Aiche v Khoury

[1999] NSWSC 707

CITATION:	Aiche v Khoury & Ors [1999] NSWSC 707
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	1431/99
HEARING DATE(S):	28/6/1999, 29/6/99.
JUDGMENT DATE:	30 June 1999
PARTIES :	Bassam Aiche (Plaintiff) Joseph Khoury (First Defendant) Intercall Direct Pty Limited (Second Defendant) Gaby Khoury (Third Defendant)
JUDGMENT OF:	Bergin J

COUNSEL :	MS Jacobs QC/ S Jacobs (Plaintiff) M Cashion SC (Defendant)
SOLICITORS:	J Kartsounis & CO (Plaintiff) Davis O'Neill Sistrom (Defendant)
CATCHWORDS:	Application for Mareva orders in prima facie case of misappropriation; Delay in bringing application
CASES CITED:	Patterson v BT Engineering (1989) 18 NSWLR 319; Cardile v LED Builders P/L (1999) 73 ALJR 657.
DECISION:	Application refused.

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BERGIN J

WEDNESDAY 30 JUNE 1999

1431/99 - AICHE v KHOURY & ORS

JUDGMENT
EX TEMPORE - DUTY JUDGE
1    This is an application brought by the plaintiff Bassam Aiche by way of notice of motion for the following orders:

1. That the first defendant, Joseph Khoury, be restrained from disposing of or otherwise encumbering his shares in a shop in Bankstown known as V Shop - Bankstown ("V Shop") until such time as this matter has been finally disposed of; and
2. that the defendant Gaby Khoury, be restrained from dispersing any proceeds from the sale of his house at 11 Carrisbrook Avenue, Punchbowl, up to an amount of $150,000 but that he be free to market and sell his home in the ordinary course at arm's length, such moneys to be held in his solicitor's trust account; and
3. that the third defendant, Mr Gaby Khoury, be restrained from encumbering or in any way dealing with his share in the house at Punchbowl other than by a sale at arm's length.

2 The main proceedings that are brought by Mr Aiche were commenced by way of summons on 18 February 1999. Put shortly, it is an oppression suit under s 246AA of the Corporations Law by a series of amended statements of claim. The second amended statement of claim filed in court on 5 May 1999 joined Mr Gaby Khoury as the third defendant seeking an order in relation to his conduct that he, in fact, pay to a company, the second defendant, Intercall Direct Pty Ltd, certain moneys said to have been diverted from the company by reason of both Mr Gaby Khoury and Mr Joseph Khoury's conduct.

3 In the main proceedings there are further claims of breaches of duty by Mr Joseph Khoury in respect of his obligations under the Corporations Law.

4    The history of this matter is important because much of it is relied upon by each party for the purpose of, firstly, the plaintiff pursuing his case for these orders and the defendants, in seeking to rebut the evidence of the plaintiff for these orders.

5    It is clear that Mr Bassam Aiche and Mr Joseph Khoury met in mid-1997. At that time Mr Bassam Aiche was working for Mr Khoury at the V Store at Bankstown. Mr Aiche was employed apparently as a sales person and the company Intercall Communications, or alternatively, the business name Intercall Communications, was the entity through which the Bankstown store operated.

6    Mr Aiche gave evidence by way of affidavit that he felt that he was doing quite well in the business and in about June 1997 he and Mr Joseph Khoury had a discussion wherein they agreed to go into partnership with each other and set up a shop.

7    Mr Aiche then found premises at Campsie at 281 Beamish Street and informed Mr Joseph Khoury, who then agreed to operate a business with Mr Aiche. Mr Khoury is alleged to have said: "We will be equal partners and each receive 50 per cent of the profits of the Campsie shop."

8    Mr Aiche says that he did not have the capital required to invest into the business, which had been discussed with Mr Khoury. The amount of that capital was $20,000. He obtained that money from his wife, Mrs Rhonda Aiche.

9    It is apparent that some facility may have been put in place to obtain that money, and the $20,000 was invested into the business in about September 1997. Mr Joseph Khoury suggested to Mr Aiche that he attend upon his accountant, Mr George Khoury, and when Mr Aiche did so he was informed that Joseph Khoury would have 51 per cent of the shares and that he, Mr Aiche, would have 49 per cent of the shares.

10    Mr Aiche informed Mr George Khoury that that was not consistent with the agreement that he and Joseph had reached because he had agreed with Joseph that they would share 50 per cent of the profits. Mr George Khoury informed Mr Aiche that he would still obtain 50 per cent of the profits, but it was necessary to have Mr Joseph Khoury with 51 per cent of the shareholding rather than have two directors or two shareholders with 50 per cent each because it would not be appropriate if there were a deadlock.

11    Mr George Khoury told Mr Aiche because Mr Joseph Khoury had more experience it was appropriate for him to have 51 per cent of the shares.

12    Mr Aiche, through his affidavit, informed me that he was uncomfortable with this arrangement but he went along with it because he said:

"The whole purpose of me being in business with Joseph was so that he could guide me in my new venture. I have never been in business before and other than a vacation job at a car hire place had only had experience as an employee in Joseph's store."

13    Mr Bassam Aiche told me also that at the time, that is in mid-1997, he was in his second year studying law at Sydney University.

14    Once the moneys were invested in the business in September 1997, the business operated and received income by way of two sources, one being by way of commissions and the second being by way of cash purchases. Mr Joseph Khoury informed Mr Aiche that he would open a bank account for the business at the National Australia Bank and that Mr Gaby Khoury would be a co-signatory. It is apparent that Mr Aiche questioned the reason for Mr Gaby Khoury becoming a signatory, to which Mr Joseph Khoury responded that it was necessary because he, Joseph, may be overseas from time to time, and it was necessary to have another signatory available.

15    It is apparent that Gaby Khoury was in the business at Bankstown V Shop with Joseph and had experience in the industry.

16    What happened from September 1997 through to July 1998 is, in some respects, quite extraordinary. The bank statements, which were Ex A on previous occasions before me, demonstrated that each time a large amount of money was paid into the account, it would be paid out of the account within a number of days. The first amount of cash that Mrs Aiche paid into the bank account was the only amount of cash that was paid into the account during that period. The reason for that is because when Mrs Aiche had banked the first amount of cash, she and Mr Gaby Khoury had a conversation to the effect that she was not to bank any further cash at all into the account.

17    Mr Gaby Khoury had, she said, instructed her to give the cash to him. She discussed that with her husband, Mr Bassam Aiche, and it is clear that that is what was done.

18    In about October 1997 Mr Joseph Khoury attended the Campsie store and brought with him boxes of phones, chargers, batteries and other accessories, a photocopier, a fax machine and a computer. It is apparent that those items were certainly not paid for directly by Mr Aiche, but they were delivered to the store by Mr Khoury.

19    In November 1997 Mr Aiche became concerned because he was not receiving any moneys from the business and had noticed the diminishing amount in the bank account. He had a conversation with Joseph Khoury wherein he asked him, "Where has the money gone? What have you used it for? Our arrangement is to share the profits." Mr Khoury responded: "We have used the money to buy stock." Mr Aiche then said:

"Look, what is going on? I thought we would save the money and increase our capital stock. I have put $20,000 in. You're using my money to turn over stock. What about your contribution of $20,000 that you were meant to make?"

Mr Khoury said: "I have already made a contribution. I contributed all the initial stock." Mr Aiche said: "Whatever you bought it was not worth $20,000," to which it is alleged Mr Khoury said, "I'll get Gaby to prove it to you."

20    It is apparent that Mr Aiche was claiming that Mr Khoury had delivered to the store stock that was secondhand. In any event, in early November Mr Aiche received a fax from Mr Gaby Khoury or alternatively from Intercall Communications, the shop in Bankstown, in which it was claimed that the stock and equipment provided at the beginning of the business of the Campsie store was valued at $44,136.42.

21    Mr Aiche, in his evidence in his affidavit, claimed that that stock had been overvalued by the Khourys. He claimed that it was an overvalue "of approximately $19,647.42". One only has to do a mathematical exercise to work out that if that be the case, then there is a concession that the stock that was provided was, in fact, about $24,000 worth of stock.

22    Mr Aiche told me that, although he confirmed the opinion that the figures put in the fax of $44,000-odd were a significant overvaluation, he did not feel confident enough in himself to pursue the matter with Joseph or Gaby. He was hoping that things would improve. However, they did not.

23    He gave evidence of some commission payments in December 1997, which were paid into the account and immediately after were debited from the account. This was an amount of approximately $24,000. He raised this problem again with Mr Joseph Khoury saying: "Where has all the money in the account gone? Everything has gone." Mr Joseph Khoury is said to have replied: "I don't know. I'll ask Gaby and find out."

24    A further conversation occurred in which Mr Joseph Khoury said: "I have spoken to Gaby. He said the money was used to buy mobile phones and stock for Campsie." Mr Aiche responded: "Where is all the profit? We need money to live," to which Mr Khoury responded: "Oh, we did not do enough connections. We spent more money on stock."

25    Although I did not intend to go into the detail of the way in which this industry operates, an explanation has been given in the affidavit material, and it is clear that the contractual arrangements that had to be entered into with various entities require a supplier to enter into contracts with the customers whereby the commission is earned and paid by way of direct credit into the bank account of the company.

26    Notwithstanding all of these concerns, Joseph Khoury suggested that further capital injection into the business was needed. Mr Aiche consented to this and arranged two loans, one of $20,000 and another of $10,000 from the Commonwealth Bank. He handed this money over to Mr Joseph Khoury and Mr Gaby Khoury to buy more stock.

27    At this time, Mr Joseph Khoury told Mr Aiche that he was not going to put any further money into the business because he had already contributed $44,000. He then said to Mr Aiche: "If you want to start earning a profit, you'll have to put more money in." This is the way the matter continued until June 1998 when Mr Aiche found out that Mr Gaby Khoury and Mr Joseph Khoury had made arrangements with the National Australia Bank, whereby they could operate the account over the phone rather than by cheque transaction or, alternatively, transfers of money by way of hard copy documents.

28    As soon as Mr Aiche found out about this matter he acted. He made contact with the National Australia Bank at the Bankstown business centre and he spoke to the manager and demanded that Mr Gaby Khoury be removed as a signatory to the account. It is apparent that the National Australia Bank then froze the account and Gaby Khoury was removed as a signatory. Mr Aiche then gave evidence that "From that time onwards I have received one half of the profits of the Campsie store."

29    Although between June 1998 and the commencement of these proceedings in February 1999 there has been an apparent problem with the company known as RSL COM, Mr Aiche was able to earn a profit from the business and he informed me that the amount he received per week was to the tune of some thousands of dollars, approximately, he said, $5,000 to $8,000 gross per week.

30    The matter seems to have come to a head in January 1999 because of the problems that were encountered with RSL COM. There are some allegations contained in the pleadings that Mr Joseph Khoury and his solicitor, Miss O'Neill, or, alternatively, another member of the firm of the solicitors, attended what is described as a secret meeting with RSL COM. RSL COM was threatening to terminate the contract it had with Intercall Direct Pty Ltd, the company incorporated to operate the business of the Campsie store because of an allegation of fraud. It is not clear on the evidence what this is really all about but it is apparent that RSL COM were alleging that some of the people who had obtained telephones on a particular basis that they were employed were not employed and, therefore, not entitled to purchase at a particular price.

31    RSL COM apparently made allegations that Intercall Direct Pty Ltd were, therefore, in breach of the agreement with RSL COM by providing phones to people at a particular price when they were not entitled to it because they did not qualify for that particular contract.

32    During the course of the discussions between Mr Joseph Khoury and Mr Aiche about the problem with RSL COM, Mr Aiche obviously instructed his solicitor, Mr J Kartsounis of J Kartsounis & Co, and it is apparent that Mr Khoury had instructed Miss O'Neill of the firm of solicitors Davies Owen Sistrom in Sydney. The parties were not able to come to an agreement as to how their differences could be resolved and, unfortunately, they had to resort to litigation.

33    The litigation takes two forms, that is two suits in equity, one being matter number 2567/99, the other being this matter in which this application is made, matter number 1431/99.

34    Since the commencement of the proceedings in February 1999, there have been a number of appearances before this court and the application for a Mareva order first surfaced in March of 1999. Without going into the detail at the moment, it is clear that that application has, since March 1999, always been intended to be pressed by the plaintiff albeit that without any undertaking from March 1999 timetables for evidence have been entered into. Some of that will need to be detailed because of the way in which the plaintiff puts his case in this application.

35    In March 1999, particularly on 10 March, the matter came before the Chief Judge in Equity, Hodgson J, and on that occasion his Honour made the following order:

"Upon the plaintiff by his counsel giving to the court the usual undertaking as to damages, I order that until and including 12 March 1999 the first defendant not destroy, dispose of or alter any of the documents referred to in the letter from the plaintiff's solicitor to the defendants' solicitors dated 24 February 1999 as are in his possession or control."

His Honour stood the matter over to 12 March and then said:
"I expect on that occasion to be told by the first defendant what is the position in relation to those documents and whether there is dispute that amounts of the order of $140,000 to $180,000 of the company's money was disposed of under his control and whether he raises any objection to giving an account of how that matter was disposed of."

His Honour reserved the question of costs.

36    What occurred between 10 March and 12 March is controversial because the plaintiff alleges that the defendant's solicitor has engaged in tactics that are designed to take the heat off the defendants to use Mr Jacobs' term. What occurred was that on the evening of 11 March, Miss O'Neill, the solicitor for the defendants, drafted a cross-claim which sought interlocutory relief against what is known as the third cross-defendant, which is a company Mobile Connections Australia Pty Ltd, which had been incorporated in 1999 by Mr Aiche for the purposes of operating the Campsie business because a deadlock had been reached in Intercall Direct Pty Ltd.

37    That cross-claim and the interlocutory orders that it sought was supported by an affidavit of Miss O'Neill of 11 March 1999.

38    Miss O'Neill referred to a number of letters in her affidavit in support of the application, and it is submitted by the plaintiff that she was guilty of a material non-disclosure. That non-disclosure was a letter that was written by Mr Kartsounis to Miss O'Neill on 4 March in which Mr Kartsounis had said, amongst other things, that his client was willing to give:

"...an undertaking to keep full and proper books, documents and records. In this regard our firm is instructed to retain Halworth Sydney to supervise the keeping of these accounts.
We will confirm in writing when they enter upon their retainer."

39    Miss O'Neill did not disclose that letter in her affidavit and on 12 March when Mr Kartsounis sent Miss O'Neill a letter saying:

"We note that the affidavit omits a critical letter, being the letter to which I have just referred" -

40    Miss O'Neill wrote back on 15 March saying: "We can only respond for the record that we assume by submission of this letter, surely you jest."

41    In any event, on 12 March an order was made consistently with the undertaking that had been given by the third cross-defendant and Horwath Services were to be retained within seven days of the undertaking of 12 March. The undertaking to retain those accountants was apparently not complied with until about 1 April when those accountants were instructed and retained to assist the third cross-defendant. That delay precipitated a notice of motion by the defendant seeking to have the plaintiff cited for contempt for failure to instruct those accountants within the time frame ordered by the Chief Judge.

42    It is not clear to me what happened in respect of that motion, but there is a further allegation that that motion was also part of the device used by Miss O'Neill to deflect the heat off her clients who the plaintiff, at that stage, claims had not given the appropriate explanation to the Chief Judge in Equity, which he apparently wished to have as stated on 10 March and which he did not have on 12 March other than by way of an affidavit filed by Mr Khoury dated 11 March 1999.

43    It can be seen from that history that these proceedings, although only on foot since February, have had a number of what might be described as unsatisfactory skirmishes or, alternatively quite legitimate skirmishes. When the matter came before me the plaintiff relied upon the evidence of Mr and Mrs Aiche, the evidence of the solicitor, Mr Jim Kartsounis, and the evidence of Mr Claude E Jugmans, who was the accountant instructed by the plaintiff, who was an expert to assist in respect of the main matter before the court.

44    Mr Cashion of Senior Counsel relied upon the affidavit of Miss O'Neill and sought to tender the affidavits of Alexander William Bathgate and the affidavits of Messrs Gaby and Joseph Khoury. He specifically did not read those affidavits and in tendering them, he submitted that they were tendered to prove that an explanation had been given.

45    Mr Jacobs QC objected to this course on the basis that this matter that I was hearing was to do with whether or not there had been a proper explanation. I ultimately rejected the contents of the documents in the circumstances of the agitation of this matter but allowed the portions of the affidavits in, that is the first paragraphs of each of them and the attestation clauses to demonstrate that explanations, whatever they may be, had been tendered to the court and also that there had been some compliance with the apparent requirement to give an affidavit.

46    Mr Jacobs QC cross-examined Miss O'Neill for a lengthy period about the correspondence between herself and Mr Kartsounis basically for the purpose of demonstrating the point that he makes, that is that the defendants have with the assistance of the defendants' solicitor created what he described as a smoke screen that the defendants had been able to hide behind and that I should have some reservations about their willingness to meet a judgment should the plaintiff be successful.

47    It is clear that the relationship between Mr Kartsounis and Miss O'Neill has been a difficult one. It is also clear that the heat of the battle, as it might be termed, has been difficult. However, it seems to me that the matters to which Mr Jacobs referred, that is the failure to inform the court of the offering of an undertaking, was a very unsatisfactory oversight at the very least by Miss O'Neill.

48    When confronted with this in the witness box, Miss O'Neill would only go so far as to say that she was extremely busy that night, which is not doubted, and that it was possible "that the letter should have been disclosed". There is no doubt that the letter should have been disclosed and, on mature and sensible reflection, I am sure, as Mr Cashion would concede and has very sensibly conceded, the letter should have been disclosed; Miss O'Neill will come to the conclusion that the letter should have been disclosed.

49    That conduct must be looked at in the application that is being sought here today. It is not Miss O'Neill's assets that are being sought to be frozen. It is the defendants'.

50    Mr Jacobs QC relies upon the authority of Patterson v BT Engineering (1989) 18 NSWLR at 319. He says that effectively the court, in taking into account the nature of the prima facie case wherein a prima facie case has been established of a misappropriation of funds, will be more comfortable in finding that there is a risk that the defendants may dissipate the assets prior to judgment and that the plaintiff would be frustrated from securing a payment of any judgment moneys.

51    It is true that the Court of Appeal said that the nature of the case can be taken into account. At 325 of that report, Gleeson CJ said when looking to the test to be applied:

"I consider that Giles J was correct in taking the view that the evidence as to the nature of the claim in which the appellant was allegedly involved, which established a prima facie case against him, was such as to justify the conclusion that there was a danger that the appellant would dispose of assets in order to defeat any judgment that might be obtained against him and that such danger was sufficiently substantial to warrant the injunction.
There is no reason in principle why the evidence which is relevant to the first of the issues earlier referred to might not also have a bearing on the second, and this will especially be so where the prima facie case that is made out against the defendant is one of serious dishonesty involving diversion of money from its proper channels."

His Honour then went on to say:
"This is a case in which the plaintiff claims that the defendant making use of a corporation controlled by him, fraudulently misappropriated a large sum of money which, if it is still under the control of the appellant, would be quite likely to constitute directly or indirectly the bulk of his assets."

52    There is no doubt that a prima facie case on the evidence before me has been established; that $116,000, at least, has been diverted from the business and/or not accounted for by the defendants to the plaintiff. In saying that, it is also clear from the evidence filed by the plaintiffs that there is a live issue between the plaintiff and the defendants as to what moneys the business received or were received by the defendants for the purpose of purchasing stock and maintaining the business at Campsie.

53    Mr Jacobs QC submits, having reached that conclusion, that I should then be satisfied that there is the risk, to which the authorities refer, and I should grant the orders. He says that the prima facie evidence establishes that "These people are crooks" and that I would not be comfortable leaving the position as it is without securing the position for the plaintiff because, he says, the defendants will not be prejudiced.

54    In weighing up that second limb, which is required to be weighed up, I do take into account that there has been established a prima facie case of dishonesty with the qualification that there is a live issue between the expert accountants.

55    Another issue which Mr Jacobs QC says I should take into account is the fact that the defendants had control of the business records of the company and the majority of the cheque butts for the period September 1997 to June 1998 have not been produced. This failure to produce the cheque butts was the subject of a great deal of evidence. It seems to me that the cheque butts are an important part of this case.

56    Mr Cashion SC suggests that I should not be taken along with the plaintiff in its submission because he submits, to use his words, "It is a beat-up". But Mr Jacobs does make a good point when he says, in answer to Mr Cashion's suggestion, that he could obtain the photocopies of the cheques from the bank; that is all very well, but he wants to see what is written on the cheque butt. In other words, there may well be admissions on those cheque butts as to what was done with the cash that his client claims was diverted from the business.

57    There is no doubt that there are numerous cheques that were made out to cash, and there is no doubt that the cheques were also made payable to the American Express. As to this last matter, American Express vouchers have been obtained in some form. It has been possible for the plaintiff to analyse where it is that some of the moneys of the business went.

58    It is alleged that in looking to the American Express statements, a wide range of purchases include such things as Punchbowl Cellars, women's clothing, The General Shore Company and The Bodyline Fitness Centre. The plaintiff says that that would also weigh in the plaintiff's favour in this application and give me concern that these people will not be trusted because they have dissipated the assets of the business by, in effect, personal spending, frivolous spending for their own use.

59    It is probably not a very clever scheme to pay for the personal items such as the ones that I have just mentioned by using one's Amex card where it is obvious that the detail can be tracked down.

60    On 10 March 1999, a statement was made to the Chief Judge in Equity that has concerned the plaintiff. It is apparent that the Chief Judge asked the counsel for Mr Joseph Khoury: "Does your client have control of the cheque butts?" to which counsel answered: "The cheque butts are in the control of someone else." The cheque butts have never been produced.

61    The conversations that occurred between Mr Kartsounis and Miss O'Neill were also the subject of evidence and, in particular, what Miss O'Neill initially said in respect of the cheque butts was: "They are with my client." Mr Kartsounis says that he asked for the cheque butts by close of business that day, to which Miss O'Neill is said to have responded: "I do not have any instructions", to which Mr Kartsounis said: "Unless you can undertake that I will have them in my office by 5pm today, I will be moving the duty judge for orders as soon as possible", to which it is alleged Miss O'Neill said: "I cannot give you that undertaking. I need to get instructions."

62    A further conversation is said to have taken place. This is prior to the appearance before the Chief Judge, wherein Mr Kartsounis once again asked for an undertaking to which Miss O'Neill said: "No, I cannot give you that undertaking. I am not sure where they are", to which Mr Kartsounis responded: "I believe you said they were with your clients", to which Miss O'Neill is said to have said: "I said I imagined they were with my clients, and I would have to take instructions."

63    Once again, the failure to produce the cheque butts and the conduct of the defendants' solicitor is relied upon to suggest that there is some skulduggery going on whereby the defendants do not want to produce the cheque butts because the inference being those cheque butts contain information which will be adverse to the defendants' claim and the fact that they will not produce them is evidence of their unreliability and, it is alleged, their dishonesty, which I would rely upon in reaching the conclusion that these people cannot be trusted and should be the subject of the restraining orders sought.

64    There is one other matter that I should refer to and that is the purported sale or the intention to sell Mr Gaby Khoury's house. It is apparent from the evidence that Mr Joseph Khoury disclosed to Mr Aiche that Mr Gaby Khoury was renovating his house. He told Mr Aiche that Gaby had been doing some renovations on the property and that he was probably going to get a good price for the property when he sold it.

65    It is also clear from Mr Aiche's evidence that Mr Joseph Khoury said to him:

"Gaby said he is renovating his house. He wants to lease it out, negative gear it, then sell it for a profit."

In December 1998, Joseph Khoury took Mr Aiche to see the house from the outside and said:
"He has finished renovating it. He has renovated the kitchen - $10,000 worth of tiles in the bathroom, landscaping, palm trees, lighting and everything. He should get good money for it."

66    After the proceedings were commenced on 29 April approximately this year, Mr Aiche telephoned the agent that had been identified on the For Sale sign outside the premises. That For Sale sign was not outside the premises in April this year. When Mr Aiche telephoned the agent, he was told that the property was still on the market but:

"The owner told us to take down the signs. That is why there is no sign at the property. The owners have bought another waterfront property and they will be moving to the new property."

67    There is then further detail of the amounts of money that the real estate agent alleges that he was told had been spent on the property to renovate it.

68    The plaintiff relies upon this action of taking down the sign but leaving the property on the market and this conversation to submit that I would be convinced that this precipitated a need for restraint.

69    There is one other matter that has not been referred to but which I have taken into account, and that is a conversation that occurred between Mr Aiche and Mr Khoury late in 1998. It is not clear when it occurred but it occurred some time between June and the beginning of January 1999.

70    Mr Aiche was asking Mr Joseph Khoury for the financial records including the cheque butts for the period between September 1997 and June 1998. Mr Aiche, who was not challenged, said Joseph Khoury said:

"The company has not lodged tax returns and if the tax office asks me about the records, I will say they have been destroyed."

That piece of evidence suggests that Mr Khoury would be willing to tell the tax office that records had been destroyed. Of course, it is not clear that that is the truth and it is prima facie clear that that is not the truth.

71    The defendants, on the other hand, claim that there are a number of features of this case that will convince me that the restraining orders sought by the plaintiff are inappropriate. One matter is, although not expressly relied upon, taken into account by me that since 30 June 1998 there has been a share of the profits, continuation of the business and no suggestion that money has been diverted.

72    Another matter in the defendants' favour is Mr Joseph Khoury does not seem to have hidden the fact that his brother was selling his house and renovating it prior to selling it. A third matter is the commencement of the cross-claim and the consent orders. The plaintiff claims it is a smoke screen, I am not satisfied that it is an abuse.

73    There is the further matter of non-production of documents by the plaintiff to the defendants for the purpose of enabling the defendants' accountants to assist the defendants in meeting the claims of misappropriation.

74    There is the further matter that Bryson J has expedited the matter for hearing and that the parties have entered into a timetable for the filing of evidence, such evidence of filing to be completed by early September and the anticipation the matter be heard, according to Mr Jacobs, some time this year.

75    Mr Cashion relies upon delay of the plaintiff in bringing this claim for a restraining order or a Mareva order. In the most helpful written submissions that have been provided to me by Mr Jacobs QC, para 15 says:

"The first intimation that such a misappropriation occurred was on about 10 March 1999 when Bassam received copies of some of the company's paid cheques from NAB."

76    It was submitted by the plaintiff that March 1999 was the appropriate time to commence these proceedings for a restraining order.

77    Mr Cashion SC relies upon the recent decision in the High Court of Cardile v LED Builders Pty Ltd (1999) 73 ALJR 657, in particular at 669 where, in the judgment of Gaudron, McHugh, Gummow and Callinan JJ, their Honours said:

"We agree with the tenor of what was said with particular respect to Mareva relief before judgment by the Court of Appeal of New South Wales of Mason P, Sheller JA and Sheppard AJA in Frigo v Culhaci :

'A Mareva order is a drastic remedy which should not be granted lightly. A Mareva order is an interlocutory order which, if granted, imposes a severe restriction upon a defendant's right to deal with his or her assets. It is granted at the
suit of a plaintiff whose status as a creditor is in dispute and should need not be a secured creditor. Its purpose is to preserve the status quo not to change it in favour of the plaintiff.
The function of the order is not to provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied; nor is it to improve the position of the plaintiff in the event of the defendant's insolvency...
Many authorities attest to the care with which courts are required to scrutinise applications for Mareva orders.'"

78    Their Honours then referred to Patterson's case and the question to be considered on an exercise of a discretion as follows:

"Discretionary considerations generally also should carefully be weighed before an order is made. Has the applicant proceeded diligently and expeditiously ...?"

79    Mr Cashion SC says, in answer to that question, in respect to the plaintiff, a resounding no. The plaintiff says, but yes, because it was not until 10 March that there was the first intimation that the misappropriation had occurred.

80    Consistent with my duty, I have had to scrutinise the evidence to see if that can be accepted. I am afraid that it cannot. The evidence which causes me to reject that submission comes from the correspondence of the parties, which has been annexed to the affidavits of Miss O'Neill and also to that of Mr Kartsounis. On 29 January 1999, the plaintiff was in a position to make an allegation by way of correspondence in which it was said, and I quote:

"It is obvious in all the above circumstances that there is now a deadlock in the company with our client wishing to run it. Your client on the other hand does not wish for the company to continue trading, does not wish to pursue RSL COM, is apparently unhelpful in relation to the statutory requirements and is apparently unhelpful in accounting for the monies received and otherwise appropriated by him on account of the business.
This is not intended to be a full record of our client's complaints and your client's defalcations.
In all the circumstances, we are instructed to propose the following:"

and there follows then some claims which include:
"Your client account to our client fully with support by voucher for the monies he has received and or dealt with as set out above. Our preliminary estimate is that your client had diverted $107,059 to his personal use."

By way of response on the very same day, the defendant said:
"Your allegation that our client has diverted the sum of $107,059 est. to his own personal use is denied."

There is then a request for further material.

81    True it is that it is an estimation but true it is also that 10 March was not the first intimation that the misappropriation had occurred. Indeed, it was obvious or alternatively should have been obvious to Mr Aiche that if he was not being told where the money was going, and he had the concerns that he did, that the money was being diverted, and he was able to conclude by January that it was at least or estimated to be $107,000, that he should have moved and moved promptly.

82    The other matter that is important to note is that when he wanted to move in respect of the bank to stop the conduct of the money disappearing, he did. He went to the National Australia Bank, achieved the outcome of having the bank freeze the account and from then on he says no further moneys have been diverted.

83    It seems to me that to come to the court in March 1999, putting to one side what has happened between then and now, to ask the court to intervene in respect of these matters said to have occurred during the period September 1997 to June 1998 when he had every reason, on his version of events, to come so much earlier, is a very important part and very important course of conduct to be taken into account in exercising my discretion.

84    I am conscious that Mr Jacobs has informed me from the Bar table, and I accept from the evidence that Mr Aiche was not a person with a great deal of business experience, but he had worked with the Khourys for a period of time and he had completed two years of a law degree at Sydney University; he had opened his own business with Mr Khoury and he was able to achieve something that perhaps others may not have in securing the freezing of an account by a bank without the intervention of a third party.

85    All of that is weighed against the submission that really this is a young man who has been led along by the dishonest conduct of the defendants and well he might have been, but this is the exercise of a discretion in the face of a very long delay when very stringent orders are being sought.

86    When I weigh all that up against the statement made by Mr Khoury, which it seems to me is prima facie a concern that he would tell the tax office that documents have been destroyed, I have an uneasy feeling but, in the circumstances, it is a borderline case and I am afraid the plaintiff has not convinced me to the requisite level of satisfaction that is required in these cases that I should make these orders.

87    The fact that there has been no problem since 30 June 1998 when Mr Aiche acted promptly with the bank, the fact that Mr Khoury has been apparently open in talking about the sale of his brother's house, the additional facet to the conversation with the real estate agent that Mr Gaby Khoury was going to move into a waterfront home, and the obvious contest and involvement of the defendants in this litigation lead me to the conclusion that I should not exercise my discretion in granting the orders sought in favour of the plaintiff in this notice of motion.

88    Accordingly, I refuse to make the orders sought in paras 2, 3 and 4 of the notice of motion.

DISCUSSION ENSUED RE COSTS

89    An application has been made by the defendants for costs, the successful party to the notice of motion in resisting the Mareva orders sought by the plaintiff. Mr Jacobs QC submits that because this case involved the finding that there was a prima facie case of misappropriation, it would be an appropriate case in which to order that costs be costs in the cause.

90    Mr Cashion SC submits that the defendants have been successful and in the ordinary course an order should follow that event in their favour. Although Mr Jacobs of counsel sought an adjournment if I was against him on this matter to allow his leader, Mr Jacobs QC, to address me on costs, I have not acceded to that application.

91    I have, in fact, asked Mr Cashion SC to address a further factor which seems to me appropriate to take into account and that is that the conduct of the defendants, through their solicitor, has been less than ideal, and indeed the question I posed to Mr Cashion SC is that the conduct of the defendants' solicitor had been less than ideal. Mr Cashion SC responded that it really is that both parties could be characterised with that epithet because he says the conduct of Mr Kartsounis may well have been less than ideal.

92    It seems to me that my finding that this was a borderline case favours the plaintiff's submission. True it is that the defendants were successful today, but I have been persuaded to exercise my discretion in the plaintiff’s favour having regard to the fact there has been a finding that there is a prima facie case of misappropriation established and my finding that on balance it was a borderline case.

93    In all the circumstances of this case, I make an order that the costs of this application, including the costs of the motion that was filed in April, be costs in the cause.

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