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In the matter of MSU Management Pty Ltd - Urusoglu v MSU Management Pty Ltd & ors [2011] NSWSC 54 (18 February 2011)
Last Updated: 2 June 2011
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Case Title:
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In the matter of MSU Management Pty Ltd - Urusoglu
v MSU Management Pty Ltd & ors |
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Medium Neutral Citation:
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Hearing Date(s):
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2-5, 8 and 12 November 2010 |
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Decision Date:
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Jurisdiction:
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Decision:
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Equity Division proceedings - plaintiffs' claim
dismissed with costs.
Common Law proceedings - order for possession of premises and mesne profits
to be assessed
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Catchwords:
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CONTRACT - whether agreement under which second
defendant obliged to transfer shares in first defendant company back to former
shareholder
- claim for damages for breach of implied term not to diminish
benefit of alleged agreement - alternatively, if agreement as defendants
contend, whether agreement has been frustrated - HELD - plaintiffs have failed
to establish agreement by second defendant to transfer
shares in the company -
claim for breach of agreement alleged by plaintiffs fails - agreement, as found,
has not been frustrated
as matter of law - if failure of third party to complete
contract for sale of land did amount to a frustrating event it was
self-induced
CORPORATIONS - claim for order for rectification of share register - claim
of oppression of former shareholder's interests in relation
to circumstances in
which she ceased to be member of company - claim by former shareholder that
second defendant in breach of director's
duties - HELD - no rectification of
share register - no oppression established - claim by first plaintiff of breach
of director's
duties in relation to conduct after she ceased to be a shareholder
does not arise in light of finding that she not entitled to shares
in the
company
RESTITUTION - alternative quantum meruit claim in relation to completion of
subdivision works - HELD - no entitlement to restitution
in face of agreement
in relation to those works - value of works not adequately established
TORT - claim for damages in deceit - HELD - claim in deceit not established
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POSSESSION - claim by company for possession of land and mesne profits -
HELD - first defendant entitled to an order for possession
of land and mesne
profits to be assessed.
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Legislation Cited:
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Cases Cited:
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Texts Cited:
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Andrew Marsden in 'Prejudicial relief?' (1994) 15
Company Lawyer 178Elizabeth Boros in Minority Shareholders' Remedies at p
123 Goff & Jones, The Law of Restitution (7th edn, 2007 |
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Category:
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Parties:
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Elif Urusoglu (First Plaintiff) Mahir Urusoglu
(Second Plaintiff) MSU Earthworks & Heavy Haulage Pty Ltd (Third
Plaintiff) MSU Management Pty Ltd (First Defendant) Scott Larry Brennan
(Second Defendant) |
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Representation
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Solicitors: Marando Solicitors
(Plaintiffs) Walker Hedges & Co (Defendants) |
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- Counsel:
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Counsel: S Jacobs (Plaintiffs) E Cox
(Defendants) |
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File number(s):
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09/288299 (Equity Division)09/295975 (Common Law
Division) |
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Publication Restriction:
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Judgment
- HER
HONOUR : In these proceedings, claims are made by two members of the
Urusoglu family (Elif and her brother Mahir) and by a company controlled
by
Mahir (MSU Earthworks & Heavy Haulage Pty Ltd) against a finance broker and
erstwhile family friend (Scott Brennan) in relation
to matters relating to a
company (the first defendant, MSU Management Pty Ltd) formerly controlled by
Elif but now controlled by
Mr Brennan. (Without any disrespect, I will refer to
the members of the Urusoglu family, including Elif and Mahir's father Huseyin,
by their first names. Both Mahir and Huseyin were also referred to on occasion
in the evidence before me by Anglicised names - Mike
and Sam, respectively - but
for consistency I will refer to them by their given names.)
- Elif's
principal claim is for the rectification of the company's share register so as
to regain the legal ownership of the shares
in MSU Management (to which it is
said she is in equity entitled) and thus to regain control of the company. She
also seeks damages
in her own right for breach of contract or alternatively
relief on behalf of the company (relying upon an alleged contravention by
Mr
Brennan of ss 181 and 182 of the Corporations Act 2001 (Cth)) in relation
to the use by Mr Brennan of moneys drawn from the company funds, while he was a
director, for his personal expenditure.
In the alternative, Elif seeks damages
(in the pleading claimed in the sum of $680,000 but in the course of closing
submissions put
at a lesser sum - in the order of $250,000, or lesser still,
$179,000) plus interest by way of relief for the alleged oppression
of her
interest as a former member of the company or in lieu of specific performance of
the alleged agreement on the part of Mr Brennan
to transfer back to her the
shares in MSU Management.
- Elif's
claims broadly rest on the establishment of an alleged agreement on the part of
Mr Brennan either to hold on her behalf or
to transfer back to her (after
obtaining the financing necessary to enable the company to purchase a property
in Mt Vernon) the shares
in MSU Management.
- Mahir's
claim (and that of his company) is in the alternative to that brought by Elif.
Counsel for the plaintiffs, Mr Jacobs, confirmed
that this claim is pressed only
if Elif does not obtain the relief sought by her. In that event, Mahir and his
company seek restitution
for the alleged unjust enrichment on the part of the
defendants in retaining the benefit of subdivision works said to have been
carried
out at their request and/or freely accepted by them (those works having
been carried out by or at the expense of Mahir or his company)
or alternatively
as damages for deceit. Mahir's claim is nevertheless said to hinge on the
existence of the agreement on which Elif
claims (T 388).
- The
nub of the dispute is as to what agreement was reached in 2008 in relation to
the purchase by MSU Management of land at Mt Vernon
which one or more of the
Urusoglu family wanted to retain for the construction of their family home (but
also for use as a display
home in order to promote a wall panel product - WIPS -
created or developed by Mahir and apparently patented by him or by an entity
associated with him).
- In
essence (though there seemed to be various iterations of the alleged agreement
on which the principal claim is based, to which
I will refer in more detail
shortly), the Urusoglu claim is that Huseyin and Mahir (acting on behalf
of Elif) entered into an agreement with Mr Brennan, the intent of which was to
enable the purchase and development
of the Mt Vernon land with the benefit of
mortgage finance to be arranged by Mr Brennan and that, following the
subdivision of the
land into two blocks, one block of land (the front block) was
to be the Urusoglu family home. It is said that the agency relationship
between
Huseyin/Mahir and Elif can be inferred from the fact that Elif (somewhat
inconsistently with her protestations of independence)
left the conduct of the
affairs of MSU Management to her father and brother.
- The
land in question had been acquired by Huseyin in 2004. Following his voluntary
entry into bankruptcy in late 2007, the land was
put up for auction by Permanent
Custodians in the exercise of its powers as mortgagee in possession. It was
acquired at auction on
5 July 2008 by MSU Management and remains in the
ownership of that company (the land having been subdivided into two lots in
early
2009). As part (or on Elif's evidence in breach) of the arrangements
between the parties for the financing of the acquisition of
the land, the shares
in MSU Management were transferred to Mr Brennan in 2008 pursuant to a share
transfer form dated 16 June 2008
but registered on about 28 July 2008 after the
auction sale.
- It
is alleged that Mr Brennan's refusal to transfer the shares back to Elif is in
breach of the above agreement. It is further alleged
that, in breach of an
implied term of the agreement on the part of Mr Brennan (to do nothing within
his power to diminish or destroy
the benefit to Elif of the agreement), Mr
Brennan has diverted (from funds obtained through the later refinancing in 2009
of the
initial loan arrangements pursuant to which the land was acquired) funds
of the company to his own personal use. (Although initially
pleaded as a
diversion of funds in the order of $300,000, by the time of the hearing what was
claimed as funds utilised for personal
expenses was in the order of $179,000.)
- The
alternative unjust enrichment claim arises in respect of the work carried out
for the construction of a concrete access road (sometimes
described, 'absurdly'
in the words of one of the Urusoglu relatives, Mr Mesut Kanli, as a driveway)
through the land (to satisfy
one of the conditions of the development consent
for subdivision) and the provision of landscaping and other services, such as
water
services, to the land. It is alleged that this work was carried out at the
express request of Mr Brennan or, alternatively, that
the benefit of the work
was freely accepted by Mr Brennan (or MSU Management), and that the work was
provided upon the mistaken belief
that the shares in MSU Management would be
transferred back to Elif (such that the Urusoglu family would obtain the benefit
of this
work).
- Further,
it is alleged that the making of the alleged agreement constituted a
representation that Mr Brennan would reconvey the shares
(on which
representation Mahir and his company allegedly relied in carrying on the works
in question) and that Mr Brennan had no
honest intention of so doing - this
being relied upon for the claim for damages in deceit.
- Mr
Brennan denies the agreement as pleaded but does admit that an agreement was
made in relation to the land in question. That agreement,
in summary, is alleged
to have been that Mr Brennan would arrange the funding for the acquisition of
the Mt Vernon land; that Mr
Brennan would acquire the property (it being agreed
that he would do so through the corporate vehicle, MSU Management); that the
Urusoglu family would carry out the subdivision work at their own cost; and that
on completion of the subdivision the front block
would be sold to a person or
entity nominated by Huseyin at a fair market price (with the logical consequence
that the back block,
and any profit thereon, to be retained by Mr Brennan
through his ownership of the shares in MSU Management). It is said that it was
never a term of this agreement that Mr Brennan would re-convey the shares to
Elif.
- Mr
Brennan says that after the subdivision was completed Huseyin nominated a newly
incorporated company controlled and owned by his
brother-in-law (Mr Kanli) to
acquire the front block. A Contract for Sale of Land was entered into on 9
February 2009 in respect
of the front block, with Sebat Pty Ltd (Mr Kanli's
company) as purchaser (for the sum of $850,000) and MSU Management as vendor.
No
deposit was paid as required by the contract (according to the Urusoglu
witnesses, it was agreed that Mr Kanli's contribution
to the cost of the
subdivision works would be treated as the deposit). That contract was in due
course terminated for breach. The
land in question remains occupied by Mahir and
remains burdened by an equitable mortgage in favour of Trimac (as well as
securing
the lending by NAB/Homeside). MSU Management seeks an order for
possession in respect of the land and mesne profits for the period
of its
occupation by Mahir.
- By
way of reply, filed by leave at the close of the hearing but foreshadowed during
the course of the hearing, it is contended by
Elif and Mahir that (in the event
that the agreement is found to be as asserted by the defendants and not as
asserted by the plaintiffs)
on the facts pleaded in paragraph 5(vii) of the
Defence to the Amended Statement of Claim (i.e. the termination of the Sebat
Contract
of Sale on or about 9 March 2009) there has been a frustration of the
contract Mr Brennan says he entered into with Huseyin. In those
circumstances,
the plaintiffs seek practical restitution as between the parties. It is said
that such restitution requires the recoupment
of the benefit of the works
carried out on the land and that one way this benefit may be valued is by
reference to the benefit of
the company funds Mr Brennan used for personal
expenses since becoming a director (on the basis that those funds were only made
possible
though a refinancing that occurred on the basis of the subdivision that
had been effected).
Issues
- The
issues for determination are broadly as follows:
- (i) What was
the agreement pursuant to which the Mt Vernon land was acquired in the name of
MSU Management and Elif's shares in that
company were transferred to Mr Brennan
(it being neither party's case that there was no agreement at all in relation to
the transfer
of the shares)?
- (ii) If the
agreement was as the plaintiffs contend (and Mr Brennan is in breach of that
agreement by having refused to re-convey
the shares in MSU Management to Elif),
what relief should be granted (and is Elif entitled to damages for breach of an
implied obligation
by Mr Brennan not to diminish the benefit to her of the
agreement to re-convey the shares)?
- (iii) Alternatively,
has Elif established an entitlement to relief on the basis of oppression and/or
is she entitled to claim damages
in the name of MSU Management for funds
diverted from the company to Mr Brennan's personal use?
- (iv) If the
agreement was as Mr Brennan contends, did the termination of the Sebat Contract
of Sale amount to frustration of the agreement
and, if so, should practical
restitution be ordered and what would it comprise?
- (v) Has Mahir
established an entitlement to damages for deceit?
- (vi) Are Mahir
and his company entitled to relief on the basis of their unjust enrichment claim
and, if so, in what amount does their
claim in quantum meruit sound?
- (vii) On its
separate claim, is MSU Management entitled to an order for possession of the Mt
Vernon land and for mesne profits?
- Pressed
at the close of the hearing to articulate the damages claimed by Elif, Mr Jacobs
said that, if the shares are returned to
Elif, then the amount claimed by her is
$179,000 plus interest (being the amount of the company funds used for personal
expenses
of Mr Brennan) but that, if the shares are not returned to Elif, then
what is sought is the amount of $250,000 plus interest (being
the value of the
land, as evidenced by the purchase price stipulated in the Sebat contract -
$850,000 - less the amount outstanding
on the existing mortgage over the front
block - $600,000 - and assuming the Trimac loan over the land had been
extinguished).
- Therefore,
when considering the relief claimed, I note that the amount quantified in the
pleadings at $300,000 is now said to be $179,000
and the $680,000 claimed
elsewhere in the pleading is now claimed as $250,000.
- Mahir's
alternative quantum meruit claim is in the order of $350,000 (a sum of $347,000
being the amount appearing in an invoice rendered
by his company, MSU
Earthworks, in December 2008 for the subdivision works. That sum includes a
component referable to an invoice
for $90,000 on the letterhead of All Concrete
Constructions Pty Ltd, the authenticity of which invoice is in dispute.
Conceding that
there might be some difficulty in establishing the figure of
$350,000, it is nevertheless submitted by Mr Jacobs that at least $250,000
in
value has been shown to have been conferred by reference to the works (that
comprised of $130,000 from Mr Kanli, concrete supplied
by Western Suburbs
Concrete for approximately $30,000 and the disputed invoice of $90,000).
Summary
- In
summary, for the reasons set out below, my views on the above issues are as
follows.
(i) What was the parties' agreement?
- The
plaintiffs (Elif, Mahir and his company, MSU Earthworks) have not established on
the balance of probabilities that there was an
agreement in the terms for which
they contend. On the whole, I find Mr Brennan's version of events to be the more
credible. I find
that the agreement reached between Huseyin and Mahir (on behalf
of Elif) in relation to the acquisition of the Mt Vernon land was
for Mr Brennan
to arrange finance for its purchase by MSU Management; for the shares in, and
control of, MSU Management to be transferred
to Mr Brennan; for the subdivision
of the land at the cost of Mahir (or the extended Urusoglu family); and for the
transfer of the
front block, at a fair market price, to Huseyin's nominee after
completion of the subdivision.
- In
particular, I find that there was no promise by Mr Brennan not to register the
share transfers and no obligation on the part of
Mr Brennan to transfer the
shares in MSU Management back to Elif.
- The
consequence of this is that (subject to the obligation to transfer the front
block to Huseyin's nominee) Mr Brennan is entitled
through the shares in MSU
Management to any profit from the sale of the respective blocks of land.
(ii) Relief for Elif if agreement in relation to shares were
established
- On
my finding in (i) above, this issue does not arise. Had it arisen, I would have
been inclined to the view that the appropriate
relief depended on the content of
Mr Brennan's obligation in relation to the shares. If his obligation was to hold
the share transfer
form and not to register it, then I would have been of the
view that the appropriate remedy was to rectify the register. Had I been
of the
view that Mr Brennan was entitled to register the share transfer but was
thereafter obliged to transfer back to Elif the shares,
then I would have
considered the appropriate relief to be to order the transfer by Mr Brennan back
to Elif of the shares he holds
in MSU Management (or damages for failure to do
so).
- In
either case, I consider that any relief involving the reinstatement of Elif as a
member of the company would have needed to be
conditional on the reimbursement
to Mr Brennan of any interest or other payments made by him or on his behalf in
relation to the
land over the period from July 2008 and to the procuring of a
release in respect of any liability he or his wife have or may continue
to have
under guarantees given in connection with the financing of the acquisition or
development of the Mt Vernon land.
- As
to the re-financing of the initial loan facilities obtained in that regard, and
the use by Mr Brennan of funds derived from that
refinancing for his personal
use, had I found that the agreement was as contended for by Elif, then any claim
for damages suffered
for breach of an implied obligation not to diminish the
benefit to Elif of the reconveyance of the shares would be referable to the
loss
of value in the shares which was not established. I would have therefore been
inclined to think that the appropriate remedy
would be to order Mr Brennan to
reimburse to the company the sum of $179,000 (plus interest) being the amount
drawn from the company
funds to his personal use (in the absence of evidence
from Mr Brennan that he was entitled to do so).
(iii) Oppression/derivative claim
- I
am not satisfied that Elif, as a former member of the company, has established
any oppression in relation to the circumstances in
which she was removed as a
member and director of the company and hence has not established any entitlement
to relief under s 234 of the Corporations Act.
- As
to the question of any breach by Mr Brennan of his duties as a director of MSU
Management by reason either of his conduct (after
Elif ceased to be a
shareholder) in not paying down the so-called Trimac loan at an earlier time or
in drawing down company funds
for his personal use, those issues do not arise on
the suit of Elif (since I am not satisfied that she has any entitlement to the
shares of the company). Had the issue arisen, then it would have been necessary
to consider Elif's application for leave to bring
a derivative suit in the name
of the company (problematic in that it could be assumed that if Elif were the
sole director and shareholder
then there would be no basis for thinking that the
company would not itself prosecute the claim and because it was not explained
how the overlap between Elif's personal claim for damages and the cause of
action asserted on behalf of the company would be addressed
in the context of
what whether it would be in the best interests of the company to bring the
claim). I am inclined to think that
the requirements for leave to bring a
derivative suit in those circumstances were not satisfied.
- In
passing I note that I would not have been satisfied that the evidence before me
enabled me to form a conclusion (had it been necessary)
that the delayed
repayment of the Trimac loan was a breach of director's duties since I was not
privy to all of the circumstances
in which that loan was not paid down (there
having been, I was told, litigation last year in relation to that loan) and the
commercial
prudence or otherwise of deferring repayment in the anticipation of a
sale of one or both of the blocks is something that seems to
me to fall within
the realms of a business judgment that I am simply not in a position on the
evidence to assess. However, I accept
that the evidence would have allowed the
conclusion that there was a serious question to be tried on that issue.
- As
to the payment by Mr Brennan from company funds of personal expenses, it was
suggested that this could legitimately have been effected
by way of a loan
account with the company or as a payment at the direction of Mr Brennan of
directors' fees. However, in the absence
of evidence as to those issues, a
payment out by Mr Brennan of company funds for personal expenses would prima
facie seem to be in
breach of his duties as a director and there would have been
a serious question to be tried also on that issue.
- In
light of the finding in (i) above, I can usefully take the matter no further
(other than to note that had Elif succeeded on her
principal claim in relation
to rectification of the shares, and been reappointed as sole director it would
then have been open to
her in the name of the company to pursue claims for
breach of director's duties against Mr Brennan, if so advised, and hence there
would not seem to be a need for leave to bring a derivative suit).
(iv) Frustration
- I
am not satisfied that the termination of the Sebat Contract of Sale operated to
frustrate the agreement that I have found was reached
in relation to the
transaction (namely that the front block would be subdivided at Mahir or the
Urusoglu family's expense and sold
at a fair market price to Huseyin's nominee).
- The
front block remains in the ownership of MSU Management. I am not satisfied that
the agreement has become impossible of performance.
(It seems to me that there
is a reasonable argument that, the sale to Sebat having fallen through, it
remained open at least for
a reasonable time after termination of the Sebat
contract for Huseyin to nominate another purchaser of the land for fair market
value.)
Nor am I satisfied that performance of the contract has become a
radically different thing, so as to give rise as a matter of law
to frustration
of the contract. The performance by Mahir of his obligations to carry out the
subdivision works may not have had the
outcome Mahir desired but his performance
of the subdivision works was always to be in circumstances where the benefit
hoped to be
achieved was dependent on Huseyin's nominee being able and willing
to complete the contract.
- In
any event, I have concluded that the failure of Sebat to complete the 2009
contract was due to a decision by Huseyin (or in which
he acquiesced) for his
nominee not to proceed with that sale or an inability on the part of Huseyin to
arrange the necessary finance
for that to occur. I am satisfied that Sebat, in
entering into the contract for sale, was doing so on behalf of Huseyin. Any
frustration
of the agreement by reason of the failure by Sebat to complete the
contract in those circumstances seems to me to be self induced.
(v) Damages for deceit?
- I
am not satisfied that it has been established that Mr Brennan has any liability
in tort for deceit.
(vi) Mahir's alternative quantum meruit claim
- I
am not satisfied that Mahir (or his company) has established a claim based on
the unjust enrichment of Mr Brennan or MSU Management
(and, even if there had
been such a claim I could not be satisfied that the quantum of the benefit to be
restored to Mahir or his
company had been adequately established).
(vii) Claim for possession
- In
light of the above findings, MSU Management is entitled to an order for
possession of the Mt Vernon land. I consider that it is
also entitled to an
order for mesne profits. I think it appropriate that the quantification of those
profits be referred to a referee
or to an Associate Justice but will hear
submissions in relation to the most expeditious way of carrying out such an
assessment.
Facts
- Prior
to his entry into bankruptcy, Huseyin had carried on business as a property
developer. (According to Huseyin's evidence in the
witness box, in explanation
for his assertion that he did not care what happened to the Mt Vernon property
after his bankruptcy,
Huseyin said that he had been involved in millions of
dollars worth of property development.) He was described by Counsel for the
plaintiffs, Mr Jacobs, as an entrepreneur (and there was no suggestion to the
contrary).
- Mr
Brennan is a finance broker and had, over the years, arranged to procure finance
for Huseyin for various property developments.
Mr Brennan conceded that there
had been a commercial relationship with Huseyin over the years and did not deny
that he had derived
commission or brokerage fees from his dealings with Huseyin.
Though the precise quantum was not admitted, Mr Brennan accepts that
he had
received at least $120,000 in that regard. Nevertheless, the receipt of
commissions seems to be only one side of the equation.
Mr Brennan claims to have
suffered considerable (and far more extensive) losses in at least one project in
which he says he (and
his colleagues) had invested funds (referred to as the
Granville development), something not acknowledged either by Huseyin or by
Mahir
(other than that Huseyin said that "everybody" had lost in that project and
appeared to acknowledge that Mr Brennan had been
pressing him for repayment of
money in respect of the project).
- It
does not appear to be disputed that the two men and their families had had a
social relationship for some time (though the extent
of it may be in dispute).
Both Elif and Mahir said that they had called Mr Brennan "Uncle". (Their trust
in Mr Brennan, which I consider
likely to have been overstated by both, was
given as the explanation for Elif's preparedness to sign documents that she now
says
she knew were incorrect at the time and which she says her father's
accountant had advised her at the time not to sign.)
- In
around 2004/2005, Huseyin bought the land at Mr Vernon which is the subject of
the claims in the present proceedings. At that time,
the land had the benefit of
a Development Consent for subdivision into two lots. One of the conditions of
the subdivision consent
was the creation of a 3.5m sealed driveway or access
road along the boundary of the land. Mahir's evidence is that he carried out
substantial work to clear the Mt Vernon land in 2006 (and he estimated that work
to be worth around $300,000). Mahir's evidence in
the witness box was that much
of the work done prior to the events in question in 2008 (or at least the works
in relation to the
access road) was rendered worthless (and later had to be
re-done) due to the delay occasioned by the mortgagee taking possession
of the
property (that arising by reference to the impact of the weather on the
incomplete roadworks).
- Huseyin
says that he wanted to build a family home on the Mt Vernon land and to do so by
using an insulated wall panel system ("WIPS").
Mahir said that he had created or
invented the idea of WIPS. He was enthusiastic and expansive in his description
of it in the witness
box, (as compared with his evidence in relation to other
matters in which he displayed an attitude of distinct disinterest). Huseyin's
plan was to live in the home but also to use it as a display home in order to
demonstrate the features of the WIPS product. In the
witness box, Huseyin
emphasised that the only way that "they could all get back trading" was for the
WIPS project to "get off the
ground" (T 74) and that for that to happen it was
necessary to have a display home to demonstrate the benefits of WIPS.
- It
is not clear to me when the WIPS product was first developed or what, if any,
arrangements were made as between the parties for
the development or
commercialisation of WIPS. However, Mr Brennan seems to have been approached to
become involved in the WIPS project,
at least in relation to the financial side
of that project, at some time in 2007. Huseyin said that there were discussions
as to
Mr Brennan obtaining a commercial interest in the product. (Huseyin said
that he had promised both Mr Brennan and another person,
who he described as a
friend, Mr Ashish Patel, a percentage of the company to be set up to
commercialise WIPS although no such shareholding
was ever transferred and it
seems clear that WIPS did not ever 'get off the ground' at least in the Urusoglu
family's hands). Huseyin
says that he set up WIPS Management (T 74), although
this is not clear from the ASIC search. Mahir said in the witness box that WIPS
had been patented and that the patent was owned by a company but that it had
been sold - though he claimed to have an entitlement
to some management and
royalty fee. He accepted that to date WIPS has not made money (T 30) and there
is nothing to suggest that
there was any mechanism in place by which, if it did,
Mr Brennan would benefit therefrom.
- The
relevance of WIPS to the dispute at hand is that Mr Jacobs submits that the
prospect of a profit being made out of the WIPS product
(together with the
commission to be generated from the raising of finance for the acquisition of
the Mr Vernon land) was the commercial
incentive for Mr Brennan to enter into
the agreement that Huseyin and Mahir say was reached in mid 2008. (For Mr
Brennan it is said
that there was no commercial purpose served in him entering
an agreement in the terms contended for by the Urusoglu family and hence
it is
objectively unlikely that there was an agreement in such terms).
- In
any event, in August 2007, a company was incorporated (WIPS Management Pty Ltd)
by Mr Brennan, which suggests that at that time
he anticipated in some fashion
becoming involved in the promotion and sale of WIPS in the future (since
otherwise the use of WIPS
in the company name seems hard to explain - it might
be thought likely that Mahir or his father would take objection to the use of
the WIPS name by a party not involved in some way with the project). This
company did not, however, ever trade. In June 2010, Mr
Brennan resigned as a
director and secretary of the WIPS Management company and transferred his shares
in that company to his wife.
Mr Brennan, in cross examination, said that WIPS
Management was just "lying around unused" and had been put into his wife's name
so some good use could be made of it, though it is not clear what use that might
be.
- Huseyin's
bankruptcy - late 2007
- In
late 2007, Huseyin declared himself bankrupt. Chronologically, this followed
(and Huseyin says it was caused by) the failure of
the Granville project. In
cross-examination, Huseyin became visibly upset when talking about his current
financial position (saying
that he had lost everything) and at one stage seemed
to attribute his bankruptcy to following Mr Brennan's advice, though there was
no evidence as to this and nothing turns on it for the purposes of this
proceeding. For his part, Mr Brennan says that he (and his
colleagues,
collectively) lost about $2.8m in the Granville project. He deposed to having
made a number of attempts to procure repayment
of moneys lent for the project
from Huseyin (and Huseyin does not seem to dispute that Mr Brennan was upset and
demanding moneys
around this time). Huseyin's attitude in the witness box seemed
to be that he, Huseyin, had lost his 'life' over the project and
thus he had
little room for sympathy for Mr Brennan's position; further, he maintained that
he was not aware whether there had in
fact even been any losses sustained by Mr
Brennan (apparently solely on the basis that he had not been shown all the
financial documents
he had requested in relation to this issue.)
- The
first registered mortgagee (Permanent Custodians) in due course exercised its
power of sale and put the property up for auction
on 5 July 2008 as mortgagee in
possession.
- June 2008 -
discussions before auction?
- According
to Mr Brennan, in early June 2008 he had conversations with both Huseyin and
Mahir in relation to the forthcoming sale of
the land in which he was asked to
assist them to purchase the land and it was suggested to him that there was
potential to buy the
land for a low price, complete the subdivision and make a
profit (Mr Brennan says that it was put to him that he could thereby recoup
some
of his losses on the Granville project). Huseyin and Mahir deny this. Huseyin
says that it was Mr Brennan who offered (after
the auction) to help.
- At
T 110, Mahir denied asking Mr Brennan for help to buy the Mt Vernon property but
"vaguely" remembered a conversation "maybe saying
I buy it back: He said he
didn't really remember any conversation, but "may" have mentioned buying the
property. (I had the impression
that the vagueness with which Mahir answered
this and other questions in similar vein, was because he thought it was at least
possible,
if not likely, that there had been such discussions and did not wish
to be caught out in a straight denial of those conversations.)
- Mr
Jacobs submits that Mr Brennan has distorted what happened in relation to the
Granville project. Whether or not that is the case,
on the oral evidence given
by Huseyin and Mahir (albeit perhaps influenced by subsequent events, not least
being this litigation),
it was difficult to discern any sympathy on the part of
either Huseyin or Mahir for the fact that Mr Brennan may have suffered losses
on
the project (which belies any suggestion that they were earlier anxious to help
him in this regard). Nevertheless, the context
of the failure of the Granville
project does provide not only a basis on which they might well have sought to
persuade Mr Brennan
to be involved in the purchase of the Mt Vernon land but
also a reason why Mr Brennan might be reluctant to do so (as he says was
the
case). Indeed, Huseyin accepted that Mr Brennan did not want to enter into any
further business venture with him unless there
was an expectation of profit,
which makes Huseyin and Mahir's version of the agreement less likely.
- Notwithstanding
Mr Brennan's professed reluctance to become involved in another commercial or
property project with Huseyin (after
his experience with Granville), he says
that he was prepared to make some enquiries in relation to the property and the
possibility
of arranging finance for the property. He could not recall whether
he had filled in an application before or after auction and could
not remember
date started making enquiries (T 351.46). There is no documentary evidence of
such enquiries, although Mr Brennan said
that he had commenced them prior to the
auction (T 352.19). There was certainly no application for finance from any
external finance-provider
made prior to the auction (whether by Mr Brennan or by
the members of the Urusoglu family) although the speed with which finance
was
later arranged might support the inference that some enquiries had been made
prior to the auction (albeit on an informal basis).
In any event, Mr Brennan
does not seem to have been in a position to commit to the purchase of the
property as at the date of the
auction (which is consistent with his denial of
an intention to bid on that occasion.)
- Somewhat
surprisingly (since the importance Huseyin places on the acquisition of the
front block to enable the family to get back
on its feet), Huseyin denies that
he had any interest in the Mt Vernon property or its potential at that stage -
he says he was overseas
a lot and that he had much more valuable properties,
such as an interest in a business park, that he was concerned about at the time.
He denies that he had the relevant conversations with Mr Brennan.
- Whatever
his father's attitude to Mt Vernon at that time (and it is hard to accept
Huseyin's evidence that he did not care at all
about the fate of the land that
his Counsel described as the 'family dream' and on which the hopes of the WIPS
product - and the
only way to get trading again, T 74) apparently rested, Mahir
seems to have been keen to keep the land in the family. Mahir says
that he spoke
to his father before the auction about acquiring the land and that also he spoke
to his uncle, Mr Kanli, to arrange
funds for its acquisition. Mr Kanli confirmed
that Mahir had asked him before he went to the auction (T 236) to help get the
money
but it seems that any such promise of financial assistance was in very
general terms (not least because there was no information
provided as to the
amount in question). In the witness box, Mr Kanli said Mr Brennan was going to
fund it (the acquisition) (T236.27)
and that he agreed to help get the money,
which is inconsistent with the purchase being financed solely by Mr Kanli (yet
on Mahir's
evidence that is the only source of finance he had arranged before
the auction).
- Mr
Kanli did not have $96,000 in a bank account in October/November (T 236.23) with
which to meet the deposit (and seems to have been
relying on undisclosed sources
of cash as the basis for any such financial assistance that he did provide to
Mahir).
- Mahir
was equivocal as to whether he had had any discussion with Mr Brennan prior to
the auction about the purchase, although suggesting
he had a 'very vague
recollection' that there might have been such a discussion. He certainly denies
any agreement with Mr Brennan
in relation to the proposed purchase.
- Mahir
did not, personally, have the funds to acquire the Mt Vernon land and accepted
that he did not have a good credit history (T
106.45) (though he was not willing
to admit that, had he tried, he would not have been able to borrow the funds.
Nor did MSU Management
(which seems never to have traded) have the ready funds
to acquire the land.
- On
Mahir's version of events, therefore, he attended and bid at the 5 July 2008
auction without any ability to meet the deposit (let
alone the purchase price)
other than by relying on his uncle's largesse (conduct that seems foolhardy in
the extreme and tends to
make Mr Brennan's version of events the more
objectively credible).
- Ownership of
shares in MSU Management
- There
is a live dispute as to the ownership of the shares in MSU Management as at the
date of the auction (5 July 2008). MSU Management,
according to the historical
company records, was incorporated in December 2006. Elif was the sole
shareholder and director of the
company. According to Mahir (who said that he
did not understand much about incorporation - T 126), the company was set up to
act
as trustee of the MSU Holding Trust, of which he was a beneficiary - T126 -
and he paid the costs of its establishment. Prior to
5 July 2008, there is no
suggestion that there were any assets of the trust or that MSU Management had
traded or actively carried
on any business. (Mahir was not able to say whether
the trust had been registered for GST purposes - T 125 - and dismissed questions
as to its status by saying that Mr Brennan's accountant had set it up and "he
did it all" (T 125).)
- Mahir
accepted that he was "not that experienced" in relation to corporations and that
his sister Elif (who says she made the decision
to incorporate the company) was
less experienced than he (T 127). However, Mahir was not prepared to concede
that Elif was not actively
going to be involved in the running of the company.
Elif (who seemed intent in establishing that she was an independent
decision-maker)
could not point to any real purpose for the existence of MSU
Management but then, somewhat inconsistently, said dogmatically that
the company
was "never to be separated from the trust". (It is difficult to know what Elif
understood by such a proposition, since
she was not able to explain what a trust
was and gave no reason for the requirement that the company remain trustee of
the trust,
if this is what she meant by it not being separated therefrom.) It
was not suggested that the MSU Holding Trust itself had any assets
at the
relevant time. Elif seems to think it was there to put funds into if the
occasion so arose but it is not clear from where
or when it was expected that
any such funds would have been derived.
- Mr
Brennan deposes (in paragraph 28 of his 23 May 2010 affidavit) to a conversation
with Huseyin (denied by Huseyin), to the effect
that Huseyin had said to him
that MSU Management could be used as the vehicle for Mr Brennan to acquire the
Mt Vernon land. (Huseyin,
however, says that Mr Brennan only offered to help
after the auction and seems to deny that there was any discussion about the role
of MSU Management in the acquisition of the land prior to the auction.)
- What
is clear is that Huseyin (then an undischarged bankrupt) could not himself buy
the land and he readily acknowledged that he could
not borrow any funds to do
so. He seems to have been under the impression that because of his bankruptcy
his children would not have
been permitted themselves to bid at the auction
(which lends some weight to the suggestion that he or his son would have
approached
Mr Brennan to assist in that regard and may explain the suggested use
of MSU Management as a vehicle for the purchase).
- Why
the use of MSU Management would be suggested if the purchase was to be by Mr
Brennan in his own right (rather than as a means
for the Urusoglu family to
acquire the whole of the land) as Mr Brennan contends is not clear. Mr Brennan
suggested in his affidavit
that he had a difficulty being seen to be involved in
the acquisition as he had procured the initial mortgage for Huseyin and his
wife, but it was not made clear why that would necessarily cause a difficulty if
the subsequent sale was to occur at a public auction.
However, if Mr Brennan had
such a concern it might explain the use of the corporate vehicle. Counsel for Mr
Brennan (Mr Cox) submitted
that the corporate vehicle was simply used as a
matter of convenience.
- Mr
Brennan says that on 16 June 2008 there was a meeting in which Elif (the then
sole director, secretary and shareholder of MSU Management)
resigned as a
director of the company and agreed to transfer the shares to Brennan. (A minute
of meeting subsequently prepared by
Mr Castino records a meeting on that date at
the registered office and principal place of business of MSU Management at which
both
Elif and Mr Brennan are noted as being in attendance. Interestingly, the
minute contains the same misspelling of Elif's surname as
is found where her
name first appears in the 5 July letter.)
- Elif
was adamant that she had not attended any such meeting and her conviction on
this issue (compared with rather more uncertain
evidence on other matters) led
me to believe her on this issue. She produced in the witness box a pay slip that
she contended proved
that she was at work on that day (although the pay slip
simply indicated hours worked over the period) and explained that the hours
of
travel to and from work made such a meeting impossible. Mr Cox submits that
Elif's evidence on the physical impossibility of attending
the meeting was
exaggerated. While it is conceivable that Elif could have attended such a
meeting, outside of her day-to-day work
commitments, it seems to me unlikely
(if, as it seems they were, Huseyin and Mahir were the moving parties in
relation to the sale)
that Elif had any active role. (Huseyin, while saying that
she made her own decisions, cast doubt on that by referring to the 'ethnic
brain', by which I understood him to be suggesting that he regarded his daughter
as not having as much independence or responsibility
as his son.)
- The
real difficulty I have in accepting that there was a formal meeting convened (at
some time prior to the 7 July 2008 meeting with
Huseyin's accountant, Mr
Castino) at which Elif resolved (whether at her own initiative or at the
direction of her father or brother)
to resign as director and shareholder of MSU
Management and to transfer her shares to Mr Brennan is that (and I say this
without
any criticism of her) Elif seemed to have very little idea of anything
to do with the company or its role as trustee of the MSU Holding
Trust or of
what a trust was. In matters of that kind I strongly suspect that Elif simply
followed whatever instructions were given
to her by her father or brother and
there is nothing to suggest they paid any attention to the need for the passing
of resolutions
of this kind at that stage. I doubt that much attention was paid
to the formalities of corporate life by Mahir and Huseyin was overseas
around
the time of the auction.
- Mr
Jacobs relies, in support of the plaintiffs' assertion that Elif was the owner
of the shares in MSU Management as at the date of
the auction, on two matters: a
letter dated 5 July 2008 in its terms authorising Mahir to bid on MSU
Management's behalf at the auction
and, secondly, the fact (as to which there
can be little doubt) that the share transfer and accompanying documentation was
not prepared
until 7 July 2008.
- As
to the first, a copy of the letter (headed "Director's Minute") signed by Elif,
authorising Mahir to bid at the auction, was produced
at the hearing. (Although
Mr Jacobs placed emphasis on the fact that the letter was dog-eared, stained and
appeared to be a few years
old, that could equally be the case whether it was
produced before the auction, as Elif and Mahir say it was, or after the auction,
as I am invited to infer by Mr Cox.)
- The
letter (Exhibit 4) provides as follows:
DIRECTOR'S MINUTE"
ELIF URISOGLU [sic] appoints and
gives/confirms authority to Mahir Urusoglu to execute the contract for the
purchase of ... Mt Vernon
on behalf of the company MSU Management Pty Ltd (ACN
122 996 525)
(Signed)
Elif Urisooglu [sic]
Sole Director and Secretary
5 July 2008
- Mr
Jacobs points out that Elif only needed to provide a letter to authorise Mahir
to bid at the action and sign the contract if she
were still the director of MSU
Management on 5 July 2008.
- As
to the letter, although I accept Elif's evidence that she typed it herself
(T177.43) (though twice apparently misspelling her own
name), I have difficulty
accepting that Elif drafted the text of the letter, particularly when she had no
real concept of what a
Director's Minute might be in a corporate context. At T
I78 she said "it was a meeting that would have taken place with a director".
She
also said at T 179 "If I had a dictionary and time I possibly could have [known
what the language meant]" (hardly a ringing endorsement
that she had any
understanding of the document being described by the heading to the letter).
- I
think it more likely that Elif was told by someone else what the letter was to
say, at least in general terms. (That person seems
unlikely to have been Mahir,
whose evidence was that he was "pretty sure" a director's minute meant "a
director, you know makes a
note" - T 213 - and his evidence that his sister used
language of the kind in the note was not convincing in light of her own evidence
- T 213.31)
- The
copy letter in evidence bears a fax imprint on the top (dated 8 July 2008) with
a fax number which appears to be that of someone
I was told was Huseyin's lawyer
(a Mr Matthew Grew), suggesting that the letter was faxed to or by Mr Grew on
that date. I cannot
see the need for a copy of the letter to be sent to Mr Grew
if it had been earlier given or shown to the auctioneer at the auction
- hence
the fax imprint suggests the letter was prepared after the auction. (Mahir's
evidence showed a tendency to speculate on this
point. In cross-examination he
said at T 97.35 that the letter was given to Mr Grew "because when the property
was bought and my
signature on there it had been given to Grew to say it was
brother on the day"; he later said that he did not give the letter to
Mr Grew,
which begs the question as to how it came to be faxed to or by Mr Grew on 8 July
2008, (T 215) and said that he had a copy
of the letter in his pocket at the
auction T 213.37, before suggesting that there might have been a number of
copies in existence.)
- According
to Mahir, there was a discussion at the time the contract was signed as to
whether the contract was to refer to the purchaser,
MSU Management, as a
trustee. However, he does not refer to any discussion as to the need for
evidence that he was bidding on behalf
of the company. Mahir signed the contract
on 5 July 2008. In the contract he is described as the sole director of MSU
Management.
Having regard to the fax imprint on the 5 July letter, it seems to
me more likely that a request for evidence of authority to bid
was made only
when it was realised that Mahir was not a director of the company, i.e. after
the auction and that at that stage Mr
Grew asked for and was given a letter of
authority to send to the real estate agent. (Mr Grew was not called to give
evidence in
the proceedings.)
- I
am not persuaded that the 5 July letter was in fact prepared and signed prior to
the auction on 5 July 2008. If, as Mahir suggests,
he attended the auction and
bid for the property on his own bat, then it seems to me quite likely that he
did so without realising
he would need a letter of authority to bid for the
company (whether or not there had been the meeting on 16 June at which Elif had
agreed to resign and to transfer her shares). Elif's suggestion that the letter
was needed for Mahir to register prior to the auction
as a bidder is not
supported by any evidence from a real estate agent as to any pre-auction
registration requirement (nor for that
matter was this the evidence of Mahir).
Mr Cox points out that Elif's evidence as to when the letter was provided (as to
whether
it was provided on 5 July 2008 or the day prior to the auction) was also
contradictory.
- Mr
Cox submits and I agree that it is reasonable to infer that on around 8 July
2008 (the date of the fax imprint) someone on behalf
of the vendor (presumably
having conducted a corporations search of MSU Management) discovered that the
director/secretary of the
company records was Elif and made enquiries as to
Mahir's authority, which resulted in the production of the letter.
- The
second matter relied on by Mr Jacobs as pointing against a meeting on 16 June
having taken place as Mr Brennan contends, is the
evidence of the accountant who
had prepared the documents for the share transfer (Mr Dennis Castino) as to what
occurred on 7 July
2008. I will consider that evidence shortly.
- According
to Mr Brennan, throughout June 2008 and up to the auction on 5 July 2008, he had
explored the possibility of obtaining finance
to purchase the Mt Vernon land
without success. (Although it was put to him that the manner in which this was
phrased in his affidavit
had been intended to convey that there had at least
been an application for finance made but just not finalised, and I accept that
his affidavit might well be thought to convey such an impression, the fact is
that there had been no formal application.) It is unclear
precisely what
enquiries Mr Brennan had made or which he thought were necessary to enable an
application for finance (something he
said was a lengthy process, although the
only evidence of such a process in this case - in relation to the application
for finance
for Sebat - seemed to take a matter of 2 or 3 weeks).
- Mr
Brennan, not unreasonably in my opinion, was not prepared to bid at the auction
without finance being in place. He said, but Mahir
denies, that Mahir continued
to pressure him to do so (paragraph 30 of Mr Brennan's affidavit).
- The
auction took place on a Saturday. Huseyin says that he was in China at the time
and there was no suggestion that this was not
the case. Mr Brennan attended the
auction (he says reluctantly and with no intention of bidding). Both Huseyin and
Mahir suggested
that Mr Brennan had attended the auction simply out of interest
(in Huseyin's words, "to sticky beak") because he held a caveat.
(Mahir at first
said that he remembered Mr Brennan had a caveat on the land but then later said
that he was informed by his father
that there could have been caveats - T
130.40/T 134). There was no evidence of any caveat that had been lodged by Mr
Brennan over
the property. (There was, however, evidence in the form of a 3
August 2006 loan agreement that permitted the lenders - who included
a Mr Colles
and Mr Brennan - to take security by way of a mortgage over the Mt Vernon land.
Therefore, although Mr Brennan was not
a caveator, it might have been understood
by Huseyin that he had some form of security interest under the 2006
arrangements over
the land by reason of which he might conceivably have had an
interest in attending the auction to ascertaining at first hand the
outcome of
the sale). Whatever may have been the case in that regard, it is clear that
Mahir's information as to any caveat can only
be attributable to whatever his
father had told him.
- Mr
Brennan says that, without prior agreement or notice to him, Mahir successfully
bid at the auction with an offer of $960,000 for
the property. Mr Brennan says
that he immediately confronted Mahir and challenged his authority (paragraph 31
of Mr Brennan's 23
May 2010 affidavit). Mahir denies this account of the
conversation. I have to say that Mr Brennan's version of events would be
consistent
with the attitude that Mahir displayed in the witness box of apparent
disregard for, or lack of appreciation of, the serious financial
consequences
that might flow from signing a contract for such an amount of money when he had
no firm finance in place (and was doing
so on behalf of a company in which he
had no interest and was not a director). Mahir was, to my observation, casual
and disinterested
in his approach to giving evidence (described by his Counsel
as being "emotionally flat") - he did not appear to think carefully
about the
questions he was being asked and had an air of disinterest about the process of
giving evidence. (His attitude to the production
of documents called for by the
defence is an example of this - documents seemed to be produced in dribs and
drabs as and when Mahir
bestirred himself to make searches for the documents.)
- Mahir
was cross-examined as to the fact that the first page of the contract he signed
on the day of the auction had falsely described
him as the 'sole director' of
MSU Management. Those words were handwritten on the contract. Mahir denied that
they were in his handwriting
(and speculated that they had been mistakenly added
by the real estate agent, not knowing that he was not the sole director (T
98.42)
i.e. simply on the basis of an assumption that he was the sole director).
- Mahir
said that the contract was blank when he signed it (including as to the price).
If that was the case, then this seems to me
not only to be remarkably nave or
careless on his part (in entering into such a contract without such details) but
inconsistent with
ordinary conveyancing practice. There would be no need for the
price to be left blank (and every reason for both purchaser and vendor
for that
not to be the case). The contract was on all accounts signed after the
completion of the auction when the purchase price
should by then have been well
known to all. (It was not therefore a situation where blank contracts were
signed as some form of assurance
of intent to bid, which might explain Mahir's
evidence.) One would think that price would be the first detail that a vendor
and purchaser
would want to ensure was correctly entered into the contract
(particularly a vendor selling as mortgagee).
- As
noted earlier, Mahir says that there was a conversation with the auctioneer as
to the contract noting that the purchaser was a
trustee. If that is the case
(and the auctioneer refused to accept that notation - as one might think the
auctioneer would not unreasonably
do in the absence of evidence to satisfy
himself that the contract would be personally binding on the entity purportedly
acting as
trustee of an undisclosed trust), then it seems to me to make it even
less likely that such a careful auctioneer would have signed
(or accepted) a
blank contract. (On one view it may also make it more likely that the auctioneer
would have asked at the time for
authorisation to be provided as to the entry
into the contract by Mahir in the name of a company, and hence that Mahir did
have the
letter of authority with him, since the auctioneer was apparently
prepared to proceed with the purchaser being disclosed as a corporate
entity,
but it is equally possible that such an issue would only have arisen if there
were something to put the auctioneer on notice
that Mahir was not a director of
the company (there perhaps being a greater sensitivity to purchases by trustees
than purchases in
the name of a company). (No evidence was called from the real
estate agent to assist in shedding light on this issue.)
- I
find it difficult to accept that the auctioneer or real estate agent would not
have been careful to ensure that the essential details
to be inserted on the
contract were complete before it was signed by the purchaser (if nothing else
than to avoid issues later arising
as to the proper completion of the contract).
In the absence of independent evidence to support Mahir's assertion that he
signed
a blank coversheet to the contract, I would therefore conclude that the
contract details were complete, including the price and the
words 'sole
director', when it was signed and that Mahir either paid no attention to what
the contract said or else was unconcerned
that he was wrongly identified on the
front page as signing as a sole director.
- The
fact that the contract described Mahir as the sole director of the company (even
assuming this description to have been added
in by the auctioneer or real estate
agent, as Mahir suggests, after he signed the contract and based on an
assumption that this was
the case) puts the lie to the suggestion that Mahir had
produced the 5 July letter of authority at the time the contract was signed
(since if that had been the case it would have been clear that he was not a
director of the company, let alone the sole director,
and there would have been
no basis to describe him as such on the contract). (Similarly, if there had been
negotiation in advance
with the real estate agent as to the purchaser being a
company or corporate trustee, including the 3 month delayed settlement, it
is
odd that the formalities of who was bidding and in what capacity would not have
been resolved at that stage.)
- The
circumstances in which Mahir appears to have bid for and signed the contract at
auction (and, as I must assume from his evidence,
that he was prepared to sign,
or would have thought nothing of signing, a blank contract on behalf of a
company of which he knew
he was not a director) suggest to me that if there was
indeed no arrangement already discussed with Mr Brennan for the potential
purchase of the land, then this can only have been an impetuous and ill-thought
through attempt by Mahir to secure the acquisition
of the proposed family home
(the 'family dream' as it was described in submissions by his Counsel) and to
worry later about how it
was to be financed (such as to make it likely that
Mahir would have agreed to a deal of the kind Mr Brennan says was reached).
- According
to Mr Brennan, after Mahir had bid for the property he said to Mahir words to
the effect "your [sic] on your own" (paragraph
31 of his 23 May 2010 affidavit),
a sentiment which would be understandable given the apparent folly of Mahir's
actions (even assuming
he had the relatively vague comfort of financial support
from Mr Kanli). Mr Brennan appears to have anticipated that there would
be an
expectation on Mahir's part that Mr Brennan would assist Mahir in the process of
acquisition of the land. Mahir, for his part
was again vague as to the question
whether he had had a conversation with Mr Brennan after the final bid ("Not
necessarily. It was
a very very vague sort of conversation" T 130.15). As to why
he bid if his sister had made her own decisions - probably Mahir speculated
that
she wasn't available on the day T 107.2, whereas in his affidavit he said he had
told his sister he was going to look after
it, and it is inconsistent with
preparation of the 5 July letter prior to auction.
- Mahir
says he drew a cheque for 10% of the deposit ($96,000) on his personal account.
(He did not produce bank statements in answer
to a notice to produce served on
him seeking such statements in relation to this period - and seemed to suggest
that they were not
available, though it is not clear why historical records
would not have been available from the bank on request.) It is accepted
that
there were not sufficient funds then in Mahir's bank account to meet the cheque.
However, Mahir says that he had made arrangements
with Mr Kanli for the funds to
be put into his account if he were to be the successful bidder (and Mr Kanli
gave evidence to that
effect, although it would seem that what he was really
agreeing to do was to help Mahir, without any idea of how much money that
would
involve). If that had been the case, then it seems odd that at the auction Mahir
would have requested (as it seems he did)
the real estate agent not to bank the
cheque for a short period (a request that I would have thought was likely to
cause the real
estate agent some concern as to the capacity of the purchaser to
meet its obligations, and on Mahir's account of events that would
have been an
unnecessary concern). It seems to me to be surprising, if this is what in fact
happened, that someone in Mr Kanli's
position would have given the assurance as
to the funding without any conversation as to the amount Mahir proposed to bid
for the
property (and hence without knowing what amount he might be required to
place in Mahir's account for the purpose of meeting a deposit
cheque - let alone
the balance of the purchase price), even accepting the family relationship
(unless the funds were to come indirectly
via Huseyin).
- Mr
Kanli gave evidence that he did not have funds to meet the deposit in his bank
account (T 236.23), but had a practice of keeping
(not insubstantial) sums of
money in cash in what sounded to me to be a relatively unsecure location (which
he was not prepared to
reveal in open court, and which I do not here disclose,
due to concerns he expressed as to the security of his funds). Mr Kanli is
an
executive of a company with a turnover in excess of $3.5m in 2008 and $3.7m in
2009 but his personal tax return in evidence before
me (Ex Q) disclosed an
annual income of only $60,000. Where the funds were to come from was not clear.
It seems, however, that Mr
Kanli was in the habit of receiving large sums of
money from overseas from 'family businesses' in Turkey, (T248.29) (which he
admitted
he did not declare on his income tax returns and which he seemed, at
one point in cross-examination, to refer to as funds referable
not to him but to
his brother-in-law (saying that the funds were coming in for their use - T
250.33) - a matter that Huseyin's trustee
in bankruptcy might have found worthy
of investigation had he or she known).
- Mr
Kanli's evidence was that Mahir had told him beforehand he intended to bid at
the auction T 226 but without any indication of the
amount.) Mr Jacobs suggests
that it could be implied that Mr Kanli would assist with the deposit up to a
reasonable amount. I do
not see how that can be implied from the sparse evidence
of the conversations between Mr Kanli and Mahir (even assuming I accepted
those
conversations at face value). I do not consider that the evidence before me
supports a conclusion that Mr Kanli had the ability
to fund a purchase of the Mt
Vernon land from income derived from the company of which he was an executive or
otherwise (not does
it support the conclusion that Mr Kanli agreed to do so).
- According
to Mr Brennan, there were further conversations over the weekend with Mahir in
relation to the auction and he agreed to
arrange and personally to give security
for a deposit bond so that Mahir's cheque did not bounce. Mahir denies this and
seemed to
suggest that he had been forced to withdraw his cheque at Mr Brennan's
insistence.
- I
have noted the extraordinary turn of events on 5 July in some detail because it
seems to me not surprising that, Mahir having successfully
bid (falsely, it
would seem, as a director of the company - though Mahir resisted acknowledging
this it seems because he saw that
as an admission of fraud) at the auction on
Saturday without a clear line of credit or funds to meet either the deposit or
the purchase
price (but apparently with the motivation of impressing his father
by securing the family dream), there would then be some urgency
by the Monday
morning to regularise the situation. (As indeed there seems to have been.) On
both Mahir and Elif's evidence, Mahir
sought an urgent appointment on the Monday
after the auction with Mr Castino. It is submitted by Mr Cox, and I agree, that
there
seems no reason for the urgency of the meeting (given that there was a 3
month settlement period for the contract), other than the
need to regularise the
position in relation to the deposit (and then put in place the arrangements to
procure finance).
- Conversations
after the auction
- Meanwhile,
Mahir says that after the auction he rang his father in China and told Huseyin
that he had been the successful bidder.
According to Huseyin, this was the first
he knew that Mahir had purchased the land (in what one might expect him to have
considered
a hare-brained scheme, given the lack of committed finance (at least
from an external source) at that stage, assuming that Huseyin
is to be believed
and there had been no discussion and/or no agreement had previously been struck
with Mr Brennan to arrange the
finance for the purchase). Huseyin, however,
seems to have been remarkably unconcerned by this turn of events (and, according
to
Mahir, simply told him later to go and see Mr Brennan as they had worked out
an arrangement for the financing of the purchase).
- Huseyin
says that he received a telephone call from Mr Brennan after the auction (and
presumably this must have been after he had
received the call from Mahir if, as
he says, the first he knew of the sale was from Mahir) in which Mr Brennan
offered to help (something
that seems unlikely to have been the case unless Mr
Brennan thought there would be a profit for himself out of the arrangement).
- Huseyin
says that they worked out how the purchase could be financed - an arrangement
which, according to Huseyin, required Mr Brennan
to take on responsibility for
the purchase by acquiring the shares of MSU Management (and, as it turned out,
personally to take on
a considerable potential liability in relation to the
financing) for no reward other than a potential commission from the financing
(estimated to be in the order of an upfront commission of about $1,500 and
trailer commissions of about the same amount) and a potential
benefit if WIPS
got off the ground (once the display home was built and Huseyin made good
on the promise to transfer an interest in the shares of whatever company was to
promote the product in due course;
something that has not happened - either to
Mr Brennan or to Mr Patel, the so-called friend of Huseyin to whom a similar
promise
was made and who also provided security for the financing of the
acquisition but who made no appearance in the witness box).
- Huseyin's
evidence is that the arrangement he discussed with Mr Brennan was that Mr
Brennan would seek finance for the purchase; the
purchase would be through his
daughter's company (MSU Management) [a somewhat unnecessary suggestion if it was
made at that stage
since the contract had already been signed in its name]; the
shares in MSU Management would be transferred to Mr Brennan so that
he could use
his good credit rating with the banks to borrow the necessary funds; Huseyin [a
bankrupt who was well aware of the limitations
on him in terms of borrowing, as
was made clear in his answers in cross-examination] would have to come up with
20% of the purchase
price (i.e. 20% of $960,000.00) plus stamp duty [to meet the
likely 80% loan to value ratio required by a financier]; and [significantly
for
present purposes] Mr Brennan would later re-transfer the shares.
- According
to Huseyin, his role at this stage was simply to provide advice to his children
and he did not regard himself as entering
into any agreement on behalf of his
children as such. Any agreement they might come to in relation to the purchase
or the financing
of the purchase was one, he said, that was for them to make for
themselves - thus seeming to distance himself from the very agreement
on which
Elif relies for her claim. Interposing here, Mr Cox submits that this evidence
(i.e. Huseyin's disavowal of any agreement
on Elif's behalf) is fatal to Elif's
contract claim). Mr Jacobs, however, relies upon the authorities that make clear
that questions
as to whether a contract has been formed, and as to the terms of
any such contract, are matters to be determined on an objective
not subjective
basis. In RJ Baker Nominees Pty Ltd v Parsons Management Group Pty Ltd
[2010] WASCA 128 (7 July 2010) Newnes JA in the Court of Appeal in Western
Australia noted that the "legal rights and obligations of the parties turn
upon
what their words and conduct would be reasonably understood to convey, not upon
subjective beliefs or intentions", citing the
High Court in Equuscorp Pty Ltd
v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 [34];
Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209
CLR 95 [25]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218
CLR 451 [22].
- That
said, Huseyin was an experienced businessman and it might well be thought that
if he had not understood himself to be acting
to negotiate an agreement on
Elif's behalf, then it would be unlikely that he would use language that would
convey to a reasonable
person that there was an intention to bind her to an
agreement. (It also seems inconsistent with the submission by Mr Jacobs that
an
agency arrangement should be inferred because Elif had left the affairs of the
company to others, namely Huseyin and Mahir, for
Huseyin to profess no
understanding of his role in that regard.)
- In
any event, whether or not Huseyin was acting as Elif's agent in his discussions
with Mr Brennan, Elif has effectively adopted his
conduct by suing on the
alleged agreement said to have come into existence in those discussions.
- According
to Mahir's affidavit evidence, it was in his discussion with Mr Brennan after
the auction (and it seems on his evidence
that this must have taken place over
the weekend of the auction) that Mahir agreed he would effect the works
necessary to complete
the subdivision of the Mt Vernon land. He says that this
was so that the rear block could be sold and the profits applied to pay
down the
(remaining) mortgage on the front block. According to Mahir, it was anticipated
that this could be done within three months.
- The
contract for sale provided for a 90 day settlement period. Mr Jacobs points to
this as providing (together with the term of the
Trimac loan used to assist in
the purchase) as objective support for the three month term of the agreement
contended for by Huseyin
and Mahir. What Huseyin says is that the agreement was,
in effect, that Mr Brennan's role was only to be the holder of the shares
on
paper (in his words, to be 'on the mortgage'), and thus only to be personally
liable under the finance arrangements for a short
term (3 month) period.
According to Mahir, this was only to be until the mortgage was 'manageable'.
However, that seems to conflate
the respective 3 month periods involved - the
three month period for completion of the sale and the ensuing three month period
from
completion of the sale (and drawdown of the Trimac loan) to the date on
which that loan was repayable. The earlier 3 month period
seems to have nothing
to do with the latter - the Trimac loan period coinciding, one might think, with
the time in which it was hoped
to complete the subdivision and be in a position
to realise funds from the sale of one or other of the blocks of land (something
noted on the indicative loan documentation as part of the 'exit strategy' for
that loan).
- In
any event, even accepting that it may have been part of the arrangement that the
subdivision would be completed and one of the
blocks on-sold within 3 months of
the Trimac loan being drawn down (so as to minimise the high interest rate),
that is not inconsistent
with Mr Brennan taking the profit of the overall
transaction (through MSU Management) having made it possible for Huseyin or his
family to purchase the front block in order to have their planned family/display
home on that block.
- On
the Monday following the auction (7 July 2008),Elif and Mahir met with Mr
Castino in his office in Ryde. Mr Castino's diary notes
(which seem to serve a
dual purpose of providing a billing record and recording instructions or advice)
were in evidence before me.
After some confusion on his part as to the meaning
of the numerical notations in his records, it seems that Mr Castino recorded 4
and a half hours' time spent in conference with Elif and Mahir on that day and
attending to the instructions given in that conference.
It seems, therefore, on
any view of things to have been a relatively lengthy conference, (though this
seems to have been because
of the time involved in creating the relevant company
forms through an on line service provider rather than in the provision of
detailed
advice as to the transaction, at least since no evidence of such advice
was given).
- The
circumstances in which this meeting took place (and the evidence given by Elif
and Mahir in this regard) illustrate the unreliability
of the Urusoglu evidence.
The affidavit account of events by Elif and Mahir do not suggest any discussions
with Mr Brennan over the
auction weekend as to steps to be taken in relation to
MSU Management in connection with the refinancing and suggest instead that
Mr
Brennan arranged the necessary paperwork at his office. By the hearing, of
course, it was apparent that the documentation had
been prepared by Mr Castino
in his office and that Mr Brennan was not present (other than by telephone mid
way through that meeting).
- Mahir,
in the witness box, tried to address this inconsistency by saying that he had
had a vague conversation with his sister "to
my recollection it was after a
conversation with Scott" and that Mr Brennan had instructed Mr Castino to
prepare the documents (documents
were drawn under instruction from Scott) At T
104, Mahir, said he did not ask Mr Castino to prepare the documents; Mr Brennan
did.
This is inconsistent with Mr Castino's evidence as to how the documents
were prepared. Mahir also said the reason for appointment
with Mr Castino was to
change the management of MSU Management - T 104.48 - "Yeah. To my memory again,
over the weekend and probably
the morning of 7 July, we were instructed by Mr
Brennan we needed an accountant and only an accountant could prepare these
documents".
- Mr
Brennan was not in attendance at Mr Castino's office but was at some stage
contacted by telephone, and after the conference with
Mr Castino each of Mahir
and Elif went to Mr Brennan's office. The chronology of events disclosed by Mr
Castino's notes indicates
that Mr Brennan was contacted only after
instructions had been given to Mr Castino by Elif/Mahir as to what was
required from him. Therefore, the request for preparation of
company minutes and
share transfer as made to Mr Castino must (on either side's version of events)
have been made by Mahir and/or
Elif in each other's presence - though that is
inconsistent with the evidence of the siblings - and is consistent with there
being
an agreement in advance of that meeting as to how the purchase was to be
effected (consistent with Mr Brennan's version of events).
- Mr
Castino explained in the witness box the process by which he uses a service
provider (commshelf) to prepare company forms of the
kind produced on that day -
a process which involves registration on-line before documents can be prepared
and lodged. There is no
doubt, having regard to Mr Castino's evidence and the
contemporaneous documents (in particular, a "commshelf" email to Mr Castino,
which indicates when he received the relevant ASIC forms, and Mr Castino's
facsimile transmission of 7 July 2008 to Mr Brennan forwarding
those forms),
that the company forms recording the resignation of Elif as director and
secretary of the company, and Mr Brennan's
appointment in her place, and the
share transfer documents were not physically created until 7 July 2008. (That,
of course, does
not preclude the possibility that the documents created on that
day correctly recorded an earlier meeting.)
- Mr
Castino's diary notes from his diary record the following
"7/7 Meeting M & E re transfer of share MSU. Go to ASIC website
and download. Prepare to lodge 362 Notice. Download ASIC details
to compliance.
Attend to resignation director and secretary. Transfer to two shares to Scott.
Appoint Scott as director/secretary."
- Mr
Castino noted in his diary records certain personal details of Mr Brennan
necessary for completion of the forms, which he says
he obtained in the
telephone call placed with Mr Brennan on that day. What was said in the
conversation is a matter in dispute between
the parties.
- Mr
Castino's notes do no more than record the bare personal details required for
the form. However, in evidence, Mr Castino said he
recalled the documents were
prepared at Mr Brennan's request (T 200) and both Mahir and Mr Castino say that
Mr Brennan asked that
the documents be back-dated to 16 June 2008. Mr Castino
explained that the on-line or electronic registration process required that
there be a date entered in the relevant field (i.e., the date of the meeting at
which the resignation as director etc occurred).
Mr Cox submits that the
suggestion that any request was to backdate the minutes in that conversation
should not be accepted. It is
submitted that it is implausible and likely to be
a recent invention. It is certainly not recorded in Mr Castino's record of the
meeting. Mr Castino also says in his affidavit that Mr Brennan said during the
conversation that the paperwork in relation to the
shares would not be lodged
(though that is not recorded in his notes either). (There was nothing in his
affidavit as to Mr Brennan
requesting the preparation of the documents.)
- Mr
Castino was uncomfortable in the witness box when pressed as to the so-called
'backdating' of the relevant documents. In that regard,
he seems now to accept
that what he was being asked to do on 7 July 2008 was to enter false information
on the document (though I
am by no means certain that this was his understanding
at the time). That would, of course, only be the case if there had been no
relevant meeting or resolution on 16 June 2008. (There would arguably be nothing
wrong, other than a complaint as to dilatory record
keeping and perhaps a
failure to comply with any relevant rules for the timing of notification to ASIC
of change of company officeholders,
with a scenario in which a meeting took
place on that earlier date but, for whatever reason, the formal minute of
meeting was only
prepared some time after that meeting - in which case it would
be understandable that the minute itself was not dated the same date
as the
meeting).
- Any
discomfort on Mr Castino's part at what he says he was asked to do can surely
only have come from what he was told by Elif or
Mahir (then or later) in
relation to the meeting (or what was said by Mr Brennan during the telephone
conversation) since it seems
unlikely that he would have seen anything sinister
if all he had been told was that the meeting had occurred on an earlier date.
Yet there is nothing in his diary notes recording a request for backdating, as
such, or any protest by Elif or Mahir as to the date
to be put on the document
or (despite his assertion in the witness box that he had given such advice) to
the effect that he had advised
Elif not to sign the relevant documents (which
one might well expect to see if a professional adviser had given advice with
which
his or her client has not complied).
- Nothing
was said in Mahir's first affidavit as to the backdating of the company
documents. He was cross-examined as to the inconsistency
between his 6 April
affidavit and his 23 April affidavit in this regard (sought to be explained by
Mr Jacobs by reference the urgency
of preparation for the initial interlocutory
application in these proceedings in April). Mahir's explanation was that he did
not
think it was relevant. There remains in my mind a strong suspicion that the
so-called 'backdating' request was nothing more than
Mr Brennan responding to a
query by Mr Castino as to what date should be put on the form and he nominating
an earlier date as the
date on which the relevant decision was made, and that
the sinister connotation now sought to be put by Mahir and Elif on the
discrepancy
between the date of the meeting shown on the form and the date the
form was completed has been communicated in some fashion to Mr
Castino (causing
him retrospectively to question his own conduct on this issue).
- I
am not satisfied that there was an express request by Mr Brennan to backdate the
documents (in the sense that he was acknowledging
to Mr Castino that there had
been no meeting on 16 June). I think it far more likely that what occurred was
that Mr Brennan was asked
to nominate a date for the purposes of the completion
of the form and he did so having regard to his recollection that the broad
arrangements of the purchase had been put in place prior to the auction.
- That
said (as noted earlier), I have real doubts that there was any actual resolution
by Elif on that earlier date - since she seems
to have played no active role in
relation to the company or the acquisition of the land until after the auction.
- What
I cannot see (and what neither Counsel was able to suggest) is any significance,
for the determination of the issues in this
case, as to whether the meeting was
held on 16 June or 7 July, other than insofar as this goes to the credit of the
respective witnesses.
There seems to be no commercial purpose served by the
parties consciously agreeing to backdate the documents in order to record a
transfer of the shares prior to the auction (particularly since on either
scenario the identification of Mahir as the sole director
of the purchaser was
incorrect) - there was no suggestion, for example, that this somehow lent more
weight to the application for
finance by MSU Management than if the transfer of
shares was agreed after the auction.
- Some
significance was placed by Mr Jacobs on the fact that Mr Brennan had not
referred in his affidavit evidence to the receipt of
documents from Mr Castino
on 7 July 2008 (though he admitted in cross examination that he had received the
documents on that date
and that when he received them they were in a form
requiring his signature where his name appeared) and had not included in his
affidavit
a copy of the coversheet with which the documents were apparently
faxed to him. I draw very little from that (which seems to me less
significant
that the omission of any reference by Mahir in his initial affidavit to the
alleged conversation in relation to the back-dating
of the documents).
- It
seems to me that the most likely explanation of the evidence is that Mr Brennan,
having seen the 16 June date on the documents,
assumed that this was when the
events recorded in the documents occurred. At that time he may or may not have
retained the coversheet
of the facsimile transmission from Mr Castino. As to why
an earlier date would have been nominated if (as I think likely) there was
no
meeting on that day, a charitable explanation would be that, when asked to
nominate the date on which Elif had resigned as director,
this is when Mr
Brennan recalled having reached agreement with Huseyin as to how the finance
would be arranged, but the fact remains
that (apart from the doubt it raises as
to the reliability of Mr Brennan's recollection of the timing of events) nothing
seems to
turn on whether Elif had agreed to resign as a director before or after
the auction.
- What
is more significant for the purposes of the plaintiffs' claim is what was said
as to the transfer of the shares to Mr Brennan
at that stage. Elif says (but
this is not something to which either Huseyin or Mahir depose and is not
reflected in anything in Mr
Castino's notes) that when the call was placed to Mr
Brennan from Mr Castino's office on 7 July (according to Mahir, on his mobile
phone), Mr Brennan was 'patched in' by loudspeaker and said words to the effect:
The paperwork transferring the shares to me will not be lodged. I
just need it to put on the table with the bank to pull off the finance.
Bring
the paperwork from the accountant and come and see me at my office.
- Mr
Castino, in the witness box, supported Elif's evidence when he said that Mr
Brennan had said the paperwork would not be lodged.
There was, however, no
reference to this in his affidavit or notes. It is surprising that, if this was
indeed Mr Castino's understanding
at the time of what the arrangement was, it
would not have been recorded in his notes.
- It
seemed to me (and I raised this with Mr Jacobs) that this evidence might well
raise the question of unclean hands, insofar as it
seemed to be suggested by
this that the intention of the parties was to deceive the banks into believing
that someone other than
the true owner of the shares was in control of the
company. (Mr Jacobs, however, submitted that no such question arose since the
arrangement was for the transfer of the shares to Mr Brennan and he was in fact
in control of the company - though that seems to
me wholly inconsistent with
Elif's evidence that the paperwork was not to be lodged.)
- As
to the objective likelihood that an arrangement would be put in place whereby
the share transfer form was signed but not lodged,
it seems to me unlikely that
a financier wanting to be satisfied as to the creditworthiness of the company by
reference to the identity
of its shareholder/director would be so satisfied
simply by sighting an unregistered transfer of shares form - particularly if
there
was no ready explanation as to why a document dated 16 June 2008 had not
been lodged with ASIC in the ordinary course.
- The
arrangement, according to Huseyin, was for the transfer of the shares to Mr
Brennan. There was no restriction, under that arrangement,
on the registration
of the share transfer form. Elif's version of events is not supported by Mr
Castino's notes (though, as noted,
he recalled in the witness box that such a
statement had been made). It does not seem consistent with the purpose for which
the transfer
was (on her father's evidence) being effected; nor is it consistent
with the agreement on which Elif relies (since there can be no
need for an
obligation to re-transfer the shares if they have not in fact been transferred
in the first place). I cannot therefore
accept that Elif's account of the
conversation in this regard is accurate and, while there seems no reason for Mr
Castino to have
invented this recollection, I place more weight on the
contemporaneous notes of Mr Castino than in his oral evidence some time after
the event (and at a time when he seems to see a sinister gloss on matters not
seen with such a dim view at the time to warrant even
a note by him.) Mr
Castino's notes suggest an agreement or undertaking by Mr Brennan not to
register the share transfer. His now
recollection that something was said as to
the non-lodgement of paperwork is not sufficient to persuade me that there was
an agreement
as Elif contended in relation to the share transfer.
- For
completeness, I note that had I been satisfied that this was what had been said
then I would have been inclined to think that
the doctrine of unclean hands
would apply to preclude Elif from now raising an issue as to the fact that the
transfer of shares had,
contrary to that statement, been registered (though it
would not necessarily have precluded her reliance on an alleged agreement
by Mr
Brennan to re-convey to her the shares in question).
- Elif's
affidavit evidence is also inconsistent with the evidence that emerged in her
cross-examination at the hearing, in that her
affidavit suggested that the ASIC
forms were signed in Mr Brennan's office whereas it became clear by reference to
Mr Castino's notes
(and Elif accepted in the witness box) that Elif had signed
the forms in Mr Castino's office and that she and Mahir only then went
to Mr
Brennan's office. Since by that time the forms were already signed by her
(against what Mr Castino now says was his advice
in that regard), Elif's
evidence that she then queried the date of the meeting with Mr Brennan seems to
me to be implausible.
- Mr
Brennan gives evidence that he arranged for the deposit bond, giving security
for it personally, and that he paid the stamp duty
on the contract (paragraphs
33 and 34 of Mr Brennan's affidavit). The fact that he did so suggests that the
arrangement was one in
which he was personally interested. It is not objectively
likely that someone complaining of moneys lost on a previous project (as
Huseyin
accepts that Mr Brennan had done) would willingly proffer personal guarantees or
security (and make payments out of his or
her own pocket) on another project if
there was no personal interest in the project. (And in that regard, the mere
possibility of
a profit from WIPS seems to me an implausible reason for Mr
Brennan or his wife to take on any personal exposure; as also is the
prospect of
commission in what seems a comparatively small amount.)
- On
around 27 July 2008, Mr Brennan, with the assistance of his in house accountant
and his then lawyer, prepared further documents
to have the share transfer
presented to the Office of State Revenue and ultimately lodged with the ASIC to
record himself as the
director and shareholder. Mr Jacobs cross-examined Mr
Brennan as to what was, on its face, an incorrect declaration to the effect
that
MSU Management had no assets or liabilities at the relevant time (though after
the auction it had a liability to pay the deposit
and in due course to pay the
purchase price, subject to completion of the matters required for settlement of
the sale of the property
as well as an asset in the form of the chose of action
represented by the contractual promise to convey the land and an equitable
interest as purchaser in the land).
- Mr
Cox submits that any misunderstanding on Mr Brennan's part regarding the
statutory declaration does not reflect on his honesty,
simply his commercial
understanding of assets and liabilities. I accept that Mr Brennan's evidence in
this regard exhibited a belief
(which would be consistent with the statement in
the statutory declaration) as to the time at which any asset or liability in
respect
of the property was acquired or incurred being only on completion of the
sale (though that does not explain how his then solicitor
came to have drafted
such a document, given that he should have understood the correct position in
that regard. (While it seemed
to me that this cross-examination was tending
towards a suggestion that the reason for the incorrect statutory declaration was
to
minimise stamp duty on the transfer of shares, I cannot make such a finding
in light of Mr Brennan's apparent lack of understanding
as to the legal
consequences of entry into the contract for sale from which it seems reasonable
to infer that he relied on his professional
advisers for the accuracy of the
matters to which he had deposed in the statutory declaration.)
- I
also note that there was in evidence, curiously, a version of the company
minutes on which the date was crossed out and in handwriting
there appeared the
date 28 July 2008. However, Mr Brennan was not able to shed any light on this
alteration and it may be that the
innocent explanation is that whoever was
arranging for the lodgement of the documents had incorrectly made the amendment
on a draft
of the document (since the document ultimately lodged bore the date
as per the document prepared by Mr Castino).
- Finance
for the acquisition was arranged by or through Mr Brennan or his brokerage firm.
Although it is asserted that Mr Brennan thereby
derived both up front and trail
commissions from the finance arrangements, Mr Brennan's evidence was that (at
least in relation to
the Trimac loan) he was the client not the broker and he
did not derive such commissions. (He accepted that he had received a commission
on the ANZ loan, which he estimated at $1,500 with potential trailer commissions
of a similar amount.)
- In
relation to the deposit, Mahir's cheque was returned and a deposit bond was
arranged through Mr Brennan (secured by personal guarantees
from himself and his
wife). Mahir's evidence suggests that this happened at the suggestion of Mr
Brennan. (The fact that a deposit
bond was provided might indicate a recognition
that Mahir had insufficient funds for the deposit otherwise to be met or that
there
was a benefit in retaining the funds that might otherwise have been
received from his uncle for the deposit so that they could be
used in other ways
- say for the subdivision works, as Mahir suggests.) In any event, the provision
of a deposit bond under which
Mr Brennan was exposed to personal liability
(whether or not the suggestion for the bond came from him) is consistent with
his version
of the agreement - namely that he was incurring potential liability
for an asset that he was, through his ownership of MSU Management,
to own.
- Two
loans were obtained in order to enable the settlement of the purchase in
November 2008. One was a short term high interest (20%
pa) loan from a New
Zealand company known as Trimac Holdings Ltd (NZ) (in the order of $280,000) and
the other was an ANZ Bank loan
of $768,000. Both those loans were secured by the
Mt Vernon land. (In the case of the Trimac loan, security was also provided by
Mr Brennan, his company and Mr Ashish Patel; in the case of the ANZ loan, this
was personally guaranteed by Mr Brennan). (Mr Patel
was described variously as
an associate and friend of the Urusoglu family but did not give evidence in the
proceedings and thus no
light was shed by him on his involvement in the relevant
transactions.)
- The
purchase of the Mt Vernon land settled on 14 November 2008. Huseyin gave
evidence (in a further affidavit in chief served at the
hearing) that Mr Brennan
had said to him in November or December 2008 that he wanted to be in and out in
3 months. Huseyin did not
accept that this conversation had taken place when the
property was agreed to be purchased back in July (T 46), having earlier said
that the first time there was a discussion with Mr Brennan as to his involvement
in the land was after the auction. Huseyin dates
his conversation with Mr
Brennan (as to the latter being in and out within 3 months) by reference to the
fact that the building work
was not complete at that time (although it equally
was incomplete back in July 2008) (T 44.2).
- On
any view the share transfer forms were signed in July 2008. The company at that
time had an obligation to settle on the purchase
of the land in November. In
those circumstances it does not seem to me to make sense that the first
conversation in which Mr Brennan
agreed to assume a personal liability in effect
in relation to the financing would not have been until November/December 2008.
- For
the plaintiffs, evidence was adduced from an accountant (Mr Dominic Pelle) to
explain the source and application of the loan funds
and refinancing of the
loans by reference to the various loan documents and bank statements. This
evidence was put forward as expert
evidence (over the objection of Mr Cox). I
admitted it subject to weight and relevance. Ultimately, Mr Pelle conceded in
the witness
box that an average HSC student of basic level mathematics with an
ability to read could have performed the task he had performed.
I found his
evidence to be of little assistance.
- In
relation to the Trimac loan (which I was told had itself been the subject of
litigation involving Mr Brennan), which remains outstanding
(and is now
incurring a higher or penalty rate of interest), an indicative offer of finance
was provided to MSU Management on 4 November
2008. That offer (not capable on
its face of giving rise on acceptance to a binding contract) was for the sum of
$280,000.00 (from
which $30,000 was to be retained for capitalisation of
interest).
- Mr
Jacobs placed significance on the fact that the indicative offer (signed by Mr
Brennan) stated the purpose of the loan as including
purposes additional to the
acquisition of the Mt Vernon land and referable to Mr Brennan personally (those
being for landscaping
costs for a property at Cronulla and the balance for
business purposes) - a matter which it seems to me is consistent with Mr Brennan
having the understanding at that time that the company effecting the borrowing
was his company and that the borrowing could quite
properly be used for purposes
of his own - and further that it made reference to an exit strategy that Mr
Jacobs says is consistent
with the version of the agreement contended for by the
plaintiffs.
- That
'exit strategy' involved four steps: the completion of the sub-division of the
Mt Vernon land; the sale of the sub-divided land
(seemingly, this is a reference
to the rear block, having regard to the fourth step in the strategy); the
application of the sale
proceeds of the sub-divided land to extinguish the
Trimac facility ; and the transfer of the (second) ANZ Bank facility to
the remaining front l ot being retained by MSU Management. (whatever the
intentions
of Mr Brennan at the time, it is the case that the terms of the
indicative letter of offer would not have committed MSU Management
or Mr Brennan
to following the exit strategy, although it sheds light on what had been the
stated intention of the company at the
time.)
- The
Trimac loan was for a term of 3 months, with a covenant for repayment on 13
February 2009. The larger loan facility (with ANZ)
was for a longer term and at
a lesser interest rate. Huseyin was adamant that the need for the short term
loan was to complete the
subdivision works - T 46 - but then was used to make up
the balance of the purchase price once Mr Kanli's contribution was diverted
to
the subdivision works.
- Mr
Jacobs relies on the covenant for repayment of the Trimac loan within 3 months
as being consistent with an agreement on Mr Brennan's
part that the later NAB
refinancing of the ANZ loan was to be used to pay out the Trimac loan (since it
was unlikely that funds from
the sale of the rear block would be available prior
to 13 February 2009). Mr Brennan accepted (paragraph 7 of the defence) that he
knew one of the purposes of the Urusoglus' wish to purchase and develop the land
was for the construction of the family home but
it is not inconsistent with Mr
Brennan assisting this to happen in the context of an arrangement in which he
acquired (and was able
to retain) through the shareholding in MSU Management an
interest in the back block of the subdivided land.
- From
15 November 2008, the works necessary to complete the subdivision (broadly, the
driveway or road access works, but with some
landscaping and, according to
Mahir, the provision of some services to the land) were carried out. These took
place in late 2008
and over the Christmas and New Year period (as emphasised
with some feeling in the witness box by both Huseyin and Mr Kanli).
- Mr
Kanli, at Mahir's request, set up an account with at least one concrete supplier
(Western Suburbs Concrete) for the provision of
concrete to the site and says in
his affidavit that he provided sums totalling somewhere in the order of $170,000
or $180,000 by
way of cash or cash cheque to Mahir. (Annexed to his affidavit
were bank statements on which he had placed an asterix against the
relevant
amounts he says were provided to Mahir - and he conceded in the witness box that
these only amounted to around $136,000).
Mr Kanli says that he did this as and
when requested by Mahir (but without apparently asking for any detail of the
purpose for the
moneys. Mr Kanli seems to have been satisfied that the moneys
related in some way to work on the Mt Vernon land (presumably on the
faith of
what Mahir said and perhaps because Mahir was not involved in other work at that
stage).
- Mahir,
for his part, seems to have been unconcerned to ensure that he kept records of
invoices received or receipts for moneys paid
in relation to the works (a matter
that became apparent with the provision in dribs and drabs during the course of
his cross-examination
of documents that had been the subject of an earlier
Notice to Produce and that he seemingly only made an effort to find when pressed
in cross-examination). The explanation for missing records was variously that
Mahir had moved houses a number of times; that invoices
get lost and damaged on
site; and he did not make a conscious effort to keep all invoices became he
believed he was doing the driveway
for himself (though this is somewhat
inconsistent with his assertion in the witness box that all documents would be
provided to his
accountant for preparation of tax returns and financial
statements in due course).
- Mahir
gave evidence as to what was involved in the road access works and was quite
expansive in cross-examination as to what had been
required (and as to the
reason that the works carried out prior to his father's bankruptcy had needed to
be re-done). (In paragraph
15 of his 9 September, 2009 affidavit, Mahir says
that he commenced works on the sub-division, involving cleaning contaminated
soil,
excavation work and construction of the road on 15 November 2008.) Mahir
said that the work was "heavy duty" involving extremely
long hours 6 days per
week and that he (and presumably his company) had not been working on any other
project during this time. (Hence
it is said that the only project on which Mr
Kanli's money could have been spent was the Mr Vernon subdivision works.)
- In
particular, Mahir said that he had received moneys from Mr Kanli and that those
moneys had been spent on trucking fees, tipping
fees, Council fees, surveyors'
costs and plants in respect of the Mt Vernon development. His evidence in that
regard is incorrect
at least in that it appears from the bank statements
produced by Mr Kanli that the Council fees had been paid by Mr Kanli direct.
(Mahir's affidavit evidence was that Mr Kanli had "advanced" the sum of between
$165,000.00 and $186,000.00. There was no evidence
of any loan agreement between
them and I understood Mahir's evidence in this regard simply to be that moneys
had been provided to
him. Mahir has no way of substantiating the total sums he
claims to have received. There is a discrepancy between his evidence and
Mr
Kanli's bank statements that is only resolved if one accepts Mr Kanli's oral
evidence as to the payment of considerable cash sums
in addition to the cash
cheques.)
- Apart
from the withdrawals marked with an asterix in Mr Kanli's bank statements (which
he said represented cash cheques drawn by him
and given to Mahir, totalling
approximately $136,000), Mr Kanli's evidence was that another $40,000 - $50,000
had been provided to
Mahir in cash. There is no record of those amounts. Mr Cox
noted that on a number of occasions the payments out by cash cheque had
coincided with overseas transfers of moneys deposited into Mr Kanli's account.
- Mahir
produced photographs (Exhibit G) showing the completed sub-division works on the
Mr Vernon land and it is not disputed that
the necessary works were carried out
(though Mr Brennan disputes the extent and cost of those works). Apart from the
photographic
evidence, the observations of Mahir, Huseyin and Mr Kanli, and a
bundle of invoices (produced seemingly randomly by Mahir), there
is no evidence
of the extent of the works carried out from November 2008 (and, relevantly, no
evidence from a quantity surveyor or
other independent witness with expertise as
to the reasonable cost of the necessary works).
- After
the subdivision works were completed, steps were taken to complete the
subdivision of the land (a linen plan was drawn up and
the plan (signed on
behalf of MSU Management by Mr Brennan as its sole director and secretary) was
lodged, with the mortgagee's consent,
with the Council). The plan of subdivision
was registered on 2 January 2009.
- In
2009, Mr Brennan arranged for a partial refinancing of the existing ANZ loan
through Homeside Lending (a division of NAB). (There
was some suggestion that
the refinance application was in November 2008 but Mr Brennan said that he did
not submit the application
T 322, that apparently being left to his staff. The
Homeside Lending facilities were drawn down on 13 February 2009 - one for
$170,000
and one for $290,000 (raising finance in total of $460,000). The effect
of the partial refinancing was that the $768,000 ANZ loan
was reduced to around
$600,000 and the Trimac loan was reduced by $106,000. The remaining $179,000 of
the funds drawn down in February
2009 was retained in MSU Management's bank
account. (It is this amount that the plaintiffs contend was 'diverted' by Mr
Brennan for
his own use.)
- Mr
Pelle swore two affidavits in which, purportedly as an expert, he itemised
various expenses for which he asserted that there had
not been a proper account.
He did not make clear the assumptions on which that conclusion was asserted and
the objectivity of his
report was clouded in my view by the terms in which it
was expressed.
- Although
the amount used for personal expenses (originally claimed to be around $300,000)
was put into contest by Mr Brennan, and
Mr Pelle was cross-examined as to the
basis on which he had expressed opinions on this issue (which highlighted that
Mr Pelle proceeded
on the basis that any item that could not be matched to a
company expense (described as such) was for personal expenditure, and had
no
information as to whether there was an internal loan account to which these
funds were allocated or any arrangement in relation
to the payment of sums in
lieu of directors' fees or the like). Further, Mr Pelle had no list to hand of
which transactions made
up the $179,000 which he said were not personal
expenses. He accepted (at T 160.1) that an HSC level student with basic
mathematics
and an ability to read could have done what he did -namely to go
through the documents to see if invoices could be matched in the
discovery
folder. He accepted (at T 160.15) that an understanding of the refinance
transaction was not necessary to perform that
exercise.
- Nevertheless,
the upshot of this was that Mr Brennan did accept in the witness box that
approximately $179,000.00 of MSU Management's
money had been expended for
personal expenses (such as school fees) and he accepted that the whole of the
Trimac loan could have
been paid from the funds (T 328.18) and there was nothing
to stop that occurring in February 2009 when the loan was repayable.
- There
was a suggestion (in Mr Brennan's cross-examination)of other funds held in trust
over which there is a dispute (at T 328 reference
was made to an amount of
$140,000 held in trust) and in re-examination (at T 355) Mr Brennan when asked
about any other way to pay
the Trimac loan, said "selling the back block where
there was money held up by the plaintiffs and it is still sitting there to this
day". If, by this, Mr Brennan meant anything more than that the sale of the back
block (to clear the debt) has been thwarted by the
present proceedings, there
was no evidence before me as to what that was.
- Sale of
front/back blocks
- After
the subdivision, separate contracts were entered into for the sale of the
respective blocks of land. Neither has been completed.
\
- In
relation to the front block, a contract for sale to Sebat Pty Limited (a company
associated with Mr Kanli) dated 6 February 2009,
with a specified purchase price
of $850,000, was executed by Sebat as trustee for the Kanli Discretionary Trust.
(Sebat was described
by Mr Jacobs as Mr Kanli's alter ego.) It is fair to say
that Mr Kanli was exceedingly vague as to the matters relating to the purchase,
other than he accepted that he had signed the contract (in Sebat's name).
- Mr
Kanli accepts that he attended Mr Brennan's office in January 2009 to make an
application for the loan to purchase the front block.
(The loan application was
for 80% of the purchase price.)
- Mr
Kanli, in the witness box, said that the contract of sale was signed in front of
Mr Brennan at his office (T 237.20) in January
2009, although initially his
evidence was that he had signed the document at a solicitor's office in
Strathfield (T 12). Mr Kanli
says he went to Mr Brennan's office to apply for
the loan on 20 January and that this was the only occasion on which he went to
Mr
Brennan's office (T 237). (The contract coversheet identified a firm of
solicitors at Strathfield as the purchaser's solicitors but
Mr Kanli denied any
knowledge of them or of having attended those offices - from which I can only
assume that those solicitors were
instructed by someone other than Mr Kanli in
the Urusoglu family since there is no suggestion that this contract was not a
genuine
document.)
- Significantly,
irrespective of whether Mr Kanli signed the contract for sale on that occasion,
he says (T 246) that Huseyin attended
the January meeting in Mr Brennan's office
(and therefore Huseyin must have been aware of whatever arrangements were then
put in
place for Sebat's purchase of the front block). (Mahir accepted in the
witness box that he was aware of the contract - T 124.)
- Mr
Kanli was also vague as to how it was that the purchase was to be financed. He
says he did not see anyone else to apply for finance
(T 238.25). Mr Kanli
accepts that he filled out the application form on 20 January, set up Sebat and
gave his accountant's details
on that date, but says nothing was forwarded to
him in relation to the loan (T 239).
- Mr
Kanli said he had no idea of what had happened in relation to the contract (T
240). He says he heard nothing afterwards but, somewhat
inconsistently, said he
had earlier rung Mr Brennan and asked what was going on with the loan
application - T 239.38. The suggestion
that Mr Kanli had heard nothing in
relation to the loan is inconsistent with the business records adduced by Mr
Brennan (Exhibit
6) to which I will refer shortly.
- Mr
Kanli's evidence was that he was to obtain the front block (burdened with a
mortgage of $600,000) and that the money he had already
contributed to the
subdivision works to stand as his deposit, although this is inconsistent with
the contract for sale signed by
him on behalf of Sebat. Mr Jacobs submits that
the existing ANZ Bank loan of $600,000 provides inferential support for Mr
Kanli's
version of events. However, if that was the arrangement then it is
difficult to see why Mr Kanli agreed to sign the Contract for
Sale (which he
says he did in Huseyin's presence) committing Sebat to the payment of $850,000
for the front block and signed a loan
application for 80% of the finance
necessary to effect such a payment.
- As
to the rear block, a contract was exchanged on 14 January 2009 for sale of this
block with a completion date of March 2009 to a
Mr and Mrs Ash for the sum of
$630,000. A $1,000 deposit was required (suggesting a somewhat unusual
conveyancing arrangement). Matthew
Grew was identified as the vendor's
solicitor. That sale has not completed. At T 218.15, Mahir said that on
completion of the rear
block sale the difference between $630,000 (the sale
price) and $460,000 (the mortgage) was going to be given to Mahir for the work
that he had done and that the front block was to be handed over to his uncle
with a $600,000 mortgage on the block. (Mr Brennan's
documents suggest that at
around this time he was claiming that the difference between the sale price and
the mortgage was due to
be paid to him in reimbursement of moneys spent by him
and that there was a shortfall owing.)
- Mr
Kanli does not appear to have had any expectation that he would be required to
meet the interest costs on a $600,000 mortgage.
Mr Kanli agreed that he was
going to borrow money and be liable for the loan (T 247) but said that the
Urusoglu family was going
to make the repayments (this suggesting to me that the
interposition of Sebat as purchaser of the land was done on behalf of Huseyin
and his family).
- Mr
Cox submits that Mr Kanli was, in effect, the "stooge" of Huseyin and that, in
entering into the Sebat contract, he did so solely
on behalf of Huseyin and not
in his own right. Mr Kanli denied that in cross-examination (T 246.5) However,
there is considerable
force in the submission that this was the effect of Mr
Kanli's evidence. Mr Kanli said that he was there to help the family (T 246.25);
that the family agreement was that he would be the owner and that "eventually I
would have given it back to them".
- It
is almost inconceivable that a person with business experience (as Mr Kanli
presumably has, as an executive of a company with turnover
of some $3.5m or more
a year) would take as little interest in a not insubstantial property
acquisition as Mr Kanli seems to have
done, unless he was simply lending his
company's name to the transaction and it was for the benefit of another (such as
Huseyin).
Mr Kanli says that he signed the contract and then heard nothing
further. He knew nothing of the firm of solicitors which was noted
on the
contract as acting for the purchase (T 243.5) and said he had not been to their
offices. He was adamant that he had signed
everything including the contract in
Mr Brennan's office (T 244). He says that he did not know that the contract had
been terminated
(T 244), which makes one wonder from whom it was that the
solicitors to whom the termination letter was sent were receiving instructions
and with whom they were communicating. Mr Kanli agreed that his role was simply
to attend when necessary to help the family and Huseyin
(T 251).
- Significantly,
Mr Kanli does not seem to have made any attempt (once he did find out that the
contract had been terminated) to dispute
the termination of the contract or to
complain that he had not received notice of termination. The distinct lack of
interest Mr Kanli
appears to have shown as to his company's obligations under
the Sebat contract for sale is consistent with Mr Brennan's version of
events
and with this purchase being made as Huseyin's nominee and with Huseyin's
knowledge and direction. (This is of significance
when I come to consider the
alternative argument based on frustration of contract.)
- I
also note that Huseyin in the witness box displayed a knowledge of the
arrangements said to have been reached with Mr Kanli (when
explaining the
decision to use Mr Kanli's money for the subdivision and therefore the need for
the short term Trimac loan) which
seems to belie his professed disinterest in
the transaction and lack of involvement in the discussions at the time of the
purchase
- Huseyin was adamant, for example, that he had said he would create
the equity to enable the loan to be paid out (T 46) and I was
left with the
impression that Huseyin had sought to minimise his involvement in the
transaction and had done so because he knew,
as a bankrupt, that he was not able
to incur liability directly.
- Significantly,
after Mr Kanli attended the meeting at Mr Brennan's office with Huseyin on 20
January 2009, Mr Brennan (or one of his
staff) then took steps to procure
approval for a loan for Mr Kanli's company of 80% of the funds required to
purchase the property.
(Mr Brennan says that it was Huseyin who was to come up
with the other 20%.) Exhibit 6 is a copy of a computer printout from Mr
Brennan's
business records, noting the steps taken for the procurement of a
"Loan for Mesut Kanli". In the witness box, Mr Brennan explained
the method of
creation of such a business record, the steps taken being recorded
electronically.
- From
this, it appears that the first entry was made on 6 February 2009, not long
after the 20 January 2009 meeting at which Mr Kanli
says he signed the sale
contract. That entry reads "Deal received and compiled and lodged on line
accordingly". On 9 February 2009
the document records that "supporting
information" was faxed to Homeside Lending; the application was referred to an
assessor by
the proposed lender on 10 February; "further personal and company
financials" were required as at 17 February; those, together with
a company tax
return were apparently provided on 19 February; and further information on 20
February. The document then records that
"Conditional" approval was received and
"clients advised" on 20 February 2009. As at 27 February 2009 the status of the
loan was
recorded as "Awaiting funds to complete and trust investigation
[perhaps of the Kanli Discretionary Trust] by Perpetual", followed
by two
entries in March which reveal the ongoing involvement of the Urusoglu family in
the deal - on 3 March there is noted "Funds
to complete letter and rental
confirmation requested from Mike Urus [i.e., Mahir]", with no reference there to
Mr Kanli, and then
on 8 March 2009 the same entry is recorded but the request
this time is noted as "from Mike Urus and Mesut". The inference that Mr
Kanli
was taking out the loan to acquire the front block with Mahir's knowledge and
involvement is inescapable. (The last entry also
casts doubt on Mr Kanli's
denial of any knowledge of what happened in respect of the loan arrangements.)
- As
it transpired, no deposit was paid (according to the Urusoglu side, the deposit
was to be treated as having been met by the contribution
to the cash works - an
argument inconsistent with any suggestion that the cost of the subdivision works
were to be met by MSU Management
or Mr Brennan by payment to Mahir or his
company of the amounts claimed) and the loan arrangements were not finalised.
- Mr
Cox submits that it should be inferred that Mr Kanli (and/or the Urusoglu
family) could not procure funds for the acquisition (and
this would be
consistent with the fact that there was no application for relief against the
termination of the contract for sale
or for specific performance of the
contract). Such an inference seems to follow from the business record in
relation to the loan
application and the absence of satisfactory evidence from
Huseyin, Mahir or Mr Kanli to refute the suggestion that completion of
the
finance was dependent on input of funds from the Urusoglu/Kanli side of the
transaction. Significantly, Mr Kanli said, as to
the $850,000 purchase price,
"That was between Mr Brennan and Sam Urusoglu [i.e., Huseyin]" (T 252). He
suggested in re-examination
that generally it would have been Huseyin ringing Mr
Brennan to chase up the loan application (T 254).
- It
must also be noted that the sale of the front block by way of a contract of sale
to Sebat is inconsistent with an agreement that
the Urusoglu family would have
the benefit of the front block through a reconveyance to Elf of the shares in
MSU Management (since
on that hypothesis then the front block would have to
remain in the ownership of the company).
- At
T 121.37, Mahir accepted that he knew the contract for sale had been executed
between MSU Management and his uncle; and it appears
from Exhibit 6 that he knew
it was necessary for funds to be contributed by Mr Kanli or the Urusoglu side of
the family to effect
the purchase. He made no complaint that this was
inconsistent with the contract that he now says there was for the transfer to be
to Mr Kanli with no payment other than the assumption of the mortgage debt.
- In
March 2009, MSU Management, through its solicitor, terminated the contract with
Sebat for breach (that breach being the non-payment
of the deposit). (Mr Kanli
again did not seem to know what had occurred - which is, again, consistent with
him leaving the handling
of the sale transaction in Huseyin or Mahir's hands. As
noted above, Mr Kanli made no complaint that the contract had been wrongly
terminated and Sebat took no steps to seek relief against forfeiture of the
contract.)
- Meanwhile,
in December 2008, Mahir's company (MSU Earthworks) issued an invoice to MSU
Management (in the sum of some $347,000 inclusive
of GST) for work and services
including council fees, surveyors, excavation, cartage, landfill and
landscaping. The account was on
the company letterhead and dated 15 December
2008. Mahir agreed that he had prepared the invoice (T 134.50) and said that he
had
done so "because I was informed that the company was not mine [which, I
interpose to add, it never was] or not my sisters [a hasty
correction by Mahir,
no doubt realising his error] and we had no control over it" (T 135.2).
(Initially, Mahir had annexed the wrong
document to his affidavit as being that
invoice - a quote his company had given in relation to excavation of the rear
block - but
this was corrected in his October 2009 affidavit.)
- Mahir's
explanation as to why he had issued the invoice is telling - there is no
suggestion that he had previously had any expectation
of payment in relation to
the works; rather he issued the invoice because he realised that the effect of
what had occurred was that
the company was now in the hands of Mr Brennan. In
what seemed to me to be a slip that Mahir quickly corrected in the witness box,
Mahir suggested that he had expected the company to be his ("I was informed the
company [MSU Management] was not mine"). Mahir's
assumption that he should have
had some control over the company (" we had no control over it") belies
the evidence of his sister that she made the decisions in relation to the
company.
- Mahir's
invoice (which he relies upon for the quantum meruit claim and which Elif relies
on as establishing the value of the works
for the purposes of the alternative
claim for restitution based on frustration of the contract) is criticised as an
attempt to inflate
the costs of the works. It is said that Mahir exaggerated the
number of workers on site and failed to maintain records of payments.
In that
regard, I cannot form any assessment of the reasonableness of the number of
workmen on the site or the amount of time spent
by them. Mahir's record keeping
in that regard was abysmal and his assertions hardly disinterested. I accept
that it is likely that
construction of a concrete access road would require a
considerable amount of labour, but was not assisted with any independent
evidence
in that regard.
- Mahir,
in an abstract of evidence confirmed under oath in the witness box, attested to
the performance of the work and provision of
goods referred to in that invoice
and provided detail as to how those amounts were costed by him (in general terms
the price per
item was said to be derived from Mahir's knowledge of competitors'
prices - though there was no evidence of those prices or of projects
from which
Mahir might have acquired this knowledge so as to permit it to be tested in any
real way). Mahir's evidence in this respect
was little more than a series of
assertions.
- Mr
Jacobs, in effect, criticised the defence for adducing no evidence rebutting the
scope of works, quantities of materials, man hours
and value of items said to
have been provided, and for simply challenging the value of works asserted by
Mahir. Mr Jacobs submitted
that Mahir's evidence was tested in cross-examination
only in two respects: first, as to the proposition that the majority of the
subdivision works had been done previously and secondly as to the basis on which
the works had been costed.
- As
to the former, the issue of certificates in relation to items such as water
services that were certified as complete prior to Huseyin's
bankruptcy suggests
that there is some substance in this challenge. However, I accept that road
access works were carried out in
the period from November 2008 and that they may
well have been not insubstantial. (There was evident feeling from each of
Huseyin,
Mahir and Mr Kanli when they were challenged as to the scope of the
works carried out for the subdivision.) It seemed to me that
there was logic to
the explanation by Mahir as to why much of the earlier work in relation to the
laying of the concrete had to be
redone. (Mahir, did, however, concede in
cross-examination that the construction of a driveway would not ordinarily cost
$200,000.)
- As
to the latter, reliance was placed on Mahir's assertion as to his awareness
(unsupported, as I have already noted, by reference
to any examples) of market
rates. Mahir asserted that to his knowledge the rates reflected in the invoice
were competitive rates.
- In
that regard, even if Mahir does have the general expertise to enable him to
offer an opinion as to what would be a competitive
market price for works of the
kind required to be carried out, and there was no evidence from which I could
test that proposition,
it seems to me that his evidence has objective. Mahir has
a clear self interest in maximising his or his company's claim. To his
credit,
Mr Jacobs conceded that this might affect the weight of his evidence, noting
that in Equity 8 Pty Ltd v Shaw Stockbroking Ltd [2006] NSWSC 1251,
Barrett J (who had held admissible opinion evidence from a principal of the
plaintiff on matters within his expertise) nevertheless
noted that
"Self-interest may eventually be seen to have compromised objectivity" in such a
case.
- Here,
the expertise of Mahir was expressed in general terms and he gave no examples
from previous experience in the industry against
which his opinion could be
tested. In ASIC v Rich , Spigelman CJ referred to the need to expose the
process of reasoning by which an expert has formed the opinion expressed by that
expert. Other than a mathematical breakdown of cost per item, there was nothing
in Mahir's evidence which exposed his reasoning as
to the assertions made and on
which Mr Jacobs relied as based on his general expertise in the industry.
- Mahir
is not qualified as a quantity surveyor and agreed in cross-examination that he
knew what that role was. The assertion that
he had 'stuck to relative market
rates' and had a 'good idea' how much the work cost (T 190) was of little
assistance to me. (When
told that Mr Kanli's bank statements only showed cash
cheque withdrawal of around $136,000 he asserted that that 'must be a mistake'
-
T 190, but had little in the way of records to support this and the opinion that
cash cheques represented 99% of the moneys provided
by Mr Kanli, apart from
being inconsistent with the claim that $180,000 was provided to him, seemed to
be a percentage plucked out
of the air.)
- Mahir's
record-keeping, as noted above, was hardly the most reliable even if (as he
said) some of the records were lost because he
had moved house a few times. The
weight I could attach to Mahir's assertions as to the reasonable cost of the
work seems to me to
be very low, particularly having regard to his obvious
self-interest in the outcome of the quantum meruit claim.
- Criticism
was made by Mr Jacobs of the fact that Mr Brennan had chosen not to adduce any
evidence of his own as to the scope of the
works reasonably required for
completion of the subdivision or as to the cost of those works. However, it is
for Mahir to prove not
just what works were carried out but the value of the
works carried out as part of his quantum meruit claim and I am not satisfied
that he has adequately done so. In Placer (Granny Smith) Pty Limited v Thiess
Contractors Pty Limited ( [2003] HCA 5; 2003) 77 ALJR 768, Callinan J referred to the
proposition that all evidence is to be weighed according to the proof which it
is in the power of one
side to have produced and the power of the other to have
contradicted. There is nothing to suggest that it was not in Mahir's power
to
have adduced independent evidence going beyond assertion as to the cost of the
works and it is not to the point that Mr Brennan
could have done so when it was
for Mahir to prove his quantum meruit claim.
- A
limited bundle of invoices was ultimately produced but there was little
explanation for what records had been made in the first
place let alone
retained. Mahir was not sure whether MSU Earthworks had filed its tax return (T
137); asserted that he had given
invoices including expenses to his accountant
(Mr Castino) but there was no evidence of this; asserted that he would have kept
"some"
bills from contractors, and "most" of those he still had or "a fair bit";
and kept some records of who he had paid money to (T 138).
Mr Jacobs says that
the manner in which Mahir kept records was, in effect, consistent with him
understanding that the work was being
carried out for his own benefit. That,
however, would equally be consistent with Mr Brennan's version of the agreement
(under which
the Urusoglu family through Huseyin's nominee would ultimately have
the benefit of the land). It is inconsistent with an expectation
that Mahir
would be paid for the work and it makes it extremely difficult to put a reliable
quantum on the value of the work by reference
to its cost. Mahir, himself,
accepted that he was not to be paid for the drive way work "Absolutely not. I
was told the block was
mine" (T 191).
- Moreover,
of the invoices in question, one (for a substantial sum - $90,000) which was
included in Mahir's December 2008 invoice,
was highly suspicious - that being an
invoice on the letterhead of All Concrete Constructions Pty Limited. It was
suggested by Mr
Cox that this was a false invoice. The basis for that suggestion
was that the building licence number for the company shown on the
letterhead of
the invoice (was the same licence number (albeit expired) as the building
licence number of a company with the same
ACN but with a slightly different name
- All Concrete SLD Pty Limited). That company's building licence had expired in
February 2008.
The letterhead on the invoice was slightly different from that of
All Concrete SLD Pty Ltd, though with the same ACN, prompting Mr
Cox to observe
that one would ordinarily assume company letterhead accurately to set out the
company name). There was no invoice
number on the letterhead (contrary to what
Mahir seemed to accept would be normal practice). Furthermore, there was no
evidence of
any demand for payment of an outstanding amount of that sum. (Mahir
explained this by saying that he had been chased up by the principal
of the
company, Mr Darcy, a few times and that, in the industry, not all creditors took
steps to press for payment.)
- The
veracity of the invoice was also in question in light of the fact that there was
evidence that concrete had been supplied from
a separate supplier (Western
Suburbs Concrete, from whom documents were available and who had pursued Mr
Kanli on the supply account
set up with Mr Kanli for a much smaller debt).
- Mr
Cox points out that it is implausible that a company would get its own name
wrong on its letterhead when issuing an invoice and
that a subcontractor would
bill up to $100,000 for materials and labour without being paid and then wait
two years for payment without
issuing a demand or doing more than ringing up
from time to time (as Mahir said it had done). I agree. Again, Mahir's evidence
in
relation to this was given in a casual dismissive way and I was left with no
confidence that there was any debt owing in this amount.
- Insofar
as costs were paid directly by Mr Kanli, they were not costs incurred by Mahir
and there was no evidence that Mahir had any
obligation to reimburse Mr Kanli
for such costs. They would, however, provide a means by which the objective cost
of some of the
works could be assessed. (Had I found for Mahir on the quantum
meruit claim I would have been inclined to award the amount which
it has been
shown (by reference to business records other than the suspect All Concrete
invoice) was paid in respect of the project
but would have discounted the
assertions by Mahir as to the balance of the works as being unreliable and
self-interested. I have
not sought to carry out the arithmetical exercise - nor
was there any attempt by Mahir to carry out such an exercise - but it would
result in a payment of far less than the $347,000 claimed.)
Present occupation of the land
- As
to the present position in relation to the land, Mahir has asserted a right of
possession in respect of the land and has remained
in occupation (hence the
separate claim by MSU Management for an order for possession). Both the Trimac
and the ANZ mortgages remain
on foot (the latter reduced to an extent as a
result of the Homeside refinancing) and interest is accruing on those loans. Mr
Brennan
has refused to reconvey the shares in MSU Management to Elif and seeks
possession (through MSU Management) of the land.
Credit of Witnesses
- Before
turning to the issues for determination I note that criticism was made by both
sides as to the credibility of the others' witnesses.
When considering those
criticisms (and addressing my observations of the witnesses) I bear in mind the
caution expressed by McLelland
CJ in Eq (as his Honour then was) in Watson v
Foxman (1995) 49 NSWLR 315 (at 318-319), as to the difficulty in placing
reliance on witnesses' recollections of what was said in conversation
(particularly
where the conversations in question took place some time ago). In
an oft-quoted passage, his Honour there said:
... human memory of what was said in a conversation is fallible for
a variety of reasons, and ordinarily the degree of fallibility
increases with
the passage of time, particularly where disputes or litigation intervene, and
the processes of memory are overlaid,
often subconsciously, by perceptions or
self-interest as well as conscious consideration of what should have been said
or could have
been said. All too often what is actually remembered is little
more than an impression from which plausible details are then, again
often
subconsciously, constructed. All this is a matter of ordinary human experience.
- Although
the conversations in question in the present case occurred not so long ago (in
mid to late 2008), none of the principal witnesses
appeared to have a
particularly marked facility for recalling the events that had occurred or the
conversations that had taken place.
Given the fragmented nature of the
conversations that, at least on the Urusoglu case, are said to have comprised
the relevant agreement
(described as it was by Mr Jacobs as an 'evolving' or
'springing' contract), and the fact that at least some of the conversations
seem
to have involved communications relayed from one to another of things said by
third parties - such as Huseyin's conversation
with Mr Brennan as said to have
been relayed by him to Mahir or as relayed by Mr Brennan to Mahir), the
difficulty recognised by
his Honour seems particularly acute.
- It
seems to me not unreasonable to think that the various participants have put
their own gloss on the relevant conversation(s) and
that one or more of them may
have heard what they wanted to hear and not what may actually have been said.
Mahir, for example, agreed
that he did not remember word for word what was
discussed on 7 July 2008 but simply asserted that he could "remember certain
facts
and things" - T 110. (In this regard, I do not suggest that Mr Brennan's
memory or attention to detail was markedly superior to that
of Huseyin, but it
did seem to me that the recollection of Mahir was particularly poor.)
- In
Watson , having noted that each element of the cause of action before the
court must be proved to the reasonable satisfaction of the court,
such that the
court "must feel an actual persuasion of its occurrence or existence", his
Honour went on to say that:
Such satisfaction is "not ... attained or established independently
of the nature and consequence of the fact or facts to be proved"
including the
"seriousness of an allegation made, the inherent unlikelihood of an occurrence
of a given description, or the gravity
of the consequences flowing from a
particular finding": Helton v Allen [1940] HCA 20; (1940) 63 CLR 691 at 712.
- As
noted in Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA
810; [2008] ATPR 42-410 (at [41]), by Rares J, the observations of McLelland CJ
in Eq as to the frailty of human memory are just as apposite
where the question
is as to what oral terms of a contract were agreed in the course of negotiations
(as they must be when, as here,
considering what version of an oral agreement
was reached in the course of one or more conversations - those occurring at a
period
of some stress such as seems to have been the case here when the prospect
of the Urusoglu family home, and its use to promote the
new product of which
Mahir was obviously proud, was under threat and where Mahir's actions in bidding
at the auction on 5 July 2008
seem inevitably to have engendered a degree of
urgency in putting the arrangements in place for the purchase of the land).
- I
turn then to the particular witnesses whose credit has been or may be called in
issue.
Plaintiffs' witnesses
Huseyin
- Mr
Jacobs submits that Huseyin was passionate about his case and, although he
concedes that Huseyin was occasionally unresponsive
(without identifying those
occasions but perhaps best illustrated in Huseyin's long answer in response to
the question that he did
not really care what had happened to the land), a
witness of the truth. (In one critical respect, namely as to the existence of
the
pleaded contract, Mr Cox does not submit otherwise. Rather, he contends that
Huseyin's evidence was entirely inconsistent with the
pleaded case in that
Huseyin says that all the conversations he had with Mr Brennan were not with a
view to creating a contract,
but were simply advice - T 48; and he denied any
agency relationship for his children - T 66.)
- In
general, however, Mr Cox submits that Mr Cox submits that Huseyin's evidence was
generally imprecise, evasive and unresponsive;
that he did not have a good
recollection of dates or what had been said; and that on the critical questions
little reliance can be
placed on his evidence.
- The
impression I gained from Huseyin's evidence in the witness box was that Huseyin
was in fact seeking to distance himself from involvement
in the transaction and
that his memory of events could fairly be described as selective. So, for
example, he denied knowing that
Mr Brennan and his wife had given personal
guarantees in relation to the loan but said that Ashish Patel had been
approached in the
period from the sale to the settlement (T 46) in relation to
the second loan and therefore seems to have been aware of the need for
further
security to be provided. Huseyin later agreed that he was told in November that
Mr Brennan had to put his own property up
as security (T 80) and that he had not
referred to this in his affidavit.
- From
Huseyin's apparent willingness (as an undischarged bankrupt) to proffer
guarantees to produce equity in the project - seemingly,
on his version of
events, in order to persuade Mr Brennan to become involved in the financing of
the transaction, it appears clear
that Huseyin was more involved behind the
scenes in the project than his evidence of not caring as to the fate of the land
and his
professed lack of knowledge of the purchase transaction suggested.
- Huseyin's
evidence was that he had walked away from all of his properties (T 68.38) and he
denied that he had seen considerable potential
for subdivision or had an
interest in the property (T 70) but he spoke as if he had been involved "I came
up with the second mortgage"
T 43.8; "We've spent $350,000 on the property"
(though by this he said he was referring to his son and his brother-in-law); and
he
was emphatic that he would create the equity in the land (T 41.20-37).
Even if this was just an example of loose language it seemed to me to
demonstrate
a clear interest in the outcome of the purchase and the development
of the property) T 81.
- Mr
Cox submitted that Huseyin repeatedly understated his involvement and knowledge
of the deal and that his denials of involvement
were untruthful. I think that
submission has force. Huseyin's evidence as to the equity needed to be created
in order to pay out
the finance bespoke a greater involvement in the detail of
the transaction than Huseyin appears to concede (T 41.20; T 41.37 T 42).
- It
is submitted by Mr Cox that since Huseyin knew that his son and daughter were
not involved in the deposit bond and loans to buy
the Mt Vernon land, he must
have known that Mr Brennan had taken the risk on the financing arrangements;
that Huseyin's evidence
(that as far as he knew his son was liable for the debts
- T 47 should not be believed - and his evidence that he thought both his
children were the directors and shareholders of MSU Management - T 48 - (though
then said that he did not know who owned the shares)
is inconsistent with the
evidence that Mahir had told him on 5 July 2008 that he had got a letter of
authority from his sister to
bid at the auction - T 53.15 (which would not be
necessary had his son owned the shares) - though Huseyin seems to have attempted
to meet this argument by suggesting that he queried Mahir as to why this was
necessary as he owned the shares. Huseyin's professed
lack of involvement with
MSU Management might well be thought to be an attempt to distance himself from
the company in light of the
restrictions on his involvement as a director or
officer of the company while bankrupt. ( Huseyin also said "My wife and I didn't
know a family member could buy it" - T 54.10, which might well explain why the
suggestion was made that MSU Management become involved
in the purchase.) Given
Huseyin's acceptance that Elif was not experienced in company matters - T 50, it
seems surprising that he
would leave family affairs run through a company solely
controlled by her.
- Mr
Cox further submits that Huseyin's denial of involvement in relation to the
original statement of claim (see for example his denial
that he had met Mahir's
solicitor, Mr Marando, in March/April 2009 - T 61) and his claimed lack of
awareness of the proceedings until
after their commencement (T 63) is
inconsistent with the evidence of Mr Marando that he took detailed instructions
for the preparation
of the pleadings (and the fact that Huseyin swore his first
affidavit in the matter on 6 April 2009, an affidavit prepared by Mr
Marando or
someone in his office); his denial of recognition of his daughter's signature on
the share transfer (T 51) is said to
be surprising; and his assertion that Mr
Brennan had a caveat over the Mt Vernon land property prior to the auction on 5
July and
that this was Mr Brennan's reason for attending the auction is not
supported by the evidence (although I note that the documents
did disclose that
consent had been given to the lodgement of a caveat by one of Mr Brennan's
associates, Mr Colless and it seems
that Mr Brennan's associates may have had
some form of security over the land, thus lending some foundation for Huseyin's
belief
even though that belief may have been incorrect).
- There
were inconsistencies in Huseyin's evidence. For example, his oral evidence that
he "had an idea" that his son was going to the
auction but says that this was to
"sticky-beak" and that he did not know his son was actually going to bid and buy
the property (T
71), seems difficult to reconcile with the statement in his
affidavit that his son had said to him that he was going to buy the property.
Again this seemed to me to be an attempt by Huseyin to distance himself from the
relevant events and minimise his involvement.
- I
was left with the distinct impression that Huseyin had a greater involvement in
the transaction than he would admit and therefore
I have treated his evidence
with some caution.
Elif
- Mr
Jacobs submits that Elif's evidence was clear, concise and consistent with her
sworn evidence and that she is to be considered
as a trustworthy and credible
witness. Mr Cox, on the other hand, submits that Elif was careless and
inconsistent in giving her answers
and at times unresponsive. By way of example,
he refers to the evidence given by Elif as to her independence, which is
inconsistent
with the suggestion that her will was overborne by Mr Brennan on 7
July 2008 (and, I might add, with the manner in which her brother
seems to have
assumed the leading role at the auction and in relation to the development); to
her evidence as to the initial meeting
with Mr Castino (in that she could not at
first recall that Mahir was at the meeting but was later very sure about it; and
that she
could not say why she and her brother were going to see Mr Castino - T
170.43); and to the fact that her affidavit suggested she
had signed the company
documents in Mr Brennan's office not Mr Castino's office, when it is clear on
the evidence that she did so
in Mr Castino's office.
- It
is submitted by Mr Cox that Elif's evidence that she had queried with Mr Castino
the back-dating of the transfer and as to the
advice she says he then gave to
her not to sign the documents on 7 July 2008 (which was not referred to in her
affidavit) had the
flavour of recent invention and that her evidence that she
had drafted the "Director's Minute" authorising her brother to bid at
the
auction (and that it was in her own words), even though it was clear she had not
understood its language, is implausible. Reference
was also made to the
inconsistent answers given by Elif as to when she had given the 5 July letter to
her brother (T 181 - she said
it was before the auction; that it was on 6 July;
that it could have been the morning of the auction; and that she was not sure)
as going to demonstrate Elif's unreliability as a witness.
- Elif's
evidence was that Mr Castino said not to back date the document (T 182), not
that he had told her not to proceed with an arrangement
whereby paperwork was
not to be lodged.
- Mr
Cox submits, in effect, and I accept, that Elif did not present as a
sophisticated woman who had any real understanding of the
business transactions
in this case (an assessment that her father and to a lesser degree her brother
seemed to share). That is no
criticism of Elif. It is simply a function of her
experience. She is currently employed as a childcare worker, having commenced
but
not completed a strata management course. She has no relevant experience as
a corporate director (other than of MSU Management, where
she does not seem to
have carried out any business activities).
- Elif
did not know what a trust was (T 165) and said that there was no 'exact reason'
why the company was established (T 164.13). Yet
she was adamant that she had
established MSU Management on her own account (T 164), inconsistent though that
is with some of Mahir's
evidence. Her evidence was that: "There was no exact
reason why we opened up the company just to have a trust there, if anything
had
come up to that, we needed to transfer into" (T 164.13). This is hard to
reconcile with her insistence that the company was never
to be separated from
the trust (T 164.20) for reasons that she did not explain. Elif accepted that
she did not have a real understanding
of the company/trust arrangement (T
164.20). She did not "exactly" understand the difference between resignation as
a director and
the share transfer (T 186). In that context her statement that Mr
Brennan had said he would not register (T 184.14) begs the question
as to what
it was that he said was not to be registered or what she thought was not to be
registered.
- Similarly,
Elif could not remember "exactly" whether she had known the purpose for which
she and her brother were meeting Mr Castino,
though she was 'pretty sure' that
she had made the appointment (T 164.48).
- Mr
Cox submits, and I agree, that the suggestion that Elif was acting in relation
to the Mt Vernon land independently of her brother
(and/or father for that
matter) is not tenable. She did "not exactly" know what the purchase price was
(T 177) and did not seem to
have taken any interest or part in the financing for
the purchase.
- Of
the three Urusoglu witnesses (Huseyin, Mahir and Elif), it seems obvious that
Huseyin had by far the greater business experience
and was far more likely to be
the guiding mind behind the subdivision project.
- My
assessment is that in a transaction such as this, involving corporate matters,
Elif would have acted not on her own initiative
but in accordance with advice or
instructions from her father or brother - in other words, at their bidding. If,
therefore, she signed
papers because Mr Brennan had told her to do so, then I
would infer that this must have been in compliance with the direction given
to
her by Huseyin or Mahir to do so.
Mahir
- Mahir's
evidence in the witness box in relation to aspects of the matter relating to the
work that had been carried out on the property
or as to the WIPS product was in
marked contrast to the manner in which he gave evidence generally. Perhaps for
this reason, Mr Jacobs
commenced his submissions as to Mahir's evidence by
noting upfront that the strain of the litigation was clear on Mahir and
acknowledging
that he had appeared to be "emotionally flat" other then when
answering about technical building works.
- My
observation of Mahir was that he did not display any real interest in answering
the questions put to him other than in areas in
which he may have thought this
would assist his case (hence the detail as to the works carried out on the
land). In general he displayed
a remarkably casual and disinterested attitude
for someone who was a party to the proceedings. He seemed quite oblivious to the
fact
that he had been required to produce documents to the court and unconcerned
as to the apparent lack of production (his offer in the
witness box to search
for those document and his later production of further documents suggests that
he cannot have taken seriously
his obligation to produce documents in the first
place).
- On
Mahir's own version of events, he signed the contract to purchase the Mt Vernon
land in the name of MSU Management (in circumstances
where he knew he was not a
director of MSU Management but claimed to have been authorised by Elif to do so)
when he knew the company
had no funds to complete the purchase and was relying
solely on a promise by his uncle to assist him; and signed a cheque for the
deposit when he also knew he had no funds to meet it and was relying on his
uncle again to assist in that regard.
- I
consider that in all probability Mahir was aware that he had been falsely
described in the contract as the sole director and was
trying to avoid admitting
that he had signed a document that he knew at the time was false (perhaps
because he seemed to think that
the falsity of the information contained in the
document would of itself amount to fraud - T 71 or because to do so would put
the
lie to his statement that he would not sign a document that he knew to be
false - T 98.1).
- Mr
Cox submits, and I agree, that Mahir's evidence that the contract was blank when
he signed it was implausible and inconsistent
with his evidence that there was a
conversation with the auctioneer about how to describe the purchaser and that
the trust should
be referred to on the contract he was about to sign. In terms
of the objective likelihood of Mahir's evidence on this issue being
correct, it
seems to me to make no sense that the auctioneer or real estate agent would
write the words 'sole director' on the contract
if he or she had been provided
with the director's minute giving Mahir authority to act for someone else (since
it would then have
been apparent that Mahir was not a director at all, let alone
the sole director). At 92.49, Mahir agreed that he may have signed
next to the
words 'sole director' and denied that this was false. Only later did he assert
(at 93.24) that the words 'sole director'
had been filled in after the signed
the contract and that it had been blank when he did sign it. Mahir also said
that the name of
the purchaser was not correct when he signed the document in
that the address details were incorrect (T 94). He said that the address
information must have come from his licence at the time and that he had signed
the contract blank and handed it back (T 94).
- As
to the assertion that Mr Brennan instructed Mr Castino on 7 July 2008 as to what
the minutes and transfer form should say, this
is inconsistent with the evidence
of both Elif and Mr Castino (and, importantly, is inconsistent with the
chronology of events at
the 7 July meeting as recorded in Mr Castino's diary
notes). Further, the evidence that Mahir did not know that the company minutes
had been backdated (when his sister signed them in Mr Castino's presence on 7
July) is said to be inconsistent with Elif's evidence
that she knew they were
false and had questioned the date and with Mr Castino's evidence that he advised
Elif against signing them.
- I
consider Mahir's evidence to be unreliable in terms of his recollection. For
example, Mahir's evidence as to the letter from his
sister was that he could not
recall it (T 97.20) then did remember it and said it had given him permission to
bid on behalf of the
company. Mahir could not remember whether he had told the
solicitors what happened to prepare the statement of claim (T 99) saying
it was
"so long ago I can't remember. I can't recall".
- As
to the meeting with Mr Castino, Mahir said that Mr Brennan had vaguely explained
things over the phone to Mr Castino and that he
had relayed information to Mr
Castino (T 105) who had prepared the forms in front of him, before then saying
he could have been outside
having a cigarette but that he was on the premises.
As to his sister's signature, he thinks she signed in the outside but only
glimpsed
the documents (T 106). He says that Mr Brennan told Mr Castino in his
(Mahir's) presence to create minutes that were deliberately
backdated (T 105.42)
though there was no reference to this in his earlier affidavits.
- As
noted earlier, Mahir's 6 April 2009 affidavit is inconsistent with his 9
September affidavit (in that paragraph 23 of the former
suggested that Mr
Brennan had prepared the ASIC documents). There was no reference to backdating
in Mahir's affidavit of 9 September
2009 (at T 112 Mahir said he had a vague
recollection about what was in that affidavit and that it was produced under
pressure).
The April 2009 affidavit makes no reference to any conversation
between 5-7 July 2008 in which Mahir now says Mr Brennan offered
to help them
purchase the land. (Further, the suggestion that he asked Mr Brennan to explain
the procedure and 'why they were doing
this' - T 109.20 - at a time after he had
already met with Mr Castino and could have posed those very questions to him;
and after
his sister had already signed the documents, does not make sense.)
- These
seem to me to be matters of some importance when the issue at that stage related
to the transfer of the shares (Mahir's claim
in relation to the works only being
raised at a later stage) and it is difficult to accept that Mahir would not have
thought it important
to convey such information to his sister's solicitor at the
time. Even if there was pressure at the time the documents were being
prepared
and this is the explanation for the omissions and inconsistencies, this does not
remove the doubt I have as to the reliability
of Mahir's recollection and hence
his evidence generally.
- Mr
Cox submits that Mahir's evidence as to how he used the alleged cash cheques and
cash from Mr Kanli was also inconsistent and unreliable:
in chief he said the
money was used for tipping fees, council fees/contributions and surveyors; in
cross examination he asserted
the money was used for materials, subcontractors
and wages. (The evidence disclosed that Mr Kanli himself had paid the Council
fees,
not Mahir with or without Mr Kanli's cash). Mahir claimed that sums
totalling about $180-190,000 had been paid, whereas Mr Kanli
on his bank
statement identified only about $137,000 cash cheques drawn for Mahir. The
evidence as to the cash drawn from the secret
cache is unable to be tested.
- It
is submitted by Mr Cox that Mahir was a cavalier and unresponsive witness when
answering questions and that his evidence included
unjustifiable exaggeration. I
think there is considerable force to that submission. I am unable to accept his
evidence on critical
questions without independent corroboration.
Mesut Kanli
- Mr
Cox submits that, insofar as Mesut Kanli accepted that he was not involved in
these transactions as a free agent for his own benefit,
he was Huseyin's stooge.
While I do not accept that Mr Kanli made such a concession, his actions (and in
particular his inaction
in early 2009) seem inconsistent with someone seeking to
purchase the front block in his or his company's own right. It seems
inconceivable
that if Huseyin (or Mahir) was not the real person behind the
Sebat transaction that Mr Kanli had not shown any interest in the progress
of
the transaction and that there had been no complaint when the contract had been
terminated. I accept that Mr Kanli was genuinely
trying to help the family. I
think it likely that he was doing so at the request and in accordance with the
directions of Huseyin
and/or Mahir.
- As
to the evidence on the cash cheques and cash given to Mahir, on its face it
seems unlikely that an experienced businessman would
part with substantial sums
without any more particular information as to the request than that there was a
development being undertaken
by Mahir at the Mt Vernon land and without keeping
or obtaining records of what was spent. It seems more likely from this that Mr
Kanli was providing funds as a gift and as a family matter. Mr Kanli did not
suggest that these payments were loans to Mahir. Mr
Cox submits that the
reference to these payments as contributions to the ultimate purchase price is
improbable. (In that regard,
it seems to me more likely that any reference to
these amounts being treated as the deposit was raised after the subdivision and
as part of an attempt by Huseyin or Mahir to reduce the amount of cash that
would be necessary for the purchase of the front block,
but this is speculation
on my part.)
- It
was pointed out that a large amount of cash was deposited into Mr Kanli's
account on 20 January 2008 and yet a cash cheque was
drawn the following day
(which surely would not have been necessary since the amount to be withdrawn
could have been retained before
the deposit was made) and hence it is submitted
the evidence on cash payments should not be accepted as reliable.
- There
is no dispute that Mr Kanli paid $9,800 by cheque to the council and that he had
a concrete account with Western Suburbs concrete
(which he says he paid) but he
has not advanced any claim in relation to those funds.
- As
to the (very vague) evidence from Mr Kanli in respect of the circumstances in
which the sale contract was signed in the name of
Sebat on 6 February 2009 at
Strathfield, the only logical explanation for his denial of knowledge in
relation to the contract was
that he did not have a real interest in it (and was
acting at the direction of his relatives).
- Mr
Cox submits that, as a witness, Mr Kanli was guarded and sceptical of any
questioning. He certainly appeared to be wary in the
witness box (and went so
far as to suggest that he thought it was as if he were on trial, perhaps since
there had been a need to
caution him in relation to the evidence he might give
in relation to disclosure in relation to taxation matters). However, in general
I formed the view that Mr Kanli was endeavouring to answer the questions put to
him truthfully and to the best of his ability.
Dennis Castino
- Mr
Jacobs submits that Mr Castino presented as someone who was embarrassed to have
been party to a back-dating of the relevant company
form. I accept that Mr
Castino was quick in the witness box to shoulder the blame for the fact that he
had acted otherwise than in
accordance with what he regarded as proper practice
in that regard. Other than his long term client relationship with Huseyin, there
seems no reason for Mr Castino not to have given truthful evidence. That said, I
would place more reliance on his contemporaneous
notes than his memory
particularly when some of the evidence of what occurred at the meeting emerged
for the first time in the witness
box.
Defendant's witness
Mr Brennan
- Mr
Jacobs points to a number of matters that he says reflect adversely on Mr
Brennan's credit and/or on his attitude in this litigation.
- First,
it is said that it was difficult to obtain from Mr Brennan on discovery the
documents relating to expenditure of funds from
the NAB refinancing (said to be
reflective of a consciousness of guilt on Mr Brennan's part) and it is said that
the cross-examination
of Mr Pelle as to the basis for his assertion that moneys
had been applied to Mr Brennan's personal use was a waste of court resources
when Mr Brennan then conceded that those expenses were for his personal benefit.
A Notice to Produce issued on 1 April 2010 was relied
upon in this regard, (Mr
Cox, however, pointed to the response which had been made on 12 April 2010
inviting the plaintiffs to identify
particular transactions in respect of which
documents were sought, an invitation that the Urusoglus' solicitor (Mr Marando)
concedes
was not taken up.) As to this issue, I do not consider that the
resistance by a party to production of documents of itself indicates
a
consciousness of guilt. It is unfortunately a common experience of litigation
that opposing sides will take different views as
to the relevance of documents
sought by way of discovery or as to the ambit of discovery sought. I think it
more likely that Mr Brennan's
initial stance (rightly or wrongly) was that these
were documents personal to him and not relevant to the dispute and he should not
be required to produce them. The invitation later put forward by his solicitors
seems to me to have been a sensible means to resolve
the issue and not redolent
any intentional concealment of documents.
- Secondly,
it was suggested that Mr Brennan had misstated or misrepresented the basis on
which he had made certain accusations in relation
to the represented value of
the Granville project by suggesting that an expression of interest document (by
Australian Unity) in
relation to the Granville Project had been a signed
contract (this also being said to be inconsistent with Mr Brennan's practice
only to lend on written third party valuations). The difficulty with this
submission is that this material was rejected, on Mr Jacobs'
application, when
Mr Brennan's affidavit was read at the hearing.
- Mr
Jacobs then made much of two matters in particular: first the fact that Mr
Brennan had made a statutory declaration on 28 August
2008 (apparently in the
context of an application to the Office of State Revenue in relation to stamp
duty on the share transfers)
to the effect that MSU Management had no
liabilities or contingent liabilities or assets or contingent assets as at that
date and
as to his evidence in the witness box in relation to his awareness of
discovery obligations.
- As
to the OSR declaration, Mr Jacobs submitted that this was a false declaration in
that, as at that date, MSU Management had incurred
a liability under the
Contract for Sale of Land and had an asset being the chose in action represented
by the contract. Mr Jacobs
pointed to paragraph 29 of Mr Brennan's affidavit, in
which he had used the phrase "unknown contingent liability". It was submitted
that as a mortgage broker of long standing, Mr Brennan would know the meaning of
that phrase. Cross-examined as to the declaration,
however, it seemed to me
that, while the declaration was factually incomplete, it was consistent with Mr
Brennan's incorrect understanding
of the effect of entry into the sale contract.
- As
to the evidence relating to his discovery obligations, my observation of Mr
Brennan in the witness box was that he was at times
unable to follow the thrust
of Mr Jacob's somewhat rapid fire style of questioning. The gist of Mr Brennan's
evidence, however, was
not consistent with a disregard for his discovery
obligations but, rather, with a feeling that he had been let down by his former
solicitor (on whom he had relied for advice and answers in this regard).
- Mr
Jacobs also points to inconsistencies in Mr Brennan's evidence such as the
statement in Mr Brennan's affidavit that he was "not
aware of the reason why
those documents [the ASIC forms] were not .......available for me to sign until
21 August 2008", faced with
his acknowledgement in cross-examination that he had
received the ASIC forms on 7 July 2008 and was in a position to sign the forms
on that date. It is not clear to me what the reason for the discrepancy in the
dates was or whether it did anything more than cast
doubt on Mr Brennan's
recordkeeping.
- It
was further submitted that the fact that Mr Brennan could not recall a number of
matters in respect of the documentation of the
Mt Vernon deal and in relation to
the proceedings indicated either that his memory was dull or that his tactics in
the witness box
were sharp. In this regard, Mr Jacobs pointed to the answers
given by Mr Brennan as to his understanding of "discovery" (notwithstanding
the
swearing of various affidavits in relation to discovery) and the evidence he
subsequently gave in that regard (evidence that
I consider explicable by
reference to the evident difficulty Mr Brennan had in following the questions
put to him).
- Mr
Jacobs also pointed out that Mr Brennan had conceded in cross-examination that
some of the items listed as personal expenditures
in his affidavit had not been
paid by him (such as Capital Gains Tax and Goods & Services tax amounting to
somewhere in the order
of $80,000.00). However, on a fair reading of the
relevant pages, it seems to me that Mr Brennan was doing no more than deposing
to those amounts being payable.
- It
was submitted by Mr Jacobs that Mr Brennan was a reticent and overly cautious
witness, guarded in his evidence and as someone who
was doing less than his best
to assist with the truth. My impression of Mr Brennan in the witness box was
that he was frequently
confused by the questions put to him and that he was not
seeking to avoid answering them but attempting to do so to the best of his
ability.
- On
balance, I accept Mr Brennan's evidence as being his genuine attempt to recall
the relevant events. The matters to which Mr Jacobs
adverted did not persuade me
otherwise.
- I
note that Mr Cox submitted that Mr Brennan's recollection of events in 2008 was
not tested so it could not be submitted that funds
could have been better
utilised by way of repayment of the Trimac loan - matter going to the breach of
director's duty allegation.
Mr Ishwar Shrestha
- Mr
Jacobs submits that a Jones v Dunkel inference ( [1959] HCA 8; 1959) 101 CLR 298) can
be drawn from the fact that no evidence was called from Mr Brennan's accountant,
Mr Ishwar Shrestha, to whom documents were supposedly
given on the 16 June 2008.
- A
Jones v Dunkel inference is open to be drawn in relation to an
unexplained failure to call evidence as to a matter that calls for explanation.
The
rule in such a case permits evidence in relation to that matter to be given
greater weight, and an inference or inferences to be
more readily drawn, when
the party who might have called evidence to the contrary has chosen not to do
so. In Commonwealth of Australia v McLean (NSWCA, 31 December 1996,
unreported), Handley JA and Beazley JA said: "... The rule typically applies to
strengthen or weaken an
inference otherwise available on the evidence for the
benefit of the party not in default."
- If
such an inference does arise, it would do no more than permit the court to infer
that the uncalled evidence or missing material
would not have assisted the case
of the party against whom the inference is drawn; it would not permit the court
to infer that that
the uncalled evidence was in fact damaging to that case.
- What
the principle allows is the more ready acceptance of evidence which might have
been contradicted (but which was not). Thus, w
here an inference is open from
facts proved by direct evidence and the question is whether it should be drawn,
the circumstance that
the party disputing it might have proved the contrary, had
it chosen to give evidence, is properly to be taken into account as a
circumstance in favour of drawing the inference (per Davies AJA in Ho v
Powell [2001] NSWCA 168; (2001) 51 NSWLR 572, at [76]; HML v R [2008] HCA 16; (2008) 235 CLR 334; 245
ALR 204 at [302] [303; [2008] HCA 16; Brandi v Mingot (1976) 12 ALR 551
at 559-60; Cf Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 at 320-321; [1959] HCA 8;
Katsilis v Broken Hill Pty Co Ltd (1977) 18 ALR 181 at 197; 52 ALJR 189
at 197; and Menzies J in Jones v Dunkel (at 312)).
- It
nevertheless remains the case that (as per Dixon CJ (at 305)):
The facts proved must form a reasonable basis for a definite
conclusion affirmatively drawn of the truth of which the tribunal of
fact may
reasonably be satisfied.
- In
Ho v Powell , Davies AJA said at [15]:
... it is important to have regard to the ability of parties,
particularly parties bearing the onus of proof, to lead evidence on
a particular
matter, and the extent to which they have in fact done so: cf 69 ALJ at
732-733, 736, 740. As stated by Lord Mansfield in Blatch v Archer [1774] EngR 2; (1774)
1 Cowp 63 at 65; [1774] EngR 2; 98 ER 969 at 970: "... [A]ll evidence is to be weighed
according to the proof which it was in the power of one side to have produced,
and in
the power of the other to have contradicted". See also Azzopardi v The
Queen [2001] HCA 25; (2000) 75 ALJR 931 at 935 [10]; 179 ALR 349 at 353 [10].
noting that Jones v Dunkel was a particular application of this
principle.
- Mr
Jacobs pointed out that Mr Brennan had described Mr Shrestha as the in house
accountant of NLG ([para 29]) and that, as there was no suggestion that he
had been unavailable to give evidence, his evidence can thus be inferred
not to
have been of assistance to Mr Brennan on the key issue as to when the ASIC
documents were prepared (and perhaps as to when
the meeting was held), such that
this should lead the court to prefer the plaintiffs' version of events.
- Mr
Cox submits that there was no reason to call Mr Shrestha since he did no more
than prepare documents for lodging with ASIC and
for the incorporation of Sebat
and that all he could have been expected to give evidence about would be the
date of lodgement of
the ASIC forms - not the date of the meeting. (It was said
from the bar table that he no longer works for Mr Brennan.) In circumstances
where it is not ultimately disputed that the ASIC forms were prepared by Mr
Castino on 7 July 2008 and signed by Mr Brennan on that
day (lodged thereafter)
I accept that there is no issue on which Mr Shrestha might be assumed could have
assisted and I draw no adverse
inference from the fact that he was not called.
- Mr
Jacobs also submitted a Jones v Dunkel inference would arise from the
failure of the defendants to tender a file note of Mahir's solicitor that had
been the subject of a
notice to produce (as to the instructions received by him
in relation to the initial draft of the Statement of Claim). Mr Cox submitted
that I could not infer that this assisted the plaintiffs when they had not
themselves sought to tender the documents. I do not consider
anything arises
from this. In the absence of evidence to the contrary, I can only assume that a
solicitor acting properly would have
drafted the pleadings consistently with his
or her instructions.
Issues
(i) What was the relevant agreement in relation to the Mt Vernon land?
- The
content of the agreements for which the respective parties contend is markedly
different.
- Urusoglu
contentions as to the agreement
- Mr
Jacobs submits that the agreement reached between Huseyin, Mahir and Mr Brennan
was an evolving or springing contract, by which
I understand him to mean that it
was reached during the course of a series of conversations and not necessarily
able to be identified
by reference to a previous point at which there was an
offer and acceptance.
- When
pressed as to precisely what the agreement was (there having been I thought,
some conflicting evidence from the Urusoglu witnesses
in that regard
particularly as to the non-lodgement of the paper work versus the re-transfer of
the shares), Mr Jacobs confirmed
that on the plaintiffs' case the only contract
was one that arose after the auction and was one pursuant to which Mr
Brennan was to seek finance for the purchase of the land (and to be responsible
for arranging
the payment of interest for the first 3 months - a term said to be
implied into the contract, though it is hard to see why such a
term should be
implied since on the Urusoglu version of events the company was at all times to
be in equity in the ownership of Elif).
- Mr
Jacobs emphasised that one of the terms of that agreement was that there was to
be no actual transfer of the shares in MSU Management
(through which the
purchase was to be effected) - the purpose of signing the share transfer form
(and related documents) being so
that Mr Brennan could lend his good credit
rating to enable the funds to be borrowed by MSU Management and to show the
financier
that Mr Brennan was in control of the company for the relevant period.
In response to my query as to whether or not that was tantamount
to unclean
hands (and seemingly inconsistently with the above submission and with the
pleaded term to that effect), Mr Jacobs submitted
that the plaintiffs' case was
not that there was only a 'paper transfer' (which is what one might have thought
was an apt description
if there was a signed share transfer form transferring
the shares on paper but it was never to be lodged) but rather that the shares
were to be transferred and later re-transferred.
-
(Elif's evidence that the shares were never actually to be transferred seems to
be inconsistent with Mr Castino's stated unhappiness
with what he referred to as
the 'actual transfers' - T 203. More relevantly, it is inconsistent with the
allegation that the shares
were to be re-transferred to Elif (which necessarily
is predicated on there being a transfer in the first place). It is also
inconsistent
with the arrangement being one pursuant to which the front block
was to be sold to Mr Kanli (since if MSU Management remained in
control, through
Elif's ownership of the shares, of the Urusoglu family, there would be no need
for that to happen in order to realise
the so-called family dream or, in Mahir's
words, "family plan").)
- Mr
Jacobs says that the agreement that Mr Brennan was to arrange finance was
reached in discussions between Mr Brennan and Huseyin
on 6 or 7 (and probably 7)
July; and that MSU Management was to be used for that purpose. Mr Brennan was to
become a director of
the company in order to arrange the borrowing. The land
was, according to Mr Jacobs, to be held as an asset of "trust" (MSU Holdings
Trust), which did not feature in any version of the relevant conversations
(though Mahir says he raised the position of the trustee
when he was at the
auction).
- The
consideration for Mr Brennan's involvement was said to be the earning of
commissions and the possibility of obtaining some profit
out of WIPS (though the
mechanism as to how the latter was to be achieved was by no means clear - Mr
Brennan's ownership of WIPS
Management Pty Ltd, later transferred to his wife,
achieves nothing if that company has no interest in WIPS).
- Such
an arrangement does not explain why Mr Brennan would have been willing to assume
any personal liability in relation to the financing
(even if that personal
exposure might be limited to a 3 month window, as Huseyin says Mr Brennan
insisted it was to be). Perhaps
that might have been explained by reference to
the social relationship between the parties but by 2008 that relationship seems
already
to have been sorely tested by the events leading up to Huseyin's
bankruptcy. Further, it seems unlikely that an experienced finance
broker would
have committed to such an arrangement without any written document making clear
the limit to his obligations in relation
to the transaction and without some
form of security for the obligations he was undertaking.
- Huseyin
says that there was sufficient equity in the land to cover any exposure (and
that may have been the case) but even if that
makes any exposure on the Trimac
loan unlikely, the exposure remains (as the present events have clearly shown)
and it is not clear
that it would remove concern by Mr Brennan as to personal
exposure on the ANZ loan in any event.
- It
is the plaintiffs' case, confirmed by Mr Jacobs, that the arrangement in
relation to the works to be carried out (namely that they
were to be undertaken
by Mahir,) forms part of the so-called springing contract and that this
arrangement was reached in discussions
with Mahir in November - at which time
the term pleaded in paragraph 6(ii) of the Amended Statement of Claim became
part of the contract.
However, it is submitted by Mr Jacobs that discussions
with Huseyin in relation to the land being subdivided necessarily involved
the
subdivision works being done - so it seems to be the plaintiffs' case that the
November discussions simply crystallised the manner
in which the Urusoglu
family's interest in the land was to be effected.
- It
is also contended by Mr Jacobs, that in September/October 2008, a further term
of the contract was agreed namely that there would
be a second mortgage (by
which I understand him, and Huseyin as well, to be referring to the Trimac
loan); that the subdivision would
be completed and that all the funds
(presumably from the refinancing) would be used to pay the second mortgage with
the balance to
reduce the first mortgage (ANZ loan) on the front block. On this,
the evidence of Huseyin seems to be that initially the funds for
the 20% portion
of the acquisition that could not be borrowed from ANZ because of its 80% loan
to value ratio were to be provided
by Mr Kanli but that Huseyin then decided to
use those funds for the subdivision works which meant there was a need for a
second
facility (the Trimac loan). The need to pay it out quickly was due to the
high interest rate (hence the force of Huseyin's complaint
in the witness box
seemed to be as to Mr Brennan's failure to pay down the Trimac loan, thus
exposing the company to higher default
interest, and that he had used those loan
funds for his personal interest).
- The
final piece of the agreement asserted by the Urusoglu family (T 371) seems to be
that in December 2008 it is said that Mr Brennan
and Mahir agreed that Mr
Kanli's contribution to the subdivision works would form the deposit for a
contract for the sale of the
front block to Mr Kanli and that Mr Kanli would
take the front block encumbered with a mortgage of $600,000 approximately.
- Apart
from the fact that no sale to Mr Kanli would be necessary if the arrangement at
all times was that MSU Management would remain
in the ownership of the Urusoglu
family, the contract signed by Mr Kanli's company in early 2009 is inconsistent
with that arrangement.
Significantly, also, Huseyin seems to have been involved
in that sale process (having, according to Mr Kanli, accompanied Mr Kanli
to Mr
Brennan's office in January 2009 for the incorporation of Sebat and when
arrangements were put in place for the raising of
finance - and, according to Mr
Kanli, when the contract for sale was signed) and seems to have raised no
objection to that process.
I would infer from Mr Kanli's evidence that Huseyin
nominated Mr Kanli or his company as his nominee for the purpose of the
agreement
to sell the front block after subdivision (as contended for by Mr
Brennan).
- Raising
of the refinance from Homeside/NAB is said to be consistent with the agreement
to pay out the Trimac loan when it fell due
in February 2001 and to support the
agreement as contended for by the Urusoglu family. Of course, if there was no
agreement to transfer
back the shares in MSU Management to Elif, then the fact
that the Trimac loan has not been repaid (even if that be in breach of
director's
duties) would occasion no loss to the Urusoglu family because Mr
Brennan (both through MSU Management and through his personal security
in
respect of that loan) ultimately will be liable for the increased arrears
(except perhaps to the extent that this might prejudice
the ability to sell the
front block to Huseyin's nominee). (If, however, Elif is entitled to the shares
then I accept that if they
were transferred back to her (or the register
rectified to that effect) then she would regain ownership of the company now
encumbered
by a much larger liability to Trimac due to the defaults since
February 2009. Whether (and how) that is compensable is something
I deal with
later in the context of the relief claimed for breach of contract.)
- Brennan
contentions as to the agreement
- Mr
Cox says that the agreement was comprised of four component parts - first, that
Mr Brennan would arrange the funds for the purchase;
secondly, that Mr Brennan
would own the property; thirdly, that the Urusoglu family would do the
subdivision work at their own cost;
and, fourthly, that on completion of the
subdivision the front block would be sold to Huseyin's nominee. The use of MSU
Management
as the purchaser was said to be solely as a matter of convenience
(and something of an afterthought - though that afterthought must
logically have
still been at a time prior to the auction since Mahir had used the company name
as the purchaser).
- Conclusion as
to agreement
- Insofar
as Mr Jacobs says this was a "springing contract", I note that in Branir Pty
Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424, in the Federal
Court, Allsop J (as his Honour then was), with whom Drummond and Mansfield JJ
concurred, rejected a submission to
the effect that a "springing contract" was
not something known to the law, saying:
On the contrary, a number of authorities discuss the need not to
constrict one's thinking in the formation of contract to mechanical
notions of
offer and acceptance. Contracts often, and perhaps generally do, arise in that
way. They can also arise when business
people speak and act and order their
affairs in a way without necessarily stopping for the formalities of dotting
"i"s and crossing
"t"s or where they think they have done so. ... Sometimes this
failure occurs because, having discussed the commercial essentials
and having
put in place necessary structural matters, the parties go about their commercial
business on the clear basis of some manifested
mutual assent, without ensuring
the exhaustive completeness of documentation. In such circumstances, even in the
absence of clear
offer and acceptance, and even without being able (as one can
here) to identify precisely when a contract arose, if it can be stated
with
confidence that by a certain point the parties mutually assented to a
sufficiently clear regime which must, in the circumstances,
have been intended
to be binding, the court will recognise the existence of a contract. Sometimes
this is said to be a process of
inference or implication. For my part, I would
see it as the inferring of a real intention expressed through, or to be found
in,
a body of conduct, including, sometimes, communications, even if it be the
case that the parties did not consciously advert to, or
discuss, some aspect of
the relationship and say: 'and we hereby agree to be bound' in this or that
respect. The essential question in such cases is whether the parties'
conduct, including what was said and not said and including the evident
commercial aims and expectations of the parties, reveals an understanding or
agreement or, as sometimes expressed, a manifestation
of mutual assent, which
bespeaks an intention to be legally bound to the essential elements of a
contract . The authority for the above can be found in, at least, the
following: Meates v A-G [1983] NZLR 308, 377 per Cooke J (as his Lordship then
was); Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty
Ltd (1988)
5 BPR [97,326] at 11,117-118 per McHugh JA (Hope and Mahoney JJA
concurring); Vroon BV v Fosters Brewing Group [1994] VicRp 53; [1994] 2 VR 32, 81-83 per Ormiston
J (as his Honour then was); Empirnall Holdings Pty Ltd v Machon Paull Partners
Pty Ltd (1988) 14 NSWLR 523,555 per McHugh JA (with whom Samuels JA concurred);
Pagnan SpA v Feed Products [1987] 2 Lloyd's Rep 601, 611 per Bingham J (as his
Lordship then was) affirmed on appeal at p615; Pobjie Agencies v Vinidex
Tubemakers [2000] NSWCA 105 [22-24] per Mason P (with whom Meagher and Handley
JJA concurred); Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 at
[74] to [80] per Heydon JA; though see Toyota Motor Corp Australia Ltd v Ken
Morgan [1994] VicRp 55; [1994] 2 VR 106, 178 per Tadgell J (as his Honour then was); and in this
context see also Electrical Enterprises Retail Pty Ltd v Rodgers (1989)
5 NSWLR
473, 489 per Kearney J and Manzi v Smith [1975] HCA 35; (1975) 132 CLR 671, 674. (my emphasis)
- Therefore,
the fact that consensus may only have been reached over a series of discussions
or that their agreement evolved over the
course of time, such that one may not
be able to pinpoint the precise time at which the contract was concluded is not
necessarily
fatal to the plaintiffs' claim. However, what is necessary is that
the conduct of the parties be capable of proving all of the essential
elements
of an express contract: Integrated Computer Services Pty Ltd v Digital
Equipment Corporation (Aust) Pty Ltd ( 1988) 5 BPR 11,110 at p 11,117-11,118
per McHugh JA (as his Honour then was), with whom Hope and Mahony JJA concurred.
- Mr
Jacobs pointed to the significance to be attached to the fact that parties have
embarked on significant elements of their business
venture (as something which
would influence a court to give effect to the parties' implicit intentions
(referring to what was said
by Ormiston J in Vroon BV v Fosters Brewing Group
Ltd [1994] VicRp 53; [1994] 2 VR 32 at 87 and to Pacific Brand Sports & Leisure Pty
Ltd v Underworks Pty Ltd [2005] FCA 288). Nevertheless, I doubt that this is
of much assistance where the embarkation by the parties on the venture comprised
by the acquisition
and development of the Mt Vernon land might equally be
referable to an agreement of the kind contended for by the defendants.
- Mr
Cox points to a number of matters that he says support the conclusion that Mr
Brennan's version of events is the more plausible.
- First,
it is said that it is unlikely (Huseyin being in China at the time of the
auction) that Mahir would have made the decision
to purchase the property and to
assume the financial risk without his father's approval and without an
arrangement to fund it. Pausing
there, it seems to me that such a decision by
Mahir would certainly have been foolhardy but is not wholly inconceivable,
particularly
given the lack of any real appreciation by Mahir in the witness box
as to the significance of the obligations to which he was thereby
committing the
company. It may well be that Mahir was prepared to run the risk of not being in
a position to complete the contract
(particularly if he were not the party
proposing to put up the funds to pay the requisite deposit on the contract).
- However,
what does seem to me to be highly unlikely (whether or not Mahir had made the
decision to purchase without reference to his
father and whether or not he had
arranged for some level of finance from his uncle to do so), is the version of
events proffered
by the Urusoglu family under which Mr Brennan must be taken to
have assumed a substantial personal exposure for the speculative hope
of a
future profit if WIPS 'got off the ground' (and if the Urusoglu family honoured
the seemingly vague idea that he could share
in those profits in some way) and a
small commission from the financing aspects of the transaction.
- Secondly,
Mr Cox points out that neither Elif nor Mahir said in their affidavits that they
had spoken to Mr Brennan on the evening
of the auction or the following day (the
Sunday) (though by the time he gave evidence Mahir recalled that he had
"probably" had discussions
with Mr Brennan over the weekend in which Mr Brennan
told him what he had to do in relation to the sale), yet on the Monday Elif
and
Mahir went to see Mr Castino on an urgent appointment to have company minutes
and a share transfer prepared. It is submitted
by Mr Cox that this points
towards the existence of a prior agreement to transfer the shares in the company
(and it certainly seems
to me that it is consistent at least with there having
been discussions in which such an arrangement was contemplated at some time
prior to the auction, since otherwise it was a very fortuitous decision taken in
a hurry after Mahir had already committed that company
to the purchase).
(Mahir's evidence, as already noted, gave inconsistent explanations as to how Mr
Castino came to be given instructions
in relation to the documentation).
- Mr
Cox submits that any suggestion that Mr Brennan simply attended the auction as a
casual observer (or, for that matter, a caveator)
on the Saturday and, without
any intervening discussion in relation to the land, concocted a scheme to steal
the shares in MSU Management
(which at that time had no assets and only a
substantial potential liability following the auction) is implausible. I agree.
Similarly,
the suggestion that Mr Brennan forced Mahir to withdraw a cheque (the
funds to meet which were not then in his bank account though
hoped to be placed
there from his uncle's undisclosed sources) in order for Mr Brennan to assume
personal liability on a deposit
bond for purchase of a property in which Mr
Brennan was to have no interest, seems to me to be ludicrous.
- A
further indication against the version of events for which the Urusoglu family
now contends, though I do not place a great deal
of weight on it, is that the
plaintiffs' version of the agreement changed (in not unimportant details) during
the course of the proceedings,
first as to the date on which the agreement was
struck (June 2008 in the original pleading; 7 July 2008 on the ultimate version
put
to the Court) and as to who was party to the agreement (the initial
allegation was that there was an agreement simply with Huseyin
but this was
later amended to include Mahir).
- On
one view, it is immaterial whether agreement was before or after the auction.
However, from the point of view of their credit and
reliability of witnesses it
seems to me significant that, while Huseyin and Mahir may not have been able to
recall exact dates, it
would be surprising for them (and particularly Mahir) to
have forgotten whether the initial agreement was before or after the auction
(in
Mahir's case because of the considerable exposure to which he was putting
himself by bidding) or to have forgotten with whom
the agreement was struck.
- It
might be thought that the changes were explicable simply by an error in the
taking of instructions by the initial draftsperson
of the pleading. However, Mr
Marando, who gave evidence and was cross-examined on this issue, maintained that
he had taken detailed
instructions from Huseyin before drafting the pleading and
that seems to be supported by the fact that Huseyin swore an affidavit
on the
same date as that pleading. I can only assume that the initial pleading accorded
with instructions given in relation to the
proceedings by one or more of the
Urusoglu family (Elif then being the only plaintiff but her father and brother
having sworn affidavits
at that time) and what was then asserted was that there
was a contract in June which contemplated Mahir bidding at the auction.
That could be consistent only with pre-auction discussions and an agreement of
some
kind, which lends support to Mr Brennan's account of events. This suggests
that the recollection of the plaintiffs (and of Huseyin,
whose affidavit was
obtained at the time of the pleading and whose account must have informed the
way in which the matter was initially
pleaded), is unreliable and casts doubt on
the plaintiffs' evidence generally.
- When
considering the inherent or objective likelihood of the version of events put
forward by the Urusoglu plaintiffs (to use McLelland
CJ in Eq's words), I am of
the view that Mr Brennan's version of events in relation to the circumstances in
which the property was
acquired is the more plausible. I am left with the firm
conviction that the more likely reason for Mr Brennan to have taken the role
he
did (in personally assuming exposure on the deposit bond and the Trimac and ANZ
loan facilities) was that this arrangement was
one that permitted him to obtain
some upside from the property redevelopment (after the sale of the front block
at fair market value
to a nominee of Huseyin) more immediate than a speculative
future WIPS profit and more substantial than a relatively minor commission.
- I
think it likely that the rationale for Huseyin (and Mahir) entering into such an
arrangement was that it gave them the prospect
of achieving the family home (and
its use as a display home) with the immediate exposure to the financial side
being borne by Mr
Brennan. True it is that Mahir (or more precisely Mr Kanli)
was to bear the brunt of the subdivision works, but this is explicable
as part
of the wider agreement for the ultimate acquisition of land for the family home.
- The
fact that Mr Brennan (and his wife) assumed a personal liability under the
financial agreements is therefore, in my view, a powerful
factor tending against
the Urusoglu version of events.
- As
I have said, it does not seem to me to be material whether the agreement to
transfer the shares was reached before or after the
auction other than as to
credit and, in that regard, there are aspects of the evidence on both sides
which are unsatisfactory.
- In
the case of Mr Brennan, his evidence as to the 16 June meeting, seems likely to
have been based on a reconstruction of the chronology
of events by reference to
the date disclosed on the share transfer. I am not persuaded that there was any
formal meeting of Elif,
in her capacity as sole director and shareholder of the
company, and Mr Brennan on 16 June (and I doubt that there was any such meeting
up until 7 July 2008). It could have been that an agreement or understanding was
reached on or around 16 June between Huseyin and
Mr Brennan and hence that the
June date was later fixed as the date on which a notional meeting took place at
which the necessary
resolution was said to have been passed, but on that
hypothesis it would have been after the event. The fact remains that I have
real
doubts as to whether it was ever the case that Elif attended a meeting (other
than the meeting on 7 July 2008) to make the necessary
resolution and sign the
necessary forms to transfer control of MSU Management to Mr Brennan,
- In
the case of the Urusoglu witnesses, there are inconsistencies as between
themselves and in their own evidence (which I have attempted
to highlight during
the factual excursus earlier in these reasons), which have led me to believe
that their evidence in this regard
is unreliable.
- I
am therefore left with unsatisfactory accounts of what occurred in the period
leading up to and immediately following the auction
- which raises the question
of onus. It is for Elif to establish the agreement for which she contends. I am
not satisfied on the
evidence that she has done so on the balance of
probabilities.
- What
I think most likely is that discussions between Huseyin and Mr Brennan prior to
the auction (and to the extent that Mahir was
involved, the possibility of which
was conceded by him when he referred to his very vague recollections that he may
have been, Mahir)
were inconclusive and that at the auction Mahir took matters
into his own hands and committed the company to the purchase. At that
stage
there must have been some pressure on Mahir to arrange funding for the purchase
(even if he thought the deposit was already
'in the bank', so to speak, through
his uncle's assistance). That is consistent with the urgency that attended the
initial meeting
with Mr Castino. And at that stage, it seems to me that the
likelihood is that an agreement was reached by Huseyin and Mahir with
Mr Brennan
for him to arrange finance (and to do so through an arrangement whereby he took
control of MSU Management). Whether the
agreement at that stage involved the
arrangement for Mahir to complete the subdivision or that became part of the
arrangements at
a later stage is not material - suffice it to note that Mahir
accepted that it was not his understanding at the time the works were
carried
out that these were to be at the cost of MSU Management or Mr Brennan. A
necessary consequence of the arrangement whereby
Mr Brennan was to acquire
control over the company (but had only committed to the sale of the front block
to Huseyin's nominee) was
that he would retain any profit in relation to the
back block after completion of the subdivision.
- Had
the agreement been that Mr Brennan would be no more than the figurehead on a
financing application, then he surely would have
taken steps to protect himself
from exposure if the financing arrangements or the project itself turned sour -
there is no suggestion
that he did so. Had the WIPS profit been the motivating
factor from Mr Brennan's viewpoint, then it is surprising that he would have
taken no steps to have that firmly in place before he committed himself
personally to the transaction. I am also not satisfied that
there was ever an
agreement reached for the re-transfer of the shares in MSU Management to Elif.
Had that been the case then it is
difficult to see why Mr Castino would not have
documented this in some fashion (and why Mr Brennan would not have insisted on
steps
to protect his position in terms of personal liability for the company
loans taken out for the acquisition).
- The
agreement that I find more likely to have been reached was that Mr Brennan would
acquire the shares in the company and procure
the financing of the purchase,
Mahir would carry out the subdivision works at his own expense and that Mr
Brennan would then cause
MSU Management to sell the front block at a fair market
price to Huseyin's (or a Urusoglu family) nominee (consistent with the steps
later taken to achieve that outcome with Sebat in early 2009).
(ii) Relief, had agreement been established?
- The
primary relief sought by Elif is an order nunc pro tunc pursuant to s 175
of the Corporations Act for the rectification of the register of MSU
Management to remove Mr Brennan's name as shareholder and to reinstate that of
Elif.
That order is sought on the basis of the contract pleaded, whereby Elif's
shares were to be re-transferred to her, and Mr Brennan's
refusal to do so.
Given the finding in (i) above, this does not arise but nevertheless I consider
the position had it in fact arisen.
- It
is submitted by Mr Jacobs that Elif is an "aggrieved person" within the meaning
of s 175 because she is the equitable owner of the issued shares in MSU
Management (presumably on the basis of the contention that there was
an
enforceable agreement for the shares to be transferred back to her, since no
trust over the shares was alleged). Reference was
made to what was said as to
the court's discretion by Fullagar J in Grant v John Grant & Sons (
[1950] HCA 54; 1950) 82 CLR 1 at 51 as follows:
The power to order rectification of the register must clearly, I
think, be in all cases discretionary. The person claiming rectification
must
show that he has some equity which the court will protect. If he is a
shareholder, then prima facie he shows such an equity if he establishes that a
name is wrongly included in or omitted from
the register of his company .
Some definite reason must be shown, I would think, for refusing
rectification before rectification will be refused. But there may
be
circumstances which justify, or even compel, refusal." (my emphasis).
- The
power of the court to order rectification of the register is part of its general
jurisdiction to "act in personam" in aid of a legal right which is
subject to the same principles which apply generally to equitable remedies (G
rant , per Fullagar J, at 51).
- Where
it is established that someone who is a shareholder has ceased to be noted on
the register as a shareholder, and asserts that
this was without authority, then
the company must establish that the shares were cancelled with authority and/or
that it acted reasonably
to remove the name of the shareholder from the
register. In McLaughlin v Daily Telegraph Newspaper Co Ltd (No 2) [1904]
HCA 51; (1904) 1 CLR 243 (at 266) Griffiths CJ, on an application for
rectification of the share register, said:
The plaintiff is
entitled to say to the company - to adopt the words of Shadwell VC ... - 'you
are bound by law to be my bookkeeper
in respect of my stock, and to show me the
true account of it, and if I can show that on a given day stock stood in my
name, and
now show that it does not stand in my name, and I have not authorised
the transfer of it, you are responsible to me - that is say,
you must make the
account stand as it ought to have stood'.
...
The plaintiff, then, having established that he was, before the transfers to
be directly mentioned, registered in defendants' register
as the holder of the
... shares in question, the onus is cast on the defendants to show that the
change in the register has been
made by plaintiff's authority.
- That
said, Grant would suggest that the ultimate onus of establishing wrongful
omission or removal from the register remains on the party asserting
it. This
was the approach adopted in Actwane Pty Ltd (Receiver and Manager Appointed)
(In Liquidation) and William James Moss v Hotel Redfern Pty Ltd, Actwane
Holdings
Pty Ltd and Stephen Michael Larkin [2002] NSWSC 265 by Bergin J (as
her Honour then was) and in Rafeletos v Great Wall Resources Pty Ltd
[2009] FCA 1396 by Emmett J, In other words, an evidentiary onus will lie on
the defence in respect of particular factual issues asserted by the
defendant
(by way of the defences raised) failing the satisfaction of which the
plaintiff's evidence in favour of rectification may
be sufficient to support the
relief sought but this does not change the ultimate onus on the person claiming
an entitlement to rectification
of the register.
- Here,
there is no dispute that Elif signed the share transfer form pursuant to which
Mr Brennan became registered as shareholder and
on which he relied to procure
the removal of Elif's name from the register. Thus, the onus lies on Elif to
establish that there was
an agreement that the share transfer form would not be
lodged and that Mr Brennan would not become registered as shareholder. Had
that
agreement been established then the registration of Mr Brennan as shareholder
and the removal of her name from the register
would have been without Elif's
authorisation and prima facie an order for rectification of the register would
lie. However, I am
not satisfied that Elif has established that this was a term
of the agreement reached on her behalf by her father and brother in
2008.
- Once
it is established that the registration of the transfer was authorised (as
logically it must have been for there to be any agreement
at the outset of the
transaction for there to be a later transfer of the shares back to Mr Brennan,
as also contended by Elif on
the pleadings), then the question becomes whether
there was an agreement for the transfer of the shares and, if breached, what
remedy
lies for breach of that agreement. Elif bears the onus in that regard
also.
- As
it is, I have found that there was no agreement for the re-transfer of the
shares to Elif (and no antecedent promise by Mr Brennan
not to register the
share transfer form). Therefore, I am not satisfied that Elif's name was wrongly
removed from the register in
the first place. Had there been an agreement for
the shares to be re-transferred to Elif, then I would have considered the
appropriate
remedy to be to order Mr Brennan to re-transfer the shares in
accordance with that agreement (or, in the alternative, to order damages
for
breach of that obligation). The case, it seems to me, is one of wrongful
omission in the register but one which it is said to
be a breach of contract for
Mr Brennan not to reconvey the shares.
- Insofar
as there is a discretionary element in relation to relief of the kind sought on
this aspect of the claim, Mr Cox submits that
Mr Brennan should not be ordered
to re-transfer the shares (and the register should not be rectified) without
account being taken
for interest paid by Mr Brennan on behalf of MSU Management
in respect of the loans made to it. It is submitted that Mr Brennan changed
his
position in so doing. (In that regard, there is some dispute as to the evidence
in relation to what amounts were personally paid
by Mr Brennan and what came out
of the finances obtained by the company - or what remain payable. It is not
necessary for me to determine
that issue. Suffice it to note that I do not
accept Mr Jacobs' submission that Mr Brennan has misrepresented the position in
the
schedule to his affidavit.)
-
(I also note that Mr Cox submits that the loss on any claim for damages for the
refusal to transfer the shares would be the value
of the shares and that this
has not separately been proved and cannot be assumed to be the cost of the works
or the moneys personally
expended by Mr Brennan out of company funds. By way of
illustration, Mr Cox says that the land was acquired for $960,000 and that
if
the work on it (as Mahir says) cost $350,000 then there was an expenditure of
$1.31 plus interest (say $1.5m) whereas the asking
price for the respective
blocks in 2009 totalled $1.48m; thus leaving little by way of profit in the
company at that stage.)
- I
accept the force of the submission that any rectification of the register would
need to take into account amounts personally expended
by Mr Brennan on account
of the company and would have been inclined to make any order for relief of this
kind conditional on account
being made of such interest repayments (though not
the default interest occasioned by the decision to spend part of the finance
obtained
from Homeside Lending on personal expenses rather than repayment of the
loan).
- The
other claim for relief based on the existence of an agreement for the
re-transfer of the shares is Elif's claim for damages for
the alleged breach of
an implied term of the agreement with Mr Brennan (namely, that he would not act
so as to subvert the contractual
benefit of that contract), whether that term be
found as a matter of construction of the agreement or by way of an implication
of
the term at law (Mr Jacobs noting the discussion in this regard in Jackson
Nominees P/L v Hanson Building Products P/L [2006] QCA 126.) It is said that
Mr Brennan breached this term by diverting $179,000 of MSU Management's money to
his personal use.
- As
to the allegation of damages for breach, in Jackson Nominees , Williams
JA referred to the position where one party, by its conduct, removes the
sub-stratum of the contract so that the other
party is denied the benefit of the
contract, referring to the principle stated by Lord Blackburn in Mackay v
Dick and Anor (1880-81) 6 App Cas 251 at 263 (that where both parties have
in a written contract agreed that something be done that could not effectually
be done unless
both concurred in doing it, then the construction of the contract
was that each agreed to do all that is necessary to be done on
his or her part
for the carrying out of that thing) and other authorities as to the implication
of a mutual obligation to do all
things necessary to enable the other party to
have the benefit of the contract or not to do anything calculated to hamper the
other
in the performance of the contract. Jerrard JA noted that this was
referred to as a rule of construction in Mackay v Dick and Secured
Income Real Estate (Australia) Limited v St Martins Investments Proprietary
Limited [1979] HCA 51; (1979) 144 CLR 596 but described in Byrne v
Australian Airlines Limited as not so much as a rule of law as a term
implied in the sense of being attributed to the contractual intent of the
parties unless
contrary to the proper construction of their bargain. Mr Jacobs
seemingly contends for a term in effect of the kind referred to in
Ansett
Transport Operations Pty Limited v The Commonwealth of Australia and Ors [
1977] HCA 71; (1977-78) 139 CLR 54 at 61, that "a party to a contract made
on the footing of a continuance of a state of things may not by any act within
its power
or control do anything to destroy or diminish that situation"
- On
this basis, Elif seeks damages for breach of the agreement to transfer back to
her the shares, those damages it is said to reflect
the value of the shares as
at the date of breach calculated on the basis of the value of the work done
(said in the submissions to
be $347,463.60) plus the diverted sum of
$179,000.00. Mr Jacobs says that this calculation assumes that the mortgages
otherwise balanced
out the value of the Mr Vernon land.
- In
that regard I think that a distinction would have to be made between conduct
such as mismanagement of the company's affairs due
to inefficiency or
incompetence, for example, or due to a belief that there would be funds derived
from other sources to pay down
the Trimac loan in the short term, which surely
must be a risk assumed by someone transferring shares under an arrangement of
the
kind contended for by Elif, and conduct whereby company moneys were
deliberately diverted for personal benefit of the director).
- The
damages recoverable as a result of any such breach would be such as to put Elif
in the position that she would have been in had
there not been such a breach.
Logically, given that the conduct complained of is that Mr Brennan chose not to
apply all of the funds
from the Homeside refinancing to the repayment of the
Trimac facility and instead diverted moneys to his own use, the question would
be how the value of those shares in Elif's hands would be diminished by the fact
that the company remained liable for the interest
on the Trimac loan - I am by
no means satisfied that this would be measured by the additional interest
payable to Trimac or the quantum
of the moneys so applied for personal expenses
(the former being the cost to the company but not to Elif directly of the
conduct;
the latter being to require Mr Brennan to disgorge the benefit he
obtained personally).
- In
the event, nothing turns on this as I have not found there to be any agreement
for the transfer of the shares back to Elif. Had
I so found, then it would have
been impossible for me on the evidence to ascertain what damage had been caused
to Elif (as opposed
to the company) in terms of the diminution of the value of
her shares by reference to the conduct in question (and I would not have
considered it appropriate to order the payment of the $179,000 direct to Elif,
but would have been inclined to consider that the
appropriate relief would be to
order Mr Brennan to repay those moneys to the company with interest).
- Had
I found that the agreement with Mr Brennan was that he would do no more than
hold the share transfer forms or that he would retransfer
the shares to Elif
after holding them for a short time solely to facilitate the financing, then I
would have been inclined to the
view that Mr Brennan had an implied obligation
not to diminish the company's assets in the interim or, put in positive terms,
to
do no more than would be consistent with a "caretaking" role or as required
to effect the financing. A withdrawal of funds for private
purposes seems to me
clearly to be inconsistent with this. However, the damage Elif personally
suffers as a result of that conduct
must be the amount by which value of shares
diminished by that conduct and I am not satisfied that this has been established
(and
it could not be pursued at the same time).
(iii) Oppression/Breach of Directors' Duties
- There
are two further bases on which Elif seeks the repayment (to herself or to the
company) of the moneys used by Mr Brennan for
personal expenses ($179,000) (and
said to have been wrongly diverted from MSU Management).
- The
first is oppression and the second is via a claim for breach of directors'
duties. It is submitted that if the register is rectified
nunc pro tunc ,
such that Elif is back in control of MSU Management, then she has standing to
seek a remedy in its name (Mr Jacobs referring to
Winspear v Mackinnon
[2007] FCA 2077 para [54], where Marshall J noted Counsel's concession that
if the rectification order was made nunc pro tunc , (finding the
plaintiff to be entitled retrospectively to be a member of the company at the
time the application was filed) then
the standing issue - there, in relation to
an oppression suit - disappeared. No similar concession was made by Mr Cox.)
- As
to the oppression claim, s 234(c) of the Corporations Act provides a
remedy for oppression to those who have ceased to be members, if the
application relates to the circumstances in which they ceased to be a member.
- Mr
Jacobs drew my attention to two articles referred to by Elizabeth Boros in
Minority Shareholders' Remedies at p 123, addressing the question as to
whether the corresponding English statutory provision should be expanded to give
standing
to former members of a company to complain of oppression (Ms Boros
being of the view that it should "since unfairly prejudicial conduct
may arise
out of circumstances in which a person ceases to be a member, or have occurred
while the former members were still members
but have come to light only after
they ceased to be so").
- Given
that Elif was the sole member and director up until the time of transfer of her
shares to Mr Brennan, any complaint of her treatment
or of the conduct of the
affairs of the company while she was still a member could only be a complaint
directed against herself.
I did not understand Mr Jacobs to be invoking the
second of the scenarios identified by Ms Boros (of circumstances where a former
member might legitimately have a complaint as to unfairly prejudicial conduct of
the affairs of the company).
- As
to the first of those scenarios, Ms Boros referred to the fact situation
described by Andrew Marsden in 'Prejudicial relief?'
(1994) 15 Company Lawyer
178, where one of three director/members of a company resigned as director
in accordance with his contractual terms and the remaining
directors were
entitled to acquire his shareholding at a price representing a proportionate
part of the net asset value of the company
as certified at the date of exercise
of the option. It was suggested that (where it was alleged that the remaining
directors had,
after his resignation, set about to reduce the value of the
company's net assets so as to produce a lower price payable on exercise
of the
option), this was conduct that would appropriately be dealt with by permitting
the former member to sue under the oppression
provision of the relevant
legislation.
- As
I understand it, what Mr Jacobs argues is that, here, there is a not dissimilar
scenario, in that Mr Brennan (having, on Elif's
case, reached an agreement that
he would take a transfer of the shares for a particular purpose and for a short
time only, then retransfer
them to Elif) has conducted the affairs of the
company in the meantime in a manner unfairly prejudicial to her interests (in
that
he has diverted funds from the company to his personal use instead of using
them to pay down the Trimac loan - hence reducing the
value of the shares she
says he is obliged to transfer back to her).
- Mr
Jacobs contends that the present application relates to the circumstances in
which Elif ceased to be a member of MSU Management,
on the basis that the nub of
the present dispute is what was the agreement then reached in relation to the
shares. It is submitted
in that regard that a large proportion of the hearing
time was spent exploring the circumstances in which Elif ceased being a member
(whether it was on 16 June 2008 or 7 July 2008; whether there was a face to face
meeting, or rather a meeting in Mr Castino's office
on 7 July 2008 (after the
auction) attended only by Elif, Mahir and Mr Castino, after which the forms were
faxed to Mr Brennan; how
long was the meeting in Mr Castino's office; what
happened in the course of that meeting; whether Mr Brennan was contacted by
telephone
and, if so, what was said; and what was the arrangement as to the
shares namely whether they were to remain with Mr Brennan or be
transferred back
to Elif). While I accept that time was devoted at the hearing to those issues,
this was because they were relevant
to the existence or otherwise of the
agreement alleged. There was nothing there raised as to the circumstances
referable to Elif
as a member of the company in which (whatever version of the
agreement was reached) that agreement was reached.
- In
particular, it is noted that there is no claim of undue influence or duress. Mr
Cox contends that if the shares were agreed to
be transferred on 16 June 2008
and a valid transfer giving effect to that intention was signed on 7 July 2008
(later registered on
28 July 2008), then Elif voluntarily gave away any
beneficial interest in the company. Mr Cox submits that Elif was not excluded
by
Mr Brennan from the management of a company in which she had an interest and
that the shares were not held on any trust for her
benefit. Thus it is submitted
that Elif's claim should fail because she has no standing to complain about how
Mr Brennan managed
his own company and no other oppressive conduct is identified
in the pleading.
- I
do not consider that this has been shown to be a case in which, under s 234(c),
a former member would have a claim for oppression. The agreement pursuant to
which Elif transferred her shares was not one procured
by oppression of any
member of the company at that time. She was the only member of the company. Even
accepting, for present purposes,
and taking a broad view (which I think would be
incorrect), that the application did relate to the circumstance in which Elif
ceased
to be a member (insofar as it relates to whether there was an agreement
that the share transfers would not be lodged with ASIC or,
alternatively, that
if lodged the shares would be transferred back to her), I am not satisfied that
Elif has established that there
has been oppression in that regard, namely that
the affairs of the company at the relevant time were being conducted in a manner
oppressive to Elif.
- Mr
Jacobs submits that this is established by the fact that (as it is asserted) it
is unfairly prejudicial to Elif, who "embodies
her family's interests", to have
the substantial work done by her family, in contemplation of a family home and
display home for
WIPS, "gifted" to Mr Brennan. It is submitted by Mr Jacobs that
it is unconscionable for Mr Brennan to retain the benefit of the
works "after
plundering the company accounts", while being aware that the Urusoglu family
does not have the money to purchase the
front block and without offering to pay
the "fair value of the works."
- It
is submitted that Mr Brennan has used his legal rights as owner of the shares in
MSU Management as an "instrument of oppression"
in order to deny the Urusoglu
family (though surely the only relevant person who could bring a claim of
oppression would be Elif,
as she was the only member of the company) their fair
share of the rewards constituted by the development of the Mt Vernon land.
In
this regard, Mr Jacobs invokes what was said in Re M Dalley & Co Pty Ltd
[1968] HCA 82; (1968) 1 ACLR 489 per Lush J:
In my opinion want of probity is only one of the ways in which
oppression can manifest itself, ... One person may `subject another
to continual
injustice' by insisting, however honestly, on a proposition that is wrong or by
using his strength to maintain, however
honestly, a position unjustified in law.
... Section 186 [the predecessor in the Companies Act 1961 of s.260] is, upon
the authorities, a wide remedial section not to be narrowed in the manner
contended for by an interpretation of
the first judicial observations made upon
it. It is to be observed that it speaks of oppression in terms of its impact on
the oppressed,
not in terms of the intention of the oppressor, except to the
extent that the word itself has some moral or emotional content.
- However,
it is of relevance to note that in the above extract, his Honour was addressing
the position where (however honestly) there
was insistence upon or maintenance
of a position unjustified in law. If (as I have found) there was no agreement on
the part of Mr
Brennan to re-transfer the shares to Elif, then it seems to me
that he is justified in maintaining his refusal to do so and the present
enjoyment of benefits arising from his ownership of the shares cannot amount to
oppression of Elif's interests in relation to the
circumstances in which the
shares were transferred to him in the first place(which is the focus of the
statutory provision).
- Mr
Cox submits in this regard that the use of the $179,000 is irrelevant to this
proceeding. Even if substantially for Mr Brennan's
personal use, it is submitted
that he would be entitled to director's fees and to have a company loan account
and that ultimately
he was the only person affected by running the company in
that way.)
- Therefore,
even had I been satisfied that Elif had signed the share transfers pursuant to
an agreement that the shares would be held
for her or transferred back to her, I
would still have had difficulty with the proposition that conduct of Mr Brennan
in his capacity
as a director (which on this hypothesis had led to the company
shares being worth less to her on their transfer back to her or the
company
being in a less favourable financial position at that time,) amounted to
oppression of Elif's interests as a former member
of the company in relation to
the circumstances in which she ceased to be a member. (Such conduct would more
likely, in my view,
amount to breach of an implied term of the kind pleaded, at
least if the conduct can be said inevitably have had the result of diminishing
the benefit of the agreement to re-convey the shares to her, as considered
earlier.)
- Accordingly,
I do not consider that the oppression claim has been established. Strictly
speaking, I therefore do not need to consider
what remedy would be appropriate
had the claim in oppression been sustained. However, for completeness I note
that Mr Jacobs submitted
that compensation could be awarded by reference to the
uplift in the value of the Mt Vernon land by virtue of the work (even though
the
(said to be oppressed) shareholder, Elif, had not contributed to that work). Mr
Jacobs noted that fairness under s 232 must not
be assessed in a vacuum (
Thomas v HW Thomas Ltd [1984] 1 NZLR 686, at 694; (1984) 2 ACLC 610;
(1984) 2 NZCLC 99,148). Young J (as his Honour then was) in ES Gordon Pty Ltd
v Idameneo (No 123) Pty Ltd (1995) 15 ACSR 536, at 540 said that:
The flavour of the judgments in the company oppression cases is
that in looking to the fair value one must look at all the circumstances
of the
case and seek to put the oppressed in the same position as nearly as can be as
if there had been no oppression, erring, if
there is to be any erring, on the
side of the oppressed.
- The
aim is to fashion relief which removes the adverse effects of the oppression (
Shelton v NRMA [2004] FCA 1393; (2004) 51 ACSR 278 at [26], cited by Bergin J (as her
Honour then was) in Backoffice Investments v Campbell [2007] NSWSC 161;
(2007) 61 ACSR 144 (2007) 25 ACLC 302, at [93], and reaffirmed in Campbell v
BackOffice Investments Pty Ltd [2008] NSWCA 95 ; (2008) 66 ACSR 359,
which was not questioned in the High Court's decision in this matter,
Campbell v Backoffice Investments Pty Ltd [2009] HCA 36, at [178]; (
[2009] HCA 36; 2009) 259 ALR 402 ; (2009) 83 ALJR 110.) Furthermore, it has been said that the
remedy chosen should be the least intrusive: Martin v Australian Squash Club
Pty Ltd (1996) 14 ACLC 452, at 475; Fexuto v Bosnjak Holdings Pty Ltd
(1998) 30 ACSR 688, Young J (as his Honour then was), at 742.
- Had
I been satisfied that there was oppression in the present case (because the
value of the shares to be transferred back to Elif
had been diminished) then I
would have considered the appropriate relief to be an order for the payment by
Mr Brennan of a sum to
reflect the diminished value of the shares (but I am
unable on the evidence before me to quantify that amount).
- Derivative
suit/claim against company
- Elif
also asserts a claim on behalf of the company itself to damages (and seeks leave
under s 237 of the Corporations Act, if that be necessary), to seek
relief in effect on a derivative suit against Mr Brennan as director of MSU
Management for alleged
breach of his duties as officers of the company to
exercise his powers in good faith in the best interests of the company for
proper
purposes (s 181 Corporations Act ) and not improperly to use his
position to gain an advantage for himself to the detriment of the company (s 182
Corporations Act ).
- It
is contended that Mr Brennan has breached his duties as a director of MSU
Management by reference to the use by him of funds from
the company for his
personal or family expenses.
- Although
Mr Pelle, when cross-examined as to the basis on which he had expressed the
opinion that company funds had been so used (and
which, at the hearing, he
qualified and expressed in more temperate terms), was not able to do more than
comment on the likelihood
of a particular description of expense being a company
expense (something on which he was rightly, in my view, criticised for not
having any particular expertise and not having suitably qualified his opinions),
nevertheless Mr Brennan did ultimately admit that
he had used funds obtained
from the company for personal expenses such as school fees for one or both of
his children and that those
funds were in the order of $179,000.
- It
is submitted by Mr Cox, in effect, that the drawing of cheques on the company's
account for personal expenses does not necessarily
constitute a breach of
director's duties, since those drawings might properly be reflected in internal
loan accounts in the company's
books or the money might have represented a
payment in lieu of director's fees. Mr Pelle conceded that he had not seen the
company's
financial statements over the relevant period (and had not qualified
his report in that regard). Accordingly, he could not comment
on whether the
company's records evidenced the existence of internal loan accounts or the like.
That said, the company remains in
Mr Brennan's control. It was open to him to
have adduced evidence of such matters and he did not.
- Mr
Cox further submits that, as the sole member of the company, any question as to
the use of company funds is a matter for Mr Brennan.
Of course, this submission
assumes that there was no agreement for the re-transfer of the shares such that
Elif would have no standing
(as someone entitled to the shares) to complain of
Mr Brennan's conduct while a director of the company.
- Given
the finding in (i) above, this issue does not arise. However, had I been
satisfied that there was an agreement for the re-transfer
of the shares to Elif,
then in the absence of evidence as to the entitlement of Mr Brennan to draw down
company funds for his personal
benefit, it would seem that once the shares were
transferred to Elif she would have a basis on which (acting as the sole director
of the company) to bring proceedings on the company's behalf against Mr Brennan
for breach of director's duties by reference to the
transfer of company funds.
(In those circumstances it would not be necessary for her, as shareholder, to
pursue a derivative suit
in the name of the company; the proceeding could be
commenced in the company's name with her authority as sole director.) Until
then,
however, she could not do so. Therefore, it would have been necessary to
consider whether the criteria to be considered on an application
for such leave
had been satisfied ( Goozee v Graphic World Group Holdings Pty Ltd [2002]
NSWSC 640; (2002) 42 ACSR 534 at 541; [2002] NSWSC 640; 20 ACLC 1502) and had they been then I
would have been bound to grant the application ( Fiduciary Morningstar
Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732 at 735; [2005] NSWSC 442; 23 ACLC 1100).
- Of
those five criteria, I am satisfied that while Mr Brennan is the sole
shareholder and director the probability is that the company
will not itself
bring the proceedings but that poses the interesting question as to whether if I
had ordered that the register be
rectified nunc pro tunc, that I could then form
such a view (as clearly Elif would be in a position to bring the claim). I
accept
that Elif has been acting in good faith (albeit probably on the
assumption that what her father and brother have told her about the
alleged
agreement was correct). I am satisfied that there would have been a serious
question to be tried as to Mr Brennan's conduct
as a director in relation to the
matters of which complaint is made. As to whether it is in the interests of the
company to commence
the proceedings, if the allegation of breach of duties were
to be sustained then the company would recoup moneys paid out to Mr Brennan
and
on that basis this criterion would seemingly be satisfied but there is an
obvious overlap with the claims brought by Elif personally
and it was not clear
to me how it was that the plaintiffs sought to overcome that overlap. It might
well have been that it was not
in the best interests of the company to pursue a
claim for relief that ultimately would benefit its sole shareholder if that
shareholder
was maintaining at the same time a claim in relation to the same
matters). It may well have been that in those circusmtances Elif
would not have
pressed the derivative suit if she had succeeded on her personal claim. Finally,
there is no evidence as to whether
the requirement for notice was satisfied but
it might have been a matter in which there could have been a dispensation at
that stage.
- I
do not need to decide whether the breach of director's duties claim would have
succeeded. I am inclined to the view that, Mr Brennan
having adduced no evidence
as to any entitlement he had to the funds in question, he was relying on no more
than the fact that he
was the sole shareholder of the company when drawing those
funds for his personal use and would have been inclined to the view that
the
appropriate order (had Elif established that she was entitled to the shares of
the company) would be to fashion relief such that
these amounts should be
refunded to the company with interest. As to the position of the Trimac loan,
however, I would not have been
satisfied that the decision not to pay it out in
full in February 2009 amounted to a breach of director's duties, as it seems to
me that involves an assessment of the exercise of business judgment (a matter in
which the court should not be involved). Mr Brennan,
during cross-examination,
indicated that there may have been other factors relevant to the decision not to
repay the Trimac loan
(including the anticipation of funds from the sale of the
back block and the reference to an amount of money held in a trust fund
to which
it was suggested the plaintiffs had impeded access - matters that I am not in a
position to assess on the state of the evidence).
- In
any event, given my findings in (i), this claim for relief fails.
(vi) Frustration
- As
to the alternative claim in frustration, Mr Jacobs submits that if the agreement
is as Mr Brennan contends, then the inability
of the Urusoglu family to have the
fruits of their labour, which was in the contemplation of both contracting
parties in the lead
up to the agreement, is said to constitute a failure of
something which was "at the root" of the contract (using the terminology
in
Scanlan's New Neon Limited v Tooheys Limited [1943] HCA 43; (1943) 67 CLR 169) and the
frustration of the commercial object of the contract. The subject matter of the
agreement is said to be the acquisition of
the Mt Vernon land front block, as
improved by the road access works. It is submitted by Mr Jacobs that to the
extent that one must
focus on the performance of the obligation, the performance
by the Urusoglu family, (in contemplation of receiving the benefit of
their
work), has become a radically more onerous burden (in that their work has in
effect stood as a gift to Mr Brennan's interests).
- Reliance
was placed on what was said by Lord Denning MR in The Eugenia [1964] 2 QB
227. There, in well-known passages (at p 238 and 239 respectively), his Lordship
said:
... if it should happen, in the course of carrying out a
contract , that a fundamentally different situation arises for which the
parties made no provision - so much so that it would not be just in
the new
situation to hold them bound to its terms - then the contract is at an end. (my
emphasis)
and
We are thus left with the simple test that a situation must arise which
renders performance of the contract "a thing radically different
from that which
was undertaken by the contract," see Davis Contactors Ltd. V. Fareham Urban
District Council by Lord Radcliffe. To see if the doctrine applies, you have
first to construe the contract and see whether the parties have themselves
provided for the situation that has arisen. If they have provided for it, the
contract must govern. There is no frustration. If they
have not provided for it,
they you have to compare the new situation with the situation for which they did
provide. Then you must
see how different it is. The fact that it has become
more onerous or more expensive for one party than he thought is not sufficient
to bring about a frustration.
It must be more than merely more onerous or more
expensive. It must be positively unjust to hold the parties bound. ( my
emphasis)
- Has
there been frustration of the contract as a matter of law?
- At
the outset, I note that it is by no means clear to me that Huseyin's nomination
of Sebat constitutes an election once and for all,
such that Mr Brennan's
obligation (which he concedes, under the agreement for which he contends), to
transfer the front block for
a fair market price to a nominee of Huseyin could
be said to have been discharged. The agreement itself was informally made. There
was no mechanism stipulated for the nomination of the purchaser. It would surely
be a matter of construction of the agreement as
to whether once an election was
made there was an ability to nominate a different purchaser. At first blush this
would not seem to
be same as the situation where exercise of an option must be
strictly in accordance with its terms, there being no manner of exercise
of the
right of nomination having been referred to in the terms of the alleged
agreement in the present case. No doubt there would
be a requirement that the
right to nominate a purchaser be exercised within a reasonable time.
- Therefore
it is not immediately apparent that Huseyin could not simply have nominated a
new purchaser as nominee or to have sought
to have the Sebat contract novated
when Huseyin realised (as he must have done at some stage in February or March
2009) that Sebat
was not in a position to complete the contract. (I note that Mr
Brennan has not asserted in the present proceedings that he has been
discharged
from that obligation.)
- Tellingly,
Huseyin does not appear to have taken any steps to nominate a replacement
purchaser once the contract with Sebat was terminated;
nor have Elif and Mahir
sought an order in the nature of specific performance of an obligation to convey
the front block to a nominee
of Huseyin (as they could have done as an
alternative to the claims made under the agreement for which they contend),
which raises
the question of self-induced frustration that I consider in due
course.
- Before
doing so, I note that it has been recognised that hardship and expense in the
performance of a contract does not, in itself,
constitute frustration (
British Movietonews Ltd v London & District Cinemas Ltd (1952)
AC 166 [at 185] per Viscount Simon). In the case of financial hardship, the
Privy Council in Hangkam Kwintong Woo v Liu Lan Fong (1951) AC 707 stated
[at 721-722] "...the question is whether this change in fortune is to be
regarded as so fundamental as to strike at the root
of the agreement and
render its performance, in the manner contemplated by the parties, impossible
." (my emphasis).
- Here,
the point at which it is asserted that the contract has been frustrated is the
time at which the performance of Mahir's obligations
is already complete - the
subdivision works have been finished. Mahir has no further obligations to
perform. In effect, what is being
said is that, in retrospect, the performance
of Mahir's obligations in relation to the subdivision works has been more
onerous for
him than he had expected because the Urusoglu family now may be
unable to enjoy the benefit of the works (due to Sebat's failure
to complete the
contract to purchase the front block).
- The
threshold for establishing frustration is higher than mere hardship or burden.
What is required, as was recognised by the High
Court in Codelfa Construction
Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149
CLR 337 is that the change in circumstances that led to performance becoming
more onerous must render the contract "radically different"
or "fundamentally
different" from anything contemplated by the parties.
- True
it is that in Brisbane City Council v Group Projects [1979] HCA 54; (1979) 145 CLR 143,
Stephen J (with whom Murphy J agreed, the majority deciding the case on a
different ground) considered that an agreement was frustrated
where the purpose
of undertaking any obligation under the contract at all had been "wholly
destroyed" although it could not be said
that the performance of its obligations
had been rendered impossible or more onerous in nature. There, however, the
obligations remained
to be performed - it was not a case (as is here the case)
where the relevant party claiming frustration had already performed its
obligations and was simply faced with the position that in hindsight it had not
obtained the benefit it had sought to achieve from
the contract (the risk of
which it might be taken to have assumed when entering into the agreement
pursuant to the work was performed).
(Moreover, his Honour there had noted that
the Council was not in the position of a party to a commercial venture concerned
exclusively
with is own financial interests and would not be deprived of some
commercial advantage if the contract were to be declared to be
frustrated. His
Honour considered that the Council's own particular concern with the performance
of the work in question had also
come to an end. The position is quite different
in the present case.)
- I
do not consider that the failure of Sebat to complete the contract is something
that operates to frustrate the contract - it does
not change the fundamental
nature of the contractual obligations or render the contract radically
different; it does not change the
mutual purpose of the contract insofar as that
was to develop the land for subdivision - it simply changes the outcome of that
performance.
Mahir has no obligation left to perform and so the contractual
performance required from him has not changed in any fundamentally
different or
radical way. It is simply that the bargain he struck (based on the expectation
that Huseyin's nominee would acquire
the front block) has proven not to be a
prudent one, assuming the benefit of the front block has now been lost. (That
assumption
has not been tested. Therefore, even if a failure to obtain the front
block would have constituted sufficient hardship to render
the contract such
that it would be positively unjust to hold the parties still bound thereby, I am
not satisfied that the acquisition
of the front block by the Urusoglu family
became impossible by the non-completion of the Sebat contract.)
- There
has been no claim for damages for failure on the part of Mr Brennan to convey
the land to Huseyin's nominee (which is the context
in which one would expect to
see a frustration claim based on impossibility of performance). Nor has Huseyin
or Mahir requested or
sought to compel Mr Brennan to sell the land to a third
party in place of Sebat.
- This
brings me to the question of self induced frustration. Lord Radcliffe in
Davis Contractors v Fareham UDC [1956] UKHL 3; [1956] AC 696 at 729 notes that
frustration can only occur where there is no 'default' by either party. Latham
CJ in Scanlan's New Neon Ltd v Tooheys Ltd [1943] HCA 43; (1943) 67 CLR 169 at [186]
affirmed that a "state of facts brought about by the act of a party" cannot be
the basis of a claim of frustration by that party
(see also Joseph
Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd , "The
Kingswood" [1942] AC 154).
- Even
if I am wrong and the contract was frustrated by reason of the inability of
Sebat to complete, in my view that amounts to a self-induced
frustration - since
it was open to Huseyin to nominate whomever he chose to purchase the front block
and since I have concluded that
Sebat entered into the contract at his
instigation and on behalf of Huseyin and its failure to complete seems most
likely to lie
at the feet of Huseyin and/or Mahir, who between them appeared to
be responsible for arranging the balance of the financing for the
acquisition.
- There
is no suggestion in the proceedings that the termination by MSU Management of
the Sebat contract for sale was wrongful - nor
was there apparently any
suggestion by Huseyin at the time the Sebat contract was entered into that its
terms did not reflect the
agreement that had been struck with Mr Brennan in
relation to the Mt Vernon land (a telling point in that the Sebat contract
requires
payment of a fair market price for the land, whereas on the version of
the agreement for which Elif and Mahir now seem to contend,
the land was to be
transferred for the consideration that Sebat would assume the obligations under
the ANZ mortgage with Mr Kanli's
monetary contributions would be treated as the
deposit - a markedly different scenario to that provided for under the Sebat
contract).
(An interesting point might well have arisen had Mr Brennan been sued
for damages for breach of the agreement he alleges, for damages
for failure to
transfer the front block to Huseyin's nominee. Mr Brennan would surely then have
a claim for indemnification for those
damages against Sebat.)
- It
could not have been open to Huseyin, for example, to frustrate the agreement he
made with Mr Brennan by nominating a purchaser
he knew was unable or unwilling
to complete the contract (and, in my opinion, that must also be the case where
the nominated purchaser
is relying, for its ability to complete, on Huseyin
procuring part or all of the necessary finance). By way of illustration I note
that The Super Servant Two [1989] EWCA Civ 6; [1990] 1 Lloyd's Rep 1, a contract for
carriage by either of two vessels at the carriers' option was not frustrated by
the loss of the vessel that the defendants
had intended to use for that purpose,
where the unavailability of the remaining vessel was due to the existence of
commitments to
other persons. It was said that the contract did not oblige the
carriers to use the vessel that had been lost and that the inability
to use the
other vessel was, for the purposes of self-induced frustration, the carriers'
own fault.
- I
accept that the onus lies on the party (here Mr Brennan) alleging that the
frustrating event was due to the other's fault to establish
that this is the
case. Here, however, I am satisfied that the apparent failure of Huseyin to take
any steps to procure completion
by its nominee of the contract or to nominate
any other nominee for that purpose means that the contract cannot be said to be
frustrated
(even had that conclusion otherwise been open).
- It
is submitted by Mr Cox that the fact that Mr Kanli (or the Urusoglu family)
could not procure the money to meet the conditions
of the loan Mr Brennan
obtained for Mr Kanli (which was at 80% loan to value ratio) and could not pay
the deposit or effect the loan,
is not an external frustration of the contract
(but simply the failure of Huseyin as the person who was really doing this
deal).
I agree.
- Mr
Kanli (the director of Sebat) knew almost nothing as to the performance of the
contract and was not concerned about what was required
to perform the contract
or as to its subsequent termination. This is consistent with his approach to the
handling of the contract
from the time of entry into it, leading to the
inference that Mr Kanli had left the sale transaction to his relatives: Huseyin
and
Mahir. Huseyin was aware of the Sebat contract, and must have been aware of
the need for financing to be procured.
- The
failure by Sebat to complete the contract seems to be due to a decision by
Huseyin not to do so or an inability of Huseyin to
arrange finance for that to
occur.
- I
find that the alternative claim in frustration fails.
(v) Deceit
- The
tort of deceit provides a legal remedy for harm suffered "in consequence of
dishonesty" ( Magill v Magill [2006] HCA 51; (2006) 226 CLR 551 per
Gleeson CJ at [17]). The tort of deceit is based on fraud; it arises in relation
to a misrepresentation where the defendant lacks
an honest belief in its truth,
and that misrepresentation is relied upon to the detriment of the plaintiff.
Fraud must therefore
be proved on the balance of probabilities. In Nocton v
Lord Ashburton [1914] AC 932; [1914] All ER Rep 45, Viscount Haldane
explains the concept of 'fraud' in the commercial context in which the tort of
deceit emerged.
He states at [954]:
If a man intervenes in the affairs of another he must do so
honestly, whatever be the character of that intervention. If he does so
fraudulently and through that fraud damage arises, he is liable to make good the
damage. A common form of dishonesty is a false representation
fraudulently made,
and it was laid down that it was fraudulently made if the defendant made it
knowing it to be false, or recklessly,
neither knowing nor caring whether it was
false or true. That is fraud in the strict sense.
- The
tort of deceit does not require an intention to injure; it requires intention to
deceive. Such intent may be established by proof
of an intention to induce a
representee to rely and act upon a belief in the truth of the representation.
- Gummow,
Kirby and Crennan JJ set out the five elements required to establish the modern
tort of deceit in Magill at [114] as being the making of a false
representation; with the knowledge that it was false, (or being reckless or
careless as to
the falsity of the representation); with the intention that the
representative would rely on it; that the representative acted in
reliance on
the false representation; and suffered damage which was caused by reliance on
the false representation. Deceit is not
actionable without proof of injury, but
the misrepresentation need not be the sole cause of the damage suffered.
- Mr
Jacobs submits that the dishonest state of Mr Brenann's mind is to be inferred
from his conduct (reference being made to para [9146]
o f The Bell Group Ltd
(in liq) v Westpac Banking Corp [No 9] [2008] WASC 239 ) . There, Owen J
summarised the law in relation to an intention to defraud creditors under the
relevant legislation and observed
that a dishonest intention could be
established by inference. His Honour said "if the natural and probable
consequences of the disposition
are such that its effect will be to defeat or
delay creditors, the necessary inference can be drawn and a court might more
readily
do so. But a finding to that effect is a finding of an actual or real
intention not one that is implied to the disponor by virtue
of a legal
principle."
- Here,
I see no basis on which to conclude (or to draw any inference to this effect)
that when Mr Brennan entered into the agreement
(as I have found it) he had no
genuine intention to perform the obligations under the agreement.
- I
am not satisfied that any representation was made by Mr Brennan other than such
representation as was comprised by the making of
the agreement in the terms for
which Mr Brennan contends. There is nothing to suggest that Mr Brennan did not
have an honest intention
to comply with that agreement and his conduct supports
the conclusion that he did have an honest intention to do so - he took the
steps
for the raising of the finance to acquire the land, he gave personal guarantees
in that context, he entered into the contract
for the sale of the land to Sebat
and assisted in the procurement of finance for such an acquisition. The claim
for damages for the
tort of deceit fails.
(vi) Quantum Meruit
- As
an alternative remedy,(though said to be "hinged" on the alleged agreement)
Mahir, through his company MSU Earthworks, claims the
value of the subdivision
works by way of a quantum meruit, in circumstances where it is said that the
work was requested to be done
by Mr Brennan and/or freely accepted by him.
Reliance was placed generally on what was said by the High Court in Pavey
& Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 and the
principle identified by Beech J in R J Baker Nominees Pty Ltd v Parsons
Management Group Pty Ltd [2009] WASC 206 at paras [156] to [157].
- In
this regard, it was submitted by Mr Jacobs, (but not conceded by Mr Cox) that it
is common ground that the purpose of the purchase
and development of the Mt.
Vernon land was to provide a family home for Mahir and Elif (referring to para 7
of the Amended Statement
of Claim and para 7 to the Defence thereto) and thus
that the driveway work was not intended to be a gift to Mr Brennan. (In fact,
the Defence in terms concedes that this was the Urusoglu family's "wish" at a
particular time.)
- Profit
margin is said to be claimable upon a quantum meruit by reference to; Hayward
v Timilty [2009] NSWDC 54 at [128 ff] (though I note that there the Court
also explained that there must be some external standard by which a court
assesses a reasonable
price for work and materials ( Flett v Deniliquin
Publishing Co Ltd (1964-1965) NSWR 383).
- The
initial difficulty for Mahir's quantum meruit claim is that, as Williams DCJ
made clear, "indebitatus", "quantum merit" or "restitution"
actions, so called,
can only occur in the absence of an enforceable agreement and cannot be used
where there is an enforceable agreement.
However, where there is an
unenforceable agreement, reference may be made to the agreement in order for the
court to determine the
appropriate amount of compensation (citing Deane J at 257
per Jordan CJ in Horton v Jones (1934) 34 SR (NSW) at 368).
- Mr
Cox submits that it is not open to Mahir and his company to claim for the
benefit of the work they were required to do under the
contract with Mr Brennan,
since that was part of the bargain in return for which Mr Brennan had agreed to
sell the front block to
Huseyin's nominee. It is submitted that Mr Brennan
honoured his part of the bargain and entered into the contract for sale of the
front block to Mr Kanli as agreed.
- Where
the contract provides the means of remuneration for particular work, no claim
may be made in restitution ( Horton v Jones [No 2] (1939) 39 SR NSW 305
at 319 referred to with approval in Pavey at 237-8, 240-1). In RJ
Baker Nominees Pty Ltd v Parsons Management Group Pty Ltd [2009] WASC 206,
in an analysis of the principles applicable on quantum meruit claim (strictly
obiter in light of his Honour's findings on the principal
contractual claim),
Beech J noted (at [154]) that a well-established exception to the general rule
stated in Lumbers v W Cook Builders Pty Ltd (in liq) [2008] HCA 27;
(2008) 232 CLR 635; (2008) 247 ALR 412 was that if the request (to provide
services) is made in the context of an enforceable contract, then the claim must
be founded in
contract not restitution (citing Lumbers at 111 and
Pavey at 256). Restitution is not available in a contractual situation
where the contract is still on foot as this would subvert the parties'
contractual allocation of risk ( Lumbers v Cook ).
- Even
assuming that the claim in restitution could be pursued in face of an
enforceable contract, Mr Cox submits that here the situation
is simply that the
Urusoglu family could not complete the purchase. It is said that there is no
total failure of consideration of
the kind considered in cases such as
Roxborough v Rothmans of Pall Mall Aust Ltd [2001] HCA 68; (2001) 208 CLR
516. It is conceded that Mr Brennan (through MSU Management) has received a
benefit from the works, but it is said not to be unjust for
him to retain that
benefit where it was never in contemplation that he would be required to pay for
the works.
- Wilcox
J in State Bank of New South Wales Ltd v FCT [1995] FCA 1652; (1995) 62 FCR 371; 132 ALR
653 said :
The principle underlying the modern law of restitution is unjust
enrichment, the purpose being, in the words of Halsbury at para 630, "to
prevent a man from retaining the money of, or some benefit derived from, another
which it is against conscience that
he should keep". The emphasis is on the
position of the beneficiary, not the loss sustained by the claimant.
- Deane
J in Pavey said that the concept of unjust enrichment:
constitutes a unifying legal concept which explains why the law
recognises, in a variety of distinct categories of case, an obligation
on the
part of a defendant to make fair and just restitution for a benefit derived at
the expense of a plaintiff and which assists
in the determination, by the
ordinary processes of legal reasoning, of the question whether the law should,
in justice, recognise
such an obligation in a new or developing category of
case.
- In
Lumbers , Gummow, Hayne, Crennan and Kiefel JJ, in their joint judgment,
stated (at [85]):
The second point to be noted is that unjust enrichment was
identified as a legal concept unifying "a variety of distinct categories
of
case". It was not identified as a principle which can be taken as a sufficient
premise for direct application in particular cases.
Rather, as Deane J
emphasised in Pavey & Matthews , it is necessary to proceed by "the
ordinary processes of legal reasoning" and by reference to existing categories
of cases in which
an obligation to pay compensation has been imposed. " To
identify the basis of such actions as restitution and not genuine agreement is
not to assert a judicial discretion to do whatever
idiosyncratic notions of what
is fair and just might dictate ". (my emphasis) On the contrary, what the
recognition of the unifying concept does is to assist "in the
determination, by the ordinary processes of legal reasoning, of the question
whether the law should, in justice, recognise
such an obligation in a new or
developing category of case " (emphasis in original)
- More
is required than proof of a retention of a benefit, that is there must be some
additional factor rendering retention of the benefit
'unjust' in the relevant
sense, (see Deane J in Pavey and in Lactos Fresh Pty Ltd v Finishing
Services Pty Ltd (No 2) [2006] FCA 748, and what was said in David
Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992)
175 CLR 353, at 378-379, (by Mason CJ, Deane, Toohey, Gaudron and McHugh JJ)
that:
... it is not legitimate to determine whether an enrichment is
unjust by reference to some subjective evaluation of what is fair or
unconscionable. Instead, recovery depends upon the existence of a qualifying or
vitiating factor such as mistake, duress or illegality.
(my emphasis)
- Similarly,
more is required than simply that a request was made for the provision of the
goods or services in question (see Christiani
and Nielsen Pty Ltd v Goliath
Portland Cement Company Limited; Goliath Portland Cement Company Limited v
Christiani and Nielsen Pty
Ltd [1993] TASSC 156 16 December 1993) per Zeeman J,
his Honour there observing that the mere request for work to be done (for the
benefit of a third
party) and the mere non-payment (by that third party under a
contract the first had entered into for the performance of the work,
did not
give rise to a conclusion that such enrichment as there was unjust.)
- The
mistake here asserted is a mistake that Mahir (through his family) would have
the benefit of the interests. Huseyin (and Mahir
to the extent that he was
involved in the arrangements reached with Mr Brennan) seems to have been
operating under an assumption
or belief that the outcome of the subdivision
would be for the sale of the front block to Huseyin's nominee (an assumption
that Mr
Brennan must have shared, since he asserts that this was the agreement
he reached with Huseyin and Mahir). A mere misprediction will
not give rise to a
basis for unjust enrichment ( Cadorange Pty Ltd (in liq) v Tanga Holdings Pty
Ltd (1990) 20 NSWLR 26, at 32; Dextra Bank & Trust Company Limited v
Bank of Jamaica [2001] UKPC 50; [2002] 1 All ER (Comm) 193). Nor, it seems to me, will the
fact that the parties were operating on simply a common assumption that was not
ultimately fulfilled
(at least where it does not appear that the fact that it
was not fulfilled was due to the fault of Mr Brennan).
- Here,
for example, there might be various scenarios in which the benefit of the front
block was not ultimately reaped by the Urusoglu
family notwithstanding the
expenditure on the sub-division works - say, if the market rose and the fair
market value of the front
block was such as to make the acquisition of the block
such that they did not wish to (or could not) proceed with the purchase.
- The
need to establish an 'unjust' factor was again affirmed by the High Court in
Farah Constructions v Say-Dee , [2007] HCA 22; (2007) 230 CLR 89, Gleeson
CJ, Gummow, Callinan, Heydon and Crennan JJ stated at [150]-[151];
First, whether enrichment is unjust is not determined by reference
to a subjective evaluation of what is unfair or unconscionable:
recovery rather
depends on the existence of a qualifying or vitiating factor falling into some
particular category; Australia and New Zealand Banking Group Ltd v Westpac
Banking Corporation [1988] HCA 17; (1988) 164 CLR 662 at 673 per Mason CJ,
Wilson, Deane, Toohey and Gaudron JJ; David Securities Pty Ltd v Commonwealth
Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 at 379 per Mason CJ,
Deane, Toohey, Gaudron and McHugh JJ. In David Securities Pty Ltd v
Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 at 379,
Mason CJ, Deane, Toohey, Gaudron and McHugh JJ gave as instances of a qualifying
or vitiating factor mistake, duress or illegality.
... Further, principles
respecting fiduciary duty have been said to be foreign to unjust enrichment
notions because the unjust factors
are commonly concerned with vitiation or
qualification of the intention of a claimant Edelman, "A Principled Approach to
Unauthorised
Receipt of Trust Property", (2006) 122 Law Quarterly Review
174 at 177-178.
- In
Lumbers v Cook , Gummow, Hayne, Crennan and Kiefel JJ, at [80] said that;
... where one party ... seeks recompense from another ... for some
service done or benefit conferred by the first party for or on
the other, the
bare fact of conferral of the benefit or provision of the service does not
suffice to establish an entitlement to recovery ... (my emphasis)
- Their
Honours had earlier noted [at 53] that the concept of "free acceptance" was
commonly related to a defendant who "did not take
a reasonable opportunity open
to him to reject the proffered services" (citing Goff & Jones, The Law of
Restitution , 7 th edn (2007) [1-019]). No such opportunity was given here.
- In
Christiani, Zeeman J observed that the claim there made was one seeking
to be protected from the consequences of entering into a contract that,
with the
benefit of hindsight, might be seen as having been unwise on the basis that
there had been unjust enrichment at its expense
- and noted that unjust
enrichment was not a separate cause of action - at [28].)
- It
seems to me that it can be said that Mahir (and, for that matter, Huseyin) chose
to carry out the subdivision works at his own
expense (or, more accurately, at
the expense of his uncle Mr Kanli) on the basis of an expectation that the
benefit of those works
would be enjoyed when the front block was acquired by
Huseyin's nominee (Mr Kanli) but did so in circumstances where they must have
realised that if completion of the sale could not take place then they would
have lost the benefit of the works. There was no provision
in the agreements
asserted (on either version) for Mr Brennan to bear the cost of the subdivision
works.
- In
Christiani it was noted that a commercial decision had been made to
perform the work the subject of the subcontract and to look to another party
for
payment (a decision that might have been wise or foolish) but that, regardless
of the wisdom of the commercial decision, there
was no occasion to relieve the
consequences of that decision by imposing a liability on that other party that,
had Christiani wished
to protect itself against the risk that had eventuated,
Christiani could have sought to include in the initial contractual arrangements.
Here, similarly, had Mahir wished to ensure that, if sale of the subdivided
block to Huseyin's nominee did not proceed, he would
be reimbursed for the works
carried out by his company to effect the subdivision, then he could have sought
Mr Brennan's agreement
to such an arrangement. He did not. Therefore, it seems
to me that Mahir assumed the risk that he or his family might not ultimately
enjoy the fruits of his labour.
- Reference
was made to the statement by the Court of Appeal (at para [123]) in Ford by
his Tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited
[2009] NSWCA 186; (2009) 75 NSWLR 42 to the effect that the question of
request, payment, receipt and benefit should be viewed as matters of substance
and not form or
legal technicality, in the context of restitutionary actions.
- Insofar
as Mr Jacobs invokes the terminology of "free acceptance" of the benefit
conferred by the works, Beech J in Baker Nominees (at [174]) noted the
test as to when services have been accepted, applied in Brenner v First
Artists Management Pty Ltd [1993] VicRp 71; [1993] 2 VR 221 (at 257-261) and ABB Power
Generation Ltd v Chapple [2001] WASCA 412; (2001) 25 WAR 158 (at
[15],[20]-[21]), is that stated in Goff & Jones, The Law of Restitution
(7th edn, 2007) [1-019] as being where a reasonable person "should have
known that the claimant who rendered the services expected
to be paid for them,
and yet he did not take a reasonable opportunity open to him to reject the
proffered services". (His Honour
also noted (at [177]), but did not need to
address, the doubt as to whether acceptance of a benefit, without a request,
would be
sufficient to found an action for quantum meruit for work done (as
opposed to services provided) referring to paras [82] and [86]
of Lumbers
.)
- Here,
there was no suggestion that Mr Brennan had any expectation that he or MSU
Management would be required to pay the cost of the
works to complete the
subdivision. Those were to be provided by Mahir or his company in order to
enable the Urusoglu family to obtain
the front portion of the land.
- In
conclusion, a claim in restitution does not lie where there is an enforceable
contract and the parties' rights can be determined
in accordance with that
contract. Here, to grant relief on a restitutionary basis would subvert the
contractual arrangements as I
have found them to be. Mr Brennan did not
undertake to pay the cost of the work, nor did Mahir expect him to do so. That
is clear
from Mahir's own evidence. Mahir must be taken to have accepted that
any remuneration for those works/services was to come through
the acquisition of
the front block by or on behalf of the Urusoglu family and to have (knowingly or
otherwise) accepted the risk
that if that did not come to fruition, the works
would have been carried out at his expense. There is not a question of any free
acceptance as that concept is referred to in the authorities, as there was no
opportunity to refuse the benefits knowing that otherwise
they would have to be
paid for by Mr Brennan.
- Therefore
I am not satisfied that Mahir has established his quantum meruit claim. Had I
been so satisfied, I would nevertheless not
have been satisfied that Mahir had
established the quantum of that claim at anywhere near the $347,000 asserted by
him. While I accept
that the payments made by Mr Kanli to third parties (such as
the contract supplier and the Council) can be relied upon in establishing
the
value to Mr Brennan of the works, I am not satisfied that the concrete supply
invoice of $90,000 is genuine nor do I consider
that the evidence of "cash"
payments or cash cheques (unsupported by independent evidence) is sufficiently
reliable to accept. Therefore,
any quantum meruit claim in my view would have
been restricted to the Council fees, cost of the Western Suburbs concrete supply
and
the total of the invoices that were ultimately produced and marked as
Exhibits in the proceedings, those being amounts that I am
satisfied were
directly referable to the subdivision works. (I do not regard Mahir's assertions
as to the cost of such works to be
reliable.)
- In
my view it cannot be said that there is anything that warrants the conclusion
that it is inequitable or unconscionable for Mr Brennan
now to retain the
benefit of the subdivision works in circumstances where there was no expectation
at the time the works were carried
out that that he would be required to make
payment for those works and he had honoured his side of the bargain by entering
into a
contract to sell the front block to Huseyin's nominee.
(vi) Possession
- Mr
Cox submits that if Mr Brennan remains the beneficial owner of MSU Management
then he is entitled to an order for possession and
mesne profits and that the
assessment of the quantum of reasonable rent should be referred for assessment.
He points out that no
defence was raised to this claim.
- Mesne
profits are payable where the defendant occupies the premises as a trespasser.
They represent in substance damages for trespass
( Wilson v Kelly [1957] VicRp 19; [1957]
VR 147). They are recoverable until such time as possession is delivered up (
Southport Tramways v Gandy [1897] 2 QB 66).
- While
mesne profits may be assessed by reference to the rent that would be payable for
the premises, it seems that this is where it
represents the fair value of the
premises and that there may be a different basis for assessment in appropriate
cases. Where the
occupant fails to keep the premises in repair then this may
also be taken into account.
- I
have given some consideration to whether an order for mesne profits should take
into account (perhaps be way of offset) reimbursement
of those sums that I can
be satisfied were expended by Mahir on the subdivision works. However, I have
not done so because that would
then not take into account the interest payable
by MSU Management on the mortgages securing the land during such time as MSU
Management
has not been able to sell the land to reduce the mortgage because of
Mahir's unauthorised possession of the land.
- In
the event, I consider that the appropriate order is to order that Mahir pay
mesne profits for the period of his occupation until
possession is delivered up
in accordance with my orders and to refer the assessment of those profits to a
referee or associate justice
for determination.
Orders
- For
the reasons set out above, in proceedings in the Equity Division I dismiss the
plaintiffs' claims with costs and in the Common
Law Division proceedings I will
make a declaration that MSU Management Pty Limited is entitled to possession of
the premises and
order vacant possession to be provided within a time to be
determined following any submissions by Counsel.
- I
order Mahir Urusoglu pay to MSU Management Pty Ltd reasonable rent for his
occupation of the premises by way of mesne profits and
will refer the matter for
assessment of such rent. I will hear submissions as to the form of orders and
costs.
**********
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