AAD Services Pty Ltd (In liq) v ALD Wholesale Pty Ltd
[2018] VSC 585
•8 October 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2017 01640
| AAD SERVICES PTY LTD (ACN 091 589 981) (In Liquidation) and DAVID RAJ VASUDEVAN and GIUSEPPE MICHELE RAMBALDI in their capacity as Joint and Several Liquidators of AAD SERVICES PTY LTD (ACN 091 589 981) (In Liquidation) | Plaintiffs |
| - and - | |
| ALD WHOLESALE PTY LTD (ACN 160 067 738) | First Interested Party |
| BEJTULLA TAHIRI | Second Interested Party |
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JUDGE: | Lansdowne AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16 October 2017 |
DATE OF JUDGMENT: | 8 October 2018 |
CASE MAY BE CITED AS: | AAD Services Pty Ltd (In liq) v ALD Wholesale Pty Ltd and anor |
MEDIUM NEUTRAL CITATION: | [2018] VSC 585 |
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COMPANIES – Whether advance by lender company was made to borrower company or to the effective controller of the borrower company personally – Advance deposited into borrower company account – Whether advance then became the property of the company even if intended to be for the controller personally – On the whole of the evidence advance intended to be made to effective controller of borrower company personally – Advance did not become the property of the company and is traceable to its later use – Re Veli; Ex parte AE Developments Pty Ltd v Scott (1988) FCR 204 considered and applied.
TRUSTS – Whether advance subject to a Quistclose trust – Evidence of lender and borrower that advance to be used to pay the deposit on purchase of identified property – Advance so used – Other factors that suggest that this was not the intended exclusive use of the advance – Conduct of borrower subsequent to the advance inconsistent with a mutual intention that advance could only be so used – Held: Quistclose trust in favour of lender not established – Rambaldi (Trustee) v Commissioner of Taxation [2017] FCA 567 distinguished.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms B Slocum | SLF Lawyers |
| For the Defendants | Mr A Silver | Madgwicks |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Outline of the facts............................................................................................................................. 2
Sale of the Property....................................................................................................................... 2
Payment into Court and this proceeding.................................................................................. 4
Submissions and issues.................................................................................................................... 7
Interested Parties........................................................................................................................... 7
Plaintiffs.......................................................................................................................................... 7
Issues............................................................................................................................................... 8
Legal Principles.................................................................................................................................. 8
Unchallenged evidence................................................................................................................ 8
Quistclose trust................................................................................................................................ 9
Consideration...................................................................................................................................... 9
To whom was the advance made?............................................................................................ 10
Was the advance impressed with a trust?............................................................................... 17
If so, did that purpose fail?........................................................................................................ 21
Conclusion and orders.................................................................................................................... 22
HER HONOUR:
Introduction
This proceeding concerns competing applications for the release of funds in the sum of $59,000 (Funds) which were deposited into Court from the trust account of a real estate agency, Sutherland Farrelly Pty Ltd (Sutherland Farrelly), on 31 March 2017 pursuant to s 69 of the Trustee Act 1958 (Vic). Sutherland Farrelly was the agent for sale of a property known as 35 Canberra Avenue, Dandenong (Property), appointed by the mortgagee in possession of the Property, the Commonwealth Bank of Australia (Bank). The Funds are the deposit paid into the trust account of Sutherland Farrelly by the first proposed purchaser of the Property, a Mr Milojko Gajic, also known as Michael Gajic. Mr Gajic entered into a contract of sale for the Property on 14 March 2015 at public auction. On his account, he did so as agent for an undisclosed principal.
Shortly after the auction, the Bank conducted a bankruptcy search for Mr Gajic, which ascertained that he was an undischarged bankrupt. Ultimately, the sale to him did not proceed. Sutherland Farrelly later sold the Property on behalf of the Bank to a third party. The ownership of the Funds is in dispute, as between the former registered proprietor of the Property, now in liquidation, AAD Services Pty Ltd (in liq) (AAD) and its liquidators (collectively Plaintiffs ) and two other persons or entities, ALD Wholesale Pty Ltd (ALD Wholesale) and Mr Bejtulla Tahiri (Mr Tahiri), the husband of the former director of AAD. ALD Wholesale and Mr Tahiri (collectively Interested Parties) are represented jointly, and their respective cases are put in the alternative.
There is no dispute that the Funds were drawn on the bank account of AAD. It is on this basis that the Plaintiffs claim the Funds. ALD Wholesale contends, however, that the source of the Funds was a loan to Mr Tahiri personally, not to AAD, and that the loan was impressed with a Quistclose trust, being that it be used for the specific purpose of the purchase of the Property. ALD Wholesale contends that that specific purpose failed, and accordingly the Funds should be returned to ALD Wholesale.
In the alternative, Mr Tahiri seeks return of the Funds to him, on the basis that ALD Wholesale lent the source of the Funds to him personally, and not to AAD. He contends that he used the account of AAD solely as a convenience.
For the reasons that I now give, I conclude that the Interested Parties have established that the advance which was the source of the Funds was a loan to Mr Tahiri personally, and not to AAD. However, I am not satisfied that the advance was impressed with a trust to the effect that it could only be used in one specified way, being to pay the deposit for the purchase of the Property. It follows that the Funds are payable to Mr Tahiri. Repayment by him of the advance to ALD Wholesale is a matter between him and ALD Wholesale. That question is not before me in this proceeding.
I also apologise for the delay in delivery of these reasons.
Outline of the facts
Sale of the Property
The facts surrounding the sale of the Property are complex, and it is not necessary to set them out in detail in these reasons. What follows is a sufficient summary.
The claimed undisclosed principal in the purchase of the Property by Mr Gajic was Dawud Enterprises Pty Ltd (Dawud). The sole director and shareholder of Dawud was Adem Tahiri, the son of Mr Tahiri and his wife Vezire Tahiri. Mrs Tahiri was the sole director of AAD prior to its liquidation. Dawud resisted the sale of the Property to the subsequent purchaser by the lodging of a caveat. The Bank successfully sought removal of the caveat to allow the sale to the subsequent purchaser to complete, in an application heard by Macaulay J in November 2015 (Caveat Proceeding). His Honour’s reasons provide a more detailed account of events surrounding the sale of the Property.[1] There was no challenge in this proceeding to the correctness of his Honour’s account of the facts, and I proceed on the basis that it is correct.
[1]Commonwealth Bank of Australia v Dawud Enterprises Pty Ltd & anor (Unreported, Supreme Court of Victoria, Macaulay J, 10 November 2015) (CBA v Dawud).
Three features of his Honour’s account are of particular relevance to the competing applications before me for repayment of the Funds. First, his Honour records that in late April 2015, AAD and Mr and Mrs Tahiri made a proposal to the Bank to refinance the loans for which the Bank’s mortgage over the Property was a security. The proposal would have seen the Bank fully paid out and the mortgage discharged. The proposal involved using the Funds as part of the monies to refinance the loans, not to purchase the Property.[2] In other words, the Property would have remained registered in the name of AAD, rather than being acquired by Mr Tahiri.
[2]Ibid [6(m)].
Secondly, after the refinancing proposal did not eventuate, it was not Dawud, but Mr Tahiri, who endeavoured to complete the contract of sale to Mr Gajic. Mr Tahiri and a solicitor attended the offices of the solicitors for the Bank unannounced with cheques totalling the balance of the sale price and a signed transfer of the Property into Mr Tahiri’s name. That attempt to complete the sale in that way was unsuccessful.[3]
[3]Ibid [6(u)].
Thirdly, the argument advanced by Dawud that the balance of convenience favoured retention of the caveat was that the Property had special value to Dawud. This was because the Property is in a suburban pocket that is closely held by the Albanian community, of which the Tahiris are members, and it was intended to be held for their son, Adem.[4]
[4]Ibid [7].
Macaulay J ordered the removal of the caveat. He was not required for the purposes of the removal application to finally determine whether or not Dawud would be able to establish an equitable interest in the Property by reason of being the nominee of Mr Gajic, but held that he ‘would hesitate to conclude’ that it was a serious question to be tried. In relation to balance of convenience, he noted a number of matters, including that the refinancing proposal was ‘completely at odds with any intention to complete the contract of sale’. In summary, he held that Dawud had failed to satisfy him that there was a probability that it would be found to have an equitable interest in the Property, as nominee of Mr Gajic, that was sufficient to justify the practical effect that retention of the caveat would have on the ability of the Bank as mortgagee in possession to deal with the Property.[5]
[5]Ibid [13], [16] and [19].
Payment into Court and this proceeding
Prior to payment of the Funds into Court, the Bank invited various potential claimants (although not ALD Wholesale) to the Funds to inform it of any such claim. Only the liquidators of AAD responded, advising that AAD claimed the Funds.[6] After the payment into Court, the liquidators of AAD instituted this proceeding by originating motion filed 5 May 2017 to claim the Funds. They served the application on Mr Gajic’s trustee in bankruptcy; on Dawud; on Vezire Tahiri and Bejtulla Tahiri; and, as directed by the Court, a previous caveator of the Property, Cornwalls Pty Ltd. In the event, the only interested persons to file a notice of appearance to oppose AAD’s claim to the Funds are ALD Wholesale and Mr Tahiri.
[6]Affidavit of Haley Amanda Aprile sworn 31 March 2017, in support of the payment into Court.
The Court’s original intention as expressed in procedural orders made 10 July 2017 was that the joinder of claimants to the Fund to the liquidators’ application be determined on 3 August 2017, prior to hearing any competing claims in full. ALD Wholesale had filed a notice of appearance just prior to those orders. Mr Tahiri had not at that stage done so. ALD Wholesale sought joinder on the basis that bank statements showed a transfer of funds from ALD Wholesale to AAD of $60,000 on 17 March 2015, which was two days before provision by Mr Gajic to Sutherland Farrelly of a bank cheque for $59,000 drawn on the AAD account.[7] The solicitors for ALD Wholesale contended in correspondence that the advance by ALD Wholesale was for the specific purpose of purchase of the Property, but there was at that stage no direct evidence to support that claim.
[7]Affidavit of Cassie Ann O’Bryan sworn 2 August 2017.
The Plaintiffs opposed the joinder of ALD Wholesale, contending that it was at most an unsecured creditor of AAD. I considered that the most efficient way to proceed was to list the applications by ALD Wholesale for joinder and for payment to it of the Funds for hearing together with the application by the Plaintiffs for payment out to the liquidators of the Funds. On the last working day before that hearing, Mr Tahiri also filed a notice of appearance, by the same solicitors as acting for ALD Wholesale. The submissions for ALD Wholesale and Mr Tahiri, also filed that day, sought that they each be joined as the first and second defendants respectively, and that the Funds be paid to ALD Wholesale, or, alternatively, to Mr Tahiri.
At the trial, the Plaintiffs did not oppose the joinder of ALD Wholesale and Mr Tahiri. I pronounced the order for joinder at the commencement of the trial, but it was not authenticated at that time. For convenience, I continue to use the term Interested Parties for the defendants in these reasons. No party sought to cross examine the witnesses for any other party. No party ordered a transcript of the hearing, and on making subsequent inquiries, the Court was informed that the recording of the hearing was no longer available. The proceeding was initially listed for judgment on Thursday 4 October 2018. In the absence of a transcript or recording of the hearing, I had prepared these reasons, in so far as they rely on the parties’ oral submissions, on the basis of the extensive notes that I took during the hearing. On the intended day for delivery of the reasons, and without prior notice, a transcript was provided to the Court, as the recording had apparently been found. As a consequence, I adjourned the delivery of judgment until today to enable me to review the transcript.
In the event, the provision of the transcript did not require any material change to the reasons, but I have now added some transcript references for completeness. A copy of the unrevised transcript will be provided to the parties with these reasons.
The Plaintiffs rely on the following material:
· affidavit of David Raj Vasudevan affirmed 3 May 2017 (Mr Vasudevan’s First Affidavit);
· further Affidavit of David Raj Vasudevan affirmed 15 September 2017 (Mr Vasudevan’s Second Affidavit);
· plaintiffs’ Submissions dated 13 October 2017 (Plaintiffs’ Written Submissions).
The Interested Parties rely on the following material:
· affidavit of Cassie Ann O’Bryan sworn 2 August 2017 (Ms O’Bryan’s Affidavit);
· affidavit of Bejtulla Tahiri sworn 28 August 2017 (Mr Tahiri’s Affidavit);[8]
[8]This affidavit was supplied to the Court by email. The Court file does not show that the original of this affidavit was ever filed, but no objection was taken to it on this basis by the Plaintiffs.
· affidavit of Aleksandar Bozic sworn 12 October 2017 (Mr Bozic’s Affidavit);
· affidavit of Grant John Walker sworn 13 October 2017 (Mr Walker’s Affidavit);
· outline of Third Party Applicants’ Submissions dated 13 October 2017 (Interested Parties’ Written Submissions); and
· Portions of Mr Tahiri’s affidavit in the Caveat Proceeding (placed into evidence in this proceeding by the Plaintiffs).
The Plaintiffs initially sought to rely on claimed inconsistencies between Mr Tahiri’s Affidavit, and his evidence in an affidavit he swore in the Caveat Proceeding before Macaulay J. I queried whether this was appropriate, if these claimed inconsistencies were not to be put to Mr Tahiri in cross examination. After discussion between the parties, the Plaintiffs confirmed that they would not cross examine Mr Tahiri and withdrew their contention that there were inconsistencies between his evidence in this proceeding and his evidence in the Caveat Proceeding.[9]
[9]Transcript of Proceedings, AAD Services Pty Ltd (In liq) v ALD Wholesale Pty Ltd and anor (Supreme Court of Victoria, S CI 2017 01640, Lansdowne AsJ, 16 October 2017) 14, ll 23-26.
It follows that the claimants’ competing applications turn on what flows from the application of legal principle to the unchallenged evidence.
Submissions and issues
Interested Parties
The Interested Parties’ primary submission is that the Funds belong to ALD Wholesale. In support of this submission, they contend that I should find on the evidence that:
· ALD Wholesale advanced $60,000 to Mr Tahiri, not to AAD. In other words, AAD was used merely as a conduit for the Funds, and did not beneficially own them;
· the specific purpose of the advance was to enable Mr Tahiri to purchase the Property, and so the advance was impressed with a Quistclose trust; and
· that purpose failed, and so the Funds should be returned to ALD Wholesale.
In the event I am not satisfied that the advance was impressed with a Quistclose trust, the Interested Parties submit in the alternative that as the advance was made to Mr Tahiri, not to AAD, the Funds belong to Mr Tahiri. This alternative submission presumably assumes that repayment to ALD Wholesale by Mr Tahiri of the advance is a matter between them. In any event, that question is not before the Court in this proceeding.
Plaintiffs
The Plaintiffs rely on the facts that the advance was paid into the account of AAD and the cheque for the deposit was drawn from AAD’s bank account. They submit that the $60,000, which it is accepted was the source of the Funds, even if intended to be a loan to Mr Tahiri, became the property of AAD once deposited into its account. The Plaintiffs further contend that the evidence does not show that the advance was impressed with a specific purpose trust. In the event that the Court is against them on that submission, the Plaintiffs submit that the purpose of the trust was fulfilled when the deposit cheque was provided to Mr Gajic, who in turn paid it to Sutherland Farrelly.
My notes, and now the transcript, record that in her oral submissions, counsel for the Plaintiffs conceded that the advance may have been intended for Mr Tahiri, not AAD. She made the point that this only became apparent once Mr Tahiri became a claimant in his own right, late on the last working day before the hearing.[10] Given the lateness of Mr Tahiri’s claim, and the guarded nature of this concession, I have approached the question as to the identity of the borrower by my own analysis of the evidence.
[10]T 75 ll 21-31; T 76 ll 13-24; T 104 ll 26-29.
Issues
In my view, the competing applications turn on the following issues:
1. To whom did ALD Wholesale advance the $60,000 – to AAD, or to Mr Tahiri?
2. Was the advance subject to a Quistclose trust, being solely for the purchase of the Property?
3. If so, did that purpose fail?
Legal Principles
I apply the following principles to the facts in this case.
Unchallenged evidence
The case for the Interested Parties turns primarily on the evidence given by Mr Tahiri and Mr Aleksandar Bozic. That evidence is not challenged by cross examination. The Plaintiffs no longer seek to rely on alleged inconsistencies between Mr Tahiri’s evidence in this proceeding, and his evidence in the Caveat Proceeding. That is appropriate, because to do so without giving Mr Tahiri the opportunity to respond to the allegation in cross examination could breach the rule in Browne v Dunn.[11]
[11](1893) 6 R 67 (HL); see the commentary in J D Heydon (ed), Cross on Evidence (LexisNexis Butterworths, 11th ed, 2017) [17435]-[17460].
It does not, however, follow from the rule in Browne v Dunn that the finder of fact is bound to accept evidence that is not challenged by cross examination. The absence of challenge may be good reason for accepting the evidence, but if the unchallenged evidence is itself unconvincing, or is contradicted by other evidence, then the finder of fact is not bound to accept it.[12]
Quistclose trust
[12]Bulstrode v Trimble [1970] VR 840, 848-849 (Newton J).
Ordinarily a lender does not advance a loan on trust. In some situations, however, the parties may intend that the advance has the dual character of loan and trust. This can arise if the money is lent for an exclusive purpose and is not at the free disposal of the borrower. The borrower takes the loan under an obligation, which equity will enforce, to apply it only for that purpose. If that purpose fails, then the money is returnable to the lender, away from the borrower’s creditors.[13] This is known as a Quistclose trust.[14]
[13]I draw this helpful summary from Lotteries Pty Ltd v Umbrella Enterprises Pty Ltd (in liq) [2014] VSC 605 (Mukhtar AsJ) (appealed, but not on this point, and appeal dismissed).
[14]Following Barclays Bank Limited v Quistclose Investments Limited [1970] AC 567.
A Quistclose trust does not necessarily arise because the money is paid for a particular purpose.[15] It is common for a lender to enquire as to the purpose of the loan, when considering whether or not they make it. The question is whether the parties intended the money to be at the free disposal of the borrower, once advanced.[16] It must be the mutual intention of the parties, as determined by the outward i.e. objective manifestation of their intentions within the totality of the circumstances.[17]
[15]Twinsectra Limited v Yardley [2002] 2 AC 164; Coolbrew Pty Ltd v Westpac Banking Corporation [2015] NSWCA 135 [12]-[13].
[16]Twinsectra Limited v Yardley [2002] 2 AC 164.
[17]Legal Services Board v Gillespie-Jones (2013) 249 CLR 493 (Bell, Gageler and Keane JJ) [119].
The deposit of funds into a separate account to be accessed solely for an agreed purpose may evidence an intention to create a Quistclose trust.[18] Similarly, a written loan agreement expressly stating the sole purpose for which the advance may be used has been held to create a Quistclose trust.[19]
[18]Djmal v Cemal & Ors [2015] NSWSC 1125.
[19]Rambaldi (Trustee) v Commissioner of Taxation [2017] FCA 567.
Consideration
Some matters are not in dispute. First, bank records establish that the source of the Funds was a transfer of $60,000 by online banking from the account of ALD Wholesale to the account of AAD on 17 March 2015 (Transfer). The Transfer is proved by the bank records exhibited to Ms O’Bryan’s Affidavit. The reference noted to the withdrawal from the account of ALD Wholesale is ‘Payment Aad [sic] Services’. The reference to the deposit into the account of AAD is ‘ALD Wholesale’.[20] There is no dispute that Mr Tahiri withdrew $59,010.00 the following day, 18 March 2015, for a bank cheque in the sum of $59,000, which he gave to Mr Gajic, who in turn paid it on 19 March 2015 to Sutherland Farrelly as the deposit for the purchase of the Property.[21]
[20]Exhibit COB-2 to Ms O’Bryan’s Affidavit.
[21]Mr Vasudevan’s First Affidavit [16] and Exhibit DRV-6.
The bank records also show that at the time of the Transfer the account of AAD was $1,887,112.22 in debit.[22]
[22]Exhibit DRV-6 to Mr Vasudevan’s First Affidavit.
Next, there is no other documentary evidence of a loan between ALD Wholesale and AAD, or ALD Wholesale and Mr Tahiri, or as to the purpose of the advance by ALD Wholesale, or the terms of repayment. The contentions of the Interested Parties turn on the evidence given by Mr Tahiri and by Mr Bozic. Mr Tahiri is a joint owner, with his wife, of the shares in AAD. At the time of the advance his wife was the sole director of AAD. Mr Tahiri deposes that, despite not being a director, he had access to the bank account of AAD. Mr Bozic deposes that he is the de facto partner of Ms Dajana Katanovic, who is the sole director of ALD Wholesale. He deposes that he is the manager of ALD Wholesale, and looks after the day to day running of that business. They give evidence as to the identity of the borrower, and the purpose of the advance, which I now set out in more detail.
To whom was the advance made?
Mr Tahiri’s evidence in his affidavit in this proceeding is that the advance was to him, not to AAD. His evidence, with the exception of paragraph 17, which is conceded to be conclusory, is as follows (bolding added; direct quotes as indicated):
· My wife and I each own one of two shares in AAD. I was a former director from 18 April 2006 to 5 May 2008. My wife has been the sole director since 4 December 2009 but ‘I have had access to the bank account of AAD as I have been involved in its trading operations’;
· I did not want to lose the Property after the Bank took possession;
· I asked Mr Gajic to bid at the auction of the Property for me;
· I told Mr Gajic that I would arrange for payment of the deposit and remaining purchase price if he was the successful bidder;
· I told Mr Gajic not to offer more than $600,000;
· I did not have the funds for the deposit;
· I approached Alex Katanovic, whose wife Dajana Katanvoic is the sole director and shareholder of ALD Wholesale, about lending the funds (for the deposit) to me;
· I have known Alex for approximately five years. We have done business together over that period and are very close;
· In mid-March 2015 I told Alex that I had purchased the Property and that I did not have the money for the deposit;
· He told me that he trusted me and that he would lend me the money for the deposit;
· I gave him the bank details of AAD as ‘I was regularly using that bank account and it was the first one that came to mind. I did not consider it relevant which bank account the money was transferred into’;
· ‘On my instruction Mr Gajic sought to nominate Dawud as the purchaser of the Property.’[23]
[23]Mr Tahiri’s Affidavit [2]-[4], [8],[12],[14],[19].
Mr Bozic’s evidence generally corroborates Mr Tahiri’s account. It is as follows (emphasis in bold added and direct quotes as indicated):
· I am the de facto partner of Dajana Katanovic, director of ALD Wholesale;
· I look after the day to day running of ALD Wholesale;
· Mr Tahiri (Benny) and I have been friends and business associates for over 5 years;
· On or around mid-March Mr Tahiri told me ‘that he was interested in purchasing a property at 35 Canberra Ave, Dandenong, but did not have the cash to be able to put down a deposit’;
· I told him ‘that I would speak to my wife, but I was confident that ALD would be able to lend him $60,000 for the specific purpose of paying the deposit on the purchase of the (Property)’;
· I transferred $60,000 from ALD’s account to Mr Tahiri’s company AAD Services Pty Ltd’;
· ‘ALD lent the money to Benny for the purchase of land. I would not have lent such a large sum as a business loan without knowing the reason for the loan or the prospects of repayment’.[24]
[24]Mr Bozic’s Affidavit.
In their submissions, the Plaintiffs cast doubt on the Interested Parties’ case on the basis that Mr Tahiri identifies the person he dealt with as ‘Mr Katanovic’ whereas the corroborating affidavit now relied upon is by Mr Bozic, who deposes that he is the defacto partner of Ms Katanovic, but does not explicitly say that he is the person Mr Tahiri identifies as Mr Katanovic.[25] At the hearing, counsel for the Interested Parties informed me that the affidavit of ‘Alex Katanovic’ served on the liquidators was a draft, which was not executed and not filed. The Plaintiffs did not object to Mr Bozic’s affidavit on this or any other basis, nor seek to cross examine either Mr Tahiri or Mr Bozic, on this, or any other point. I find that Mr Bozic is the same person as the Alex Katanovic to whom Mr Tahiri refers.
[25]Plaintiffs, ‘Written Submissions’, Submissions in AAD Services Pty Ltd (In liq) v ALD Wholesale Pty Ltd and anor, S CI 2017 01640, 13 October 2017 [21]; Transcript 77-78.
What is striking in the evidence of Mr Tahiri and Mr Bozic is that, although the advance came from the company account of ALD Wholesale and was paid into the company account of AAD, the arrangement was struck between two persons neither of whom are directors of those companies. This suggests that Mr Tahiri and Mr Bozic either regarded the respective companies as their alter egos, or at least did not make any clear distinction between personal and company interests and transactions.
This impression is supported by the following features of Mr Bozic’s evidence –
· His description of the loan as being to ‘Benny’, made because ‘he was interested in purchasing (the Property)’;
· As against this indication that the loan was for a personal purchase, Mr Bozic describes the loan as a ‘business loan’ from ‘ALD’ which ‘I would not have lent…without knowing the reason…or the prospects of repayment’; and describes AAD as ‘Mr Tahiri’s company’.
A failure by Mr Tahiri to distinguish between the corporate interests of AAD and his personal interests is shown by Mr Tahiri giving Mr Bozic the bank account details of AAD for the advance, although he says it was a personal loan. His explanation, that he did not consider it relevant which bank account was used, is further evidence of this failure.
That both Mr Tahiri acted in trading as agents for their respective companies, and their failure in this transaction to clearly distinguish between Mr Tahiri’s personal interests, and the interests of AAD, makes it difficult to determine for whom the advance was intended – AAD or Mr Tahiri personally. There are elements in Mr Bozic’s evidence in particular that could support either conclusion as to his intention. Counsel for the Interested Parties submits that I should read the two sentences in the final paragraph of Mr Bozic’s Affidavit, which I quote in the final dot point summary of his evidence, as alternatives. I do not accept that submission. In my view, the plain reading is that he describes the loan as a ‘business loan’, which would ordinarily mean both from and to a business, yet describes the loan as being to ‘Benny’ i.e. personal.
Neither Mr Tahiri nor Mr Bozic seek to set out the exact words used in their conversations, or the whole of those conversations, which adds to the difficulty. However, to the extent that they each set out their account of the conversation in mid-March 2015, they each identify Mr Tahiri as the intended purchaser of the Property and intended beneficiary of the loan. Further, Mr Tahiri’s evidence that Mr Bozic said that ‘he (Mr Bozic) trusted me’ supports a personal loan. Given that Mr Bozic apparently regarded AAD as being the alter ego of Mr Tahiri it is not necessarily inconsistent with a loan to Mr Tahiri personally that Mr Bozic paid the money into the AAD account, apparently without question.
A related factor that supports that Mr Tahiri personally was the borrower is the evidence of both that the purpose of the loan was to pay the deposit for purchase of the Property. They corroborate each other on this, and their evidence is not challenged. Further, the advance was in fact immediately used for that purpose, albeit not in Mr Tahiri’s name. AAD was already the owner of the Property, and so could not purchase it from itself. There is no evidence as to whether or not Mr Bozic knew that the intended purchase was land already owned by AAD, which was being sold by the mortgagee because AAD had defaulted on its loan. Mr Tahiri, however, certainly knew that. It provides a reason for the advance being to him personally.
Mr Tahiri consistently uses the first person to describe himself as the intended purchaser of the Property. His subsequent instruction to Mr Gajic to nominate Dawud as purchaser could appear at odds with this, but it is also at odds with purchase by AAD. In my view, what the instruction to nominate Dawud illustrates is a consistent failure by Mr Tahiri to distinguish between the interests and obligations of a corporate entity, in this case one in which he had no official role at all, and his, or his family’s, personal interests and obligations. The owner and sole director of Dawud was Mr Tahiri’s son, Adem, which supports this interpretation. It is also supported by Mr Tahiri’s evidence in his affidavit in the Caveat Proceeding to the effect that his wife and his son conduct the affairs of AAD and Dawud respectively ‘in accordance with my overriding guidance and control. In essence each company has been set up to conduct the business affairs of my family and I am the head of the family in our culture’.[26]
[26]Affidavit of Betjulla Tahiri sworn 4 November 2015 in S CI 2015 5528, being Exhibit DRV-9 to the Mr Vasudevan’s Second Affidavit [1], [19].
Similarly, Mr Tahiri gave evidence for Dawud in the Caveat Proceeding that the Property had special value to the family because of its location in an area where the Albanian community live. This also supports that the intended purchase was for essentially personal and family reasons.[27]
[27]Ibid [4]-[5].
Significantly, when the sale to Mr Gajic and so nomination of Dawud as purchaser appeared doomed, Mr Tahiri sought to buy the Property in his own name, by presenting the balance of the purchase price and a signed transfer to him. This is consistent with the advance for the deposit being to him personally.
As against these matters, in his affidavit in the Caveat Proceeding, Mr Tahiri states that ‘(t)he deposit funds were supplied by AAD Services Pty Ltd on behalf of my family interests’.[28] The Plaintiffs initially sought to assert that this was inconsistent with the contention by the Interested Parties in this proceeding that the loan was to Mr Tahiri personally. In the absence of cross examination of Mr Tahiri, the Plaintiffs have withdrawn that submission. In any event, Mr Tahiri explains in that affidavit that he utilises various corporate structures for his family interests, and explicitly states that the purpose of the funds from the AAD account were for his family interests. Given these matters, I do not consider that his earlier evidence is necessarily inconsistent with how he now describes the loan and so provides a reason to reject his unchallenged evidence in this proceeding.
[28]Ibid [19]. See also [20].
In the initial claim to the Funds made by ALD Wholesale, the solicitor for ALD Wholesale, Mr Walker, described the loan as being from ALD Wholesale to AAD.[29] The Plaintiffs in their written submissions relied on this statement in support of their contention that the loan was an unsecured loan to AAD, not to Mr Tahiri. In response, Mr Walker deposes that he had misunderstood his initial instructions and the statement in his letter did not accurately record what he had been told. He deposes that it was only after he received instructions in late August 2017 from Mr Tahiri and Mr Bozic that he understood that Mr Tahiri was describing a loan to himself personally. Mr Walker says that it did not occur to him, until he read the Plaintiffs’ Written Submissions, that he might need to correct the position he had put in the letter of 18 July 2017.[30]
[29]Letter dated 18 July 2017 being Exhibit COB-1 to Ms O’Bryan’s Affidavit.
[30]Mr Walker’s Affidavit [8]-[9].
I accept that explanation. It follows that I do not consider Mr Walker’s statement in the letter of 18 July 2017 that the loan was to AAD materially undermines the other factors supporting the conclusion that the loan was to Mr Tahiri personally.
The Plaintiffs submit that even if the advance was intended to be to Mr Tahiri personally, once it was paid into the company account of AAD it lost that character because it was applied for a company purpose, being the reduction of AAD’s debt to the Bank (the account being in overdraft). On this analysis, Mr Tahiri is at most an unsecured creditor of AAD in the sum of $60,000 and the Bank is a creditor of AAD in respect of the withdrawal the following day of $59,010.[31] In response, the Interested Parties rely on the decision of Ryan J in Re Veli; Ex parte AE Developments Pty Ltd v Scott (Re Veli).[32] In that case, his Honour determined that money paid to Mr Veli, and paid by him into his bank account, was held by him on trust to be applied to a specific purpose. It followed that Mr Veli’s bank was not entitled to apply part of the money to Mr Veli’s personal indebtedness to the bank and forward the balance to his trustee in bankruptcy. Ryan J held that Mr Veli was merely the conduit through which the money was to pass from the provider of the funds to the intended recipient. By analogy, the Interested Parties submit, AAD was merely the conduit through which the advance from AAD Wholesale was to be applied to Mr Tahiri.
[31]The argument is put at various points in the Plaintiff’s oral submissions. See, for example, Transcript 108-109.
[32](1988) 18 FCR 204.
Re Veli demonstrates that a payment does not necessarily lose its intended object and purpose because a conduit is used to direct it to that object and purpose. Further, that if the conduit was not the intended recipient, the money can be traceable even after being mixed with the conduit’s funds. The task of the court remains to determine the intention of the payment. In Re Veli, the court held that the payment was not a loan to Mr Veli, but intended to be provided by him to a third party to facilitate the assignment of certain equipment. In this case, the Interested Parties contend that the payment in question was a loan, not to AAD but to Mr Tahiri, and AAD was merely the conduit for that loan.
On my analysis of the whole of the evidence, I consider it proved on the balance of probabilities that the intended borrower was Mr Tahiri, not AAD. Further, I accept the submission of counsel for the Interested Parties that AAD was merely the conduit for the loan, and the advance did not become the money of AAD by virtue of being paid into its account.
Was the advance impressed with a trust?
Mr Bozic’s evidence is that the money was lent ‘for the purchase of land’. He deposes that Mr Tahiri told him the address of the land in question. He says that he would not have lent such a large sum ‘without knowing the reason for the loan’. Mr Tahiri’s evidence is also that the money was sought to pay the deposit for the Property and that this is what he told Mr Bozic.
As set out earlier, the fact that a potential lender wishes to know the intended use of an advance, and that the borrower identifies an intended purpose for the advance, is not enough to establish a mutual intention that the advance can only be used for that purpose, and no other, which is the necessary requirement for a Quistclose trust.
Certainly in this case the advance was initially and immediately used for the purpose identified in the discussion between Mr Tahiri and Mr Bozic. This use, and the limited evidence of discussion between them, are, in my view however, the only evidence to support the necessary mutual intention.
I put aside the fact that Mr Tahiri did not refer at all to a loan from ALD Wholesale in the Caveat Proceeding, let alone to any exclusive purpose of that loan. While this seems surprising, given his current evidence, I accept the submission of the Interested Parties that no adverse inference can safely be drawn from that absence without cross examination of Mr Tahiri. It is possible that Mr Tahiri or his lawyers may have not thought the ultimate source of the deposit paid by Mr Gajic to be relevant in the Caveat Proceeding. I reach my conclusion that there was no exclusive purpose intended for the loan on the basis of the evidence in this proceeding alone.
There was no written expression of any such intention, nor that repayment was required if the purpose could not be fulfilled. Indeed, there is no evidence at all of the terms of repayment. This absence of detail means the facts are in stark contrast to those in Quince v Varga and anor.[33]In that case, the Queensland Court of Appeal upheld the finding of a trial judge that a Ms Quince had advanced money to a Mr McLaughlin for the specific purpose of on-lending, which was to be secured, and at an agreed rate of interest to Ms Quince and commission for Mr McLaughlin. As a consequence, the Court held that the funds advanced were trust funds and Mr McLaughlin was not at liberty to use the advances as he sought fit.
[33][2008] QCA 376.
The Interested Parties seek to draw a parallel with Rambaldi (Trustee) v Commissioner of Taxation (Rambaldi)[34] where North J found that monies advanced to a person who later became a bankrupt were lent for the specific purpose of paying her debt to the Commissioner of Taxation, and so did not constitute monies available to her creditors generally, as a preference. Counsel submits that similarly in this case the advance was for the purpose of meeting Mr Tahiri’s obligation to Mr Gajic, or an obligation to complete the purchase. In my view, the facts here are plainly distinguishable from those in Rambaldi.
[34][2017] FCA 567.
First, and most significantly, in Rambaldi there was a clear written expression that the advance was for the exclusive purpose of paying the Commissioner. There is no such clear intention in this case. Secondly, while Mr Tahiri gives evidence of his (at least moral) obligation to Mr Gajic, there is no evidence that Mr Bozic was aware of any such obligation. Mr Tahiri does not say that he told Mr Bozic that he was obligated to Mr Gajic, and indeed his evidence is that he told Mr Bozic that he i.e. Mr Tahiri himself had purchased the Property. The use of the past tense – ‘had purchased’ – the Property does suggest a pre-existing obligation to the vendor, that Mr Tahiri could not meet without the loan. However, Mr Bozic’s evidence is not as clear on this point. He deposes that Mr Tahiri told him that he ‘was interested in purchasing a property…but did not have the cash to be able to put down a deposit’.[35] This suggests a future obligation, not an existing one that could not otherwise be met.
[35]Mr Bozic’s Affidavit [3].
It is also telling against an exclusive purpose trust that no security was sought over the Property to secure the advance, as would usually be the case if monies were advanced for that purchase only. The advance was paid into what was apparently a general purpose account of AAD, not a specific account for the identified purpose. Further, that account was already in very substantial overdraft. There is no evidence as to whether or not Mr Bozic was aware of either of these two matters, which might well have caused him concern if indeed it was the shared intention that the money was to be used for one purpose only. Significantly, however, there is no evidence that Mr Bozic made any enquiry directed to ensuring the safeguarding of the monies ALD Wholesale advanced, or their use for one purpose only. Mr Tahiri’s evidence is that Mr Bozic said that he trusted him (Mr Tahiri) and from Mr Bozic’s point of view, this appears to have been enough in practice.
Mr Tahiri, on the other hand, would have been well aware of the fact that the AAD account was a general purpose account, and in substantial overdraft, given his ability to withdraw from the account. Yet he took no steps to safeguard the advance by placing it in a specific account. He did of course withdraw it the next day and cause it to be used for the deposit, and for that reason special measures may not have been necessary.
In some circumstances, a reliance on trust might suggest a fiduciary relationship, but trust or confidence in another is not enough to create a fiduciary relationship.[36] There must be an additional element of reliance, or vulnerability, for such a relationship to be a fiduciary one. There is no such indication of reliance or vulnerability here in the relationship between Mr Tahiri and Mr Bozic. Indeed, they each describe the other as a friend and business associate. The impression is one of trust due to equality, not trust reposed due to vulnerability to misuse of the relationship by the other. Counsel for the Interested Parties submits that the nature of the relationship between Mr Tahiri and Mr Bozic, and the purpose of the loan being to acquire residential property, support the exclusive purpose required for a Quistclose trust. I do not accept this submission. It is not clear from Mr Bozic’s evidence that he knew that the Property was residential, and of special value to the Tahiri family, and as noted, I consider the fact that they were friends to go against an exclusive purpose, not to support it.
[36]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 141.
The necessary mutual intention of lender and borrower is the intention as at the date of the advance. However, later actions of one or both of the parties can cast light on that intention. In this case, as was properly conceded by counsel for the Interested Parties, Mr Tahiri did not show by his later actions that he considered himself bound to only use the advance as a deposit.[37] He and his wife later sought to use the deposit to refinance the loan from the Bank, and so for practical purposes retain the Property by that means, rather than purchase. The end result in legal terms would have been retention of the Property in the ownership of AAD, not in Mr Tahiri’s ownership. Had this proposal succeeded, proposing to use the deposit in this way is quite inconsistent with a restriction to the exclusive use of the advance as a deposit on purchase by Mr Tahiri.
[37]Transcript 51, ll 14-17.
The burden of proving that the advance was burdened with a specific purpose trust is on the Interested Parties. I do not consider that they have discharged it. I find that while the disclosed purpose of the loan made by ALD Wholesale to Mr Tahiri was to enable him to purchase the Property, the evidence is not sufficient to show that the loan was restricted to this use.
If so, did that purpose fail?
In view of this conclusion, it is unnecessary to consider if the specific purpose failed. For completeness, however, and in case I am found to be incorrect in my conclusion that there was no Quistclose trust, I reject the submission of the Plaintiffs that in any event the purpose of the advance was fulfilled. I do so for three reasons. First, I do not consider that the Plaintiffs properly characterise the purpose as being to ‘draw a cheque, for the purposes of tendering a deposit’ (emphasis added).[38] Even if the purpose was limited to the deposit, it was plainly that the deposit be accepted, not just that it be tendered. Secondly, the deposit was not accepted, and so if that was the purpose, it was not fulfilled. Thirdly, the purpose identified by Mr Bozic and by Mr Tahiri was to purchase the Property. This purpose would not be fulfilled until the purchase was completed by settlement. On that analysis, had the advance been impressed with a trust to the effect that it was to be only used for the purchase by Mr Tahiri, or his nominee, of the Property, then that purpose failed once the Property was sold to a third party, and Mr Tahiri would have been bound to repay the advance to ALD Wholesale.
[38]Transcript 117, ll 3-4.
Conclusion and orders
For these reasons, and subject to any adjustment for costs, I consider that the Funds are payable to Mr Tahiri. Repayment of the loan made to him by ALD Wholesale is a matter between them.
I will ask the parties to draw orders to reflect these reasons. The orders should include as a first order the joinder of the Interested Parties as the First and Second Defendants respectively. The order for payment out should be in the form required by the Office of Funds in Court. The orders should also include orders for the costs of the proceeding. In the event that the parties are unable to agree on the orders, I will hear them further.
In relation to costs, for the assistance of the parties I indicate that my preliminary view is that although Mr Tahiri has been successful, he should not recover the whole, or perhaps any, of his costs of the proceeding. Indeed, I consider that he, or the Interested Parties jointly and severally, should pay at least a portion of the Plaintiffs’ costs. This is a preliminary view only, of course, and is subject to further submission and evidence if the parties do not consider it correct. I base it on the following matters.
First, it is a requirement of any payment out from Funds in Court that the claimant bring a proceeding, unless the payment is with the consent of all possible claimants. The Plaintiffs were thus required to expend funds to make their claim. Had Mr Tahiri himself taken the initiative to make his claim, he would have had to incur that cost. The plaintiff in such a proceeding is routinely required to serve all other possible claimants, and to keep them informed of the conduct of the proceeding. I required the Plaintiffs in this case to do so. Mr Tahiri has been successful, without having to take these steps. It is only fair that he, and possibly his joint claimant ALD Wholesale, recompense the Plaintiffs for the necessary costs of that success. These necessary costs would appear to be at least the cost of commencement of the proceeding, service on all potential claimants and notification to those claimants of adjournments. This list is intended to be indicative only.
Once these necessary costs are dealt with, the question then becomes who should bear the parties’ respective costs solely attributable to their respective claims. Ordinarily, that question is answered by the maxim that costs follow the event. Here, the Interested Parties have been successful in their joint contention that the advance was to Mr Tahiri personally, not to AAD, and did not become the property of AAD by payment into its account. However, they have not been successful in their joint contention that the advance was impressed with a specific purpose trust in favour of ALD Wholesale. The Plaintiffs unsuccessfully asserted that the advance became the property of AAD once paid into its account, but successfully resisted the assertion of a Quistclose trust in favour of ALD Wholesale.
A number of other matters are arguably relevant. First, the Bank gave Mr Tahiri the opportunity prior to the commencement of the proceeding to make a claim, and he did not so. Although the Bank did not make this enquiry of ALD Wholesale, it may be that Mr Tahiri was in a position to alert ALD Wholesale to this issue at that time. It is also relevant that Mr Tahiri and ALD Wholesale expressly mounted a joint case, the primary submission of which was that the Funds belong to ALD Wholesale, and so arguably no distinction should be made between them in relation to their respective liability for, or entitlement to, costs.[39]
[39]Transcript 35, l 28 - Transcript 36, l 11.
Next, it was arguably reasonable for the Plaintiffs to make their claim at the commencement of the proceeding given that the source of the Funds was a payment to an AAD account, and no other person had, to that date, made a claim to the Funds.
When the initial sole contradictor to the Plaintiffs’ claim, ALD Wholesale, first made its claim after the commencement of the proceeding, it was said by Mr Walker to be on the basis of a Quistclose trust, which has not been proved, over a loan to AAD, not to Mr Tahiri. Mr Walker did not disavow the statement that the loan was to AAD until the last working day before the hearing.
Mr Tahiri, although ultimately successful, only formally became a claimant the last working day before the hearing, when his notice of appearance was filed, and the joint submissions of the Interested Parties were filed and served.[40] Until that date, he was formally only a witness for the claim by ALD Wholesale. It may be that most, if not all, of the Plaintiffs’ costs had been incurred by that time.
[40]As conceded by counsel for the Interested Parties, Transcript 106, l 22 – Transcript 107, l 13.
Finally, (although not exhaustively if there are other relevant matters that the parties wish to put before me), it was Mr Tahiri’s own failure to properly distinguish between his personal interests and the interests of AAD, in asking for the loan to be paid to a company account, that gave rise to the Plaintiffs’ claim. Further, AAD is a company that he identifies as formerly being his family company, under his effective, although not legal, control, and the other two plaintiffs are its liquidators. They have been required to spend the funds of a company in liquidation due to the actions of its former effective controller.
My preliminary view is that all these matters should be reflected in appropriate costs orders. The parties could also give consideration, if they agree that the Plaintiffs are to be recompensed to some degree for their costs, to fixing those costs and having them met by direct payment out of a portion of the Funds rather than by payment of the whole of the Funds to Mr Tahiri, and payment by him to the Plaintiffs for those costs.
In the event that the parties consider these preliminary observations to be incorrect or not determinative, or for any reason are unable to agree on appropriate costs or other orders, I will hear them further.
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