REAL PROPERTY — plaintiff brings proceedings against defendant for damages — defendant grants security by way of charge in favour of existing unsecured creditors — plaintiff applies to set security aside as a fraud on creditors — whether an “alienation” of security property — whether made with intent to defraud creditors — whether plaintiff had standing as “person thereby prejudiced” — intent to defraud not to be inferred merely from preference of one creditor over another — no intent to defraud established — application fails — Conveyancing Act 1919 s 37A.
1An intent to defraud creditors under s 37A(1) of the Conveyancing Act 1919 cannot be inferred merely from a debtor preferring one genuine creditor over another. Granting security that converts existing genuine unsecured debts into secured debts, without diminishing the debtor's assets, is inconsistent with the requisite intent. This holds even if the debtor was motivated in part to forestall a threatened freezing order. The related-party status of the preferred creditors is irrelevant unless the asset is being retained within the alienor's economic orbit.
2Whether a contingent creditor with an unliquidated, undetermined damages claim has standing as a 'person thereby prejudiced' under s 37A was left open. The Court expressed a preference for the narrower view of Young JA in Chen v Marcolongo [2009] NSWCA 326, and [name withheld] in [name withheld] v [name withheld], that prejudice must exist when the claim is determined. It also observed, obiter, that granting a charge or Torrens mortgage is arguably not an 'alienation' within s 37A(1).
3A defendant who chooses an informal Calderbank offer over a formal offer bears the onus of showing the rejection was unreasonable, judged without hindsight. A plaintiff's refusal of an offer is not unreasonable merely because its claim ultimately fails on established legal principle, where its arguments were not insubstantial.
