A recent Supreme Court of NSW case, Lien v Huang [2024] NSWSC 761, involved a dispute regarding the alleged fraudulent property transaction, which had an impact on the subsequent transactions with other innocent third parties. This article will look at how the case was disputed and the reasoning behind the judgement.
Case Summary
These proceedings were commenced by summons filed in Court before the duty judge on 31 May 2024. The plaintiff was the registered proprietor of a property in Chatswood. The Chatswood property was transferred into the name of the first defendant, who is the plaintiff’s former daughter-in-law. The circumstances in which the Chatswood property was transferred to the first defendant are in dispute. The plaintiff claimed that the transfer was fraudulent and that he was unaware of the transaction until the day prior to the commencement of these proceedings. The first defendant claimed that she has always had a good relationship with the plaintiff (father-in-law) even after the first defendant and the plaintiff’s son were divorced in early 2019. The first defendant has sole custody of two children after her divorce from the plaintiff’s son and lives with the two children in the Chatswood property. The first defendant claimed that the plaintiff offered to transfer the Chatswood property to her name to ensure that the plaintiff’s two grandchildren had a permanent home. The first defendant also entered into a contract to purchase the Artarmon property on 23 April 2024, and the purchase settlement is due to take place simultaneously with the sale settlement of the Chatswood property. The second defendant is a couple who are innocent third parties and entered into a contract to purchase the Chatswood property.
The second defendant agreed to release the deposit to the first defendant who used the deposit to purchase the Artarmon property. Upon learning of the impending sale of the Chatswood property, which was advertised online, the plaintiff sought ex parte interim relief from the duty judge.
The issues in dispute and the parties position
As matters stand, there are two interim orders in place. One order is a freezing order which prevents the first defendant from dissipating her assets up to the unencumbered value of $4,526,000. the other is an injunction order preventing the first defendant from taking any steps to complete the sale of or otherwise encumber the Chatswood property. The real issue in dispute is the continuation of the injunction which is preventing settlement of the sale of the Chatswood property to the second defendant.
Under the plaintiff’s claim, the first defendant fraudulently caused the transfer of title in the Chatswood property to her, who holds the property on constructive trust for him: Black v S Freedman and Company (1910) 12 CLR 105: [1910] HCA 58. The plaintiff pointed out the Chatswood property has sentimental value to him and that he may wish to return to it someday. The plaintiff does not consider damages to be an adequate remedy for the fraud. He also contends that the loss of the property will incur other costs, namely the CGT on disposal and the costs of acquiring a new property to replace the Chatswood property. The plaintiff argued that the injunction order should be continued as he has demonstrated a strong case for final relief and that the balance of convenience favours the continuation of the injunction.
The first defendant had no objection to the continuation of the freezing order. However, her position is that the injunction should be discharged to allow the sale of each of Chatswood and Artarmon properties to occur. The second defendant supported the discharge of the injunction order and wished to proceed to settlement on the Chatswood property.
Resolution & Court Decision
The Court considered that the background to the dispute and the additional matters going to the balance of convenience will likely have revealed the central point of the issue. On the one hand, the Court agreed that “there is a long line of authority to the effect that real property is unique and that damages are not an adequate remedy where a party asserts a right to realty. This seems to be especially so in cases where specific performance is sought.” However, the Court considered “the proposition that damages are not an adequate alternative remedy to a claim to real property is not absolute. It is necessary in all cases where an injunction is sought for the Court to determine what is “just and convenient” (see s66(4) of the Supreme Court Act 1970). To determine where the balance of convenience lies, it is necessary and appropriate to take into account of the nature of the plaintiff’s claim, but it is also necessary to consider the position of other parties, including third parties, and their competing claims to the real property in question. In the present case, the Court considered that there are significant countervailing consideration that tend against the continuation of the injunction. If the injunction is discharged, the second defendant will be entitled to take a transfer of the Chatswood property and will not have the difficulty of seeking to recover the release of the deposit; the vendor of the Artarmon property will be entitled to complete the contract and will not have difficulty of having to find a new purchase and potentially seek damages; the first defendant will be able to move with her sons to the Artarmon property. The Court does consider that if the injunction in the present case is discharged, the plaintiff will probably no longer be able to press a claim for legal title to the Chatwood property. In consideration of where the plaintiff’s economic position can be sufficiently protected by the continuation of the freezing order, the Court finds that the balance of convenience favours the discharge of the injunction.
Some considerations and inferences from this case
The case is to be continued. Some considerations from this case are summarised as follows:
- Even if the plaintiff has demonstrated a prima facie strong case, the outcome of the case may not be what he desires as there are other circumstances that the Court need to consider, eg “Balance of Convenience”;
- Once again, this case demonstrates that the release of the deposit is risky in the event that settlement is not proceeding under any circumstances;
- Be cautious about any potentially fraudulent transition, or verification of the client’s identity; in addition to the client’s valid current Passport, Driver’s Licence, and or equivalent identity documents, it is essential to have other documents to prove the ownership, eg the relevant current and previous rates notice, etc;
- Clear and ambiguous right and authority to deal: it is essential to check if the client has clear and ambiguous authority to deal with the matter; and
- In the abolition of an original Certificate of Title, the registered proprietor may need to be more cautious about keeping his/her personal information and identity documents safe, and check the names of all the rates notices regularly.
Reference:
Lien v Huang [2024] NSWSC 761
