Abu-Mahmoud v Consolidated Lawyers Pty Ltd

[2015] NSWSC 547

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:	Abu-Mahmoud v Consolidated Lawyers Pty Ltd [2015] NSWSC 547
Hearing dates:	9 December 2013 – 13 December 2013, 16 December 2013, 6 June 2014
Date of orders:	18 May 2015
Decision date:	18 May 2015
Before:	Garling J
Decision:	(1)Judgment for the plaintiff in an amount to be calculated. (2)Plaintiff to file and serve proposed short minutes of order, any motion seeking an order for costs different from that proposed, and any affidavit and submissions in support of that motion by Monday 1 June 2015. (3)Defendants to file and serve proposed short minutes of order, any motion seeking an order for costs different from that proposed, and any affidavit and submissions in support of that motion by Monday 15 June 2015. (4)Stand proceedings over for determination of all outstanding issues, if any, to 10am on Friday 19 June 2015. (5)Direct the parties, at the time of filing any documents in accordance with Orders 3 and 4, to provide a copy to my Associate. (6)Liberty to apply on 2 days’ notice.
Catchwords:	TORTS – professional negligence – solicitor – failed restructure scheme with respect to a property owned by the plaintiff – loss suffered by plaintiff as a result – solicitor retained by plaintiff – whether existing retainer extended to include restructure issue – whether advice given to plaintiff – whether advice negligent – if negligent advice whether negligence caused loss – whether plaintiff contributed to loss suffered – no question of principle
Legislation Cited:	Civil Liability Act 2002 Retail Leases Act 1994 Taxation Administration Act 1953
Cases Cited:	Not Applicable
Texts Cited:	Not Applicable
Category:	Principal judgment
Parties:	Mohamed Abu-Mahmoud (P) Consolidated Lawyers Pty Ltd (D1) Abdul Salem Kassem t/as S K Lawyers (D2) Christopher Shaw (D3) Ann Bowen (D4) John Gerathy (D5)
Representation:	Counsel: B McClintock SC / P Doyle-Gray (P) G Curtin SC / D Lloyd (D1-5) Solicitors: Atkinson Vinden (P) Meridian Lawyers (D1-5)
File Number(s):	2010/417411
Publication restriction:	Not Applicable

______________________________________________________________

Judgment

1. It is the case for the plaintiff, Mr Abu-Mahmoud, that he was a reasonably successful structural engineer, builder and property developer, who had a record of successful development projects and, at the relevant time, had a number of development projects underway.

2. He claims that Mr Abdul Salem Kassem (“Mr Kassem”), a lawyer whom he instructed, was negligent. He claims that Mr Kassem advised him to take a series of steps with respect to a property which he owned and intended to develop. This restructure scheme would have had the effect of enabling him to avoid a tax impost which he regarded as unfair. Mr Abu-Mahmoud claims that in reliance upon Mr Kassem’s advice, he entered into this restructure scheme with the consequence that his property empire crumbled, and he became liable in a significant sum to the St George Bank on a personal guarantee, and lost the equity which he owned in a series of properties.

3. Mr Kassem denies giving any advice of the kind Mr Abu-Mahmoud claims that he did. As well, Mr Kassem says that the collapse of Mr Abu-Mahmoud’s property empire was his own fault, in whole or in part.

4. The description which has just been given is a simplified one. Mr Abu‑Mahmoud did not actually own, or do, everything in his own name. He was the shareholder of a variety of companies. They were the vehicles for his property development activities. He had fellow shareholders, and a relatively complicated set of financial affairs.

5. It is attractively simple, and not inappropriate, to describe Mr Kassem as Mr Abu‑Mahmoud’s lawyer. Mr Kassem, during the relevant period, worked for a legal firm, Consolidated Lawyers, worked for himself and then finally, worked as an employee for a firm, Shaw Reynolds Bowen and Gerathy. Mr Kassem was instructed by Mr Abu-Mahmoud throughout the period, although the extent of those instructions is in dispute. The two firms were also instructed by Mr Abu-Mahmoud, through his retainer of Mr Kassem. Throughout the various changes of Mr Kassem’s professional practice, it was Mr Kassem who remained the principal port of call for Mr Abu-Mahmoud.

6. Mr Kassem’s periods of employment or carrying on his own practice were sequential. As a result, there are three separate groups of defendants to the proceedings. Initially each of these “lawyer groups” was separately represented. By the time of the hearing, sensibly, they had joined together and were represented singly. The Court has not been asked, if it comes to a conclusion about liability in favour of Mr Abu-Mahmoud, to attempt to differentiate the position between each of these separate defendants.

7. Although the facts are unnecessarily complex, the essence of this case is the restructure advice that Mr Abu-Mahmoud says that Mr Kassem gave him at two meetings, the latter of which was at the El Sweetie Restaurant at Granville. There are no contemporaneous notes of what occurred at either of the meetings. The three participants in the meeting at El Sweetie, Mr Abu‑Mahmoud, Mr Kassem and his brother, Mr Ozem Kassem, have either very different recollections of what occurred there or no recollection at all. Why Mr Ozem Kassem, an accountant and registered liquidator, was there, is also a matter of dispute.

8. It is Mr Kassem’s case that the only meeting at which any advice was given to Mr Abu-Mahmoud was the latter one at the El Sweetie Restaurant. He denies the fact of the first meeting. The advice given about the restructure scheme was, he says, given by his brother only, but in his presence at the El Sweetie Restaurant. It will be convenient throughout this judgment to refer to the advice alleged to have been given as the “restructure advice”, and the scheme, which consisted of a number of steps which were the product of the alleged restructure advice, as the “the restructure scheme”.

9. That such a significant sum of money by way of claimed damages could turn on two such meetings of which there is no contemporaneous note, is surprising. Whilst it may be congenial, informal and relaxing for a solicitor to meet with a client in such circumstances, this case demonstrates the pitfalls of attempting to provide serious advice about serious matters in such a setting.

The Proceedings

10. The claims made by the plaintiff are set out in their final form in a Second Further Amended Statement of Claim which filed on 11 December 2013. The defence of all defendants to the claims made in that Second Further Amended Statement of Claim are set out in a Defence which was ultimately filed on 24 June 2014.

11. The Second Further Amended Statement of Claim (to which it will be convenient to refer to as the Statement of Claim) alleges that between about September and November 2006, Mr Abu-Mahmoud, and a fellow investor, Mr Trad, retained Mr Kassem and through him Consolidated Lawyers, to act on their behalf with respect to any possible personal liability arising out of a corporate tax assessment which had been raised with respect to a completed property development at Brookvale.

12. The plaintiff claims that in about November 2006, he received oral advice from Mr Kassem to restructure his affairs so as to avoid any personal liability for that tax debt. He alleges that in eight separate ways, between when the advice was given and August 2008, Mr Kassem was in breach of his duty by giving him inappropriate advice, failing to give him appropriate advice and failing to carry out instructions.

13. He alleges that as a consequence of the various breaches of duty, he suffered loss constituted by the following:

1. monies owing under a guarantee which he had given to the St George Bank. The guarantee was called up by the Bank when the borrower company had administrators appointed;

2. loss of possession and loss of equity in two properties, one at Lidcombe and one at Condell Park. The properties were part of the security given to the Bank under the personal guarantee;

3. the legal costs which he paid to Mr Kassem; and

4. legal costs which he paid to another firm of lawyers to assist him in dealing with the consequences of the restructure advice.

14. Mr Kassem and/or the firms for which he worked, deny giving the restructure advice and deny being in breach of any duty. In broad terms, where it is alleged that advice was not given, the defendants accept that that was so, but deny any obligation to give the advice.

15. As well, the defendants seek to argue that even if Mr Abu-Mahmoud establishes one or more breaches of duty, those breaches did not cause any loss to Mr Abu-Mahmoud.

16. Finally, the defendants allege that if there was breach of duty, and they were liable for loss, Mr Abu-Mahmoud ought be found to have contributed to his own loss by his negligence.

Parties and Participants

17. It is convenient to commence this judgment by identifying the parties, and various corporations and individuals who or which have a role to play in these proceedings.

18. Mr Abu-Mahmoud obtained a Bachelor of Civil Engineering in 1988 and a Master of Engineering and Science in 1992 from the University of NSW. Since graduating from the University in 1988, he has worked as a structural engineer.

19. In 1994, he started his own property development business in which he worked part-time, whilst also continuing to work as a structural engineer. Between 1994 and 2001, he engaged with a variety of partners in a number of different property developments.

20. One person, whom he was accustomed to working with, was Mohammad Trad, whom Mr Abu-Mahmoud first came to known as a fellow school student. Mr Trad had skills as a carpenter, and from time-to-time worked with Mr Abu‑Mahmoud on jobs for their clients. At other times, Mr Trad joined in with Mr Abu-Mahmoud in property developments.

21. He was also accustomed to joining with Mr Mohamed Skaf in various property developments. Mr Skaf undertook the active role for any investment made on behalf of himself and his wife, Mrs Eman Skaf. One of their jointly owned companies was Inulik Holdings Pty Ltd (“Inulik”). It will be sufficient to refer to Mr Skaf only, as his conduct was done on behalf of his family interests. Mrs Skaf was not separately mentioned in the evidence as having been an active participant in any of the relevant events.

22. Mr Kassem was admitted to practice as a solicitor in 1998. His initial employment was as a solicitor at a firm in Sydney, and then a firm in Canberra. In about 1999, Consolidated Lawyers Pty Ltd (“Consolidated”), a legal firm, employed Mr Kassem as a solicitor. He was remunerated in part by a profit sharing agreement.

23. Consolidated initially established an office in Pitt Street in Sydney. By about 2004, it had opened an office in Parramatta. Mr Kassem predominantly worked at the Parramatta office.

24. According to the Defence filed by the three defendants, in the period from 1 July 2006 to 30 September 2006, Mr Kassem was employed as a solicitor by Consolidated. Between 1 October 2006 and 30 June 2007, he was employed by Consolidated as a consultant solicitor, although the change in terminology is unexplained. The Defence pleads that his employment as a consultant solicitor in this last identified period was only with respect to one file involving a dispute between Elite Apartments Pty Ltd (“Elite”) and the Arab Bank about a development at Vaucluse.

25. Between 1 October 2007 and 1 July 2008, Mr Kassem practised as a solicitor on his own account trading as S K Lawyers (“SKL”). Between 1 July 2008 and 2 March 2009, Mr Kassem was employed as a solicitor by Shaw Reynolds Bowen & Gerathy (“SRBG”).

26. Consolidated, Mr Kassem agreed, held itself out as a firm which was able to provide high levels of service for its clients, including business and legal services, and, as well, taxation advice with respect to corporate and commercial transactions.

27. Even though there are three separate periods when Mr Kassem acted as a solicitor in association with Consolidated, his own practice and SRBG, at all relevant times, the solicitor with whom Mr Abu-Mahmoud principally dealt was Mr Kassem. Accordingly, it will be sufficient to refer only to him, unless otherwise necessary. There were junior staff, some lawyers, and some paralegals or conveyancers who undertook various specific tasks. But in my view, they were doing so either at the direction of, or else subject to, the supervision of, Mr Kassem.

28. Mr Kassem’s brother, Ozem, gave evidence that he was a certified practising accountant by occupation, and a registered liquidator, who carried on his business in the central business district of Sydney. By the time he gave evidence in 2013, he had been undertaking work in the insolvency area for over 20 years. In 2006, he was a partner in a firm which did insolvency work, Cor Cordis, and was a registered liquidator. In 2006, his practice did not involve him acting for companies which were not in administration or liquidation.

29. A number of companies are relevant to, and feature in, the evidence. It is appropriate to identify those.

30. The first company is Fairchild Development Pty Ltd (“Fairchild”). It was incorporated in about 2001, the directors Mr Abu-Mahmoud, Mr Trad and Mr Mohamad Skaf. The shares in Fairchild were owned as to one third by Inulik and the Skaf company, and as to two thirds by Elite.

31. Elite was a company which was owned by Mr Abu-Mahmoud and Mr Trad, or their own corporate interests, equally.

32. Elite had purchased land at Vaucluse in 1997, and was the corporate vehicle used by Mr Abu-Mahmoud and Mr Trad to develop a property at Vaucluse. That development (“Vaucluse development”) was funded by a loan from the Arab Bank. It is this company which was in dispute with the Arab bank.

33. The last company which it is necessary to identify, is NorthAxis Pty Ltd (“NorthAxis ”), which was incorporated on 30 April 2007. The purpose for the incorporation of NorthAxis was so that it could be the purchaser, as part of the restructure scheme, of the Fairfield property. NorthAxis was owned by Mr Abu-Mahmoud and Mr Trad in equal shares.

34. Mr Kemal Shockair was the accountant retained by Mr Abu-Mahmoud to prepare the accounts for each of the developments. It was he who initially dealt with the Australian Taxation Office (“ATO”) about the tax affairs of Elite and Fairchild. He prepared the accounts for those companies. An error by Mr Shockair lead to the existence of the tax liability in Fairchild, and the possible tax liability for Mr Abu-Mahmoud which lead to his seeking advice about any way he could protect his personal position against that liability.

35. Mr Alf Chehab was a timber merchant of some significant means. He was accustomed to invest in, or to undertake property developments which ranged from a small number of townhouses to a combined shopping centre and residential apartment complex. He had known Mr Abu-Mahmoud since about 1995 or so. Mr Abu-Mahmoud had provided him with structural engineering services on some of his development projects and also on his own personal home. Mr Chehab and Mr Abu-Mahmoud had been participants in a joint venture. Mr Abu-Mahmoud sold his share of the joint venture to Mr Chehab. According to his unchallenged evidence, Mr Chehab reposed great trust in Mr Abu-Mahmoud.

The Developments

36. In 2001, Mr Abu-Mahmoud, Mr Trad and Mr Skaf decided to undertake a development with respect to a property at Dee Why (“the Dee Why development”). Fairchild was the corporate vehicle used by these three investors, either personally or by their companies, to undertake the Dee Why development.

37. The Dee Why development was designed and constructed between about January 2002 and February 2004. The development was on-sold and profits were distributed to the shareholders by way of dividend by the end of that period.

38. In November 2002, Mr Abu-Mahmoud, Mr Trad and Mr Skaf decided to develop a property which had been purchased in Brookvale (“Brookvale development”). The development was to be carried out by using Fairchild as the corporate vehicle. Land was purchased in November 2002.

39. The Vaucluse development was one being undertaken by Mr Abu-Mahmoud and Mr Trad. Mr Skaf had no role to play in this development. The vehicle being used for the Vaucluse development was, as I have earlier indicated, Elite. The funds for the Vaucluse development were advanced by the Arab Bank. At the time of the various events concerning the Fairfield development, Elite was in litigation with the Arab Bank about its funding of the Vaucluse development. Mr Kassem was acting for Elite in that litigation.

40. In addition to these joint developments, Mr Abu-Mahmoud himself had purchased two other properties. One was at Condell Park, for which he had borrowed money from the St George Bank to fund the purchase. The other property which Mr Abu-Mahmoud held, was one at Lidcombe. He borrowed $574,000 from the St George Bank to fund the purchase of that property. Mr Abu-Mahmoud intended to develop each of the Condell Park and Lidcombe properties. However, no steps had been taken so to do at the time of the Fairfield development.

The Fairfield Development

41. In mid-2003, Mr Abu-Mahmoud, Mr Trad and Mr Skaf decided to purchase for develop a property at 82-94 Ware Street, Fairfield (“the Fairfield development”). There was an existing shopping centre complex on the Ware Street site.

42. This Fairfield purchase and development was carried out using Fairchild, again, as the development vehicle. The Fairfield development was significantly larger than previous developments. Capital needed to be borrowed.

43. In November 2003, the available capital, in round figures, for the Fairfield development, consisted of $3.5 M raised by the three joint venturers – Mr Abu‑Mahmoud, Mr Trad and Mr Skaf. In addition, a sum of $5 M was needed by way of borrowed capital. Initially, at least Mr Abu-Mahmoud understood that that sum was to come from the Arab Bank. After exchange of contracts and prior to settlement of the purchase, the Arab Bank declined to advance the funds. The monies were ultimately borrowed from the St George Bank.

44. It will be necessary to describe, in some detail, the events connected with the Fairfield development, and to make findings with respect to it.

45. On 27 May 2004, Fairchild exchanged contracts to purchase the Fairfield property. The purchase price was $7.55 M. There were in fact two contracts exchanged which dealt separately with the various parcels of land which comprised the site upon which existing development had been constructed. Nothing turns on that fact. It will be convenient to regard the purchase (and sale process) as a single contractual process.

46. As indicated earlier, it was initially proposed to raise the balance of the required funds to purchase the property from the Arab Bank. The Arab Bank did not advance the funds.

47. At, or shortly after, the time of the exchange, because of the falling values in the property market generally, and the falling value of the Fairfield property, Mr Abu‑Mahmoud formed the opinion that the value of the property needed to be increased above the nominated purchase price, so as to enable Fairchild (and thereby its investors) to have sufficient equity to justify the proposed borrowing. He determined that the way in which to do this was to lodge an application for development consent for the redevelopment of the site. To enable this to happen, he needed, and obtained, an extension of the settlement period which had been originally agreed at the time of exchange of contracts.

48. On 20 October 2004, Fairfield Council granted consent to the development application submitted by Mr Abu-Mahmoud. That development consent was valid for a period of two years.

49. Settlement was extended from 29 October 2004 to 10 December 2004. It in fact occurred on that day.

50. The purchase was funded by the St George Bank. It provided a loan of $5.75 M, which was apportioned as to $5 M to the Fairfield development and as to $750,000 to repay the National Australia Bank with respect to a loan which it had made to Elite with respect to a development at The Entrance. The term of the St George Bank loan was 18 months from the first draw‑down, which occurred at settlement on 10 December 2004.

41. At the same time, the St George Bank also loaned to the joint venturers the sum of $3.75 M as a construction and development facility for the Brookvale development. The term of that loan was 12 months from first draw-down.

42. As I have said, the existing property at Fairfield was a shopping centre. It was a relatively modest facility. The development which was planned by Mr Abu‑Mahmoud, Mr Trad and Mr Skaf to replace it incorporated a new shopping centre, commercial offices and residential apartments. It was a considerably bigger development than the existing one.

43. When the Fairfield property was purchased, there were existing shops and businesses which were operating in it. As a consequence, Fairchild received rents from the businesses operating in the centre. One of the owners of those businesses was Mr Abdul Antar, who operated a fruit and vegetable shop. The question of whether Mr Antar had an agreement for lease with Fairchild, and was therefore entitled to a lease in registrable form with respect to his fruit and vegetable shop, and, if so, what the terms of that lease were, is a central one in the unfolding of the events with respect to the Fairfield development.

44. It is convenient to deal now with this question.

Agreement to Lease with Abdul Antar

55. In December 2005, Mr Antar approached Mr Abu-Mahmoud about leasing a fruit shop in the Fairfield property. A discussion took place about the terms of a possible lease.

56. On 17 February 2006, Mr Antar sent a document by facsimile to Mr Abu‑Mahmoud setting out the terms of a proposed lease. Mr Abu‑Mahmoud and Mr Skaf signed the facsimile and returned it to Mr Antar, indicating their agreement to a lease on the terms set out.

57. A solicitor at Atkinson Vinden Heazlewood Lawyers (“AVH”) was instructed by Mr Abu-Mahmoud to prepare a formal lease between Fairchild and Mr Antar based on the terms set out in the facsimile.

58. The facsimile of 17 February 2006, contained an outline of the proposed agreement. When signed and returned, it was in this form:

“This is an outline of our agreement:

Lease term of 3 x 2 years of $125,840 pa inc GST with a 4% increase each year. There will be a demolition clause in the last 2 years. If the lessor decides to vacate the tenant in the first year and a half of the last 2 years, there will be a compensation to the tenant of that year value of rent.

After the construction and completion of the new building there will be an option for the tenant to take up a 5 x 5 year lease at a rate of $160, 160pa inc GST for the same area of existing premises.

The new premises is to contain at least the same width of Ware street exposure as to existing premises.

New premises is to have all general facilities to council requirements i.e. roof, roller shutters, electricity and water systems in place.

There to be a restriction clause: the landlord will not lease another premises with the same business.

There are two option for the lessor: 3 month free rent to tenant from 1/2/06 or 3 month free rent to the tenant from the signing of the lease with a clause stating that if the tenant trades earlier than the 3 month the rent starts from that time.

The tenants will supply with 3 month bond of rent and 1 month rent in advance, as deposit as soon as the lease is signed.” (sic)

59. The strike though in clause 6 was inserted by pen before the facsimile was signed by Mr Abu-Mahmoud and Mr Trad and returned to Mr Antar thus signifying their acceptance of the proposed lease agreement.

60. On 20 February 2006, Mr Abu-Mahmoud spoke with his solicitor at AVH, and instructed him that he wanted “a harder term” of the lease, and informed his solicitor that he would send through new instructions, about the acceptable lease terms.

61. By an email dated 1 March 2006, AVH confirmed to Mr Abu-Mahmoud that they had received instructions to prepare a lease to Mr Antar for part of the shopping centre at Ware Street, Fairfield. This email made no specific reference to the terms of the conversation of 20 February 2006, but Mr Abu‑Mahmoud was asked to provide instructions with respect to a number of issues which would enable the preparation of a written lease. AVH drew Mr Abu-Mahmoud’s attention to the Retail Leases Act 1994 which required a disclosure statement to be provided to Mr Antar prior to his entering into a lease. A draft disclosure statement was provided. There was apparently no prompt response to this letter.

62. The solicitors followed that up with a further email to Mr Abu-Mahmoud on 7 March 2006.

63. On 13 March 2006, Mr Abu-Mahmoud contacted AVH and provided them with answers to the four questions which had been originally raised. Specifically, AVH was instructed by Mr Abu‑Mahmoud that there would be no compensation payable on vacation of the tenant.

64. On 21 March 2006, AVH forwarded to Mr Antar’s lawyers an email which included a covering letter, the lease in duplicate, a relevant Retail Tenant’s Guide and a Disclosure Statement. The letter noted that the documentation was “forwarded subject to our client’s final approval”.

65. The letter required the return to AVH of the signed lease in duplicate, the signed Disclosure Statement, cheques in various amounts and a bank guarantee.

66. On 3 April 2006, Mr Antar’s lawyers, El Masri & Associates (“El Masri”), wrote to AVH indicating that the terms of the lease which had been forwarded did not accord with the agreement between their respective clients. In particular, the letter of El Masri noted that the following terms were agreed to, but were not contained in the lease:

“1.   If the lessor decides to issue a notice to the less[ee] to vacate the premises within the first year and a half of the last two years of the option, the lessor must pay compensation to the lessee of the total rent for that year.

2.   At the completion of the construction and completion of the new building, there will be an option for the tenant to take a 5 x 5 year lease in the new premises with a rent rate of $160,000 pa inc GST for the same area of existing premises. Our client measured an area of 415m2.

3.   The new premises are to meet all council requirements including roller shutters, electricity and water systems in place.

4.   The new premises to be the same width, facing Ware Street as exposure. Lessee measured 10.9m facing Ware Street.

5.   There is to be a restriction of trade clause: the landlord will not lease another premises to a similar business as the tenants, namely fruit and vegetables and groceries.

6.   The lessee has permission from the landlord to remove internal wall petition and glass petitions.”

67. On 13 April 2006, AVH wrote to Mr Abu-Mahmoud, enclosing the letter which it had received from El Masri, and seeking instructions.

68. On 18 April 2006, Mr Abu-Mahmoud responded to that letter by an email in the following terms:

“1.   Yes, we did agree on this, but the compensation should be drafted along these lines. If we terminated the lease sometime in the first year, then we will compensate him for the remainder of that year. The same applies for the second year. But if we ask him to terminate the lease by the end of the first year, then no compensation is payable. Secondly, we have the right to refuse him the 2 year option period. However, we must pay him one year compensation for such actions.

2.   Yes, we did agree to such a condition. However, the rate of the lease will be at market value, not one that is determined today.

3.   NO. The new premises shall be constructed to counsel’s wishes and to all relevant codes and standards. We will not accommodate the wishes of any other person.

4.   No, not necessary. The new premises shall be of approximate area. The face to Ware Street is one that is difficult to accommodate as we have not yet submitted our revised design and thus we do not have any idea as to the setup of the proposed design.

5.   OK.

6.   Agreed.”

69. Upon receipt of that set of instructions, AVH wrote to El Masri a letter of 18 April 2006. That letter was sent by email on 19 April 2006. Considerable time then passed before there was any further correspondence with respect to the lease.

70. On 27 November 2006, AVH sent an email to Mr Abu-Mahmoud in the following terms:

“The tenant’s solicitor has advised that the tenant has obtained the required 3 months security bond (finally!).

Prior to finalisation of the documents however, they are requesting an amendment to the clause 27 – Right of First Refusal, so that it will show that the rent for the new premises will be $160,160 inclusive of GST (as per the initial Letter of Offer from the tenant). The lease currently refers to the rent for the new premises being $160,000 plus GST.”

71. The email sought instructions. An email was sent the same evening by Mr Abu-Mahmoud with his instructions in these terms:

“Thanks for your email. No I do not agree with this amendment. The lease shall be set at $160,000 plus GST. In addition the roller door issue has not yet been resolved.

As I mentioned earlier, I do not want to sign a lease for this tenant. I have waited for him for almost 12 months to get his act together and I am not willing to sign anything for him. I am happy for him to remain for as long as he wishes. Thus my intention is prolong the matter as long as he did.”

72. It appears that by this stage, Mr Antar had in fact entered into possession and was paying rent, although he had not paid the necessary bond as required. Clearly, Mr Abu-Mahmoud wanted to place himself in the best possible position which he could, namely to have an ongoing tenancy and payment of rent, but without a fixed term lease and ongoing obligations after the development was completed. He also does not seem to have appreciated, or been advised, that there was in fact an agreement to lease on reasonably ascertainable terms, which obliged Fairchild to enter into an executed lease with Mr Antar.

73. There were further communications between Mr Abu-Mahmoud and AVH. On 8 January 2007, AVH sent an email to Mr Abu-Mahmoud confirming advice with respect to difficulties that may be encountered when a tenant takes possession of premises prior to finalisation of lease documentation.

74. The email also dealt with the question of the impact of the Retail Leases Act with respect to the allowable term for the tenant. It went on in these terms:

“We note your subsequent instructions that you wish to grant the tenant a maximum 2 year lease (with no option to renew). Presumably all other terms will remain the same i.e. rent, outgoings etc.

…

Please note that the tenant’s solicitor may raise the point that there was an ‘agreement for lease’ in place on terms previously discussed (including the option to renew with the demolition clause). This is a complicated area of law and unfortunately there is no black and white approach to such an issue, but you should be aware that it may pose some problems if the tenant’s solicitor raises it.”

75. On 8 January 2007, Mr Abu-Mahmoud responded to that email with the following instructions:

“Can you please add to this that our circumstances have dramatically changed since February 2006 and we are no longer able to uphold the agreement and terms of agreement discussed then. The length of time it has taken for you to provide the necessary documents has now nullified the initial agreement, and thus we are now able to accommodate the following …”

76. This was followed up by a further email by Mr Abu-Mahmoud to AVH in the following terms, on 10 January 2007:

“I have a serious problem with Abdul Antar the tenant with the fruit shop. Council has written to me and has served an order on to me and has threatened to fine me if the condition of the arcade remains in the state it’s currently in. I have since spoken to my cleaner who takes care of the premises and he has indicated to me that Abdul has requested that he be permitted to open and close the arcade. This is a task commonly carried out by my cleaner and thus this convenient arrangement between the pair has placed me in a very difficult and embarrassing situation. …”

77. The email went on to deal with a series of issues relating to the tenancy of Mr Antar. The email concluded with the following:

“I need all of the above issues addressed as soon as possible. Abdul’s solicitor shall be made aware of the issues at hand with a consequence that he may face if these issues are not tackled immediately.”

78. Importantly, the instructions from Mr Abu-Mahmoud to AVH did not include any instructions to use this conduct as a basis for asserting either a repudiation of the lease or a termination of it. Nor did AVH proffer any advice as to whether Mr Antar’s conduct may have permitted such an approach.

79. On 12 January 2007, Mr Abu-Mahmoud spoke to AVH by telephone. He instructed them that he still wanted the tenant, Mr Antar, in “for now”, but that he didn’t want him in the new premises when built. He specifically drew attention to the fact that Mr Antar was in breach of the terms of the proposed lease, because he had not paid any security deposit and because of failure to comply with other terms of the lease.

80. The solicitor made a note that he assumed that possession had been entered into because the tenant has been paying the rent, and Mr Abu-Mahmoud did not instruct him otherwise.

81. The note goes on to record:

“Raised the issue with the rent for the new premises? Client wants to leave other ‘new’ lease issue for now. See what happens later, close to the end of the 3 year term.”

82. Those instructions were acknowledged by AVH on 16 January 2007.

83. On 25 February 2007, Mr Abu-Mahmoud sent an email to AVH in the following terms:

“I wish to discuss the current situation of the fruit shop located at the abovementioned premises. I have met with Abdul Antar and his father on two occasions, on the first occasion the father was not present (7 and 16 February). We have been unable to come to any real resolution. On both occasions Mohammad Trad (my partner) was present. Abdul seems adamant that he requires a solid lease of at least 5 x 5 or as per original agreement. He has noted that his whole aim is to sell the business and make a handsome profit from this, and without a lease it would not be possible.

I have indicated to him that I will not be able to accommodate him on such terms, however, I am able to give him a 3 x 2 lease with a demolition clause on the last 2 years. He does not find this acceptable. We are not quite bewildered (sic) and need directions as to where we go from here. I am leaning towards forwarding a lease to his solicitor which reads something along the lines of what is acceptable to me and failure to sign this lease will mean that he will be allowed to remain on a month-to-month basis. Please advise me as to what is the best method of approach at this stage.

… In addition, I also wish to bring to your attention that the abovementioned property will be sold in the near future to a new entity … Can you please take this scenario on board when replying to my email. What will be the position of the new company with respect to the current tenant? And what obligations does the new company have to the current tenant? In addition, what will Fairchild need to do prior to the effect of sale to safeguard the new company against this current tenant?”

84. The evidence is silent as to any response by AVH to these questions from Mr Abu-Mahmoud.

85. On 4 May 2007, Mr Antar caused a caveat, ultimately numbered AD72616A, to be lodged over part of the premises of Ware Street, Fairfield. He described his caveatable interest as a leasehold interest pursuant to agreement dated 17 February 2006. He described the relevant facts in the following terms:

“On 17 February 2006, the caveator sent a facsimile to Muhammed Mahmoud (described in ASIC company extract …) a director of Fairchild Development Pty Ltd and described thus ‘this is an outline of our agreement’. Mahmoud signed the fax and sent it back to the caveator by return fax.”

86. The existence of the caveat was brought to Mr Abu-Mahmoud’s attention probably by about 14 May 2007. Mr Abu-Mahmoud says, and Mr Kassem agrees, that at that time a conversation took place between them the following effect:

“Kassem:   Antar’s caveat needs to be removed or otherwise the contract cannot be completed.

Abu-Mahmoud:   Well what can we do to remove it? It’s vital that the contract proceeds to completion so that we can discharge the liability and the personal guarantees.

Kassem:   A transfer can’t be registered against the title of the Fairfield property because the caveat will prevent it. The caveat must be removed first.”

87. Mr Kassem accepts that this was the substance of the advice which he gave at that time, and that at the end of that conversation he was instructed by Mr Abu-Mahmoud to “get the caveat removed”.

88. On 14 May 2007, and apparently for the purpose of carrying out his instructions, which accorded with this advice, Mr Kassem telephoned Thurlow Fisher, solicitors, who by that stage were acting for Mr Antar in place of El Masri. After the telephone conversation, there was an exchange of correspondence.

89. Although his name dos not appear on the letter as the “responsible person”, I am satisfied having regard to the co-incidence of subject matter and phrases used in the telephone call just referred to, and this letter, that it was Mr Kassem himself, who then wrote to Thurlow Fisher in the following terms:

“We refer to the writer’s telephone attendance with you earlier this morning, and confirm we are the solicitors for Fairchild Development Pty Ltd, and an associated company, Elite Apartments Pty Ltd.

We refer to the caveat lodged by your client, Mr Abdul Rahim Antar, against our client’s property at 1-5/82 Ware Street, Fairfield.

As advised in our said telephone attendance, we put your clients on notice of the following:

The subject property is due to be sold to a third party for a price in excess of $5 million and is due to settle on Wednesday 16 May 2007; and

Part of the proceeds of the sale are to be utilised to conduct litigation proceedings involving Elite Apartments Pty Ltd.

As you are aware, if your client maintains there (sic) caveat, it would jeopardise the sale and conduct of legal proceedings for Elite Apartments Pty Ltd. Any undertaking as to damages by your client would cover such damages.

Our client wishes to mitigate any damages arising and seeks your client consent to withdraw the caveat to allow the settlement to proceed, and to lodge a fresh caveat after the settlement. We advise that the purchasing company has the same directors and shareholders of the current vendor company.

Our client reserves their right in respect to contesting the said caveat and the substantive claims upon which it is based.”

90. For the reasons which I discuss later in this judgment, I am satisfied that this letter contained material which was, to Mr Kassem’s knowledge, incorrect. There was no contract which had been exchanged at that time, and there was no settlement due to take place within the 48 hours of the letter being sent.

91. Thurlow Fisher responded promptly on the same day. Their response said:

“We note that:

On 2 March 2007 we wrote to your client’s former solicitors Atkinsons Vinden Heazlewood (AVH) setting out our client’s position in this matter (copy enclosed for your reference);

On 5 March 2007 AVH acknowledged receipt of our 2 March letter and advised that ‘we are currently seeking our client’s further instructions and will provide you with a response in due course’;

On 22 March 2007 we followed up AVH in relation to their response to our 2 March letter; and

In the absence of a response from your client or AVH and in order to protect our client’s position, we subsequently prepared and lodged a caveat on our client’s behalf.

…

In relation to the alleged sale, given the correspondence that is set out above, your client must have known of the existence of our client’s claim at the time of the sale and has had ample opportunity to take the appropriate steps in relation to the caveat. Your client has failed to do so.

…

We advise that our client will not agree to provide a withdrawal of caveat as requested. If our client were to consent to the sale of the property to “a third party”, one of the remedies currently available to him, namely, specific performance of the agreement between our clients, would be obliterated and no longer available to our client.

In the event that your client sees fit to apply for the issue of a lapsing notice, and serves such notice upon our client, we advise that we are instructed to make the necessary application to the Duty Judge for the extension of the operation of our client’s caveat.”

92. This was responded to by Mr Kassem, in the following terms:

“We confirm our client’s offer to enter into a deed whereby any rights your client may have against Fairchild Development Pty Ltd would be equally enforceable against the purchaser of the land being NorthBridge Investments Pty Ltd.”

93. On the following day, Thurlow Fisher responded:

“The dispute between our clients could easily be resolved by the submission to our client by your client of a lease in conformity with the Agreement to Lease between the parties of 17 February 2006. We note that the parties have acted in accordance with the Agreement to Lease for over one year, and a lease submitted in conformity would not alter the position between our clients.

If a lease in conformity with the Agreement to Lease was submitted to our client, we could have it executed and returned without delay for you to attend to registration with LPI. The ‘third party purchaser’ would then take their interest subject to the lease.”

94. That letter was responded to by Mr Kassem on 21 May 2007 noting that Fairchild denied Mr Antar’s claim. It is unclear what instructions Mr Kassem had which enabled him to write that letter.

95. On 4 June 2007, Mr Kassem wrote to Thurlow Fisher a “Without Prejudice” letter in which, on behalf of Fairchild, an offer with respect to a proposed lease was made. The letter said:

“We … offer a lease to your client on the following terms:

Three year with a two year option;

Rent commencement to be February 2006;

Initial rent to be $125,840 per annum including GST with annual rent increase of 4% each year; and

Demolition clause in respect to the premises for the option period of two years.

Please advise if this is accepted by your client and we will immediately prepare appropriate lease documentation.”

96. The impetus for this letter was instructions received by Mr Kassem from Mr Abu‑Mahmoud at an early hour on 4 June 2007, by email. Mr Abu‑Mahmoud asked Mr Kassem if he could make an attempt to finalise the lease between Fairchild and Abdul Antar. He added these remarks:

“I think it would be in our favour to do this before we exchange contracts with NorthAxis on this property. At this point of time we are still in control of the matter and any delay will hinder this process. If you need any further information regarding the shop or any other matter regarding the premises, please contact [the real estate agent].”

97. The without prejudice letter from Mr Kassem to Thurlow Fisher was responded to promptly, on 4 June 2007. That letter in response read:

“We refer to your letter of even date and are somewhat surprised by your client’s instructions. This offer to lease is substantially different to what our respective clients have agreed to.

We refer to our letter to you dated 14 May 2007 which is quite clear as to the agreement between our respective clients.

We enclose again a copy of the terms and conditions as agreed and signed by your client. We advise that pursuant to that agreement, our client has continued to pay monthly payments as agreed and carried out extensive renovations at a substantial cost. Pursuant to the doctrine of part performance, both parties have agreed on terms and have acted in accordance with those terms. It is your client’s obligation to provide our client with a registrable lease in accordance with the terms and conditions agreed to by the parties on 17 February 2006.

Kindly forward a lease pursuant to the agreement of 17 February 2006, so that we may finalise this matter urgently in the interests of both parties.”

98. On 6 June 2007, Mr Abu-Mahmoud wrote the following to Mr Kassem in an email:

“Mohammed Trad met with Abdul Antar of the fruit shop located within the abovementioned premises. It appears that he is not willing to budge in any shape or form. I do not know how to solve this problem as he has probably been informed that he is in a good position to proceed further.

This is not going to be an easy solution. What do you suggest?”

99. The discussions between Mr Trad and Mr Antar led to yet another “agreement”, which was acceptable to Mr Antar. That agreement was set out in a letter from Thurlow Fisher to Mr Kassem dated 21 June 2007. The relevant part of that letter was:

“We have been instructed that our respective clients have been in discussions, yet again, in relation to this matter and confirm that the following agreement has been reached:

Five year term with a five year option.

Rent commencement to be February 2006.

Initial rent to be $125,840.00 pa including GST with annual rent increase of 4% each year.

A warranty by your client that they will not demolish the building during the lease and option periods.”

100. The letter called for a formal lease to be forwarded.

101. On 18 July 2007, Mr Kassem responded to Thurlow Fisher’s letter of 2 July 2007, by saying that his instructions were that no such agreement had been reached.

102. A further offer was made in these terms:

“Our client is prepared to offer your client a lease with the terms set out at point 1 to the letter from Fruitopia Fresh which allows for a lease of 3 x 2 years at a commencement of rent at $125,840 pa including GST with an annual increase of 4%. Further, the lease allows for a demolition clause in the last two years, if the lessor decides to vacate the tenant in the first year and a half of the last two years, the lessor will pay compensation for that period.

It is advised that your client accepts the lease with the terms set out above, otherwise our client’s instructions are to proceed with a further lapsing notice on your client.”

103. The confusion in the various offers and respective positions continued until 7 August 2007. On that day, Mr Kassem wrote the following letter to Thurlow Fisher in response to their letter set out in [99]:

“We refer to the above matter and to your correspondence dated 21 June 2007.

Using the same numbered paragraphs as set out in our your letter, our client agrees to the following:

Agreed.

Agreed.

Agreed.

Not agreed.

Please advise if your client agrees with these terms. If your client does not agree, we will be forced to serve a lapsing notice.”

104. On Friday 10 August 2007, Mr Abu-Mahmoud provided further written instructions about a variety of matters. In the course of that email with respect to the lease to Mr Antar, he said:

“Has the amended terms of the lease (5 x 5 with a demolition clause in the last 5 years) been issued to Abdul Antar? And has the lapsing notice been issued? This matter needs to be resolved ASAP.”

105. There does not seem to have been an immediate response to this correspondence. As will be apparent from other facts described, Receivers and Managers were shortly appointed to Fairchild in November 2007. Kemp Strang Solicitors were appointed to act for the Receivers and Managers (“the Receivers”). Mr David Bucci was the relevant officer giving instruction on behalf of the Receivers.

106. On 20 April 2008, Mr Graham, the partner at Kemp Strang acting for the Receivers, wrote a letter to Mr Bucci which included the following report with respect to the Antar lease:

“The matter is not without its difficulties insofar as the existence of a lease in favour of Antar is concerned. That is primarily because he has been in occupation of the property and paying rent for several years. What the terms of that lease are is another matter. He will no doubt assert an oral agreement between Fairchild and he, which agreement is the one that both parties have been performing for some years.

I have not taken up with Thurlow Fisher the notion of whether there is a lease or not. I am hoping that the solicitor for Antar misses that issue, gets overwhelmed with all the other issues and takes the easy way out by giving us a withdrawal of caveat.

The land has been sold subject to tenancies. The LTO must not refuse to register any dealing which does not affect the interest claimed in the caveat (which they have not expressly put at the moment, will, once someone a bit switched on gets hold of the matter, be described as leasehold). The interest of any tenant in occupation of which NorthAxis has notice, will not be affected by the transfer of the property to NorthAxis. There can be no doubt that NorthAxis has the requisite notice given the role of Mahmoud in both Fairchild and NorthAxis.

If a leasehold is ultimately asserted, we should be able to get the Court to remove the caveat anyway, either on the basis that the tenancy, whatever its terms are, will prevail against NorthAxis, of if there is no tenancy, there is nothing to protect.”

107. Further correspondence indicates that it appeared that Mr Graham of Kemp Strang, having made appropriate enquiries, decided that it was necessary to proceed to litigation with respect to the caveat.

108. Application was made to the LTO for preparation of a lapsing notice. It was lodged by Kemp Strang on 28 April 2008.

109. On 11 June 2008, Kemp Strang told Mr Kassem, who by that stage was practising as S K Lawyers, that the Receivers were presently endeavouring to effect the withdrawal of the caveat lodged by Abdul Antar so as to enable completion of the contract with NorthAxis to take place.

110. On 16 June 2008, Palmer J, sitting in the Equity Division, ordered that the caveat lodged by Mr Antar, subject to the proffering of an undertaking as to damages, be extended. In effect, at that stage, it was determined that Fairchild had a lease obligation to Mr Antar which Mr Antar was sufficiently entitled to continue to assert.

The Relationship between Mr Kassem and Mr Abu-Mahmoud

111. This is an issue about which the parties are at odds. First, there is dispute about the date when the relationship of solicitor and client commenced. Secondly, there is a dispute about whether Mr Kassem had a solicitor/client relationship whilst working for Consolidated, with anyone other than Elite. Thirdly, there is a dispute about the metes and bounds of the relationship which did exist.

112. According to Mr Abu-Mahmoud’s affidavit of 30 July 2012, he first met Mr Kassem through Mr Skaf in about mid-2004. He says that at that meeting he was informed that Mr Kassem had recently opened a law firm with a friend from university. Mr Abu-Mahmoud goes on to say that he first retained Mr Kassem in March 2005 to undertake the conveyancing for the Vaucluse development which was being undertaken by Elite.

113. It is clear that Ms Kassem was not the only lawyer used by Mr Abu-Mahmoud and Mr Trad. In February 2006, they retained Mr Guy Vinden at AVH to do the conveyancing for the development which had been undertaken at Brookvale. He also retained AVH at least, initially, to deal with the lease question with respect to Mr Antar and the Fairfield development.

114. In 2006, a complication arose with respect to the Vaucluse development. The Arab Bank, which was the financier of the development, had been sued by Perpetual Trustees and First American Title Insurance Company of Australia. Those companies claimed to have been defrauded, and that Arab Bank was in part responsible for such fraud.

115. That litigation suggested a connection to the sale of two of the units making up the Vaucluse development. The Arab Bank took possession of the entire Vaucluse development claiming to exercise rights under the finance agreement relating to the Vaucluse development.

116. Mr Trad and Mr Abu-Mahmoud, according to Mr Abu-Mahmoud, engaged Mr Kassem to act for them, and Elite as their solicitor, for the purpose of suing the Arab Bank with respect to an allegation of wrongful taking of possession of the entire Vaucluse development.

117. Mr Kassem accepts that he was instructed to do the conveyancing work for the Vaucluse development, and to conduct the litigation between Elite and the Arab Bank. His instructions came from either or both of Mr Trad and Mr Abu‑Mahmoud. They were the directors and shareholders of Elite. Elite was the corporate vehicle being used to conduct the property development at Vaucluse.

118. No letter of retainer has been tendered. Any conclusion about the retainer must therefore be drawn from such evidence as is available, and such inference or implication as is necessary to be made.

119. I am satisfied that Mr Kassem the solicitor, was acting for Elite in the two respects to which I have just referred. He was also acting in the interests of Mr Abu-Mahmoud and Mr Trad. There is little doubt that their interests and Elite’s interests were the same. Mr Kassem was their solicitor, insofar as they were dealing with the Vaucluse development. I am satisfied that a retainer existed with Mr Kassem which he entered into in his capacity as a solicitor who was then working for Consolidated. Thus, they were also retained.

120. In the course of that, on 30 May 2006, AVH sent a facsimile to Mr Kassem at Consolidated, informing him that the Deputy Commissioner of Taxation had served a Creditors Statutory Demand on Elite on or about 27 April 2006, seeking payment of an outstanding tax debt of about $496,000. By the time of this facsimile (about a month after the service of the Creditors Statutory Demand), the sum owed to the Deputy Commissioner would have increased.

121. The facsimile said:

“We have engaged in preliminary correspondence with the Deputy Commissioner of Taxation with a view to brokering an arrangement whereby our client will pay the debt to the ATO from the proceeds of the sale of the Vaucluse property.

The ATO has provisionally agreed to this arrangement on the basis that a garnishee arrangement is formally entered into with you.

We are instructed that our client agrees with this arrangement and directs you to take all reasonable steps to have the arrangement fully entered into.”

122. On 7 June 2006, Mr Kassem wrote to the Australian Taxation Office (“ATO”) asking that it “… forward to our office a garnishee order as soon as possible”.

123. This particular incident was dealt with as a part and parcel of Mr Kassem’s retainer for Elite and its principals with respect to the Vaucluse development.

124. According to Mr Abu-Mahmoud, in August 2006 he was informed by Mr Shockair that the ATO was about to conduct an audit of Fairchild’s affairs. He was later informed that the result of that audit was that Fairchild owed about $400,000 in tax. This came about he said because of a miscalculation made by Mr Shockair with respect to the GST for the development which Fairchild had carried out at Brookvale.

125. Mr Abu-Mahmoud says that he, Mr Trad and Mr Skaf, who was a partner in the Brookvale Development, but not the Vaucluse development, discussed what needed to be done with respect to the ATO requirement arising out of the Brookvale development. He says that he and Mr Trad decided to fund their share out of the expected profits from the Vaucluse development. That decision was made prior to the litigation commencing with respect to the Vaucluse development.

126. Mr Abu-Mahmoud says that, because he could not ultimately fund this tax bill from the expected profits of the Vaucluse development, he sought to find another solution. He says that between September and November 2006, because he and Mr Trad were regularly consulting with Mr Kassem with respect to matters concerning the litigation about the Vaucluse development, they decided to retain Mr Kassem to deal with the Brookvale development tax liability problem of Fairchild. He says that he retained him in a meeting in circumstances where he asked Mr Kassem to liaise with the ATO about the $400,000 tax liability. He then says that in mid-November 2006, he and Mr Trad met with Mr Kassem at which meeting he (Mr Kassem) gave them advice which dealt with the rearrangement of Fairchild’s affairs so that Fairchild would have no relevant assets, and could be wound up without having to meet any liability to the ATO.

127. Mr Kassem denies such a retainer, or perhaps denies that his existing retainer was extended to encompass this additional subject matter.

128. Mr Abu-Mahmoud asserts in his affidavit that the retainer occurred orally, in mid‑November 2006, at a meeting at which Mr Kassem was present with Mr Abu-Mahmoud and Mr Trad. He said that at that meeting, Mr Kassem advised him and Mr Trad that they should incorporate a new company which would purchase the Fairfield property which was Fairchild’s only significant asset. The sale price should be as low as possible “… provided that it is still commercial, otherwise, one way or another, the sale might be undone …”. He said that he and Mr Trad were advised that they should resign as directors of Fairchild after the sale, and appoint someone as sole director “… who has nothing to lose”. He said that he and Mr Trad were advised that after the sale the incoming director would place Fairchild into liquidation so that it would then be wound up with the effect that the ATO liability would remain with Fairchild and that Mr Abu-Mahmoud and Mr Trad would not have any personal liability with respect to that sum. It is convenient to refer to this advice as the “restructure advice”.

129. Mr Abu-Mahmoud’s evidence is that he broadly accepted Mr Kassem’s advice, although he formed the view that whatever the sale price of the Fairfield development was, it had to be sufficient so that Fairchild’s borrowings from the St George Bank would be repaid with the result that he would not be liable on his personal guarantee.

130. In some further discussions with Mr Kassem, Mr Abu-Mahmoud said that he, or Mr Trad, gave instructions for the company to be incorporated and for a contract of sale to be prepared.

131. Mr Abu-Mahmoud dates the advice he received from Mr Kassem, in the company of Mr Trad, as being in mid-November 2006. He says that shortly after he gave instructions to Mr Kassem, he received a letter from him dated 21 November 2006 with respect to the sale of the Fairfield development, which enclosed a retainer agreement with respect to that property. He also notes that on the same day, he received a letter from Mr Kassem entitled “Commercial Transaction” which referred to the setting up of a company which was then to be called BuildNorth Pty Ltd.

132. Mr Abu-Mahmoud gave evidence that at a second meeting on 22 November 2006, he and Mr Trad met Mr Kassem at the El Sweetie restaurant at Granville, where he was introduced to Mr Kassem’s brother, Ozem, who was a registered liquidator.

133. Mr Abu-Mahmoud derives that date from an entry which he made in his diary on the top of the page for that day, and which simply recorded the following: “Ozem the liquidator”. A mobile telephone number is recorded for Mr Ozem Kassem.

134. Mr Abu-Mahmoud says that in the course of the meeting at the El Sweetie Restaurant, Mr Kassem informed his brother of the reconstructed scheme about which they had previously received advice, and Mr Ozem Kassem said that the scheme was satisfactory and that he would be willing to participate by handling the liquidation of Fairchild.

135. According to the evidence of Mr Abu-Mahmoud, the description of the scheme given by Mr Kassem, the defendant, to his brother, Mr Ozem Kassem, the liquidator, is contained in these words:

“Ozem, I have advised Trad and Mohammed that they should incorporate a new company which should purchase Fairchild Development Ltd’s only significant asset, the Fairfield property. The sale price should be as low as possible, provided that it is still commercial, otherwise, one way or another, the sale might be undone. After the sale, Trad and Mohammed should resign as directors of Fairchild Development Ltd, and instead appoint someone as sole director who has nothing to lose. After the sale, the incoming director places Fairchild Development Ltd into liquidation so that it is then wound up. The effect of winding up Fairchild Development Ltd is that Trad and Mohammed no longer have any personal liability for the $400,000 tax liability.”

136. Mr Abu-Mahmoud says that one of the pieces of advice which he received from Mr Kassem was that it was necessary for a meeting of directors to be held and minuted with respect to the decisions of Fairchild about one step in the reconstruction scheme.

137. Such a meeting of Fairchild was held on 23 November 2006, and minutes were prepared, which were sent by facsimile to Mr Abu-Mahmoud on 24 November 2006. The minutes record a meeting on 23 November 2006, at which Mr Trad, Mr Abu-Mahmoud and Mr Skaf were each present.

138. The first item on the agenda was the liability for the ATO. The minutes record this:

“It is now apparent that we have a liability owing to the Australian Taxation Office (ATO) for the approximate sum of $505,000. In addition, we have continuously struggled to pay the shortfall on the mortgage for the Ware Street property. It sought to discuss how this debt can be paid.

Muhammad Abu-Mahmoud moves a motion to sell the Fairfield project known as 82-94 Ware Street, Fairfield. We should obtain a current valuation report from Landmark White and thus use this report as a benchmark to sell the property. The valuation figure shall be our reserve price. Our main objective is to pay the current debt owed to St George and all remaining monies shall be used to pay the Australian Taxation Office debt.”

139. The motion was carried according to the minutes, with Mr Abu-Mahmoud and Mr Trad in favour, and Mr Skaf against.

140. The second item discussed at the meeting, was a debt owed to Mr Shockair, the accountant for Fairchild.

141. Neither Mr Trad nor Mr Skaf, were called to give evidence during this trial and, accordingly, no account is available from either of them as to what occurred during these meetings.

142. Mr Ozem Kassem was called as a witness. In 2006 Mr Ozem Kassem was a registered liquidator, and had been working in the field of insolvency since 1991. He said that in his practice, leading up to and including 2006, he had not had any experience of working with companies which had not gone into administration or had a liquidator appointed. He specifically agreed that at that time he had no experience of restructuring companies, thereby avoiding administration or liquidation.

143. Mr Ozem Kassem recalled having a coffee meeting in Granville with his brother, Salem, and a gentleman called Mahmoud. He did not recall the date of the meeting when he gave evidence, but he was able to produce a diary timesheet for the week commencing 2 October 2006. On that weekly timesheet, on 3 October 2006, between 1300 and 1500 hours, there is recorded a two hour meeting under the heading “Salem and Elite Pty Ltd and Fairchild …”. With respect to the name of the matter of the firm for which he worked, what is recorded as “[internal] marketing”. He also produced his diary timesheet for the week commencing 20 November 2006. There were no entries for 22 November 2006 which referred to any meeting with his brother and Mr Abu-Mahmoud.

144. As well, the diary for 22 November 2006 records work against identified files for a total 7.5 hours on that day. The diary shows that he was engaged on those matters between 8.30am and 4pm. Based upon those diary entries, Mr Ozem Kassem concluded that the meeting at the El Sweetie Restaurant took place on 3 October 2006.

145. Whilst the diary entries of themselves are not conclusive, they do not support the meeting at the El Sweetie Restaurant taking place on 22 November 2006 as Mr Abu‑Mahmoud stated in his evidence. However, they do record a meeting of the kind to which Mr Abu‑Mahmoud referred as having taken place on 3 October 2006.

146. In his evidence, Mr Ozem Kassem said he had a general recollection of a meeting at Granville at a coffee shop. He said that he was able to generally recall the subject matter of the meeting. He said that it was about the possibility of placing Fairchild into liquidation. He was unable to recall who said what to whom during the meeting, but was able to recall some topics of discussion. He said that he remembered there was a discussion about outstanding tax debts. There was a discussion about a partnership dispute, and that he learned that there was a development site in Fairfield.

147. Mr Ozem Kassem said that he did not take any notes of the meeting. When pressed further, in his evidence in chief, he gave evidence of what he thought he would have said in such a meeting.

148. Mr Ozem Kassem was being asked when he gave evidence in December 2013, to recall what was said in a conversation which had occurred seven years earlier. He had declined to prepare a written statement setting out his version of events, and had not made any affidavit recording his version of the events. I accept that Mr Ozem Kassem could not remember what was said at that meeting. I found his evidence of reconstruction of what would have been said to be unconvincing. I do not accept that he has any accurate recollection of what occurred. I am unable to place any weight on his recollection as an accurate account of what occurred at this meeting.

149. There are some documents which assist in shedding some light as to when the meetings between Mr Trad, Mr Abu-Mahmoud and Mr Kassem took place.

150. The first is a Memorandum dated 13 October 2006 and addressed to Mr Kassem from Melissa Hoffman, a paralegal employed at Consolidated. It is entitled

“Re: Mohammed Abu-Mahmoud

Subject: Stamp Duty Research”

151. The body of the document reads:

“Salem,

I conducted the stamp duty research as requested and advise as follows:

Where property is owned by one company and transferred to another company with the same shareholding – stamp duty IS NOT exempt and therefore payable.

Stamp duty on a $5 million property is:

(a) residential - $290,490; and

(b) non-residential - $260,494.”

152. A file note of 20 November 2006, records two attendances by telephone between Ms Hoffman and Mr Abu-Mahmoud. The first notation on the file note refers to a telephone call of Friday 17 November 2006. It reads as follows:

“Mohammed contacted me, provided me with the details for the company set up. He advised he spoke at length with Salem regarding the matter and wanted the company set up as follows:

Company name – M&M Developments Pty Ltd;

All other company details to be exactly as they are for Elite Apartments Pty Ltd.

I conducted an ASIC search with respect to the availability of the above company name. The search concluded the name is currently identical to another company name.

I contacted Mohammed back and advised him of same. He said he would give me a call back in a few minutes as to suggestions for other company names.”

153. The second telephone call note referred to a telephone call on 20 November 2006. It reads as follows:

“Mohammed contacted me with respect to the company name. He advised that the company names he has chosen are (in order of preference):

BuildNorth Pty Ltd …

I conducted an ASIC search which revealed BuildNorth was not identical to that of another company and therefore available.

I contacted Mohammed to confirm its availability and confirm he wanted the “B” and “N” in caps and the rest in lower case.

I also confirmed the company details for Elite Apartments are current as to addresses etc., and confirmed I would be proceeding on that basis.

Mohammed confirmed these instructions.”

154. On 22 November 2006, Ms Mae Iborg, a conveyancer employed by Consolidated Lawyers, wrote a memo/file note. It was in the following terms:

“Re: your sale to …………………….

86-94 Ware Street, Fairfield.

Subject: S149 certificates”

155. The body of the document read:

“Telephone client on 17 November 2006 requesting to fax me details of the properties he is selling on Ware Street, Fairfield.

Mohammed advised he will fax me copies of front pages of contract when he purchased the properties.

Client also advised he will attend to the s 149 Certificates from Council.

A fax came in on Monday 20th from client forwarding two front pages of contract.

Ordered searches today.”

156. On 24 November 2006, according to a file note prepared by Mr Daniel Essey, a senior lawyer at Consolidated, he received a telephone call from Mr Kassem. He records the nature of the call in the following terms:

“[He] indicates to me that he is seeking contracts of exchange in this matter on Monday. I advised Salem that we needed authority from the client, that they have been advised that the property is taxable supply and GST liable. Salem confirms that the client will be in later this afternoon to execute the authority in his presence.”

157. There is no diary note made by Mr Kassem of the contents of any meeting which he had with Mr Abu-Mahmoud during which he gave any advice with respect to Fairchild, or the Fairfield development.

158. Mr Kassem gave evidence in his affidavit and in cross-examination, about this alleged retainer and the restructure advice.

159. It was Mr Kassem’s evidence that the conversation recounted by Mr Abu‑Mahmoud, to which I have referred in [128] above, did not happen. His evidence was that he did not, at any time, give the restructure advice. Rather, it was his contention that he had learned from Mr Abu‑Mahmoud or Mr Trad or both, that Fairchild was in some financial difficulty not only because of the ATO liability, but because the rent being received from the Fairfield development was not sufficient to cover the interest payments, and equity was being introduced into the company to enable it to stay solvent.

160. When he heard this, Mr Kassem suggested that Mr Abu-Mahmoud would be assisted by a discussion with his brother Mr Ozem Kassem and, accordingly, arranged a meeting at the El Sweetie Restaurant for them to meet Mr Ozem Kassem. He says that the restructure advice, or at least the essence of it, and a substantial part of it, was given at this meeting by his brother Ozem.

161. In support of his account of the advice, and his relationship with Mr Abu‑Mahmoud, Mr Kassem swore two affidavits. The first, dated 31 January 2013, was prepared by his then solicitor, Mr Hetherington of Colin Biggers & Paisley. In that affidavit he records a discussion with Mr Abu‑Mahmoud or Mr Trad or both of them, in which he was informed they were in financial difficulties and were having a dispute with Mr Skaf over a development which had been carried out with him at Brookvale. Mr Kassem suggested that this occurred in late 2006. He suggested that the conversation also had the following content:

“A development which we have been carrying out at Vaucluse is in difficulty because our financier, the Arab Bank, is being sued in relation to fraud concerning the conversion of a cheque or cheques and all transactions on that development have been frozen. As a result, we have not been meeting our mortgage repayments on a loan which we took out with St George Bank in order to acquire property in 2004 at Fairfield which we want to develop. Skaf and his wife are involved in that property and we need to get him out of that transaction.”

162. Mr Kassem says that it was at about that time he took Mr Abu‑Mahmoud and Mr Trad met with his brother, who was an accountant. He then gives a description of the meeting at the El Sweetie Restaurant. In this first affidavit, he gives an account of the effect of the words which he said at that the commencement of that meeting. The terms in which he gives that account are identical to the terms in which he gives an account of those opening words in his second affidavit, which was sworn on 23 October 2013, and prepared by Mr Robert Crittenden of DLA Piper Australia.

163. However, there is a significant difference between the first and second affidavit. Having set out the introductory words in his first affidavit, Mr Kassem denies the words attributed to him by Mr Abu‑Mahmoud and then says:

“I do not recall anything else which was said at the meeting, or any discussion concerning GST, although GST was something which I recall being raised by Mahmoud on a number of occasions, and it is possible that it was discussed at this meeting. There was no discussion at this meeting of any meeting of directors. I do not recall any advice which my brother gave them in the course of this lunch. I do not know whether he had any subsequent meetings or provided any advice to them.”

164. With respect to setting up the company and making other arrangements, Mr Kassem’s first affidavit records this:

“25.   At some time after this meeting, I recall discussion between myself and Mahmoud and Trad in relation to them setting up a new company. It was not my advice that this should be done.

26.   I had no knowledge at that time of the terms of any agreements or arrangements between Mahmoud and Trad and the Skafs, or of the details of their financial arrangements.”

165. Mr Kassem thus denies giving the restructure advice of the kind which Mr Abu-Mahmoud claimed. He also says that he has no recollection that his brother gave any advice, which I infer, included the restructure advice.

166. The effect of this account in his first affidavit is that he does not recall the restructure advice being given by him or in his presence. He seems to be advancing the view Mr Abu-Mahmoud and Mr Trad themselves came up with the restructure scheme.

167. With respect to setting up a new company, whilst denying that he gave any advice, Mr Kassem in his first affidavit gives an account of what occurred with respect to this. He said:

“I think it likely that the advice they were given about setting up a new company would have been given on before 13 October 2006. I believe that this is likely date having seen the contents of the memo/file note which Melissa Hoffman sent me dated 13 October 2006. … I believe I requested her to do that calculation as a result of Mahmoud or Trad saying to me at, or some time after such advice had been given to them, in words to the effect:

‘what would be the costs involved in a sale of the Fairfield property to a related company?’ “

168. By the time he swore his second affidavit in October 2013, which was at a time approaching the hearing of the matter, Mr Kassem added significantly to his account of what was said at the El Sweetie Restaurant meeting. He recalled further conversation which took place there. He also recalled that he had been given specific instructions by Mr Abu-Mahmoud or Mr Trad to set up a new company for them, and to prepare a contract for sale.

169. He said this:

“Some time after this meeting, whether before or after 13 October 2006, I don’t recall, the plaintiff or Trad instructed me:

Plaintiff/Trad: Can you set up a new company for us with me and Trad as directors and shareholders and also prepare a contract for sale from Fairchild to the new company of the commercial premises in Fairfield? The contract price will be $4.8 million and can we make the deposit less than 10%?

Me: Yes. Contact Melissa Hoffman at Consolidated’s city office and she will set up the companies for you.”

170. In cross-examination, Mr Kassem accepted that, based upon the content of the file note of 13 October 2006, he must, prior to that date, have had a conversation with at least Mr Abu-Mahmoud, and perhaps Mr Trad, at which the transfer of a property of approximately $5 M between companies with the same shareholdings was raised and discussed. He further agreed that it was a conversation to which his brother Mr Ozem Kassem was not a part. He accepted that that conversation was not mentioned in his affidavit evidence, however, he maintained that it was not him who raised the matter of the transfer of the Fairchild property to another company with Mr Abu-Mahmoud.

171. There was then some further cross-examination about the content of the conversation to which Mr Kassem deposed in paragraph 21 of his first affidavit, which was repeated in paragraph 21 of his second affidavit, and to which I have earlier referred. In the course of that cross‑examination, Mr Kassem accepted that Mr Abu‑Mahmoud had told him about the financial affairs of Fairchild, that it was in trouble and that Mr Abu‑Mahmoud was seeking “…my help”. Mr Kassem accepted that the help which was being sought from him included the matter of the financial affairs of the company and the liability which it owed to the ATO.

172. He accepted that this was the first occasion in which he had been asked to act on behalf of Fairchild, as opposed to acting for Elite, and Mr Abu‑Mahmoud with respect to the affairs of Elite.

173. Mr Kassem’s answers in cross-examination suggested that although he knew that Mr Abu-Mahmoud was seeking his help with respect to Fairchild and the financial position in which it was, particularly having regard to the liability of the ATO, he denied that he was being asked to act for Fairchild in relation to the tax liability.

174. He gave this evidence:

“Q.   Why do you think that Mr Abu-Mahmoud mentioned the audit and tax liability?

A.   It was obviously to seek my help in some way, but in that first conversation I didn’t understand or didn’t, as you said, I didn’t have instructions from that conversation. We were meeting regularly in respect to the Elite Apartments matter and discussing things and this conversation came up in October as I said there.”

175. He continued with evidence on this topic on the following day. His evidence was to this effect:

“Q.   You were aware, weren’t you, that the purpose of these meetings was, as you said yesterday, to seek your help in relation to legal issues.

A.   Not necessarily legal issues, no. It was to seek my assistance.

Q.   What assistance did you understand Mr Abu-Mahmoud to be seeking?

A.   As I said in my affidavit, he told me about the financial situation of his other company and he wanted my assistance with regards to matters that he told me about.

Q.   Including the taxation issue, didn’t he?

A.   There was a taxation issue.

Q.   You were aware, weren’t you, that this was a serious matter for Mr Abu‑Mahmoud?

A.   Yes.

Q.   He was obvious worried, wasn’t he, when you saw him?

A.   Yes.

Q.   You knew that he was taking steps towards retaining you to act on his behalf, didn’t you?

A.   No.

Q.   You knew he wanted you to be his solicitor in relation to the matters he raised, didn’t you?

A.   At that stage, I was already his solicitor, but in respect to the matters he raised on that occasion at that point, I still wasn’t aware whether he was going to be instructing me in any part what he told me, whether I could assist him on any part legally, or whether there would be no legal assistance. At that point he was telling me information about a company – me being his solicitor, for other matters that I had at the time.”

176. The topic was again the subject of further cross-examination where Mr Kassem denied that he understood that Mr Abu-Mahmoud was instructing him or seeking to retain him in respect to the “tax issue” i.e. the liability which Fairchild owed to the ATO.

177. The following cross-examination then took place:

“Q.   Mr Abu-Mahmoud was an existing client wasn’t he?

A.   Yes.

Q.   You knew that he had a purpose in raising these matters with you?

A.   Yes.

Q.   The purpose was to seek your help?

A.   Yes.

Q.   Because you were a solicitor, that he told you that he wanted your help as a solicitor, didn’t he?

A.   Yes.

Q.   You knew, it follows therefore, that he was thinking of retaining you as his solicitor. That’s right isn’t it? In relation to the matters discussed there?

A.   I don’t know what he was thinking about. As I said, I didn’t think at that point, or any point after that, he hadn’t instructed me or wanted me to act – provide legal advice orally by retaining me in respect of the tax issue.”

178. It is necessary to resolve this dispute as to the conversations which were held between the plaintiff and the defendant, who proffered the advice to restructure the interests in the Fairfield development, and whether that was a step intended, at least in part, to address the outstanding tax liability of Fairchild, and the risk of that liability being brought home to the account of Mr Abu‑Mahmoud and Mr Trad.

179. In attempting to resolve these issues, it is clear by reference to contemporaneous documents, that some of the recollections of Mr Abu‑Mahmoud, Mr Ozem Kassem and Mr Salem Kassem are less than perfect.

371. During oral submissions, senior counsel for Mr Abu-Mahmoud made no submissions to the contrary of that submission of abandonment. Accordingly, I take these allegations to have been abandoned, or at least, not pressed. It would be inappropriate, and there is no need, to make any findings dealing with these allegations.

Causation

374. The plaintiff claims that he entered into the restructure scheme as a result of the restructure advice from Mr Salem Kassem. I have found that this is so. The plaintiff claims that the implementation of the restructure scheme had three principal consequences:

1. the plaintiff’s guarantee was called up by St George Bank, and he was confronted with having to consent to judgment;

2. he lost his interest in the properties at Condell Park and Lidcombe; and

3. he paid out unnecessarily significant monies by way of fees to Mr Kassem.

375. The defendants submitted:

1. the evidence, including the lack of Mr Trad and Mr Skaf giving evidence, meant that the Court could not be satisfied that any different course would have been followed;

2. Fairchild’s financial position was such that it was heading towards a winding up in late 2007 in any event, with the consequence that the Fairfield property would have been sold at around that time.

376. In considering any determination of causation of whether particular harm was caused, the provisions of s 5D of the Civil Liability Act, require the Court to be satisfied of factual causation, i.e. that the negligence was a necessary condition of the occurrence of the harm, and also of the scope of liability, namely that it is appropriate for the scope of the liability to extend to the harm so caused.

377. In considering factual causation, the Court must consider the matter subjectively in light of all of the circumstances: s 5D(3)(a) Civil Liability Act.

378. Section 5E of the Civil Liability Act requires the plaintiff to prove any fact relevant to the issue of causation on the balance of probabilities. In so doing, a plaintiff is not entitled to lead evidence at a trial after the suffering of loss and damage, which describes what would have been done: s 5D(3)(b) Civil Liability Act.

379. The outline of the facts above permits the following short recitation of some critical steps relevant to causation:

1. the contract for sale of the Fairfield property from Fairchild to NorthAxis was exchanged on 15 October 2007. The contract provided for a settlement period of six months. Settlement was intended to occur on or before 15 April 2008;

2. on 16 November 2007, Fairchild was placed into voluntary administration which was an event of default under the loan agreement with St George Bank;

3. on 28 November 2007, St George Bank, acting upon that event of default, appointed Receivers and Managers to Fairchild. Control of the assets of Fairchild fell to the Receivers;

4. on 29 November 2007, the Receivers informed Mr Kassem that the sale to NorthAxis would not be allowed to proceed unless Fairchild discharged 100% of its liability to St George Bank. At that time, the liability was a little over $5 M;

5. Mr Abu-Mahmoud sought finance from Challenger. The firm offer of finance from Challenger ($3.75 M), and the contractual sale price was insufficient to meet the requirements of the Receivers;

6. additional finance was sought by Mr Abu-Mahmoud from private lenders. This was unsuccessful;

7. on 3 March 2008, Mr Abu-Mahmoud informed the Receivers that NorthAxis could not settle for the full contract price;

8. on 7 March 2008, an offer was made on behalf of Mr Abu‑Mahmoud and is fellow investors, Mr Trad and Mr Skaf, to purchase the Fairfield property for $4.5 M. St George Bank refused to accept the offer. It required repayment in full of its outstanding debt;

9. St George Bank’s final negotiating position seems to have been reached on 27 March 2008 when it indicated that if it received $4.875 M from the sale of the Fairfield property, it would transfer the property to Mr Abu-Mahmoud and his fellow investors, and discharge them from any liability to the Bank on their personal guarantees.

380. The history of the events which took place after 28 March 2008 is set out more fully above. The ultimate fate for the Fairfield property was its sale by the Receivers on 23 March 2009 for $4.3 M.

381. It seems clear, and I am satisfied, that the financial losses of the kind set out in [373] would not have occurred without the restructure advice being given by Mr Kassem, and Mr Abu-Mahmoud and Fairchild giving effect to that advice. There was no other basis identified as having existed by November 2007 which could have been relied upon as an event of default by St George Bank, and which entitled it to take the actions which it did.

382. The appointment of the Receivers gave full control of the Fairfield property to St George Bank. The decision as to the sale or other disposition of the property, and on what terms, was removed from Fairchild and given to St George Bank.

383. The placing of Fairchild into voluntary administration was an event of default under Fairchild’s loan agreement with St George Bank. As a consequence, Fairchild’s debt was in default. The whole of the debt became immediately due and payable. Fairchild, did not, and could not repay the date promptly. All of its assets fell to the control of St George under the deed of charge. Mr Abu‑Mahmoud’s guarantee crystallised and he became liable upon it for the defaults of Fairchild. His liability was to pay, on demand, the full amount outstanding to St George Bank. Prior to these events, his liability was a contingent one.

384. At that point in time, I am satisfied that he suffered a financial loss, because he had an immediate obligation to comply with this guarantee. The sum of his obligation was the total outstanding to St George Bank, namely $5.071 M. In fact, the likelihood was that his ultimate liability to St George Bank may have been less because of the value of the Fairfield property recovered after sale. However the prospect of that reduction in the amount owed, because of the recovery does not affect the conclusion that the implementation of the restructure advice caused financial loss to Mr Abu‑Mahmoud on and after 16 November 2007.

385. Subject to what is about to be discussed, there is a clear connection between the entry into voluntary administration of Fairchild, and the St George bank acting to enforce its security by reason of that event of default, and the liability of Mr Abu-Mahmoud crystallizing. Without the event of default, there was no basis for St George Bank to have acted. Accordingly, he has demonstrated factual causation as required by the Civil Liability Act.

386. It was not pleaded or submitted that the losses claimed fell outside the scope of liability for which Mr Kassem ought be liable. No occasion arises to consider any further the issue of scope of liability as that is referred to in s 5D of the Civil Liability Act.

387. But this is not the only factual issue which must be determined before the plaintiff conclusively establishes the issue of factual causation. There is an anterior finding which is necessary. The Court needs to be persuaded that, if the restructure advice had not been given, and the restructure scheme not implemented, the plaintiff’s guarantee would not have crystallised at or about the time which it did. Put another way, can Mr Abu-Mahmoud prove that his guarantee would not have been called up by November 2007.

388. On this issue, the plaintiff carries the onus of proof. An examination of the question requires the Court to examine a hypothetical factual construct. It needs to assume that there would have been no contract for sale of the Fairfield property entered into between Fairchild and NorthAxis, Fairchild had an ongoing obligation to meet the loan repayments to St George Bank, it had the benefit of rental income to assist in that task, and it had an obligation to meet the ATO debt. The hypothetical factual construct needs also to assume that Mr Antar was asserting his claim to be entitled to a lease of the fruit and vegetable shop area. It is relevant to note here that, as was the fact, St George Bank had not called upon the guarantee at any time prior to Fairchild entering into voluntary administration or liquidation. There was no suggested basis for any entitlement for St George Bank so to do.

389. It is convenient to commence this analysis in May 2006. At that time, Fairchild was wound up on the application of the ATO. The details of the debt and the basis for that winding up are not in evidence. The Federal Court (Gyles J) set aside the winding up. The winding up order could not have been set aside unless the Federal Court was satisfied that Fairchild was solvent. Whether its solvency depended upon its relationship with St George Bank is not directly relevant because the fact is that it was solvent, and until the administrators were appointed, St George Bank did not move against Fairchild.

390. Fairchild’s financial position was not an easy one. In May 2006, it was unable to commence construction of the proposed development at Fairfield because “… it was experiencing financial hardship…”. Whilst this may have been in the past a reference to the company’s capital position, it is not unreasonable to conclude that it refers to its overall position.

391. By July 2006, Fairchild’s cash position was that it depended upon rental and the partners’ contributions by way of equity to meet its outgoings, which included payments to St George Bank. In August 2006, the ATO notified Fairchild of the $400,000 debt owed to it. It is important to note that at no time did the ATO commence any recovery action against Fairchild (or its directors) to collect this amount prior to November 2007.

392. In the period, at least from July 2006 onwards, the rental received did not always cover the loan repayments to St George Bank. On average, the monthly shortfall was about $9,000 over that period. Undoubtedly, there were fluctuations. In some months, the rental was adequate, in other months it was not. I accept that over this period, Mr Abu-Mahmoud and Mr Trad contributed equally in some months to cover the interest. According to the financial details in Exhibit 2, prepared by counsel for the defendant, the amount of equity introduced into Fairchild from 1 July 2006 to October 2007, was about $160,000. No reason was suggested in the evidence as to why this could not have, and would not have continued as necessary.

393. According to Exhibit 1, which are the Profit & Loss statements for Fairchild for the period 1 July 2006 to October 2007, the company as a whole suffered a cash loss during this period of about $275,000.

394. The evidence suggests strongly that Mr Abu-Mahmoud and his fellow investors wanted to hold onto the Fairfield property because they anticipated that a significant profit would be realised if the development could go ahead to completion. That was not an unreasonable anticipation. Mr Chehab, whose evidence was not challenged, formed a similar opinion.

395. Whilst this was no doubt the preferred option, Mr Abu-Mahmoud had other options available to him. One was to invite Mr Chehab to participate as an additional partner in the Fairfield development. There is no doubt that Mr Chehab was a potential partner who had the financial means and an interest in the development. At one stage, it is unclear when, but I would infer after the Receivers were appointed, he indicated, conditionally, that he was prepared to purchase a one third share in the project for $1.4 M.

396. His evidence also is that in 2008, had Mr Abu-Mahmoud offered the whole site to him for $5 M, he would have purchased it. He does not directly address the position in the period between 1 July 2006 and November 2007. The defendants’ submit that I should draw an inference adverse to the plaintiff’s case because of Mr Chehab’s failure to address his preparedness to purchase the development at an earlier period. I am not prepared to draw that inference.

397. Mr Chehab obviously had a high regard for Mr Abu-Mahmoud. They had worked together in various developments including on Mr Chehab’s personal house. Mr Chehab said that he placed extensive trust in Mr Abu‑Mahmoud and his abilities. Mr Chehab’s financial position was a stable one. The evidence suggests that his net asset position was many times the price he was prepared to pay for the Fairfield development.

398. I have no reason to think that his approach to the purchase of the Fairfield property would have been any different in the period July 2006 to October 2007. I am satisfied that it would have been the same.

399. Had Mr Chehab purchased the Fairfield development in the 2006/2007 period for $5 M, the St George Bank debt would have been discharged in full. Mr Abu-Mahmoud’s guarantee would not have been called upon. The position of Fairchild would have been that it owed the ATO the liability of a little over $400,000 but increasing with interest being added over time. It had other, relatively minor, unsecured creditors. In those circumstances, Mr Abu‑Mahmoud would have been liable for one third of the ATO, and remaining, debts. I am satisfied that the probabilities are that, freed of his guarantee to St George Bank, he and his fellow investors would have been able to either repay the ATO, or come to an arrangement to do so.

400. But this was only one hypothetical possibility. No doubt there were others. After all, confronted with the ATO debt, for one-third of which Mr Abu‑Mahmoud was responsible, he could have made attempts to borrow his share. In all of the circumstances, whilst it was not an insignificant sum, I am not persuaded that it was beyond his capacity to obtain that money from another source, particularly if it meant that he would not lose the benefit of the Fairfield property.

401. Another possibility was to engage in meaningful negotiations with the ATO. Elite was apparently able to do so with respect to a similar sum. And the ATO itself invited such contact. No attempt was actually made to engage in such negotiations. There was a real prospect that a satisfactory arrangement could have been reached.

402. All of these possibilities persuaded me that although the financial position of Fairchild was difficult in the period from 1 July 2006 to November 2007, it was not likely that Fairchild would in that period have ended up in voluntary administration or liquidation. I am not satisfied that Receivers would have been appointed by, or about November 2007, when they were actually appointed.

403. These findings mean that Mr Abu-Mahmoud’s loss, consequent upon the restructure advice, namely the crystallising of his guarantee from a contingent to an actual liability, would not have occurred by November 2007, but for the restructure advice which I have found was given in circumstances amounting to a breach of duty.

404. It follows, also, that I reject that part of the defendants’ submissions that Fairchild “… was heading inexorably toward liquidation”, and that the only means by which it could avoid that result and which would enable Mr Abu‑Mahmoud to retain the benefit of the Fairfield property, was to sell it to NorthAxis.

405. It follows that I am satisfied that the plaintiff has proved that his reasonable losses flowing from the call by St George upon his guarantee were caused by the advice given by Mr Kassem that he enter into the restructure scheme, and his implementation of that advice.

406. Although the defendants originally pleaded that the plaintiff had failed to mitigate his loss, in written submissions at the conclusion of the hearing, the defendants did not press this defence. There is accordingly no argument being propounded that the plaintiff failed to act reasonably in seeking to minimise the loss which he had suffered.

407. This position bespeaks an acceptance that even though there may be criticisms of the way in which the plaintiff went about:

1. trying to organise funding for NorthAxis to purchase the property, and failing so to do;

2. giving instructions about the attitude which NorthAxis should take with respect to the position of Mr Antar, and whether it ought require the Receivers to attempt to remove the caveat; and

3. taking any step towards assisting the Receivers to obtain any higher bid at the public auction of the Fairfield property,

his actions cannot be regarded as unreasonable or a failure to mitigate his losses.

408. Subject to the consideration of the contributory negligence issue below, there is no reason therefore in considering the amount by which Mr Abu-Mahmoud is to be compensated for such recoverable losses as he sustained to hold that those recoverable losses have not been caused in whole by the defendants. It will also be necessary to consider the issue raised by the defendants as to which of the claimed losses are recoverable and to what extent.

Contributory Negligence

409. In their final written submissions, the defendants pressed only one of the three particulars of contributory negligence.

410. The defendants alleged that Mr Abu-Mahmoud “… could easily have prevented all that followed by putting Mr Chehab in contact with the Receiver”. His failure to do that was said to be contributorily negligent.

411. Whether or not a plaintiff has been contributorily negligent is to be determined by reference to s 5R of the Civil Liability Act.

412. The defendants bear the onus of proof of any allegation of contributory negligence. They submitted that since Mr Chehab was willing to pay $5 M for the property, then the Court ought infer that the Receivers would have sold him the property at that price rather than to Mr Antar for $4.3 M.

413. The Receiver had the power to sell the Fairfield property either by private treaty or by public auction subject to an overriding obligation to act reasonably in so doing and to obtain, in all of the circumstances, a proper price.

414. The evidence about how the sale took place is non-existent. It was not established whether the Fairfield property was sold by public auction or otherwise. What is revealed by the evidence is that contracts were exchanged on 23 March 2009. No allegation is made that the Receivers did not conduct themselves appropriately. I would infer that the property was offered for sale publically. In light of the fact that the Receivers had in late 2007, caused “For Sale” signage to be publically displayed on the property, I have no doubt, and would infer, that the signage was again displayed. No doubt there would have been an appropriate advertising regime. I would infer that there was. After all, it was in the Receiver’s interest, and it was their obligation, to obtain the best available offer for the property.

415. There is no evidence as to who actually attended the auction, if there was an auction. The defendants have not proved Mr Chehab did not attend at the auction if there was one. They have not proved that he did not make a bid for the property either at auction, or by offer to the Receivers. They have not proved that Mr Chehab was not introduced to the Receivers by Mr Abu‑Mahmoud.

416. Proof of these matters was readily able to be achieved. The defendants could have, but did not, require Mr Chehab to attend for cross‑examination upon his affidavit. It was open to the defendants had they required his attendance to cross-examine Mr Chehab to prove the necessary factual foundation for their allegations of contributory negligence. They chose not to do so.

417. I reject the defendants’ submissions that Mr Abu-Mahmoud was contributorily negligent because they have not established the necessary factual foundation for the proof of such allegation.

Loss and Damages

418. The plaintiff is entitled to recover a sum of money which puts him in the position in which he would have been, but for the breach of duty by the defendants which I have found to have been proved.

419. I have found that Mr Kassem was in breach of his duty by giving the restructure advice. I have found that Mr Abu-Mahmoud acted upon that advice and as a result sustained financial loss in November 2007, when an event of default occurred upon which the St George Bank relied to appoint Receivers to Fairchild. At that point in time, the guarantee crystallised, and Mr Abu-Mahmoud became obliged to pay St George Bank the monies owing to it.

418. It was as a direct consequence of the loss that the plaintiff:

1. consented to judgment being entered against him, and in favour of St George Bank in the sum of $2,476,788.68. That judgment carried interest. Mr Abu-Mahmoud also agreed to pay St George Bank’s legal costs;

2. forfeited the value of his proportion of the equity, if any, of Fairchild in the Fairfield property;

3. forfeited the value of the equity, if any, in the properties which he owned at Lidcombe and Condell Park; and

4. made payments for the expenses incurred in undertaking the restructure scheme to the extent that he, and not Fairchild or NorthAxis, incurred them.

421. The sum required to compensate Mr Abu-Mahmoud with respect to the first item above, is relatively straight forward. That is the judgment sum, less any monies which have been paid in reduction of that sum, if paid by Mr Abu‑Mahmoud, plus interest to date of payment. Put differently, the current outstanding balance owing for the judgment sum. In addition, the plaintiff is entitled to reimbursement by the defendants of the amount of costs which Mr Abu Mahmoud was required, or else is liable to pay, to St George Bank. The parties ought calculate the total of those sums to the date of this judgment.

422. As to the second item of loss identified above, the evidence does not permit of a conclusion that there is any separately identifiable sum which would reflect the value of any equity which Fairchild had in the Fairfield property. At the time the Receiver was appointed, and thereafter until the Fairfield property was sold, the evidence does not satisfy me that there was any equity in the Fairfield property. By that I mean that the property did not have a market value which was in excess of the total amount of money owed by Fairchild to St George Bank and secured over the Fairfield property. The plaintiff has not proved any loss in respect of this head of damage.

423. As to the third item, namely the value of the equity which the plaintiff had at the time of the forced sale of the properties at Lidcombe and Condell Park, I am satisfied that the plaintiff has proved loss arising from the sale of these properties. I accept the plaintiff’s evidence on this issue of loss. It was not challenged in cross examination, and is supported by contemporaneous documents. That evidence leads to these conclusions.

424. First, the sum for which judgment was entered in the proceedings referred to in the first item of loss (or which is presently owing under that head of loss), was a net sum of the amount outstanding to St George after all recoveries had been effected. Taken into account in the figure was the whole amount of the recovery from the two properties. Thus St George received the benefit of the entire proceeds of sale regardless of the amounts secured against those two properties by borrowings which related to those properties.

425. Secondly, the evidence established that the plaintiff had net equity in each of those properties. On the day that the Condell Park property was sold, 30 November 2009, there was a net equity of $390,393.96. On the day that the Lidcombe property was sold, there was net equity of $165,29.60. The net equity of the plaintiff in each both property was lost because St George Bank received the whole of the proceeds of sale of both properties.

426. The plaintiff is entitled to have included in the judgment in these proceedings, those sums of lost net equity, together with interest from the date of the losses of the net equity to the date of this judgment.

427. The fourth item above claims additional costs and expenses which have been incurred as a consequence of relying upon the restructure advice. Here, it is important to differentiate between costs and expenses incurred by Fairchild, NorthAxis and the plaintiff.

428. In the proceedings brought by St George Bank against Mr Abu-Mahmoud, he paid to AVH, for their representation of him, a total of $39,901.73 for legal costs. The Memoranda of Costs form part of the evidence. The plaintiff claims the entirety of these costs. The defendants submit that from a perusal of the Memoranda, some of these costs relate to the exploration of whether a claim should be brought in those proceedings against the present defendants in the nature of these proceedings.

429. The defendants submit that any such sums are more appropriately addressed by any order for costs in these proceedings and not by way of damages. The defendants point to the absence of any Commercial List response by the plaintiff and the ultimate outcome of the St George Bank proceedings as indicating that there was no real defence to the claim. They submit that therefore, the Court should infer that the real substance of the expenditure on costs related to whether these proceedings should be brought.

430. No time was spent in cross-examination with respect to this issue. No evidentiary challenge was mounted to the reasonableness of this item of loss claimed.

431. I am satisfied that the whole of this claim should be allowed. The costs were incurred by the plaintiff in seeking advice about, and in the proper protection of his position, with respect to the claim made by St George Bank against him. That claim was brought about because of his liability under his guarantee having crystallised through the negligence of Mr Kassem. It was not unreasonable for Mr Abu-Mahmoud’s solicitors to have explored, in the St George Bank proceedings, the question of whether to issue a cross-claim in those proceedings against the current defendants. Any costs incurred in so doing are properly a part of the costs of those proceedings.

432. The time and place to challenge the reasonableness of those costs, if a challenge was to be made, was in these proceedings, by cross-examination and evidence directed to that issue. The claim properly forms part of the damages in these proceedings. I am satisfied that the whole of it should be allowed.

433. I am not satisfied that any other claims for payments and expenses ought be allowed.

434. The parties will need to bring in short minutes of order to reflect the correct total of these losses and interest up to the date of this judgment.

Costs

435. I can see no reason, at this time, why costs should not follow the event. My tentative view is that an order should be made that the plaintiff’s costs of the proceedings be paid by the defendants on the ordinary basis.

436. However, I will give the parties an opportunity to make an application for, or to resist such application for, any other order for costs.

Orders

437. I make the following orders:

1. Judgment for the plaintiff in an amount to be calculated.

2. Plaintiff to file and serve proposed short minutes of order, any motion seeking an order for costs different from that proposed, and any affidavit and submissions in support of that motion by Monday 1 June 2015.

3. Defendants to file and serve proposed short minutes of order, any motion seeking an order for costs different from that proposed, and any affidavit and submissions in support of that motion by Monday 15 June 2015.

4. Stand proceedings over for determination of all outstanding issues, if any, to 10am on Friday 19 June 2015.

5. Direct the parties, at the time of filing any documents in accordance with Orders 3 and 4, to provide a copy to my Associate.

6. Liberty to apply on 2 days’ notice.

**********

Decision last updated: 19 May 2015