Background
Ms Sun engaged Bright Star Construction (now in external administration) to build three houses in Sydney but claims the work was defective. She sought to hold the company’s director, Mr Chen, personally liable under the Design and Building Practitioners Act 2020 (NSW). To pursue Mr Chen despite his limited assets, Ms Sun later targeted the Berala property held jointly by Mr Chen and his former wife, Ms Yu, since 2010.
On 5 March 2024—the same day Ms Sun commenced proceedings—Mr Chen’s interest in the Berala property transferred to Ms Yu. Ms Sun then amended her claims to allege the transfer was made to defraud her as a creditor. She invoked two statutory grounds: section 37A of the Conveyancing Act 1919 (NSW), which voids voluntary alienations made with intent to defraud creditors, and section 90K(1)(aa)(i) of the Family Law Act 1975 (Cth), which permits courts to set aside financial agreements entered into for that same purpose. Ms Yu cross-claimed that Mr Chen held his interest in the property on trust for her.
The Court’s Holding
Justice Muston dismissed all claims against Ms Yu and her cross-claim. The court found that Ms Sun had failed to establish the required intent to defraud creditors, either at the time the financial agreement was made or at the time of the subsequent transfer.
The court held that it had jurisdiction to consider claims under section 90K(1)(aa)(i) of the Family Law Act, confirming that the Supreme Court can exercise powers under that section despite conflicting earlier authority. The court also established that section 90K(1)(aa)(i) should be interpreted consistently with the jurisprudence developed under section 37A of the Conveyancing Act, as Parliament enacted the Family Law provision in 2004 specifically to close a gap exposed by the Jodee Rich litigation. Critically, the court held that the relevant intent need not be the sole or dominant purpose—any purpose of defrauding creditors will suffice.
On the facts, the court found Ms Sun’s evidence concerning conversations with Mr Chen unreliable, having evolved over nearly two years as litigation progressed. The court noted that Ms Sun recounted conversations originally conducted in Mandarin without any indication that an interpreter was involved in translating them. The court therefore placed far greater weight on contemporaneous documents and objective facts. Based on this evidence, the court concluded that Ms Sun had not proven the fraudulent intent required by either statute.
Key Takeaways
- The transfer of a jointly-owned property from a debtor to a spouse does not automatically constitute a fraudulent alienation; a creditor must affirmatively prove intent to defraud.
- Section 90K(1)(aa)(i) of the Family Law Act fills a gap where transfers are effected through financial agreements rather than direct conveyances; it operates on the same principles as section 37A of the Conveyancing Act.
- The Supreme Court of New South Wales has jurisdiction to set aside financial agreements under section 90K(1)(aa)(i), overriding conflicting earlier authority within the court.
- Courts will heavily discount testimony concerning conversations from years prior, especially where translation between languages is involved and no contemporaneous record exists.
Why It Matters
This decision clarifies the intersection of conveyancing and family law remedies available to creditors seeking to unwind transfers of family property made during marital breakdown. It confirms that section 90K(1)(aa)(i)—which applies specifically to financial agreements between spouses—operates as an integral part of the statutory framework protecting creditors from fraudulent asset-stripping, not merely as an exception to family law finality principles.
Practitioners advising creditors pursuing such claims should note that the burden is substantial: courts require clear proof of subjective intent, will be skeptical of recollected conversations (particularly multilingual ones), and will prefer objective evidence. The decision also settles that the Supreme Court has concurrent jurisdiction with the Family Court on these matters, providing creditors with forum flexibility.