to Mr Xu in the DJ Royal Investment Account on 8 May 2017. SV disputes that, and also says that what followed involved or included the repayment in full of any loan. 4. On 16 May 2017, an amount of $5,442,976 was credited to the DJ Royal Cheque Account, the bank's transaction reference recorded as Mr Xu "lending". The primary judge made no finding as to the whereabouts of the account of Mr Xu from which that transfer was made, observing that it was "unlikely" that the transaction was unrelated to the transfer out of the Investment Account on 9 May 2017 (Judgment [202], [204]). On 17 May there were five withdrawals (totalling $5,443,000) from that account and on 19 May three deposits (totalling $3,443,113). Finally, on 19 May there was a further withdrawal of $3,470,415, which was deposited into a Hua Cheng Investment Account opened on that day. Those funds were used by Hua Cheng to purchase and transfer an amount of HK$20 million to China Orient in Hong Kong on 19 May 2017. 5. Before considering the challenges to the primary judge's findings in relation to these transactions, it is necessary to record the effect of the email communications between SV and its Australian lawyers with Hua Cheng and its lawyers in the period following the meeting in Hong Kong on 24 April 2017. A substantial issue between the parties was as to the release by the lender of certificates of title in the Hurstville development, being those required for settlement of sales of unsold lots, as well as those for lots which had been sold. At this time, an amount of $3,420,004, being part of the monies received from the sale of the lots, was held in a Hua Cheng bank account referred to between the parties as the "recovered sales account". 6. On 9 May, Hua Cheng proposed that it pay HK$20 million, instead of 30 million, and by 5 pm on 10 May 2017. On 10 May, SV agreed only to extend the deadline for payment of HK$30 million to 5 pm on 19 May 2017. On 17 May 2017 SV offered to pay that amount by that deadline subject to other conditions. That offer was rejected late on 17 May 2017. On 18 May, Ms Jiang on behalf of Hua Cheng made arrangements to pay the CNY equivalent of HK$10 million into a China Orient account "for inward remittance of CNY", and HK$20 million to a Hong Kong account nominated by China Orient. In doing so, Ms Jiang confirmed that the HK$20 million to be remitted "includes the current balance of the recovered sales account". On 24 May 2017, SV confirmed the receipt of HK$30 million on 19 May 2017. 7. Returning to the $5.7 million transferred to Hong Kong on 9 May 2017, Mr Xu's doing so is explicable on the basis that if necessary that amount was to be used to make the payment of HK$30 million originally due to be paid in Hong Kong by 5 pm on 9 May 2017. When that deadline was extended to 5 pm on 19 May 2017, it may be that Mr Xu repatriated most but not all of that amount to Australia and deposited it in the DJ Royal cheque account on 16 May. 8. The amount of $3,470,415 withdrawn from that account on 19 May 2017 was very close to, but not the same as, the sum of the three amounts deposited earlier on that day. If Ms Jiang's statement in her email of 18 May 2017 is accepted, the funds deposited included the balance of the recovered sales account of $3,420,004. If that was the source of almost all of those funds, the evidence does not explain what became of the five withdrawals totalling $5,443,000 made 17 May 2017. A possible explanation is that part of those monies was used in Australia to fund or purchase the "CNY equivalent of HKD 10 million" paid in China, the AUD equivalent being about $1.75 million. 9. In the end, the evidence did not permit findings as to the sources of these various transfers into the DJ Royal account, or as to what became of the $5.443 million. However, what is clear is that by 19 May 2017 the funding which Hua Cheng required to make the payments due to SV or its parent, China Orient, after taking account of the monies in the recovered sales account, had reduced to about $1.75 million. The primary judge found that this shortfall was met from "funds from an unidentified source within China", leaving unexplained what Ms Wang's A$5 million loan was used for (Judgment [216]). In all of this, there is no suggestion in the evidence that any part of the $5.443 million withdrawn was paid to or at the direction of Ms Wang, or acknowledged by her as received in satisfaction of the loan made earlier. 10. Finally, Ms Wang executed the mortgage, dated 25 May 2017, which described the amount secured as A$5 million. That mortgage was registered on 7 July 2017. It was prepared by Mr Xu's solicitors, Pancific Legal. 11. The primary judge rejected SV's submission that the May 2017 Mortgage, the WeChat message exchange and caveat were "shams" in the sense that they were created at the time the relevant events were said to have occurred but to support the existence of an underlying transaction which did not in fact occur (Judgment [229]-[240]). (b) Was a loan of $5 million made by Ms Wang to Mr Xu? (appeal grounds 4 and 5) 1. By grounds of appeal 4 and 5 SV maintains that his Honour erred in finding that a loan was made by the transfers of money to the DJ Royal Investment Account. It points to unsatisfactory aspects of Ms Wang's evidence concerning the making of the loan, respects in which the contemporaneous documents do not accord with her version of the events by which the loan was made, and Ms Wang's later conduct in relation to the enforcement of the mortgage, which is said to call into question that she believed there was a mortgage debt that had not been repaid. It is submitted that these matters justify the conclusion that the primary judge's finding that a $5 million loan was made, and intended by Mr Xu and Ms Wang to be secured by the May 2017 Mortgage, was "glaringly improbable" and "contrary to compelling inferences"; thus satisfying the language of the plurality in Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [29] as to circumstances in which an appellate court might overturn factual findings influenced by assessments of a witness' credibility. 2. The authorities are not entirely uniform on the question of when appellate restraint founded on a trial judge's advantage in assessing credibility should apply. The reasons of the plurality in Fox v Percy refer to findings which "appear to be, or are stated to be, based on credibility findings" (at [28]) or which were "expressly or implicitly... influenced by an opinion concerning the credibility of witnesses" (at [29]). In CSR Ltd v Maddalena [2006] HCA 1; (2006) 80 ALJR 458 at [23], Kirby J (with whom Gleeson CJ agreed) took that decision to have disapproved of the exercise of restraint against the possibility of some "subtle influence of demeanour" in cases where "no express reference was made to such consideration". So, for instance, this Court has reviewed findings resolving a conflict of evidence between witnesses without any "impediment of the kind stated in Fox v Percy" where the finding that one witness' evidence was more "reliable" was, read properly, merely a finding that it better corresponded with "other evidence in the trial": Ross v Vaughan [2016] NSWCA 188 at [41]-[42] (Simpson JA, Beazley P agreeing). 3. However, just how readily it follows from the absence of express reliance on demeanour or credibility that those considerations "played no part" in a trial judge's findings of fact is not wholly clear: cf Abalos v Australian Postal Commission (1990) 171 CLR 167 at 179 (McHugh J, Mason CJ, Deane, Dawson and Gaudron JJ agreeing); [1990] HCA 47; CSR Ltd v Maddalena at [180] (Callinan and Heydon JJ). At a minimum, implicit or likely reliance will suffice: most recently, in Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 at [55], Bell, Gageler, Nettle and Edelman JJ said that appellate restraint "is as to factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge". 4. At the trial SV made a wholesale attack on Ms Wang's credibility, submitting that "every utterance [she made] in her affidavits and cross-examination was false" and that accordingly the primary judge should not accept "any evidence she gave unless it was against her interest or was corroborated by other independent evidence" (Judgment [21], [26]). The primary judge did not accept those submissions. At the same time, he made no express findings or observations about the general credibility or reliability of Ms Wang's evidence. On the contrary, he accepted Ms Wang's counsel's acknowledgment that there were a "number of unsatisfactory features about Ms Wang's affidavit and oral evidence", which included "inconsistencies concerning recollections of some events between affidavits, topics and details raised in later affidavits which were not raised in earlier affidavits, and occasions in cross-examination when Ms Wang did not give direct answers to questions asked of her" (Judgment [19]). 5. This is not a case where the primary judge has expressly or implicitly reached any overall conclusion concerning the relevant witness' credibility or reliability. Rather, as his Honour's reasons show, he addressed Ms Wang's evidence in relation to particular factual questions in the light of her other evidence, the evidence of any other witness, the contemporaneous material and the probabilities. In doing so, his Honour's reasons (see Judgment [60], [74], [89], [90], [114], [127], [169]) do not suggest any predisposition to accept or reject Ms Wang's evidence by reference to impressions as to her credibility and reliability which he had formed. 6. Furthermore, Ms Wang's oral evidence was given in Mandarin and through an interpreter. That four-step means of communication – question, translation, answer, translation – makes more difficult any assessment of a witness' credibility by reference to demeanour and the manner in which the evidence is given. That is not made any easier if, as was the case here on occasion, the cross-examination consists of questions introduced by unnecessary comments, containing idiomatic expressions, or including more than one proposition, rather than short questions directed to matters of fact. 7. Another difficulty facing the primary judge was, as he recognised at Judgment [20], that apart from the contemporaneous material and Ms Wang's evidence, there was little other evidence against which to test or explain her dealings with Mr Xu. In argument in this Court it was suggested that having recorded that there was "no contradictor to Ms Wang's account", the primary judge proceeded on the basis that he should accept Ms Wang's account unless it was "utterly incredible". There is no support for that submission in his Honour's reasons, which in relation to the $5 million loan address Ms Wang's evidence in the light of the challenges made to it in cross-examination, and without any predisposition to accept or reject it other than by reference to the considerations referred to above. 8. As is already apparent, SV contends that even if his Honour's principal factual conclusions were based to some extent on an assessment of Ms Wang's credibility, this is a case in which the primary judge's factual findings might be overturned in the face of the probabilities, contemporaneous material and inconsistencies in Ms Wang's evidence. The unsatisfactory aspects of the latter concerning the making of this loan are said to be: the absence of any mention of the A$5 million loan and mortgage in her four affidavits affirmed before 11 October 2019, in circumstances where those earlier affidavits traversed matters to which they were relevant; the giving of two inconsistent versions of how the $5 million was transferred from her Westpac account to the DJ Royal Investment Account; that no cheque withdrawals were made from the DJ Royal Investment Account, although the arrangement said to have been made was that Mr Xu would instruct Ms Jiang to draw a cheque on the relevant DJ Royal account to make the loan; and that Ms Wang had been "tricked" by Mr Xu into transferring money into the new DJ Royal account which he had opened and he controlled. 9. The respects in which the contemporaneous documents are said not to accord with Ms Wang's version of events include: the WeChat message did not make sense because it referred to a shortfall of HK$10 million whereas the amount payable to China Orient was HK$30 million; the purpose for the transfer of the monies from China into her Westpac account was described by Ms Wang as "family support"; the caveat referred to a deed of loan which did not exist; the caveat was lodged before the loan was made, but after it was agreed; the mortgage was dated 25 May 2017 and registered on 7 July 2017; the language of the mortgage was not apt to refer to a loan that had already been made; the loan money was transferred to a DJ Royal account, and accordingly to a company controlled by Ms Wang rather than directly to Mr Xu or a company controlled by him. 10. In relation to Ms Wang's subsequent conduct, it is said that the surrender of her rights under the mortgage in return for a set-off of $2.34 million, which involved no payment of money, left her "over $2.6 million worse off" than if she had enforced the mortgage. This submission can be dealt with immediately. It wrongly assumes that the doctrine of marshalling applied, entitling Ms Wang as the remaining secured creditor to the whole of the proceeds of sale of Milsons Point, as well as that she appreciated that was the case. 11. The bank records established that Ms Wang transferred an amount of A$5 million from her Westpac account to an account of DJ Royal which Mr Xu was authorised to operate, and that he transferred all or part of that amount to an account in Hong Kong that he controlled. The only people who could have given the instructions for the opening of that account and transfer of those funds were Ms Wang or Mr Xu. Ms Wang said she did not, and it is not submitted by SV that she did. Furthermore, what happened was consistent with the evidence as to the exchange of WeChat messages on 7 May 2017, which read (Judgment [151]): [Ms Wang]: Tomorrow you borrow $5 million from my account to transfer to [China] Orient. Yesterday you asked me to transfer you $5 million. Is this to transfer to [China] Orient? [Mr Xu]: Yes. [Ms Wang]: Did you say that shortfall was HKD 10 million? 1. The primary judge rejected SV's submission that the evidence of the WeChet messages was fabricated because that was not suggested to Ms Wang in cross-examination and not ultimately put until submissions in reply (Judgment [153], [154]). In this Court it is submitted that the mere absence of cross-examination did not require acceptance of the genuineness of the document, because it "did not make sense", giving rise to substantial doubt as to its authenticity. Although the primary judge described the reference to a HK$10 million "shortfall" as "curious", he was not prepared to draw any inference adverse to Ms Wang from that alone and in the absence of cross-examination. That did not involve error. Furthermore, a possible explanation for the "shortfall" was that even as at 7 May 2017, Mr Xu eventually expected to obtain access to the monies in the "recovered sales account", leaving the likely, but perhaps not immediate, funding shortfall at HK$10 million. 2. The WeChat evidence, as SV accepts, significantly corroborated Ms Wang's evidence as to the making of the A$5 million loan so that funds could be transferred to China Orient in Hong Kong. The loan to which the caveat referred was "the sum equivalent to" A$5 million. The equitable interest claimed was said to arise, incorrectly, under a deed of loan dated 1 May 2017. However, as the primary judge observed at Judgment [164], there was no evidence that Ms Wang played any role in the preparation or lodgement of the caveat. Likewise, the mortgage was prepared, signed by the mortgagor and mortgagee, and lodged for registration. The delay in its registration was explained by the need to discharge Mr Buyuan Xu's caveat. The amount secured corresponded with the amount actually advanced. SV's argument as to whether the mortgage only secured a loan made after it was entered into is dealt with below. The infelicities of language relied on for that argument do not call into question the "genuineness" of the mortgage. 3. Finally, none of the remaining matters relied on by SV and summarised above makes his Honour's conclusion as to the existence of the secured loan improbable or contrary to incontrovertible facts or compelling inferences. The absence of earlier reference to the loan and mortgage in Ms Wang's affidavits does not call into question facts established by the contemporaneous bank records, the WeChat message, the caveat, and the mortgage. Ms Wang's failure to recall accurately how the monies she received were transferred to Mr Xu's control did not deny that he ultimately obtained access to the funds and transferred all, or at least the major part of them, to Hong Kong. The same may be said about Ms Wang's evidence that she was "tricked" into transferring the funds to a new account. Her description of the monies transferred from China as being for "family support" may have been misleading but, again, it does not contradict the fact that money was received into her account and then paid away. The difficulties with the caveat were not of Ms Wang's making and were not inconsistent with the fact of the loan of A$5 million. 4. For these reasons grounds 4 and 5 should be dismissed. (c) Was the loan of $5 million secured by the mortgage, or repaid on 16 May 2017? (appeal grounds 6 and 7) 1. SV contends by ground 6 that the money lent to Mr Xu on 8 May 2017 was not secured by the May 2017 Mortgage. Two arguments are made. First, it is said that cl 2(1)(a) of the mortgage, which provides that "the Mortgagee agrees to advance to the Mortgagor the sum of 5 million Australian dollars" is not apt to refer to a loan that had already been made, as distinct from one which it had been agreed would be made. Secondly, it is submitted that there was no "advance", in circumstances where Mr Xu had tricked Ms Wang into transferring the money to be advanced into account B when she believed she was transferring the money into account A. 2. The mortgage describes the "Principal Sum" and "Secured Money" as the sum of A$5 million. Clause 2(1)(a) records the mortgagee's agreement to advance that sum to the mortgagor. It is silent as to whether the amount has been paid, and cl 2(1)(b) assumes that it will have been advanced by the Commencement Date, or date of the mortgage. By cl 2(1)(c), the mortgagor "conveys" the Milsons Point property by way of mortgage to secure the payment of the sum advanced. In its terms the mortgage is capable of applying to an advance made before its Commencement Date. In that event there might arise a question as to whether the mortgagee is entitled to interest at the rate provided in the mortgage before that date. However, that question is not raised here. SV's first argument should be rejected. The fact that the amount intended to be advanced was paid into the account nominated by Mr Xu was sufficient to constitute performance of the loan agreement, which required only that payment be made "to the Mortgagor". 3. By ground 7, SV contends that the transfer of $5.442 million by Mr Xu to the DJ Royal cheque account on 16 May 2017 was a payment to Ms Wang in repayment of her loan. That is said to be so because the payment was made into a bank account of a company which she owned and controlled. It does not follow that it was a payment to Ms Wang, especially when regard is had to the other circumstances in which the deposit was made. First, the deposit was not identified as a repayment of Ms Wang's loan, and was not paid into an account of Ms Wang. Secondly, the amount of the deposit ($5.442 million) did not match the loan amount ($4.997 million). Thirdly, the description of the transfer from Mr Xu as "lending" does not mark the transfer as a loan repayment, as distinct from a "lending" made by Mr Xu to DJ Royal or Hua Cheng. Finally, on the following day Mr Xu made five withdrawals from the account which totalled the amount of the transfer, conduct inconsistent with the money being a repayment of Ms Wang's loan. 4. It follows that grounds 6 and 7 also should be dismissed. (3) The cause of the prejudice to SV (contention grounds 2(a) and (b)) 1. By contention ground 2(a), ACH and Ms Wang argue that the cause of any prejudice to SV was ultimately Mr Xu's direction to pay the balance of the proceeds of sale to his father and Aojia, and not the alienation of either property. There are three difficulties with this contention. The first is that the distinction between the transfers of the properties to ACH and the transaction of which the transfers were the essential part is artificial and unwarranted. As the analysis at [39] above shows, the sale and transfer of the properties together, in the context of the set-off agreement, enabled the payments to Mr Xu's father and Aojia to be made. The second is that the payment directions were given before settlement. As such they formed part of the means by which the purpose of defeating the unsecured creditors was achieved. Finally, even if Mr Buyuan Xu had not received any part of the proceeds of sale, SV would have been prejudiced in part by the alienation of Sandringham at an undervalue and in part by the set-off of the deposit against the discharge of a mortgage which was not over that property. 2. In support of contention ground 2(b), it is submitted that there could be no prejudice from the sale of Milsons Point, which was fully encumbered to NAB and Ms Wang. This contention ignores the fact that, as is noted at [39] above, the payment of the NAB mortgage from the proceeds of the Sandringham sale, and the set-off arrangement with respect to the deposits, enabled moneys to be paid from the proceeds of the Milsons Point property. The overall result was that moneys which otherwise would have been available from the Sandringham property were not, in part because of the interrelated sale and transfer of the Milsons Point property. Was ACH a purchaser in good faith not having notice of Mr Xu's intention to defraud creditors? (grounds 8 to 15 of appeal) 1. Two matters as to the operation of the proviso to s 37A are not in dispute. First, although the consideration moving from ACH was less than the market value of the properties, ACH was a "purchaser" within the meaning of s 37A(3). Secondly, the onus is on a person relying on the proviso to prove that they come within its operation (Wentworth v Rogers [2004] NSWCA 340 at [62]-[68]), as was the position under the Elizabethan statute: Marcolongo at [12], citing Glegg v Bromley [1912] 3 KB 474 at 492 (Parker J). Accordingly, it was for ACH to establish both that it lacked "notice" of Mr Xu's fraudulent intent (as to which see [47] above) and that it was a purchaser "in good faith". The focus of the argument in this Court was on whether ACH had made good the first of those propositions. It is not necessary to consider the latter separately. The meaning of notice in s 37A(3) (appeal grounds 10 and 11) 1. Although in its written submissions the appellant contended for a construction of "notice" in s 37A(3) which included constructive notice, that contention was not pressed in oral argument. Also abandoned was any argument that notice or knowledge of Ms Wang's conveyancing solicitor as to Mr Xu's fraud could in this context be imputed to her. Ultimately, the appellant contended that actual notice included wilful blindness in the sense described by Lord Esher MR in The English and Scottish Mercantile Investment Co Ltd v Brunton [1892] 2 QB 700 at 707-708: The doctrine of constructive notice is wholly equitable; it is not known to the common law. There is an inference of fact known to common lawyers which comes somewhat near to it. When a man has statements made to him, or has knowledge of facts, which do not expressly tell him of something which is against him, and he abstains from making further inquiry because he knows what the result would be — or, as the phrase is, he "wilfully shuts his eyes" — then judges are in the habit of telling juries that they may infer that he did know what was against him... There is no question of constructive notice or constructive knowledge involved in that inference; it is actual — knowledge which is inferred. 1. That is to say no more than that a failure to inquire may justify a finding of knowledge. As a factual matter, that must be right. It is therefore not necessary to decide whether constructive notice is sufficient to deprive a purchaser of the protection of s 37A(3). It may, however, be doubted that it is. 2. Section 164 of the Conveyancing Act 1919 (NSW), on which some reliance was initially placed, restricts the meaning of constructive notice when that doctrine is applicable. As s 164(3) makes clear, the section does not extend the meaning of "notice" to include constructive notice in circumstances where the latter doctrine otherwise has no application. The question remains simply how to construe s 37A(3). 3. The superficially broad words of the proviso to 13 Eliz I c 5, which referred to "any manner of notice or knowledge", were given a restrictive construction by the English authorities. The effect of those authorities was "summed up" in Marcolongo by a passage which stated that it was necessary to show "that the grantee was privy to the intent" of the fraudulent grantor: Marcolongo at [24], quoting Halsbury's Laws of England (1st ed, London: Butterworth, 1911) (emphasis added). In re Fasey; ex parte Trustees [1923] 2 Ch 1, decided shortly before the replacement of the Elizabethan statute by the Law of Property (Amendment) Act 1924 (UK), is illustrative. Lawrence J held, citing In re Johnson; Golden v Gillam (1881) 20 Ch D 389, that in order to set aside a transaction for valuable consideration under the Elizabethan statute it was "essential" for the purchaser to have "concurred in" the vendor's fraud, in the sense that they accepted the conveyance with "full knowledge" of the fraudulent intention. Other decisions referred to transferees being "party or privy to the fraud", to ultimately similar effect: see eg In re Reis; ex parte Clough [1904] 2 KB 769 at 776 (Cozens-Hardy LJ), using language which suggests the possibility of proof by indirect evidence. 4. The "purely equitable doctrine of constructive notice" sits somewhat uneasily with the common law origins of 13 Eliz I c 5 and its successors: Marcolongo at [26]; as to the former proposition, see eg Rolle v Ryall (1749) 26 ER 107 at 115; 1 Atk 165 at 178; Barton v Vanheythuysen (1853) 68 ER 1215 at 1218; 11 Hare 126 at 132-133. Marcolongo was, of course, concerned directly with intention to defraud, not the proviso. But the same reasoning applies to the construction of the proviso, which Lord Mansfield also regarded as declaratory of the position at common law: Cadogan v Kennett (1776) 98 ER 1171 at 1172; 2 Cowp 423 at 434. 5. Although it is, again, not necessary to decide, there is therefore much to be said for the view that s 37A(3) does not refer to constructive notice. Two decisions suggesting the contrary may be dealt with briefly. The first, Lloyds Bank Ltd v Marcan [1973] 1 WLR 339, appears to have been based in part on a misreading or selective quotation of In re Fasey, and is distinguishable insofar as the Law of Property Act 1925 (UK), s 205 expressly defines "notice" as including "constructive notice". 6. The other decision is that of Parker J in Nguyen v Corbett [2017] NSWSC 1689. His Honour stated that s 164 would "appear to govern" s 37A and queried the correctness of Coghlan v Alexander (1905) 5 SR (NSW) 441, in which the Full Court of the Supreme Court of New South Wales expressly declined to apply the doctrine of constructive notice to the proviso to 13 Eliz I c 5, on the basis that the passages of May and Worthington, A treatise on the statutes of Elizabeth against fraudulent conveyances (2nd ed, London: Stevens and Haynes, 1887) reportedly relied upon had nothing to do with the relevant proposition: Nguyen v Corbett at [150]-[160]. The limited operation of s 164 has already been explained. As to Coghlan, while "pp 7, 8" of May and Worthington do not support the relevant proposition, it is much more likely that the Full Court actually relied on p 78, which had been cited in argument and which states, citing In re Johnson, that a transferee must have concurred in or been privy to any fraudulent intention. The primary judge's reasoning 1. His Honour made the following findings in support of his conclusion that ACH had established that it acquired the properties in good faith, not having notice of Mr Xu's intent to defraud his creditors (Judgment [319]): (1) that Ms Wang negotiated the purchase price without knowing that "as a matter of valuation fact" the agreed price for the properties was less than their actual value; (2) that she was aware that Hua Cheng was in financial difficulty, and that receivers had been appointed by the lender, SV; (3) that she did not agree that she knew Mr Xu might be personally liable for Hua Cheng's debts; (4) that she negotiated the deduction of $2.34 million from the agreed price on account of the much larger amount that she genuinely believed Mr Xu owed her; (5) that Ms Wang believed that she was a substantial creditor of Mr Xu; and (6) that her focus in entering into the transaction "was entirely directed to endeavouring to recover from Mr Xu all or part of what she believed he owed her", that amount including $7.185 million due under the July 2015 IOU. 2. The primary judge made no findings as to Ms Wang's knowledge of how the proceeds of sale of each property were to be paid away or as to whether any part of those proceeds would remain available for Mr Xu's unsecured creditors, principally SV. Nor did his Honour make any finding as to whether Mr Xu had any other substantial assets, real property or otherwise, in Australia. 3. The appellant challenges most of these findings in support of its contention that the primary judge erred in being satisfied that ACH had proved it was a purchaser in good faith not having notice of Mr Xu's intention to defraud his creditors. That makes it necessary to deal with those challenges before addressing the substantial issue raised by ground 8. 4. The finding that Ms Wang negotiated the purchase price for the properties without knowing that the agreed price was less than the market value of the properties (Judgment [325]): There are three respects in which the evidence suggested that Ms Wang was aware at the relevant time that the properties had been valued for lending purposes at $10.3 million. The first emerges from her affidavit evidence. At this point it is to be noted that Ms Wang migrated to Australia in 2009, aged 39, and described herself as having "limited ability to read and speak in English". No doubt for that reason, her affidavits were prepared and her evidence was given with the assistance of an interpreter. In cross-examination she also described herself as "very experienced" in the construction industry in China, having completed a "lot of projects". 5. In her first affidavit in response to the freezing orders, made on 12 December 2018, just three months after the impugned transactions, Ms Wang explained the circumstances in which ACH had acquired the two properties. They included that valuations were undertaken resulting in a loan amount of "$7,210,000... determined as 70% of the combined valuation amounts for the two properties". That affidavit did not say when she had first acquired that knowledge. In a further and fuller affidavit made on 30 January 2019 Ms Wang repeated (by specifically referring to) that earlier explanation. In her affidavit of 31 July 2019 in the underlying proceedings, Ms Wang referred to the lender's valuation of the Milsons Point property at $4.3 million. Ms Wang did not in her affidavit or oral evidence assert that she had no knowledge of either of those valuations at the time the contracts for sale were exchanged in late August. 6. Secondly, on or after 28 August 2018, and before those contracts were exchanged, Ms Wang signed each page of the AIG Capital loan offer, which on page 1 described the loan amount as "$7,210,000 (70% of valuation)". That offer also recorded that a $4,400 fee for obtaining those valuations had been "paid". Ms Wang gave no evidence that she was not able to read and understand, and did not have explained to her, what appeared on page 1, or that she had not seen and did not know of the valuations for which ACH had paid a significant fee in advance. 7. In her last affidavit in the underlying proceedings, affirmed on 22 October 2019, Ms Wang said at para 22: At some point in time during the negotiations between Lawrence and me to purchase the Sandringham Property and the Milsons Point Property, I was informed that Golden J Wealth Pty Ltd, from which AC Holdings was borrowing money to complete the purchase, would only lend AC Holdings $7.2 million. However, the total price for which I had agreed to purchase the properties was $8.8 million. In addition, there were further expenses associated with the purchases. I did not want to pay money from my own pocket to complete the purchase of the two properties. (emphasis added) 1. According to her evidence, Ms Wang then had a conversation with Jolina (Juliana) Jiang in which she proposed that because the lender would "only lend me $7.2 million" the "gap between the total cost of the purchases and $7.2 million be deducted from the money Lawrence owes me". 2. In this state of the evidence there are two difficulties with his Honour's finding at Judgment [325]. First, in its terms the finding focuses on the time when the purchase prices were negotiated, which was on Ms Wang's evidence much earlier than when the contracts were exchanged. In her affidavit of 22 October 2019 Ms Wang maintained that those negotiations had been concluded in May 2018, which was before ACH was incorporated or acquired. However, the time for considering any question as to her knowledge was late August 2018. The second difficulty is that in his earlier discussion supporting that finding (Judgment [258]-[260]) the primary judge approached that question from the position that it was for SV to prove that Ms Wang (and accordingly ACH) knew that the purchase prices were below market value, concluding that there was no evidence compelling that conclusion (Judgment [258]). 3. Had his Honour proceeded on the basis that the absence of actual knowledge or notice of that fact was for ACH to prove, he could not have been so satisfied where there was no statement from Ms Wang that she did not know that fact. Taking account of her concern that she (and ACH) not pay any money beyond what could be borrowed, the fact that ACH had paid $4,400 to obtain the lender's valuations, and the fact that she had received and initialled the statement on page 1 of the loan offer, the likelihood is that in the course of seeking to understand why AIG Capital could only arrange a loan of $7.21 million Ms Wang became aware that the lender's valuations exceeded the proposed purchase price by more than $1 million. Two things follow. First, as well as being directed to the wrong time period, the finding at Judgment [325] was not supported by the evidence. Secondly, the evidence supported an inference that in late August 2018 Ms Wang did know of the valuations; and did not support a finding that she did not know of them at that time. 4. The finding that the set-off of $2.34 million was negotiated on account of the much larger amount believed to be owed (Judgment [326]): The appellant did not squarely challenge this finding. It did, however, put the finding in issue by its submission, by reference to the primary judge's observations at Judgment [261], that the deduction of $2.34 million, recorded in the settlement sheets as the "deposit paid" for the properties, was an irregularity which called for a full explanation consistent with the absence of any notice of Mr Xu's fraud. That submission should be accepted. 5. The more fundamental problem is that the finding does not take account of the final version of Ms Wang's evidence about the negotiation of the set-off. That evidence is set out at [109] above. Contrary to his Honour's findings at Judgment [247], [261] and [326], there was no negotiation for a "deduction" from the purchase price which took account of the overall amount she was owed by Mr Xu. In her earlier affidavits Ms Wang had described such a negotiation in which Mr Xu first offered $880,000, she responded requesting $3 million, and he countered by offering $2.34 million, which she accepted. On that version of events that amount had no significance beyond being the number on which they agreed. 6. In fact, and as was agreed, that number represented the amount that it was necessary to deduct from the combined purchase price to ensure that ACH and Ms Wang would not have to pay any money from their own funds. The "agreed" deposit amounts were $1.59 million and $750,000. The former was the difference between the total purchase price and the gross amount of the borrowing. The latter was the sum of the borrowing costs, being the difference between the gross and net amount of the borrowing ($224,860), and ACH's other transactional expenses (totalling $525,140), including stamp duty, lawyer's fees, and a payment to Ms Wang of $16,551. 7. Thus, in relation to the negotiation of the set-off, it was not right to say that Ms Wang's focus was "entirely directed to endeavouring to recover from Mr Xu all or part of what she believed he owed her" (cf Judgment [334]). Rather, it was directed to ensuring that the proposed transactions proceeded without Ms Wang and ACH being out of pocket. Furthermore, there is no suggestion that Ms Wang sought or received any legal or other advice as to her entitlement as second mortgagee of the Milsons Point property, or as to how she might improve her recovery in circumstances where a payment of $1.1 million was being made to Mr Xu's father from the proceeds of the Milsons Point settlement. The evidence did not support his Honour's conclusions at Judgment [326] and [334]. 8. The finding that Ms Wang was aware that Hua Cheng was in financial difficulty (Judgment [342]): This finding is not challenged. However, it does not include an indication of the extent of Ms Wang's knowledge. 9. Receivers were appointed to Hua Cheng in April 2017. Ms Wang's later understanding (by July 2017) was that the receivership involved a form of bankruptcy. As at April, the amount claimed as due to SV was the equivalent of A$35.4 million. When judgment was eventually obtained against Mr Xu in April 2019, it was for an amount of A$22.7 million. Payment demands were made on Mr Xu and on Hua Cheng at the time the receivers were appointed, the latter demand addressed to Jolina Jiang at the Hurstville office where she worked for Mr Xu and Ms Wang. At that time Ms Wang was "helping" with the sales of units in the development. Later in that month she became aware of Mr Xu's meeting with the representatives of China Orient in Hong Kong. In these circumstances, and in the absence of any statement by Ms Wang that the position was otherwise, it should be inferred that by August 2018 her understanding was that the Australian dollar equivalent of Hua Cheng's liability to SV (or China Orient) was claimed to be in the tens of millions of dollars. 10. That Ms Wang did not agree that she knew Mr Xu might be personally liable for Hua Cheng's debts (Judgment [343]): Although not in the form of a finding, this statement addresses a matter which is critical to the question arising under s 37A(3). In my view his Honour's statement does not sufficiently take account of Ms Wang's evidence immediately preceding the answer on which it is based. Furthermore, if the position in the evidence remained as the statement suggests, that presented a difficulty for ACH, which bore the onus of establishing that Ms Wang did not know or believe that Mr Xu had guaranteed Hua Cheng's liability to SV. The relevant questions and answers given in cross-examination were: Q. And you were aware that Mr Xu had guaranteed Hua Cheng's loan from Super Vision; correct? A. INTERPRETER: My understanding is the Oriental assets is the same situation as me. We are all creditors and Lawrence Xu, he make - he act as guarantee for the money he borrowed. Q. But for the money he borrowed - well, I should say for the money that Hua Cheng borrowed from Super Vision; correct? A. INTERPRETER: Lawrence Xu act as a guarantee. Actually, he used his assets as a guarantee to borrow money from me. .... Q. You were aware in about early 2017 that Lawrence Xu had guarantee Hua Cheng's loan from Super Vision; correct? A. INTERPRETER: I knew that it was in 2015 that Oriental assets borrowed money from Hua Cheng. Q. And you knew that Mr Xu had guaranteed that loan, personally; correct? A. INTERPRETER: I'm not quite sure whether he personally act as a guarantee because this is - this is confidentiality. 1. The references to "Oriental assets" are to SV's holding company, China Orient. Ms Wang's first two answers agree that Mr Xu acted as a "guarantee", plainly meaning "guarantor", of the loan to Hua Cheng. In her last answer (extracted by his Honour at Judgment [343]) Ms Wang expresses a lack of certainty as to that being the position because of some unexplained aspect of "confidentiality". However, I do not read the final answer as qualifying her earlier evidence that she knew or believed that Mr Xu had guaranteed the Hua Cheng debt. In my view a finding to that effect should have been made. So understood this evidence certainly did not support a finding that Ms Wang did not believe that Mr Xu had guaranteed Hua Cheng's liability. Finally, even if the last answer is to be understood as materially qualifying the earlier ones, it does no more than leave the position as to Ms Wang's knowledge uncertain. Ms Wang's understanding of Mr Xu's financial position and as to the disposition of the sale proceeds 1. There remain to be considered Ms Wang's belief as to Mr Xu's financial position and how the proceeds of sale were to be dealt with. The second of these matters is addressed in [42] above. As to that, Ms Wang was aware before settlement that significant payments were to be made to Mr Xu's father and to Aojia. As is explained in [39] above, she also understood that the payment to Aojia would benefit her by discharging a liability owed by a company she owned and controlled. As to the payments to Mr Xu's father, the evidence does not suggest that the cheques drawn in his favour were payable to him as a creditor of Mr Xu (see [40] and [41] above). Ms Wang's position was that she did not give much attention to the payments on settlement provided "no part of the proceeds was paid to Mr Xu himself" (Judgment [280], [282]). That evidence was by no means satisfactory, leaving open the possibility, indeed the likelihood, that the moneys paid to Mr Buyuan Xu would be at the disposal of Mr Xu, and accordingly for his benefit. Ms Wang gave no evidence of an assurance as to that not being the position; and her past experiences with Mr Xu could provide no confidence that the position was otherwise. 2. The primary judge made no specific findings as to Ms Wang's knowledge of Mr Xu's financial position. Nevertheless two matters were reasonably plain. The first was that from Ms Wang's perspective Mr Xu had been unable to repay liabilities of CNY 20 million incurred in September and October 2015 and of A$5 million incurred in May 2017, notwithstanding repeated and ongoing requests from her that he do so. He was clearly having difficulty paying his debts. Secondly, the only real property assets identified in the evidence as owned by Mr Xu were the Sandringham and Milsons Point properties and a property at Kyle Bay which at some stage in 2015 Mr Xu told Ms Wang was owned by him and his ex-wife. The property ownership evidence showed that last statement was not correct. An available inference from the evidence was that Ms Wang believed that those two properties were his only substantial assets in Australia. In the July 2015 IOU the "two Australian properties" owned by Mr Xu are described as the Sandringham and Milsons Point properties. In relation to the proposed mortgage security for the A$5 million loan, the discussions between Mr Xu and Ms Wang referred only to the Sandringham and Milsons Point properties. Notwithstanding that she engaged in lending transactions with him from mid-2010, and that they worked in the same small office between August 2014 and early 2017, Ms Wang gave no evidence that she believed Mr Xu had other substantial assets from which her debts might have been paid; and his affidavit was that he did not. Did ACH prove that it had no notice of Mr Xu's intent to defraud? 1. Turning then to the question whether the primary judge erred in finding that ACH had proved that it did not have notice of Mr Xu's intent to defraud creditors, from Ms Wang's perspective (and accordingly the perspective of ACH) the significant features of the challenged transaction were: (1) the properties were being sold at an undervalue, the purchase price being about $1.5 million less than the lender's valuations; (2) the properties were Mr Xu's only substantial assets in Australia; (3) at the time of the transaction Mr Xu's company, Hua Cheng, was in "bankruptcy" and Mr Xu as guarantor was liable for repayment of its debt to SV, which in Australian dollars was claimed to be in the tens of millions; (4) to secure ACH's participation as purchaser, Mr Xu agreed to a "set off" arrangement which meant that Ms Wang and ACH would not be out of pocket, $2.34 million would be deducted from the "business" between her and Mr Wu, and in return her wholly owned company, ACH, would receive value equivalent to $2.34 million by the acknowledged "payment" of the deposits; (5) on settlement all of the proceeds of sale of each property (being the funds provided by the lender) were to be paid away, leaving Mr Xu with no assets available for SV or any other unsecured creditors; (6) the substantial payments from those funds, other than to Mr Xu's banks, were to be made to his father and to Aojia, neither of whom was being paid as a creditor of Mr Xu. 2. Each of these matters either was known to Ms Wang or was likely to be known to her in circumstances where she had given no evidence to the contrary. 3. It was apparent that the effect of the transaction, and its purpose, was to sell Mr Xu's only substantial assets at an undervalue and apply their proceeds of sale for the benefit of Mr Xu and Ms Wang, thereby denying Mr Xu's principal unsecured creditor, SV, recourse to them and the proceeds of their sale. In order to secure Ms Wang's involvement in the sale via ACH, Mr Xu agreed to a "set off" which meant that in addition to purchasing the properties at an undervalue, ACH and Ms Wang would not have to pay any of their own funds to complete the transaction. 4. In my view, in these circumstances the primary judge erred in finding that ACH did not have notice of Mr Xu's intent to defeat his creditors (see [47] and [48] above). It follows that appeal ground 8 is made out. As ACH has not established that it had the benefit of the proviso to s 37A, the transfers of the two properties were voidable at the instance of SV. 5. Strictly speaking, this conclusion makes it unnecessary to consider ground 12, which contends for a finding that Ms Wang had "notice" for the purposes of s 37A(3). Were it necessary to do so I would hold that each of the six matters described above was known to Ms Wang and that as a result she had notice of Mr Xu's intended purpose of defeating his unsecured creditor, SV, by the sale and transfer of the properties to ACH. 6. As to the remaining grounds, ground 13 is subsumed within ground 8, although as mentioned in [95] above the question of "good faith" does not separately arise. Ground 14 should be treated as abandoned with the arguments about constructive notice and imputed notice or knowledge. The 'approach to fact-finding' issue raised by ground 9 has been dealt with in [80] above, and the substance of the matter raised by ground 15 is dealt with at [106]-[112] above. Conclusion and remedy 1. The appeal should be allowed, with the result that the appellant is entitled to a declaration that the transfers of the two properties were made by Mr Xu with intent to defraud his creditors, including SV, and that ACH is not entitled to the benefit of s 37A(3). 2. As is recorded in [13] above, the properties have been sold by Golden Wealth exercising its powers of sale. The proceeds of those sales, after satisfaction of its secured debt, are held in a controlled money account. Golden Wealth's interest as registered mortgagee of both properties was acquired without any notice of Mr Xu's intent to defraud creditors and before SV commenced the underlying proceedings to have the transfers declared void. As such the position of the purchasers from Golden Wealth is the same as would have been the position of bona fide purchasers for value from ACH before any steps had been taken against it to set the transfers aside. 3. Where the impugned transfer was for no consideration and the proceeds of sale can be identified in the hands of the transferee, the defrauded creditors, or the transferor's trustee in bankruptcy, are entitled to those proceeds of sale: Brady v Stapleton (1952) 85 CLR 322 at 331-332; [1952] HCA 62, citing In re Mouat; Kingston Cotton Mills v Mouat [1899] 1 Ch 831; and Halfey v Tait [1875] 1 VLR (E) 8 at 12. In either case those funds are available to meet the claims of Mr Xu's unsecured creditors. 4. Here consideration was given for the transfers. As between Mr Xu and ACH the consideration paid by ACH was $6.46 million. In addition, ACH was the beneficiary of the set-off arrangement between Mr Xu and Ms Wang, involving the satisfaction in equal amounts of liabilities owed to Mr Xu by ACH and by Mr Xu to Ms Wang, as well as the discharge of Mr Xu's second mortgage to Ms Wang. 5. The legal right of Mr Xu's unsecured creditors under s 37A (see In re Maddever; Three Towns Banking Company v Maddever (1884) 27 Ch 523 at 531, 532) is to treat the transfers of the two properties as void so as to have recourse to the properties or the proceeds of their sales. The exercise of that right does not require the setting aside of the agreements under which the four mortgages were discharged, which included the set-off arrangement to which ACH was a party. It follows that as between Mr Xu and Ms Wang, she remains an unsecured creditor for the balance of her loans after deduction of the set-off amount. It also follows that ACH does not have any claim against the net proceeds of sale as a creditor of Mr Xu. Those proceeds of sale are net of the liability incurred by ACH to fund the payment of $6.46 million. ACH paid no money away and retains the benefit of the set-off arrangement, which has not been set aside. 6. It is not necessary to consider whether, in an appropriate case, s 37A might support orders attempting to restore the status quo ante (by, for example, requiring the return of consideration paid for the transfer). In this case, as a consequence of the fraudulent transfers in which Ms Wang and ACH knowingly concurred, the remaining proceeds are simply insufficient to permit the accomplishment of that object. It is sufficient to observe that what is involved in avoiding a transfer or alienation is not necessarily a species of rescission, and that the remarks of Hodgson CJ in Eq in Silvera v Savic at [72] were as to the flexibility to make orders achieving "the effect of avoiding the alienation", not a transaction. 7. In joint undertakings given to this Court and dated 26 June 2020, the parties agreed, by paragraph 4, that in the event SV's appeal is successful, and ACH and Ms Wang do not seek special leave to appeal against any judgment given in the proceedings, "it is envisaged that the balance of the Controlled Money Account (including any interest accrued) will be paid to Super Vision or as directed by Super Vision". In the course of oral argument it was accepted by both parties that any such order should require payment of those moneys to Mr Xu's trustee in bankruptcy to be held for his unsecured creditors. 8. In their written submissions the respondents request that in the event that the Court finds, as I have, that the transfers of both properties were voidable under s 37A(1), the parties should be given the opportunity to make further submissions as to the relief which follows from the making of that declaration. In view of the conclusions which I have reached, and the directions I propose, it is not necessary for the Court to accede to that request. 9. The parties should attempt to agree the orders, including declarations, to be made by way of final relief to give effect to these conclusions. If they are able to reach such agreement, the form of orders should be provided to the Court within 28 days. If the parties cannot reach agreement within that time, the orders contended for by each party, and written submissions supporting the making of those orders (not exceeding 5 pages), should be exchanged within a further 14 days. The matters remaining in issue will then be dealt with on the papers. 10. WHITE JA: I have had the advantage of reading in draft the reasons for judgment of Meagher JA. These reasons assume a familiarity with his Honour's reasons. As Meagher JA has explained, the respondent (AC Holdings) entered into contracts for the purchase of the Milsons Point property and the Sandringham property on 31 August 2018. The purchase price of the Milsons Point property was $3,900,000. The purchase price of the Sandringham property was $4,900,000. 11. The appellant (Super Vision) pleaded that as at 28 August and 19 September 2018 the Milsons Point property was valued at $4.9 million and the Sandringham property was valued at $5 million. 12. The primary judge found that these values were common ground (Judgment [4], [256], [257]). 13. I agree with Meagher JA for the reasons his Honour gives that Mr Xu transferred the Milsons Point and Sandringham properties to AC Holdings with intent to defraud creditors. I accept the force of AC Holdings' submission that it is a strong thing to find that it was privy to Mr Xu's fraudulent intent to transfer the Sandringham property after negotiations for 98 per cent of its agreed market value. Nonetheless, I agree that it should be inferred that Mr Xu intended to dispose of both properties in such a way that there would be no moneys available to pay Super Vision. 14. I also agree with Meagher JA that AC Holdings has not displaced the onus that lies on it to show that it received the transfers of the Milsons Point and Sandringham properties without notice of Mr Xu's intention to defraud creditors. 15. The National Australia Bank ("NAB") held a first registered mortgage over the Milsons Point property and the Australia and New Zealand Banking Group ("ANZ") held a first registered mortgage over the Sandringham property. 16. Settlement of both purchases took place on 19 September 2018 (Judgment [263]). The NAB was paid $2,319,512. ANZ was paid $2,542,225. 17. Meagher JA concludes that the mortgage in favour of Ms Wang over the Milsons Point property secured the sum of $5 million. I agree with Meagher JA's reasoning on that issue. 18. It follows that until Ms Wang executed and delivered the discharge of mortgage, the Milsons Point property was encumbered by the mortgage to the NAB and the mortgage to Ms Wang for an amount of in excess of $7.3 million. The parties were agreed that the market value of the Milsons Point property was $4.9 million. Unsecured creditors were not prejudiced by the transfer of the Milsons Point property to AC Holdings because at no point did Mr Xu have any equity in the property to which the unsecured creditors could have had recourse by enforcement of a judgment through a writ of levy of property or on Mr Xu's bankruptcy. The proceeds of sale would have been payable to the secured creditors. 19. The primary judge held that Super Vision was not prejudiced by the alienation of the two properties because Ms Wang could have compelled the NAB and ANZ to marshal their securities so as to have recourse first to the Sandringham property. As Meagher JA explains (at [52]-[54]) this was erroneous because those banks did not hold mortgages over both properties. But that error only affects the primary judge's conclusion that Super Vision was not prejudiced by the transfer of the Sandringham property. Because the Milsons Point property was not available to unsecured creditors (Lloyds Bank Ltd v Marcan [1973] 3 All ER 754 at [759]; [1973] 1 WLR 1387 at 1390-1391), the transfer of the Milsons Point property cannot be avoided by Super Vision. 20. I agree with Meagher JA that Ms Wang did not have security over the Sandringham property. I agree with Meagher JA's analysis that the July 2015 IOU did not give Ms Wang security over either the Sandringham property or the Milsons Point property. 21. At the time of the transactions Mr Xu owed Ms Wang $5 million, which was secured over the Milsons Point property. He also owed her an unsecured debt of CNY 20 million. 22. Ms Wang deposed that she told Jolina Jiang who worked for both her and Mr Xu that she would not pay money from her own pocket to complete the purchase and that she proposed that the gap between the total cost of the purchases and the $7.2 million that she could borrow would be deducted from the money Mr Xu owed her. She told Ms Jiang that "[i]f Lawrence agrees, I want a declaration signed by him concerning this part of the agreement." She was later told that Mr Xu agreed with that proposal. She later obtained from her lawyer a copy of a declaration made by Mr Xu which states: "I, Lawrence Xu, hereby declare that I have made the agreement with Qiao Wang regarding to two property contracts. I have received the full amount of deposit payment totally [sic] $2,340,000.00 from Qiao Wang. This deposit payment has been agreed and deducted from the business between Qiao Wang and me. I fully recognise this payment. Regarding to Aojia Investment Pty Ltd payment, I personally have an outstanding payment to Aojia. The other party is chasing on $400000.00 payment. So, to save time, I suggest to make a bank cheque payable to Aojia Investment directly." 1. Ms Wang deposed that Aojia had commenced court proceedings against the company she controlled in respect of money Aojia alleged her company owed it. She deposed that she believed that Mr Xu was responsible for the debt and that she asked Ms Jiang to pass on that message to Mr Xu and requested that Mr Xu acknowledge in writing that he was responsible for the debt. He did so by the declaration referred to above. 2. Part of the consideration provided by AC Holdings to Mr Xu was its obtaining Ms Wang's agreement to reduce the debts that Mr Xu owed her by $2,340,000. Her agreement to accept a reduction of Mr Xu's indebtedness in that amount was equivalent to payment by AC Holdings to Mr Xu, the reduction of Mr Xu's debt to Ms Wang, and AC Holdings' becoming Ms Wang's debtor. Mr Xu did not appropriate the "set-off" of $2,340,000 to any particular debt. It was open to Ms Wang to appropriate the notional payment by Mr Xu in reduction of his indebtedness to Ms Wang to either the secured or unsecured debts she was owed. But the "set-off" arrangement did not prejudice unsecured creditors. Ms Wang could have applied the reduction to the secured debt. Even if the reduction of debt were applied to the unsecured and not the secure debt it was at most a preference. Because the transaction included Ms Wang's agreement to discharge her mortgage over Milsons Point, it would not have mattered to either Ms Wang or Mr Xu which debt was reduced. 3. The third aspect of the transactions that Super Vision impugned was the payments of part of the purchase price directed by Mr Xu to his father and to Aojia. 4. It is standard conveyancing practice that on completion the purchaser is to pay the purchase price according to the vendor's direction. The practice was recognised by cl 16.8 of the contracts for sale which provided that if the vendor required more than five settlement cheques, the vendor was required to pay $10 for each extra cheque. AC Holdings was bound to pay the purchase price in accordance with Mr Xu's directions. 5. The payments to Mr Xu's father and to Aojia were separate alienations of property made by Mr Xu (French v French (1855) 4 De GM & G 95; 43 ER 1166 at 102, 1169). 6. It was not suggested that Ms Wang had notice before the contracts were entered into that Mr Xu intended to direct payment of part of the proceeds of sale to his father. Ms Wang insisted that payment be made to Aojia because she considered that Mr Xu was responsible for the debt claimed by Aojia and Mr Xu either agreed or acquiesced. 7. Neither the transfer of the Milsons Point property nor the Sandringham property is liable to be avoided because Mr Xu directed payment of part of the purchase price to his father or to Aojia. 8. As Meagher JA states (at [39]), if the full amount owing to NAB ($2,319,512) had been paid out of the proceeds of sale of Milsons Point, the payments to Mr Xu's father and Aojia (totalling $1,499,550) could not have been made from the proceeds of sale of Milsons Point (after allowing for the "set-off" recorded in the settlement statements of $1.5 million). However, AC Holdings was bound to pay in accordance with the directions. In any event, if those payments were not made out of the proceeds of sale of Milsons Point, they would have been made out of the proceeds of sale of Sandringham. Whether paid from the proceeds of sale of Milsons Point or from Sandringham, the payments were alienations of Mr Xu's entitlement to the proceeds of sale, not alienations of either the Milsons Point property nor the Sandringham property to AC Holdings. 9. On the agreed basis that the value of the Sandringham property at the time of the transfer was $5 million rather than the $4.9 million purchase price, unsecured creditors were prejudiced by the transfer and, arguably, by the fact that the whole of the purchase price was not received by Mr Xu. But for the reasons above, to the extent unsecured creditors were prejudiced by the non-receipt of the balance of the purchase price, that was not because of the transfer of the Sandringham property to AC Holdings, but by the alienation by Mr Xu of the proceeds of sale of both properties. 10. My conclusion that the transfer of the Milsons Point property is not liable to be avoided because it did not prejudice unsecured creditors renders it unnecessary to consider what the position would be if that transfer were avoided under s 37A of the Conveyancing Act. The consideration for the transaction included AC Holdings' procuring Ms Wang's discharge of her mortgage and agreement to the reduction of Mr Xu's indebtedness to her. 11. In Silvera v Savic (1999) 46 NSWLR 124; [1999] NSWSC 83 Hodgson CJ in Eq said (at [72]) that when an application is made under s 37A the court can achieve the effect of avoiding the alienation by such measures as seem appropriate in the particular case. His Honour considered that the fraudulent obtaining of a Local Court order providing for the transfer of property between de facto spouses pursuant to which the transfer was made was a step in the alienation that could itself be set aside under s 37A (at [78]). That suggests that the power under s 37A is wide enough to permit the making of orders for the disposition of the proceeds of sale according to what would be the effect if the entire transaction involving not only the transfer of properties from Mr Xu to AC Holdings were notionally set aside, but also that the discharge of Ms Wang's mortgage over the Milsons Point property were notionally set aside and the reduction of Mr Xu's indebtedness to her were reversed. 12. Although there were cases under the Statute of Elizabeth (13 Eliz 1, c 5)) where a transfer in fraud of creditors was set aside even though it were for valuable consideration, in many cases no question of the return of consideration paid or provided arose, e.g. in the case of a promise to maintain the transferor or to pay the transferor an annuity (Bott v Smith (1856) 21 Beav. 511; 52 ER 957) or a settlement made by a debtor in consideration of marriage. In some cases the issue is complicated by the bankruptcy of the transferor and the fact that the conveyance with the intent to defeat creditors was itself an act of bankruptcy such that the title of the trustee in bankruptcy dated back to the time of the conveyance. In Ex parte Chaplain; In Re Sinclair (1884) 26 Ch D 319 the transferor assigned substantially the whole of his property, including his stock in trade, book debts and goodwill of the business to a single creditor in consideration of the release by that creditor of a debt then owing to him by the debtor and an oral promise not recorded in the deed of conveyance that the transferee would pay the transferor's trade debts. The transferee did pay some creditors and advanced money for the purpose of carrying on the business. The Court of Appeal held that the transferee was not entitled to have the advances allowed by way of set-off, but could prove for bona fide advances in the bankruptcy (at 333). 13. In In re Gunsbourg [1920] 2 KB 426, a trader transferred all of his assets to a company formed by him, the consideration for which included an issue of shares to him. After a receiving order was made, the company sold furniture to a bona fide purchaser for value without notice who later resold to another bona fide purchaser. The first transfer was fraudulent and an act of bankruptcy. A majority of the Court of Appeal held that the ultimate purchaser was not entitled to the protection of the bankruptcy statute as a bona fide purchaser for value without notice and as the title of the trustee in bankruptcy related back to the time of the first transfer, the ultimate purchaser was liable to pay for the value of the furniture received because on relation back it was the property of the trustee in bankruptcy. It may be noted that this would not be the case under the Statute of Elizabeth; Brady v Stapleton (1952) 88 CLR 322 at 333; [1952] HCA 62). Warrington LJ said (at 447) (obiter): "The consideration for the transfer included the issue to the bankrupt of certain shares in Gunsbourg & Co., Ld. They were never in fact issued, but if they had been that circumstance would in my view have made no difference. The restitution of the consideration when a voidable transaction is set aside is an application of the equitable principle that he who seeks equity must do equity. In this case the trustee is in my opinion seeking to recover from a purchaser what by law belongs to him, and is under no liability to repay to such purchaser, who has in fact acquired no title, the money paid by him." 1. Younger LJ (who dissented in the result of the case) said that when the trustee in bankruptcy "... does elect to avoid the transaction he must hand back to the assignee all the consideration the bankrupt received under it" (citing In re Slobodinsky [1903] 2 KB 517). 2. This is now the position in bankruptcy in Australia (Bankruptcy Act 1966 (Cth) s 121(5)). 3. In In re Simms [1930] 2 Ch 22 Clausen J held that a transfer by a trader to a company he established was fraudulent and an act of bankruptcy. Clausen J was sceptical of a claim that the trustee in bankruptcy ought to be required to give up shares which were received by the bankrupt as consideration for the transfer referring to what was said by Warrington LJ in Re Gunsbourg quoted above, but did not decide this question which was of doubtful practicality and was left for further discussion if required (at 36). As to a claim that the company, or the bank that funded the company and took a charge over its assets, should be recouped for moneys spent in paying in full some of the bankrupt's creditors, Clausen J followed Ex Parte Chaplain in holding that the right was confined to a right to prove in the bankruptcy. 4. In the view I take, these issues do not arise because the transfer of the Milsons Point property over which Ms Wang held her mortgage is not liable to be avoided. There is therefore no question of making orders that would give effect to a notional reversal of the discharge of mortgage. As an unsecured creditor Ms Wang is entitled to prove in Mr Xu's bankruptcy and there is no obvious reason that she should be entitled to greater relief than that. 5. There is no dispute that where property under a voidable transfer has been sold or converted into other property, an order can be made under the section to make the proceeds of sale or the other property into which the property transferred was converted available to creditors (Brady v Stapleton at 332 (Dixon CJ and Fullagar J), 343 (McTiernan J); In re Mouat; Kingston Cotton Mills Co v Mouat [1899] 1 Ch 831; Taylor v Coenen (1876) 1 Ch D 636). 6. It follows that the moneys paid into court by Golden Wealth should be paid out in the proportions in which the payments into court reflected the proceeds of sale by Golden Wealth of the Milsons Point property and the Sandringham property. In so far as the moneys paid into court reflected the proceeds of sale of the Milsons Point property, they should be paid out to AC Holdings. In so far as they reflected the proceeds of sale by Golden Wealth of the Sandringham property, they should be paid to Mr Xu's trustee in bankruptcy. ********** Amendments 10 December 2020 - Altered formatting of orders in cover sheet. 14 December 2020 - Removed "made" in [13]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 December 2020