Anthony Magafas & Anor v Peter Carantinos & Ors [2010] NSWSC 30 (4 February 2010)

Last Updated: 8 February 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Anthony Magafas & Anor v Peter Carantinos & Ors [2010] NSWSC 30


JURISDICTION:
Equity Division

FILE NUMBER(S):
2670/06

HEARING DATE(S):
1 February 2010

JUDGMENT DATE:
4 February 2010

PARTIES:
Anthony Magafas (First Plaintff)
Pac-Com Pty Limited (Second Plaintiff)
Peter Carantinos (First Defendant)
Fotini Carantinos (Second Defendant)
Artesian Pty Limited (Third Defendant)
Athena Touriki (Fourth Defendant)
Gregory Fav (Fifth Defendant)

JUDGMENT OF:
Einstein J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr T Alexis SC, Mr S Golledge (Plaintiff)
Mr Kelly SC (Second Defendant)

SOLICITORS:
Rockliffs Solicitors and IP Lawyers (Plaintiff)



CATCHWORDS:
Case management
Proceedings determined at first instance
Subject to certain matters primary judgment upheld on appeal
Leave to appeal to the High Court rejected
Sundry matters debated in relation to whether or not matters occurring following the Court of Appeal judgments render certain matters reserved by the Court of Appeal otiose
Second defendant seeks leave to file a cross claim

LEGISLATION CITED:
Bankruptcy Act, 1966 (Cth)

CATEGORY:
Separate question

CASES CITED:
Farah Constructions v Say-Dee [2007] HCA 22; (2007) 230 CLR 89
Nelson v Nelson (1995) 185 CLR 538

TEXTS CITED:


DECISION:
Leave to file cross claim allowed subject to conditions.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Einstein J

Thursday 4 February 2010


2670/06 Anthony Magafas & Anor v Peter Carantinos & Others

JUDGMENT

The state of these proceedings

1 The primary judgment at first instance was delivered on 15 May 2007: [2007] NSWSC 416.

2 Following the granting of leave to reopen the court upheld the plaintiffs case against the first defendant but rejected the plaintiffs case against the second defendant: [2007] NSWSC 917.

3 The decision of the New South Wales Court of Appeal was handed down on 17 November 2008: [2008] NSWCA 304.

4 The issues which were relevant on the appeal were identified in paragraph 49 of the reasons of Hodgson JA.

5 An application for special leave to appeal to the High Court of Australia was unsuccessful: [2009] HCA Trans 89 (1 May 2009).

Later matters

6 It is fair to observe that a deal of the current disputes separating the parties are concerned with a close analysis of the particular orders reserved by the Court of Appeal: there being particular present focus on matters occurring after the handing down of the Court of Appeal’s decision.

7 Whenever proceedings at first instance come before the Court of Appeal and then are later remitted to the Court of first instance, the latter Court can be in an invidious position particularly where as here, the intent of the matters reserved by the Court of Appeal is in high contention.

8 Parameters of the current position may be fairly described as follows:

i. Written notice of the directions made by the Court on 13 November 2009 was given to Mr G McDonald as trustee of the bankrupt estate of Mr P Carantinos and to the sixth defendant, PCM Nominees Pty. Limited.

ii. Following the orders made by the Court on 5 September 2008, the remaining defendants (save for Mrs Carantinos) have not participated in the proceedings and no further orders are sought against them.

iii. PCM Nominees Pty. Limited (a company controlled by Mr K Munro, the first and second defendants’ former Solicitor) took an assignment of the trustee’s rights and obligations with respect to the taking of the partnership accounts by Deed of Assignment dated 1 October 2009 and was subsequently joined as the sixth defendant. It then appeared in the proceedings with Bamford Lawyers, but ultimately did not participate in the taking of accounts before Macready AJ. A letter from Mr Bamford dated 17 November 2009, has confirmed that the sixth defendant will take no further part in the proceedings.

iv. Nothing has been received from Mr McDonald since the assignment or the hearing before Macready AJ to indicate that he intends to join in and express some relevant interest in any of the matters reserved by the Court of Appeal. Further, at a directions hearing before Macready AJ on 23 September 2009 when it was noted that no appearance had been filed by Mr McDonald, the following exchange occurred (T 2):

‘Mr McDonald: I can clarify my position as the trustee .....

His Honour: Have you filed a notice of appearance?

Mr McDonald: No and I won’t be participating beyond today. I have been able to conclude a sale of the interests of the Carantinos estate as of yesterday afternoon. ....’

v. In any event, on 2 February 2009 Mr McDonald made a written election not to continue with the proceedings and is deemed to have abandoned them, by reason of Section 60(3) of the Bankruptcy Act, 1966 (Cth).

vi. As Macready AJ noted in the judgment delivered on 11 November 2009 at [5], there was no appearance before his Honour by the accounting party, Mr Carantinos or by Mrs Carantinos:

‘...She is aware of the hearing and has advised the Court she does not wish to be heard and submits to any order except as to costs.’

vii. The plaintiff has indicated that it is anticipated, that only Mrs Carantinos will wish to activate the matters reserved by the Court of Appeal and, it seems, beyond the particular matter that was reserved with respect to the property at 43 Riverside Crescent, Dulwich Hill, which she jointly owned with Mr Carantinos.

The plaintiff’s proposition

9 The first plaintiff contends that he is now entitled to have his financial contributions to the partnership with interest in the total sum of $3.038M repaid to him from the assets of the partnership, which have been declared to include the sum of $2.248M presently on deposit with Westpac [see judgment of Macready at 27], but this cannot be paid to him without the leave of the Court: see orders 5 (new order 9 (f)) and 8 of the orders of the Court of Appeal.

10 The plaintiff’s contention is that the reserved matters are otherwise now irrelevant and do not require any further consideration by the Court. Hence the plaintiff’s position is that subject to the position of Mrs Carantinos being dealt with, the first plaintiff is ready and able to seek the Court's leave accordingly.

The position put on behalf of Mrs Carantinos

11 Mrs Carantinos seeks leave to file a cross claim. This leave as opposed by the plaintiffs.

12 As will appear from what follows, the position put on behalf of Mrs Carantinos is quite different. The burden of the submission put on behalf of Mrs Carantinos appears to be as follows:

i. The effect of the deletion of declaration 4 and the substitution of a declaration in terms that Mr Carantinos held his interest in the property known as 43 Riverside Crescent is to make it clear that, to the extent that Mrs Carantinos held her interest in that property as a tenant in common in equal shares with her husband in her own right, that interest was not held in trust for the partnership. The question of Mrs Carantinos’ beneficial ownership of her one half share has yet to be determined, thus Campbell JA said at [2008] NSWCA 304 [119],

“For the reasons given by Hodgson JA, there is an open question whether Mrs Carantinos had any beneficial interest in No. 43. It was wrong to declare that Mr Carantinos held No. 43 on trust for the partnership without resolving that question”.

ii. On the basis of that express finding, the question whether Mrs Carantinos held her interest in No. 43 beneficially must now be resolved. It is a question that falls within the matter reserved for consideration “generally” in the Court of Appeal’s order (5). If Mrs Carantinos is denied an opportunity to make good the proposition that she was the beneficial owner, she will be denied her interest in a one half share of the proceeds of sale which Hodgson JA valued at one half of $276,000 in paragraph 83 of the judgment and the proprietary rights which flow from the use of those funds to pay part of the purchase price of the Hoechst site.

iii. The effect of the deletion of order 8(d) and the substitution of a declaration in terms which excised the requirement for an accounting of “the respective interests of the first plaintiff and the first defendant in the second plaintiff as at 30 June 2007” is that, for the time being at least, there was not to be an accounting of the interests of Mr Magafas and Mr Carantinos in Pac-Com Pty Limited. The finding at first instance that the two issued shares in Artesian Pty Limited are held by Mr Carantinos in trust for Pac-Com still stands and it means that upon a winding up of Artesian, Pac-Com will be entitled to a distribution of the one half share of the assets of Artesian, not Mr Magafas or the trustee in bankruptcy of Mr Carantinos, and in turn questions will arise about the winding up of Pac-Com and/or the Karafas Trust and the payment of the debts of that company and/or the Trust before any distribution may be made to Mr Magafas. Those matters were specifically reserved for further consideration by the Court of Appeal in order (5).

iv. The effect of the deletion of order 9 in which payments out to Mr Magafas and Pac-Com had been made and the making of order (8), in which no payment be made to either of those parties without leave of the Court is not only to protect the status quo while the remaining issues are resolved but also to ensure that no moneys are paid out to the parties to the fraudulent scheme or at their direction which enable them to obtain a benefit from their unlawful conduct and, in particular, that any unpaid taxation, penalties or interest has been paid after full disclosure of the fraudulent scheme has been made to the Australian Taxation Office: See [2008] NSWCA 304 [63] per Hodgson JA.

The extensive submissions

13 Very extensive submissions were put by each of the parties. These submissions traversed in particular the orders made by the Court of Appeal and to an extent, included reference to a statement by French CJ on the occasion when a special leave was refused with costs. That statement was that the clean hands defence in the proceedings had been met by conditions imposed upon the relief granted to Mr Magafas. Further that the account remedy as framed, adequately protected Mrs Carantinos interests.

A précis of the submissions addressed to the court on the Isle of Mrs Carantinos

14 These submissions included the following:

a. The taking of accounts before Associate Justice Macready was not the occasion on which any of the matters reserved for further consideration by the Court of Appeal were to be determined.

No order has ever been made referring any of those matters to an Associate Justice; Hodgson JA made it plain that he expected the partnership accounting to take place before any matter reserved for further consideration was agitated, both at CA [86] where his Honour said, “Until the accounting makes it clear how money was dealt with and where it went, I do not think the total scope of the relief granted should be narrowly circumscribed” and at CA [114], where his Honour said, “ ... it is to be hoped that will be no application to have any of (those matters) determined by the Court before the accounting has proceeded as far as possible”; there was no such application before the partnership accounts were taken; Senior Counsel for Mr Magafas said at transcript page 11 line 20 before Macready AJ on 23 September 2009 that “... we agree that Mrs Carantinos has no role in the accounting between the partners”, which is the accounting to which the Court of Appeal limited the task by its variation of order 8(d) on 14 November 2008; and Macready AJ identified that accounting as the subject matter of his consideration at [4] of his judgment dated 11 November 2009.

b. It is irrelevant that Mrs Carantinos has never advanced a claim to the effect that her husband held the shares in Artesian Pty Limited or some portion of them for her, still less that in [8] of the judgment of the Court dated 30 August 2007 the Court said, such a claim would have been” totally inconsistent with the first defendant’s position at the trial, which was that he beneficially owned all of those shares in Artesian at all times”.

The claim which Mrs Carantinos makes is not a claim in relation to the shares in Artesian; it is a claim that she was the beneficial owner of a one half share in 43 Riverside Crescent, Dulwich Hill, which she held as registered proprietor in equal shares with her husband, and a resulting trust over the land comprising the Hoescht site as a consequence of the use of her share of the proceeds of sale of No 43, now represented by the fund on deposit. The claim that Mrs Carantinos was beneficially entitled to one half of the proceeds of sale of No 43 was articulated in the submission in [1] of Exhibit A2 on the application before the Court; that submission was rejected by the Court in [4] of the judgment of the Court on 30 August 2007 and was given effect to by order 4 of the orders made by the Court on that date; but that order was set aside on appeal. As Campbell JA said at CA [119}, “For the reasons given by Hodgson JA, there is an open question whether Mrs Carantinos had any beneficial interest in No. 43. It was wrong to declare that Mrs Carantinos held No. 43 in trust for the partnership without resolving that question.”

c. The Court of Appeal ordered that no payment be made to either respondent or at the direction of either respondent of any part of the entitlement of either respondent arising from or in relation to the partnership assets without leave of the Court.

Lest there be any doubt, the reference to “either respondent” means either of Mr Magafas or Pac-Com. Consistently with the unchallenged findings of the Court at first instance and declaration 5 made on 30 August 2007, which is that “the first defendant holds the two ordinary shares in the third defendant upon trust for the second plaintiff”, Mr Carantinos holds the shares in Artesian in trust for Pac-Com, not Mr Magafas. It is irrelevant to the application presently before the Court that Macready AJ declared that, as between Mr Magafas and Mr Carantinos, Mr Magafas is entitled to be paid a total of $3,038,532: that is the balance due on the taking of the partnership account and would support a proof of debt by Mr Magafas in the bankruptcy of Mr Carantinos but it does not derogate from the declaration that has already been made by the Court that the shares in Artesian are beneficially owned by Pac-Com, not Magafas. Moreover, the order that there be no payment out of the fund on deposit was an order made in order to give effect to the principles discussed and applied in Nelson v Nelson (1995) 185 CLR 538 and, pursuant to those principles, any order that is made must “reflect the unavailability of equity to obtain (for a party to a fraudulent scheme) the actual fruits of (his or her) unlawful conduct”. Pac-Com was the vehicle used by the parties to the fraudulent scheme and it is the beneficial owner of the ultimate fruits of the scheme through its beneficial ownership of the Artesian shares, subject to the resolution of the question whether Pac-Com held its interest in its own right or as trustee for the Karafas Trust (which Hodgson JA preferred, without deciding, at CA [99]. At CA [96], his Honour made it plain that:

“Since

(1) it is Pac-Com as trustee of the Karafas Trust that can distribute Trust property,

(2) Pac-Com is a company of which Mr Magafas and Mr Carantinos are sole directors and shareholders, and

(3) the power to appoint a new trustee of the Karafas;

Trust is vested in Mr Magafas and Mr Carantinos jointly, it would appear inevitable that that the net assets of the Karafas Trust will ultimately have to be divided between Mr Magafas and Mr Carantinos”.

In the case of Mr Carantinos, of course, his share would then go into his bankrupt estate for distribution amongst his creditors, including Mr Magafas, who can prove for the $3,038,532 proved in the taking of the partnership accounts. Before the Court gets to any distribution to Pac-Com, however, it is necessary for the Court to determine the second, third, fourth and fifth questions specifically reserved by the Court of Appeal for further consideration and satisfied itself that the relevant tax payer or taxpayers have made full disclosure and payment to the Australian Taxation Office. There is no easy way to simply make a payment out to Mr Magafas; he is not entitled to payment of any of the fund in question, let alone a part that would defeat the principle in Nelson v Nelson or the interest of Mrs Carantinos in any part of the fund which may remain after Pac-Com has fulfilled its tax-paying obligations.

15 It is also germane to refer to the following submissions put on the behalf of Mrs Carantinos

i. Order (5) of the Court of Appeal pursuant to which further consideration was reserved “generally” cannot be read down to restrict that consideration to the six matters specifically listed in paragraphs (a) to (f) of that order. The reasons for judgment of Hodgson JA at CA [79] and Campbell JA at CA [119] make it plain that the there is an “open” question whether Mrs Carantinos had any beneficial interest in No. 43 and that “the question of any interest claimed for Mrs Carantinos (should be) dealt with in the way (Hodgson JA) specified”, namely, by reserving further consideration in the orders as well as reserving liberty to apply: CA [83] & [120].

ii. Contrary to the submissions now made on behalf of Mr Magafas, it was conceded that the beneficial interest claimed by Mrs Carantinos was yet to be determined and she would be at liberty to assert that claim and that assertion enabled the Court to be satisfied that “the account remedy as framed, in our view, adequately protects Mrs Carantinos’ interests”. At [2009] HCATrans 89, pages 9-11, Mr Alexis SC said (with emphasis added):

Now, the case against Mrs Carantinos at first instance eventually failed after this Court delivered its decision in Farah Constructions v Say-Dee. The declaration that was the subject of submissions in the Court of Appeal granted by the trial judge, however, provided that Mr Carantinos was liable to account to Mr Magafas in relation to all of the proceeds of sale of the jointly held property. That declaration was corrected by the Court of Appeal to limit its effect to his interest, but the question of what his interest was was left at large and, importantly, there is no contrary finding by either the trial judge or the Court of Appeal which renders the process of accounting going forward to be problematic in any way at all.

Indeed, as Justice Hodgson makes it clear at paragraph 88 of the judgment, application book 176 and 177, Mrs Carantinos should be a party to the accounting, that does not oblige her of course to participate if she does not want to, but she should be a party to the accounting if she wants to but not an accounting party. To the extent that her beneficial interest in the subject property is in issue, one would have thought that she would embrace the opportunity to maintain a position that says she owned both the legal interest and the beneficial interest in half of the property.

iii. No explanation for delay is called for because there is no delay which needs to be explained. The Court of Appeal made its order for further consideration of the matter “generally” on 14 November 2008. The High Court heard the application for Special Leave on 1 May 2009. The taking of accounts between Mr Magafas and Mr Carantinos took place on 11 November 2009. The suggestion that Mrs Carantinos should articulate her remaining claims by way of a Cross Claim was made by Senior Counsel for Mr Magafas when the matter was re-listed before the Court in November 2009 and the motion in support of leave to file that cross claim was filed in on 7 December 2009 in conformity with the Court’s directions. No relevant “delay” took place before 14 November 2008 because it was on that date the Court of Appeal made the orders reserving further consideration of the matter generally. No relevant delay took place while the special leave application was on foot; had delay been the death knell for the rights of Mrs Carantinos, the High Court would not have been able to say that her rights were adequately protected by a process that was yet to take place. No relevant delay took place while the partnership account took place because the Court of Appeal expressed the view that matter reserved for further consideration should not be brought on before the accounts were taken: CA [114]. No delay occurred after Associate Justice Macready handed down his judgment; the proceedings were re-listed very promptly; directions were made; and the application was filed in accordance with the directions.

Turning next to a précis of certain of the submissions put by the plaintiff

16 The submissions included the following matters

No utility in granting leave

i. In her proposed Cross Claim, the Second Defendant seeks a declaration that she had a beneficial interest to her ½ share of 43 at [1], a declaration at [2] that she was beneficially entitled to her ½ of the $80,000 included in the $296,000 deposit for the sale of 39 & 41 (owned by the Second Plaintiff, Pac Com Pty. Limited) and 43 and ½ of the sum of $176,000 left over after the sale of 43 after discharge of the nab mortgage (that is, the sums referred to by Hodgson JA. in [2008] NSWCA 304 at [81]). She also seeks a declaration that ‘the $128,000’ and other unspecified monies were contributed to the purchase of the interest of the partnership ... in the property at St Peters at [3]. Of course, the interest of the partnership in St Peters was held by Pac Com, via its shareholding in Artesian Pty. Limited: see Declaration 5 of the Court’s declarations and orders made on 30 August, 2007, unaffected by the Orders of the Court of Appeal.

ii. A declaration is also sought in [4], that the partnership held its interest in St Peters, subject to a resulting trust in favour of the cross claimant in the proportion which the cross claimant’s contribution bears to the contribution of the partnership to the purchase price of the partnership’s share in St Peters. But the Court could not make that declaration, as it would be inconsistent with Declaration 5 (not to mention the way in which the First and Second Defendants jointly argued the issue at the trial, ie. the shares in Artesian were beneficially owned by the First Defendant and subject to nothing). As Campbell JA said at [147], the rights of the parties that have been decided cannot be overturned or varied as a consequence of further consideration of the matter. Ex A2 at [7(a)] makes it plain that the amendment to proposed declaration 5 that was rejected by the Court in [2007] NSWSC 965 at [8] and [9] expressly sought to have the shares in Artesian held on trust for Pac Com and the second defendant in such proportions s may be ascertained upon the taking of accounts.

iii. In reply, Senior Counsel for the Second Defendant suggested that the point was misconceived, because the relevant ‘trust property’ was the land at St Peters and not the shares in Artesian. With respect, that submission doesn’t bear scrutiny. The partnership has never had a direct interest in St Peters and the Plaintiffs’ have never challenged the fact that Artesian was the registered proprietor and the beneficial owner of that property. For good reason, therefore, the focus of declaration 4 in the proposed Cross Claim is upon the ‘partnership’s interest’ in St Peters being subject to a resulting trust, and that interest can only be the partnership’s beneficial interest in the shares in Artesian.

iv. It was also suggested that the oral analysis of the documents contained in Ex A1 that demonstrated, inter alia, that the Second Defendant made no contribution to the purchase of 43 and that ‘the $128,000’ from the proceeds of sale of 43 was not contributed to the purchase of the interest of the partnership ... in the property at St Peters, that such analysis was misconceived because it failed to address the use of monies derived from the sale of a property at 440 Marrickville Road, Marrickville (‘440’). The ‘road map’ through Ex A1 that follows, will therefore start with the sale of that property.

Exhibit A1

v. The affidavit of the Second Defendant sworn on 7 December 2009 refers to “FC 1” which is said to contain correspondence and documents in relation to the disposition of the proceeds of sale of 440 and 43.

vi. From the contract for sale at page 41, it appears that the First and Second Defendants sold 440 for $450,000 on 2 May 1996. It was completed on 29 October 1996: see the letter from their Solicitors dated 8 November 1996 at page 39. On completion, the agent was to account for the deposit of $45,000 and $404,402.03 went into the First and Second Defendant’s account with the nab.

vii. As to the deposit, a copy of this letter at page 78 indicates by the handwritten notes that a cheque went to ‘Communicado’ for $37,533.72 after the agent’s commission of $7,466.28. The deposit slip for the deposit of this cheque is at page 80 and the bank statement for the ‘Communicado Publishing’ bank account confirms the deposit on 8 November 1996. Thus, the balance of the released deposit on the sale of 440 went to the First Defendant.

viii. The bank statement at page 94 records the deposit of $404,212.03 into the First Defendant’s ‘Flexiplus mortgage’ account on 30 October, 1996; the deposit retired debt, leaving a credit balance in that account of $133,812.28. Importantly, on 1 November 1996 the sum of $120,000 was withdrawn from that account, leaving a credit balance of $11,291.06. A further sum of $10,000 was withdrawn on 20 November 1996 (page 95) and a further sum of $16,599.60 was withdrawn on 2 December 1996. Those withdrawals sent the account back into overdraft and the creation of a fresh debt to the bank. The last withdrawal has the words “deposit 43 Riverside” crossed through, with the marginal note “Purchase Shares ...”

ix. There is nothing to establish, even prima facie, that any of these withdrawals from the ‘Flexiplus mortgage’ account had anything to do with the purchase of 43. The contract for the purchase of 43 was not exchanged until 3 December 1996: see page 83. Indeed, it is clear from the evidence collected below in relation to the purchase of 43, that the deposit was not sourced from this account and the balance of the purchase price was entirely financed by the nab and Westpac.

x. The deposit of $24,500 for the purchase of 43 was paid by the First Defendant from a cheque drawn on the ‘Communicado’ account: see page 84. The fax at page 77 indicates that $190,000 was to be borrowed from the nab. On completion on 24 January, 1997, the balance due after adjustments was $220,975.30: see the settlement statement at page 76 and the letter from Konstan, Solicitors at page 88 indicating that the balance was paid by a mortgage advance from the nab of $190,000 and a bank cheque of $30,975.30. The loan from the nab is confirmed on the ‘Flexiplus mortgage’ bank statement at page 87; as to the payment of the balance, it is clear that the First Defendant borrowed this from Westpac – the bank cheque slip is at page 85 and the bank statement for the First Defendant’s housing loan facility at page 86 shows the drawdown (including the bank fee) on 23 January, 1996.

xi. The Second Defendant’s own documents demonstrate, therefore, that she made no financial contribution to the purchase of 43. As Hodgson JA observed at [79]: “Her half share of the nab debt would not give rise to a beneficial interest, in my opinion, if Mr Carantinos had indemnified her against liability to nab; and the circumstances as the Court knows them are such that this may have happened; either expressly or impliedly. It does not appear that Mrs Carantinos made any payment in reduction of her share of this debt and the whole of the debt was repaid out of the sale proceeds.”

xii. Artesian exchanged contracts for the purchase of St Peters for $2.310M on 28 April 1999: see page 205. At page 206 is the cheque drawn by the First Defendant for the 5% deposit on his ‘Communicado’ account dated 1 May 1999.

xiii. The contract for the sale of 43 was exchanged on 6 May 1999: see the Konstan letter at page 5, which confirms the release of the deposit on exchange. The $80,000 deposit attributable to 43, formed part of the cheque for $296,000 to Pac Com; the balance of the deposit of $216,000 was attributable to the contract for the sale of 39 and 41, also exchanged that day.

xiv. The bank statement for the ‘Flexiplus mortgage’ account at page 129 shows the deposit of the $296,000 into this account. Even if the Second Defendant had some entitlement to ½ of the $80,000 deposit for the sale of 43, she had no right to extinguish her indebtedness to the nab with the balance. The fact remains, however, that the released deposit for all three properties was used to retire Carantinos debt to the nab in this facility. The deposit left a credit balance of only $30,767.63.

xv. On 14 May 1999 the sum of $150,000 was withdrawn/re-drawn from the mortgage facility and paid to the First Defendant. Save for the credit balance of $30,767.63, the balance of the re-draw was borrowed from the nab. If the Second Defendant had an interest to ½ of that sum, the First Defendant either took that sum or she loaned it to him, as the $150,000 was deposited into the First Defendant’s ‘Communicado’ account with Westpac: see the bank statement at page 201. The deposit cheque for $115,500 at page 206 was drawn on this account. The Court is referred to the findings in the primary judgment [2007] NSWSC 416 at [108], ‘pointing to the acquisition by the Pac Com joint venture/partnership of an interest in the Artesian property.’

xvi. It follows on this evidence that the Second Defendant made no financial contribution to the deposit for the St Peters property.

xvii. The sale of 43 was completed on 18 November 1999: see the settlement statements at pages 21 and 22. After adjustments, the balance due on settlement was $396,778.85. The letter from nab at page 26 shows that the balance was utilised to retire debt, save for ‘bank cheques made out to Peter Carantinos’ totalling $80,000. The details of the bank cheques are referred to on the authority at page 27. There is nothing to establish, even prima facie, that any of these bank cheques had anything to do with Artesian’s purchase of the St Peters property.

xviii. Further, the Court is reminded of the findings in the primary judgment at [102 vi. and vii.] that the proceeds of sale of 39 and 41 were used to not only discharge the mortgage over 43, but also over the First and Second defendant’s home.

xix. Hodgson JA. appears to have considered at [81] that the Second Defendant may have an entitlement to ‘the $128,000’ if she had a beneficial ½ interest in 43; but that assumed that there was ‘$176,000 left over after repayment of NAB.’ $400,000 less $223,528.85 = $176,471.15 and this is what his Honour was referring to. The letter at page 26 was not before his Honour and seen for the first time in “FC 1.” The Court is referred to the finding in the primary judgment at [102 viii] to the effect that the evidence before the Court did not disclose where the proceeds of sale of 43 went. The letter from nab demonstrates that in fact nothing was left over and $80,000 was paid to the First Defendant.

xx. There is nothing in the Second Defendant’s documents to show that she made any financial contribution to Artesian’s purchase of St Peters.

xxi. The Court directed the Second Defendant to serve her affidavit evidence in support of her application for leave to file the Cross Claim by 3 December, 2009, on 20 November, 2009. Having swore and served three affidavits (the Plaintiffs’ outline of submissions dated 28 January, 2010 confirmed at [4] that the Second Defendant was required for cross examination on those affidavits), her election not to rely upon any evidence so as to avoid being exposed to cross examination, can now be seen as providing a powerful inference against the credibility of the claims articulated in the proposed Cross Claim, in light of the content of Ex A1. Any attempt by Senior Counsel for the Second Defendant to now give evidence by way of further submissions, should be rejected.

Conclusion

17 I have come to the conclusion that very special care requires to be taken before acceding to the propositions put by either party. The matters in debate are obviously complex. In my view they require a further opportunity of a real Court time during which the second defendant should be permitted to file her proposed cross-claim, the merits of which cross-claim will then be regularly determined. For that reason [save as to the matters referred to below] it is presently inappropriate for the Court to do otherwise than to case manage the balance of the proceedings with the usual form of directions.

18 The reservation is that the plaintiff has satisfied me that in all of the circumstances disclosed by the materials put before the Court, on any view, the ambit of the second defendant's claim is entirely disproportionate to the first plaintiff's entitlements. It would be unjust and unfair to the first plaintiff for the Court to do otherwise than to quarantine a relatively small proportion of the fund pending the further hearing of the claim of Mrs Carantinos

19 I have already set out the submissions of the plaintiffs in this regard. I accept as of substance the propositions that:

i. Assuming favourably to the second defendant that she had a ½ interest in the $80,000 deposit on the sale of 43 and that ‘her’ $40,000 formed part of the Artesian deposit of $115,500, then any proportionate contribution to ½ of Artesian’s purchase of the St Peters property, is expressed as 40,000/1,155,000 or 3.46%. That proportion of the fund ($2,248,532.48, according to Declaration 2 of Macready AJ) is therefore $77,799.22.

ii. However, if her contribution to the deposit was ½ of the $30,767.63 standing to the credit of the ‘Flexiplus mortgage’ account that was used for the payment of the $150,000 into the ‘Communicado’ account from which the first defendant drew the cheque for the deposit (and, notwithstanding that he took or she loaned her portion of that sum to him), then any proportionate contribution is expressed as 15,384/1,155,000 or 1.33%. That proportion of the fund is therefore $29,905.48.

20 There should be a buffer for exigencies and in my view that buffer in all of the unusual circumstances should be fixed at $300,000. That quarantined sum should be ordered to be left on deposit with Westpac Private Bank and secured by Mr Rockliff's undertaking.

21 During the hearing senior counsel appearing for the plaintiffs made clear that his clients were in a position to put before the Court, at a suitable appropriate time, evidence to demonstrate absolute full disclosure to the Commissioner: [Transcript 33] at that same time acknowledging that no payment at all could be made without leave of the Court. This loose end will also have to be the subject of evidence.

22 In all the circumstances the application for leave to file the cross-claim is appropriate to be granted and directions will be made for the further conduct of the proceedings in terms which bring forward all of the remaining issues for final hearing and determination

*************

LAST UPDATED:
5 February 2010