Baccello Pty Ltd as trustee for the Mondello Family Trust v Qin Chen as trustee for the Cao Family Trust
[2017] WADC 45
•30 MARCH 2017
BACCELLO PTY LTD as trustee for the MONDELLO FAMILY TRUST -v- QIN CHEN as trustee for the CAO FAMILY TRUST [2017] WADC 45
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2017] WADC 45 | |
| Case No: | CIV:980/2014 | 21-23 NOVEMBER 2016 | |
| Coram: | WAGER DCJ | 30/03/17 | |
| PERTH | |||
| 26 | Judgment Part: | 1 of 1 | |
| Result: | 1. The plaintiff was not aware and did not become aware of the usage of the leased premises as a brothel 2. The lease is not void in whole or in part | ||
| PDF Version |
| Parties: | BACCELLO PTY LTD as trustee for the MONDELLO FAMILY TRUST QIN CHEN as trustee for the CAO FAMILY TRUST WEI DONG CAO |
Catchwords: | Trial of preliminary issues Enforceability of contract Unlawful conduct Section 190 Criminal Code (WA) Turns on its own facts |
Legislation: | Criminal Code s 190 Planning and Development Act 2005 (WA) s 218 |
Case References: | A v Hayden ('ASIS case') [1984] HCA 67; (1987) 156 CLR 532 Briginshaw v Briginshaw (1938) 60 CLR 336 Fitzgerald v FJ Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215 Gray v Pastorelli [1987] WAR 174 Jones v Dunkel (1959) 101 CLR 298 Neil v Ayres (1949) 63 CLR 524 Neilson v Neilson (1995) 184 CLR 538 Yango Pastoral Co Pty Ltd v First Chicago Australia Limited [1978] HCA 42; (1978) 139 CLR 410 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
QIN CHEN as trustee for the CAO FAMILY TRUST
First Defendant
WEI DONG CAO
Second Defendant
Catchwords:
Trial of preliminary issues - Enforceability of contract - Unlawful conduct - Section 190 Criminal Code (WA) - Turns on its own facts
Legislation:
Criminal Code s 190
Planning and Development Act 2005 (WA) s 218
Result:
1. The plaintiff was not aware and did not become aware of the usage of the leased premises as a brothel
2. The lease is not void in whole or in part
Representation:
Counsel:
Plaintiff : Mr S Tribble
First Defendant : In person
Second Defendant : In person
Solicitors:
Plaintiff : Arns & Associates
First Defendant : Not applicable
Second Defendant : Not applicable
Case(s) referred to in judgment(s):
A v Hayden ('ASIS case') [1984] HCA 67; (1987) 156 CLR 532
Briginshaw v Briginshaw (1938) 60 CLR 336
Fitzgerald v FJ Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215
Gray v Pastorelli [1987] WAR 174
Jones v Dunkel (1959) 101 CLR 298
Neil v Ayres (1949) 63 CLR 524
Neilson v Neilson (1995) 184 CLR 538
Yango Pastoral Co Pty Ltd v First Chicago Australia Limited [1978] HCA 42; (1978) 139 CLR 410
1 WAGER DCJ: The plaintiff and the first defendant entered into a written lease for premises at 835 Beaufort Street, Inglewood owned by the plaintiff. The second defendant was the first defendant's guarantor. The permitted use of the premises had been approved by the City of Stirling as being for 'Chinese Relaxation Massage, Acupuncture, Physiotherapy or Chiropractor', however the first defendant with the full knowledge of the second defendant used the leased premises to operate a brothel contrary to the permitted use.
2 The plaintiff claims not only that the defendants used the leased premises for a purpose other than the permitted use but also claims the defendants breached the lease because they failed to repair the premises and keep the premises in a good and substantial tenantable repair, order and condition.
3 The lease was terminated because the defendants failed to remedy the defaults in accordance with default notices sent to them. The plaintiff claims it suffered loss and damage as a result of the defendants' breaches.
4 The defendants, by their respective defences and counterclaims, plead that the plaintiff had agreed in private that the leased premises could be used as a brothel and that the plaintiff had known the nature of the business run by the first defendant since the first lease term commenced in 2006. The defendants claim the plaintiff had known that the leased premises were built as a brothel and had always been used as a brothel. The defendants plead that when the plaintiff bought the premises in 1998 it was a closed brothel and that the plaintiff knew the premises had previously run as a brothel without council or police intervention.
5 Given the plaintiff's knowledge and its agreement to the defendants' unauthorised and unlawful use of the leased premises in contravention of s 218 Planning and Development Act 2005 (PDA) the defendants' claim the plaintiff's conduct in knowingly allowing a brothel to operate and receiving rent from the brothel make the lease agreement unenforceable at common law because the contract is contrary to public policy.
6 This hearing is to determine the preliminary issues of:
1. whether the plaintiff was or became aware of the usage of the leased premises in question as a brothel, and if so, when the plaintiff became aware of that usage; and
2. whether the lease in question is void in whole or in part as a consequence of the above finding.
7 The onus of proof for the determination of the preliminary issues is on the defendants.
8 The first defendant has taken no part in the hearing in relation to the preliminary issues. The hearing was conducted by the second defendant in person but with the assistance of an interpreter to ensure that he and his witnesses understood the proceedings and the evidence.
9 Mr Cao, the second defendant, gave evidence, and called evidence from Ms Li Hua Zhang, the full-time receptionist at Top 835, the business operating at the leased premises at 835 Beaufort Street, Inglewood, Ms Liu Zhang, a part-time receptionist at Top 835, Mr Wei Zheng, a friend and informal interpreter for the second defendant and Edward John Basley, former partner of the full-time receptionist Ms Zhang.
10 Mr Salvatore Mondello gave evidence on behalf of the plaintiff.
11 It is common ground that Mr Mondello is a director of Baccello Pty Ltd together with his wife, Mrs Gisella Mondello. Baccello Pty Ltd is the trustee for the plaintiff, the Mondello Family Trust. Mr Mondello's duties as a director include the daily management of property interests held by the plaintiff. These duties include inspecting the property, arranging maintenance and repairs and collecting rent.
12 Mr Mondello is also a registered builder with over 30 years' experience in the building industry who has operated a construction business called Multistruct.
13 The premises at 835 Beaufort Street were purchased by the plaintiff in May 1989. It was a vacant property at the time of purchase but was the subject of a lease to Ms Helen Ma from 17 November 1998. On 19 November 1998 the plaintiff submitted an application to the City of Stirling for approval for the proposed use of the premises being for 'Chinese Traditional Acupuncture and Body Relaxation Massage Centre'. The approval was granted on or about 20 November 1998.
14 Mr Cao was married to Ms Chen, who was the trustee for the first defendant Cao Family Trust. Mr Cao arrived in Perth in March 2000 and became one of three stakeholders and effectively the manager of the brothel Top 835 that operated from 835 Beaufort Street. Soon after in August 2000 the premises were sub-leased by the first defendant from Ms Ma. Mr Cao was not present at the business on a full-time basis however he lived at 825 Beaufort Street. Given his proximity to 835 Beaufort Street, he went to the premises at least once a day.
15 Mr Mondello was introduced to Mr Cao in 2000 and attended 835 Beaufort Street personally each month unless he was unavailable in which case he would direct another family member to attend, collect rent and inspect the premises. Mr Mondello and Mr Cao developed a friendship and, together with their wives, would socialise and share meals such as peking duck on occasion. Given the nature of the friendship in 2002 Mr Cao asked Mr Mondello to inspect a house Mr Cao intended to purchase in Greenwood that became his family home.
16 In late 2000 or early 2001, Mr Mondello agreed to move the kitchen at 835 Beaufort Street from a back room to an alcove near the front rooms in order to free up a room at the premises. Mr Mondello did not charge for his services in supervising the kitchen renovation and paid the subcontractors directly. He requested reimbursement of these sums from Mr Cao.
17 In 2005 or 2006, Mr Mondello agreed to move the kitchen back to its original location. Once again he supervised the process and personally paid the subcontractors. Mr Cao again reimbursed Mr Mondello, probably in cash.
18 In 2006, following the expiration of the original lease, Mr Cao and Mr Mondello entered into a five year lease with a five year option. The permitted use relevant to the lease as approved by the City of Stirling was for 'Chinese Relaxation Massage, Acupuncture, Physiotherapy or Chiropractor'. Mr Mondello also made arrangements to insure the premises. Consistent with the terms of the lease, the sum disbursed on insurance premiums was repaid to him by Mr Cao.
19 On or after 12 October 2010, Mr Mondello received correspondence from the City of Stirling seeking details of the nature of the business at 835 Beaufort Street, details of parking availability and the hours of business operation. Protracted dealings with the City of Stirling followed during which the council made its concerns that the business was in fact operating as a brothel very clear to the plaintiff.
20 On 21 January 2011 Mr Mondello instructed solicitors to issue a default notice to the defendants. He advised the City of Stirling that various undertakings in relation to the nature of the business would be carried out. The default notice was withdrawn in February 2011 after the City of Stirling was advised that the undertakings had been carried out.
21 On about 10 February 2012 the City of Stirling commenced action against the plaintiff and defendants because it asserted that the undertakings had not been carried out consistent with the undertaking to ensure that the premises was not running as a brothel. The plaintiff and defendants were prosecuted contrary to s 218 PDA because the City of Stirling alleged that the premises had been leased for a use that was not approved under the local planning scheme, number 3, and each accused was thereby doing an act enabling the use of the leased premises contrary to the planning approval.
22 Mr Mondello, Ms Chen and Mr Cao each instructed solicitors to enter pleas of not guilty to the charge.
23 On 5 April 2012 the plaintiff instructed solicitors to serve a second default notice on the first defendant, Ms Chen.
24 The PDA prosecution proceeded to trial against the defendants only. On 14 June 2013 both Ms Chen and Mr Cao were convicted of breaching s 218 of the PDA and each was fined $36,600 A daily penalty was imposed.
25 The City of Stirling subsequently advised the plaintiff's lawyers that they would agree to drop the PDA charge against Mr Mondello if the plaintiff terminated the defendants' lease and paid the City of Stirling's costs of the prosecution.
26 On 8 July 2013 the plaintiff instructed solicitors to serve a third default notice on the defendants and the lease was terminated. Given the plaintiff's compliance with the City of Stirling's request, the prosecution against Mr Mondello was dismissed on 9 August 2013.
27 At the time of termination the defendants were in arrears in respect of rent payable. Most of the furniture and the contents of the premises had been removed. It appeared that the defendants had abandoned the premises however they voluntarily handed the keys over to the plaintiff.
The law
28 The normal inference is that contracting parties make a contract intending to comply with the law: Fitzgerald v FJ Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215.
29 However, the law recognises that making or performing a contract sometimes involves illegal conduct, that is conduct prohibited by legislation or common law. In such cases the contract may be invalid and unenforceable.
30 The main examples of legal contracts prohibited by statute are those which are illegal in formation. Where illegality arises in the course of the performance of the contract it is more difficult to establish that the contract is prohibited. The most important consideration in cases where there is no express prohibition to the contract is the object of the statute or common law or public policy.
31 Whether a contract is invalid by statutory implication is an issue of interpretation of the particular legislation. Whether the statute prohibits contracts involving a particular conduct or purpose is an issue to be decided by reference to the object and context of the legislation in conformity with established principles of statutory interpretation: Yango Pastoral Co Pty Ltd v First Chicago Australia Limited [1978] HCA 42; (1978) 139 CLR 410.
32 The intention of one or both parties in the context of an agreement which is not itself unlawful was considered by Kennedy J in Gray v Pastorelli [1987] WAR 174 [181] – [182]. His Honour said:
… it often happens that an agreement which in itself is not unlawful is made with the intention of one or both parties to make use of the subject matter for an unlawful purpose, that is to say a purpose that is illegal, immoral or contrary to public policy. The most common instance of this is an agreement for the sale or letting of an object, where the agreement is unobjectionable on the face of it, but where the intention of both or one of the parties is that the object shall be used by the purchaser or hirer for an unlawful purpose. In such a case any party to the agreement who had the unlawful intention is precluded from suing upon it. Ex turpi causa non oritur action. The action does not lie because the court will not lend its help to such a plaintiff.
33 Even if a statute does not expressly prohibit the contract, a contract may be impliedly prohibited if its formation or performance involves prohibited conduct.
34 Four categories of cases in which the enforceability of a contract may be affected by a statutory provision rendering particular conduct unlawful were identified by Gibbs ACJ in Yango Pastoral Co Pty Ltd v First Chicago Australia Limited:
1. the contract may be to do something which the statute forbids;
2. the contract may be one that the statute expressly or impliedly prohibits;
3. the contract although lawful on its face may be made in order to effect a purpose which the statute renders unlawful; or
4. the contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits.
35 In Yango Pastoral Co Pty Ltd v First Chicago Australia Limited the contract was lawful but was prohibited by statute. The statute in question, s 8 of the Banking Act 1959 (Cth), imposed a pecuniary penalty for each day during which the contravention of the legislation continued. The penalty provision of the statute was determined by Gibbs ACJ as an indication that Parliament did not intend to prohibit each contract made in the course of the banking business, but only to penalise the carrying on of the business without authority.
36 Gibbs ACJ said [6]:
The question whether a statute, on its proper construction, intends to vitiate a contract made in breach of its provisions, is one which must be determined in accordance with the ordinary principles that govern the construction of statutes … It would be contrary to reason and principle to allow one circumstance to override all other considerations in the interpretation of a statute. As Devlin J. said in St. John Shipping Corporation v. Joseph Rank Ltd (1957) 1 QB at page 287: 'The fundamental question is whether the statute means to prohibit the contract. The statute is to be construed in the ordinary way: one must have regard to all relevant considerations and no single consideration, however important, is conclusive.' See also Shaw v Groom (1970) 2 QB at 523.
37 Accordingly prohibition of a contract is less likely to be implied if a statute expressly provides sanctions for non-compliance. The court must not impose a further sanction for the unlawful conduct if Parliament has indicated that the sanctions imposed by statute are sufficient: Neilson v Neilson (1995) 184 CLR 538.
38 The High Court considered the issue of the general reluctance to treat a contract as prohibited when the offence is committed during the performance of the contract rather than at the time of its formation in Fitzgerald v FJ Leonhardt Pty Ltd. Kirby J said in that case (590):
Some judges have suggested that courts today are less willing than in the past to derive an implication of illegality from a legislative provision where Parliament has held back from expressly enacting it. … Certainly there are plenty of judicial dicta to suggest that courts will be slow to imply where the applicable legislation is silent, a prohibition which interferes with the rights and remedies given to parties by the ordinary law of contract. … The duty of courts remains, where legislation is involved, to give meaning to the imputed purpose of Parliament as found in the words use …
39 In the present case the permitted use relevant to the lease as set out in cl 7.1 item 6 of the schedule to the lease (exhibit 1.50) shows the permitted use as 'Chinese Oriental Relaxation Massage, Acupuncture, Physiotherapy and/or Chiropractor'. The use is consistent with the permitted use for mixed use property under the City of Stirling Planning Scheme 3. The lease is lawful in its terms.
What is Parliament's intention in respect of s 128 of the Planning and Development Act 2005 (WA)?
40 Section 128 of the PDA states:
128. Breach of s. 124(2), 125 or 127(2), Minister’s powers in case of
(1) If a local government does not comply with —
(a) section 124(2); or
(b) section 125; or
(c) not later than 60 days after the giving of the direction concerned, section 127(2),
the Minister may —
(d) cause the relevant local planning scheme or amendment to be prepared or modified as the case requires and forwarded to the local government; and
(e) direct the local government to adopt that local planning scheme or amendment as if it were a local planning scheme proposed by owners of land with respect to which the local government might itself have prepared a scheme.
(2) A local government is to comply with a direction under subsection (1)(e).
(3) If a local government to which a direction has been given under subsection (1)(e) does not comply with the direction within 60 days after the relevant local planning scheme or amendment was forwarded to it, the Minister may approve of the local planning scheme or amendment and cause it to be published in the Gazette in accordance with Part 5.
(4) A local planning scheme, or an amendment to an existing local planning scheme, as the case requires, published in the Gazette under subsection (3) takes effect from the date of publication and has effect as if it were made under Part 5.
(5) All costs, charges and expenses incurred by the Minister in the exercise of any powers conferred on the Minister by this section may be recovered by the Minister from the local government concerned as a debt due to the Crown or may be deducted from any moneys payable by the Crown to the local government.
41 Section 223 PDA sets out that a person who commits an offence under s 128 is liable to a fine of $200,000 and, in the case of a continuing offence, a further fine of $25,000 for each day during which the offence continues.
42 Even if the use of the leased premises is not the permitted use, the purpose of the statute may be served by the imposition of a penalty rather than an order that the lease is void notwithstanding that the statute is for the protection of the public.
43 Although a clear intention to break the law is not of itself enough to establish that a contract is against public policy such an unlawful intention would go to the substance of the transaction. In Neil v Ayres (1949) 63 CLR 524 both parties to the sale of a hotel lease were aware that a percentage of profit could be made through illegal after hours liquor sales, the substance of the transaction related to the sale of the lease for the hotel. Although the conduct of illegal liquor sales was unlawful, the contract was not held to be void because the illegality was not the substance of the transaction.
44 This would not be the position if the parties entered into the lease with the intention and knowledge that the declared permitted use would not be followed and that the premises the subject of the lease would be used as a brothel because in that case the illegality would be the substance or the reason for entering into the lease.
45 If the plaintiff entered into the lease knowing that the lease on its face was not unlawful but with the intention and knowledge that the property would be used, contrary to the lease, as a brothel then the contract would be void.
46 Although contrary to public policy if the lease was entered into by the plaintiff with the knowledge and intention that the business would comply with the permitted use and the plaintiff later found out the business was operating unlawfully then, given the penalty provision for contravention of s 118 of the PDA, the offending party could be penalised for its conduct. The lease in that case would not be void.
Section 190 Criminal Code (WA)
47 Neither party considered s 190 of the Criminal Code during the course of the pleadings, evidence and submissions in respect of the preliminary issues. I invited the defendants and counsel for the plaintiff to make further submissions in respect of s 190 Criminal Code. Submissions were filed by counsel for the plaintiff dated 6 February 2017. The defendants have not responded at all to the request for further submissions and, given the passage of time, I now proceed on the basis that the defendants do not wish to be heard.
48 Although neither party raised the issue of criminality in respect of the act of the plaintiff leasing and profiting from the brothel, I do not consider that I can ignore the criminality of profiting from premises kept for the purpose of prostitution because of the serious nature of the criminal offence. It is the court's obligation to consider public policy.
49 Section 190 Criminal Code (WA) states:
(1) Any person who —
(a) keeps or manages, or acts, or assists in the management of any premises for purposes of prostitution; or
(b) being the tenant, lessee, or occupier of any premises, permits such premises, or any part thereof, to be used for purposes of prostitution; or
(c) being the lessor or landlord of any premises, or the agent of such lessor or landlord, lets the same, or any part thereof, or collects the rent with the knowledge that such premises, or some part thereof, are or is to be used for purposes of prostitution, or is a party to the continued use of such premises, or any part thereof, for purposes of prostitution,
is guilty of a crime and is liable to imprisonment for 3 years.
Summary conviction penalty: imprisonment for 12 months and a fine of $12 000.
51 In its submissions in respect of s 190 Criminal Code the plaintiff concedes that a lease made to effect a purpose which s 190 renders illegal would be void both as a result of the statute itself and also at common law as contrary to public policy. The plaintiff argues however that there is no admissible credible evidence to establish that the plaintiff entered into the lease knowing that the leased premises would be used for any unlawful purpose and that Mr Mondello's evidence, given on behalf of the plaintiff, was that the permitted use was the only use that he had authorised or was aware of.
52 The plaintiff submits that it was solely the defendants' intention to use the leased premises for the purposes of prostitution and the plaintiff only became aware of the use contrary to approval after the council raised its concerns by letter dated 12 October 2010. Thereafter the plaintiff made efforts to ensure that the leased premises complied with the permitted use and was not used for purposes that were illegal, immoral or contrary to public policy.
53 Accordingly if the defendants do not satisfy me as to the knowledge and intention of the plaintiff at the time when the plaintiff and defendants signed the lease in July 2006, I am still required to determine whether the defendants have discharged their onus and established that the plaintiff knew on a date after the lease was signed in 2006 that the leased premises was being used as a brothel and, with this knowledge, collected the rent for the premises contrary to s 190(1)(c) Criminal Code. Given the serious nature of the allegation, although the standard of proof being proof on balance of probabilities applies, more exact proof and clearer inferences must be proven by the defendants given the serious allegation that is sought to be proven: Briginshaw v Briginshaw (1938) 60 CLR 336. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect references: Dixon J (362).
54 The questions to be determined are:
1. What was the plaintiff's knowledge and intention at the time of signing the lease in July 2006?
2. Did the plaintiff know the premises was being used for the purposes of prostitution after 2006? Did the plaintiff collect rent from the defendants knowing the use of the premises was contrary to s 190(1)(c) Criminal Code?
What was the plaintiff's knowledge and intention at the time of signing the lease in 2006?
55 The only witnesses who gave evidence on behalf of the defendants relevant to the period up to July 2006 were Mr Cao, Ms LH Zhang and Mr Basley. Mr Mondello gave evidence in relation to the period up to 2006 on behalf of the plaintiff.
Evidence of Wei Dong Cao
56 Mr Cao repeatedly asserted that Mr Mondello knew the premises at 835 Beaufort Street was a brothel and that a brothel was operating in 2000 with three or four women from Thailand working at the premises. He said Mr Mondello attended the premises on a monthly basis after 2001 because rent was paid each month by a cheque that was handed directly to Mr Mondello. Mr Mondello prepared a receipt on letterhead for the rent cheque that was paid and he personally delivered the receipt to the premises.
57 After a kitchen relocation in 2001, Mr Mondello came to the premises on about the 10th of each month to personally collect an additional sum of $80 per week cash. He continued to collect cash each month in addition to the rent cheque but the sum increased over the years. Sums for insurance, reimbursement for the kitchen relocation and other costs were paid separately to Mr Mondello.
58 Mr Cao said that although the plaintiff was entitled to raise the rent annually, Mr Mondello was familiar with the operations of the business and recognised in 2003/2004 that the business was not going well. He did not increase the rent for that year. Mr Cao said that Mr Mondello was familiar enough with the business of the brothel to be aware that business picked up slowly in 2005 and improved in 2006, so that Mr Mondello increased the rent by the annual 5% in that year and requested an increase in the sum of cash rent.
59 In 2006 Mr Cao discussed entering into the lease agreement with Mr Mondello. He said that he had told Mr Mondello that the nature of the business would have to be put onto the draft lease document, but Mr Mondello responded by telling him that although prostitution was legal, running a brothel was not and for that reason the description of the approved use would not change. Mr Cao said that he raised his concern about a prostitution bill that was to go before Parliament that would impact on the business, however Mr Mondello told him that he should not be worried because the bill had been around for many years and it had not passed through Parliament. Mr Cao said that Mr Mondello was confident that Mr Cao should sign a five year lease. The lease setting out the permitted use was duly drafted and signed.
60 Although Mr Cao gave no evidence as to dates, he said that Mr Mondello often brought friends to the brothel on a Friday night.
61 He said Mr Mondello had used sexual services himself on one afternoon (ts 49):
I mean it was a bit awkward because he saw me there. I think he was a bit red-faced because you know it's afternoon and he's been enjoying some services.
62 Mr Cao inferred that Mr Mondello had used sexual services because Mr Mondello had come from one of the prostitute's rooms and walked back into the waiting room. He looked like he had recently showered.
63 In cross-examination Mr Cao agreed that he had not seen Mr Mondello use the sexual services, nor did he speak directly to any of the prostitutes about Mr Mondello's use of the service. Mr Cao's evidence was that the receptionist would know the details of Mr Mondello's visit, however the receptionist Ms Zheng gave no evidence about Mr Mondello using the service. Ms Zheng had never seen Mr Mondello in circumstances consistent with him using sexual services.
64 Mr Cao's evidence was given in a forthright and brazen fashion. He said with some pride that he had entered a plea of not guilty to the charge contrary to s 218 PDA in order to take the matter to trial because the time delay in waiting for the trial enabled the brothel to run for a longer period. He did not give evidence at that trial and said that it was a matter for the lawyers. He did not accept any responsibility for the Magistrates Court proceedings.
65 Mr Cao gesticulated and grimaced from the bar table when evidence was given by other witnesses with whom he disagreed. Even after direction from the court that his conduct was not appropriate, his inappropriate demeanour did not stop.
66 Mr Cao presented as a witness who had very little respect for the legal system. He was proud that he had manipulated his trial date in the Magistrates Court in order to ensure that the brothel business continued to run. He was a witness of limited credibility. I do not accept his evidence in relation to the words spoken in one on one conversations with Mr Mondello prior to 2006 as being accurate.
Li Hua Zhang
67 Ms Zhang was a full-time receptionist at Top 835 at 835 Beaufort Street from 2005 until 2013. She did not clarify a date but said that on occasions when Mr Mondello attended Top 835 to collect cash payments and to hand over a receipt for the rent cheque, he would sit at reception and have a casual chat with her. She described the substance of the conversation as (ts 84):
He might say, 'ah, so what sort of girls do you have now? This one looks good or this one has a nice figure, this one has a nice physique or a nice bottom' and I said 'Sam, do you want to have a go?' and he just said 'jigger jigger'.
68 Ms Zhang said that he did not come in for inspection very often when she started work in 2005. She said that in the time she worked as a receptionist Top 835 had never provided a therapeutic service. Only sexual services were provided. The sexual services were not advertised on the premises. Usually prostitutes would be engaged when a customer would telephone and ask for prices and then attend. The prostitutes would come to the reception area and say hello to the customer who would then pick the prostitute he wanted. The prostitutes wore very revealing dress, quite high and pushing up their breasts 'very high leg and very high up to the hips'.
69 The reception area had business cards for Top 835 placed on the coffee table next to a couch. The cards had a dark background and small writing referring to Top 835. A picture of a man and woman was on the reception wall. Although Ms Zhang described the picture as sexual, the people depicted in it were fully clothed.
70 Ms Zhang said that once every two months on a Friday after 9.30 pm, Mr Mondello would personally bring friends with him to Top 835 so that the friends could use the sexual service. She described the men as having red faces consistent with drinking alcohol. She said Mr Mondello would say to her 'Mummy, could you please give me a discount for half an hour'. A reduction of $10 per half hour and $20 per full hour from the usual price would apply for Mr Mondello's friends.
71 Ms Zhang said that she was aware that Mr Mondello's friends would pay for full sexual services because although money was handed directly to the prostitute by the customer in the room, a percentage had to be paid by the prostitute to Ms Zhang as part of the business arrangement. The percentage paid relevant to Mr Mondello's friends was consistent with full sexual services. The friends would say words to the effect of 'That was good jigger jigger'.
72 Ms Zhang had never seen Mr Mondello with a prostitute nor did she suggest that he was directly involved in any conversation between his male friends and her in relation to the details of the sexual services they received.
73 Ms Zhang said Mr Cao would direct her to prepare cash money he referred to as rent, for Mr Mondello to collect each month.
74 Given that Ms Zhang was unclear about the dates when she asserted Mr Mondello was present at 835 Beaufort Street and given the vague nature of her evidence in relation to words spoken by Mr Mondello, her evidence does not assist me to determine whether the plaintiff knew that a brothel was operating before June 2006.
Edward John Basley
75 Mr Basley was Ms LH Zhang's former partner. In his statutory declaration dated 24 June 2014 he said that he had a relationship with Ms Zhang for about eight years that it ended four or five years ago consistent with the relationship ending in 2011 or 2012 having commenced in 2003 or 2004.
76 Mr Basley said that he attended Top 835 on every second Friday and on every second Wednesday between 2.00 pm and 5.00 pm. Mr Mondello was occasionally there on a Wednesday but more often on a Friday evening when he would attend between 6.00 pm and 8.00 pm. Mr Mondello would be with a few friends and would usually have a drink of wine that he had brought himself. He would mostly sit in the lounge in the reception area. Mr Basley said that Mr Mondello was always trying to get Ms Zhang to give him a discounted prostitute for one of his friends.
77 Mr Basley said he was also aware that cash money described by others to be for rent was given to Mr Mondello by Ms Zhang.
78 Mr Basley said in evidence that he had never met Mr Mondello nor shaken his hand, however he had seen him at Top 835 on many occasions. In cross-examination Mr Basley agreed that in his statutory declaration he had said that 'sometimes Sam was introduced to me, the owner would come to collect cash rent'.
79 Mr Basley asserted that his evidence on oath was the correct position and acknowledged that his statutory declaration was a prior inconsistent statement. Positively saying that he had met Mr Mondello when in fact he had not impacts adversely on Mr Basley's credibility as a witness against Mr Mondello.
80 The reception area of 835 Beaufort Street is described as an area that is relatively small. If Mr Basley was regularly present with Mr Mondello then Mr Basley should have been introduced to him on at least one occasion. I do not accept that Mr Basley knew Mr Mondello well nor that he was personally aware of details of Mr Mondello's interactions. I reject Mr Basley's evidence in relation to Mr Mondello's personal and financial interactions with Ms Zhang at 835 Beaufort Street prior to 2006. Mr Basley's evidence is of very limited weight.
Mr Salvatore Mondello
81 Mr Mondello adopted his 21-page statement dated October 2015 as his evidence-in-chief.
82 He agreed that he attended the leased premises most months for the purpose of collecting rent and other monies payable under the lease. The lease enabled the rent to be increased by 5% per annum. He had increased the rent on all but one year. He did not give an explanation as to why rent was not increased in that year. He did not give evidence that he chose not to increase rent because of his knowledge that the brothel business was not performing well. If Mr Mondello was not available then other members of his family would attend and collect the rent and any cash owed to the plaintiff.
83 When Mr Mondello oversaw the relocation of the kitchen at 835 Beaufort Street prior to 2006, he did not see women who were scantily clad. He denied seeing any activity consistent with the provision of sexual services.
84 Mr Mondello described the premises as being residential and referred repeatedly in evidence to kids being present, running around and screaming. He said that when carrying out the kitchen relocation, he said to the family and children who were present 'Guys, go inside because you could get hurt here' (ts 146).
85 He said that he understood that the people inside the premises were the defendant's family who had come from Sydney. In evidence-in-chief (ts 146) he said:
… Obviously I saw the beds inside and I saw couples sleeping inside those rooms. That's where I actually should have taken more care.
86 Mr Mondello did not clarify why it was that he should have taken more care and what it was that he should have taken more care of. In his statement he has not referred to seeing any children or kids being present. It is not disputed that people would stay at the premises from time-to-time, however there is no other evidence that children were at the premises.
87 Mr Mondello said that when he attended to collect rent he did not see any behaviour consistent with a brothel. He would go to the reception area or directly to the office staff room to collect the rent. Occasionally he would enter individual rooms and inspect and maintain the property.
88 Although Mr Mondello may have been wilfully blind to activities at 835 Beaufort Street, it is not challenged that people stayed in some of the rooms on occasion. No evidence was led by the defendants about the identity or length of stay of people at the premises.
89 I accept that prior to 2006 Mr Mondello may not have known the nature of the business being run by the defendants.
90 Counsel for the plaintiff submits that I should draw an inference that from Ms Chin's failure to give evidence that her evidence would not be favourable to the defendants: Jones v Dunkel (1959) 101 CLR 298, 308, 312, 320 – 321. It is not disputed by Mr Mondello that Mr Cao was the defacto manager of the premises and that most of his dealings were with Mr Cao. There is no evidence that Ms Chin was actively involved in the business prior to the termination of the lease. None of the witnesses called has referred to Ms Chin being part of the day-to-day running of the brothel. I do not draw an inference that is not favourable to the defendants from her absence at this hearing because I conclude that her evidence was unlikely to have been of significant relevance to the facts in issue.
91 The defendants did not call evidence from Ms Ma, the former lessee who Mr Cao said ran a brothel prior to the defendants' taking over the business after 2000 and before 2006 nor from any of the prostitutes or clients.
92 Accordingly, the only evidence specifically in relation to the operation of the business prior to 2006 is the evidence of Mr Cao. Given the very limited weight I give to Mr Cao's evidence, I do not accept that Mr Mondello knew that the business was operating as a brothel at the time when the lease was signed in 2006.
Did the plaintiff know the premises was being used for the purposes of prostitution after 2006? Did the plaintiff collect rent from the defendants knowing the use of the premises was contrary to s 190(1)(c) Criminal Code?
93 Mr Cao, Ms LH Zhang, Ms Liu Zhang and Mr Wei Zheng gave evidence on behalf of the defendants relevant to the period after 2006. Mr Mondello gave evidence on behalf of the plaintiff.
Evidence of Wei Dong Cao
94 In respect of the period after 2006 Mr Cao said that the same financial arrangements continued with Mr Mondello. Mr Mondello oversaw the kitchen being returned to its original location and he continued to come to the premises each month to collect the rent cheque, to provide a rent receipt and to collect cash. Mr Cao denied that the cash payments related to sums of money he owed Mr Mondello in addition to the rent. He said that the sum of rent consistent with the lease agreement was always paid by cheque, however in cross-examination when the plaintiff's bank records were put to him, he was unable to dispute that an entry relating to a cash deposit in July 2013 in the sum of $5,900, was the cash paid as rent under the lease consistent with the lease agreement. The $5,900 cash was recorded as having been deposited into the plaintiff's bank in July 2013 (exhibit 1.369). Despite the entry in the plaintiff's bank account, Mr Cao remained emphatic that rent was paid by cheque.
95 The defendant tendered an email that Mr Cao said was sent to him by Mr Mondello relevant to 2012 in the following terms (exhibit 1.4):
Please note the new rent from 1st July 2012 is $5,901 to go into the bank.
And for me to pick up $2,005.50.
Every 1st of the month.
Many thanks
Sam Mondello
96 Mr Cao said that the cash payment referred to was the sum of cash paid over and above the rent as cash rent, the inference being that Mr Mondello knowingly encouraged the brothel to operate at the premises so that he would profit from the tenancy by receiving cash. The words of the email are ambiguous. The cash is not described as being cash rent. Although the email appears to be from 'sam@multi' and Mr Mondello's business email address is [email protected], Mr Mondello denied sending the email.
97 The plaintiff had shown Mr Cao a letter dated 12 October 2010 (exhibit 1.370) from the City of Stirling querying the nature of the business operating at 835 Beaufort Street. Mr Cao said that Mr Mondello was aware that the business was a brothel but he did not advise Mr Cao to change the nature of the business in light of the correspondence. Mr Cao said that following receipt of the letter it was Mr Mondello's intention to enter into a new lease rather than to end the lease and that Mr Mondello arranged for them to see a lawyer together with Ms Chin and Mr Zheng in order to have a lease drafted.
98 The lawyers meeting occurred after 2010. The group had discussed that it may be better not to pursue a new lease given the concerns of the City of Stirling about the nature of the business. Mr Cao said that Mr Mondello's words at the time were 'Look, don't worry'. Mr Cao said that Mr Mondello said not to worry because he was keen to enter into a further lease.
99 Mr Cao said that it was as a result of the plaintiff's attitude that the first defendant agreed to have a further draft lease prepared. Copies were sent to all parties at the end of 2011, however the lease was not signed.
100 I do not accept Mr Cao's evidence that the defendants were reluctant to enter into a further lease because it was the defendants who ultimately prepared a draft lease in 2011. Mr Mondello did not sign the lease. Mr Mondello's failure to sign is inconsistent with his purported enthusiasm to sign a lease after 2010. Although the tenancy was able to continue given the terms of the 2006 lease, the fact that the defendants drew up the lease is consistent with the defendants wanting to continue the landlord tenant relationship after inspections by the City of Stirling had commenced.
101 Although Mr Cao acknowledged that the defendant was served with default notices in 2011 and 2012 and that ultimately the lease was terminated in 2013, he said that it was Mr Mondello's intention to actually keep the business operating. Mr Cao described the City of Stirling as 'the common enemy' that had to be dealt with in order to keep the brothel operating because both the plaintiff and the defendants had a financial interest in the brothel continuing.
102 He said it was for this reason the parties jointly arranged for a sign declaring 'no sexual services' to be placed in the reception area and for massage tables to be placed in three of the rooms. Doors were also removed and diagnostic charts placed on the walls of the three rooms consistent with therapeutic services.
103 The massage tables and sign, consistent with photographs exhibits 1.396 to 1.400, were only placed in the rooms when the City of Stirling inspected the premises. Mr Cao said that Mr Mondello was aware of the massage tables and sign and he removed them immediately after inspection so that the premises could continue to function as a brothel.
104 I reject that Mr Mondello personally removed massage tables and signs in relation to the provision of sexual services immediately following each inspection by the counsel. He was not running the business and attended in the capacity of landlord. Any removal of signs or therapeutic equipment was more likely to have been performed by the defendants.
105 Although Mr Cao was firm in his evidence that Mr Mondello profited from the brothel after 2010 and did not intend to change the nature of the use of the premises, his evidence was not consistent. I find his evidence to be unreliable.
Ms LH Zhang
106 Ms LH Zhang said that there were no massage tables in any of the rooms until after the City of Stirling inspection when two massage tables were placed in front rooms of the brothel. Mr Mondello arrived about a half an hour before the City of Stirling inspections and attended on three or four occasions to take photographs of the rooms after they had been set up to appear as if they were used for therapeutic massage. Contrary to the evidence of Mr Cao she said that the sign on the wall stating 'no sexual services' was Mr Mondello's idea alone. He placed it on the wall and photographed it prior to the City of Stirling inspection.
107 Prior to any concerns by the City of Stirling all rooms contained large beds with a mattress, a bedside table, photos on the wall of movie stars or couples, towels, oils and condoms were stored in the drawers. KY on top of the drawers.
Lui Zhang
108 Ms Lui Zhang worked part-time casual as a receptionist at Top 835 from 2006 until 2009. She would usually work on the weekend and worked only occasionally on other days. She never saw Mr Mondello come into the premises on a Sunday. At the beginning of her employment she did not see Mr Mondello very often and she did not really know him. She said he just came in for money and she would give it to him. Closer to 2009 they had more conversation and he would ask 'how's business' and 'how are the girls at the moment' (ts 106). Ms Zhang did not attribute any other words to Mr Mondello.
109 Mr Mondello usually came from the direction of the reception area into the staff room. Before Mr Mondello arrived, Mr Cao arranged with Ms Lui Zhang to prepare cash money for him which was $1,700 or thereabouts. Mr Cao said it was for rent, however Ms Zhang's role was only to hand the money to Mr Mondello. There is no evidence that she knew what the money was for.
110 Ms Zhang said that Mr Mondello never went into a room with a prostitute in it in the time that she was present.
111 She confirmed that there was no advertising of sexual services displayed in the reception area. The reception area was comprised of a set of sofas, a water cooler machine and a little coffee table for drinks. She described the painting on the wall as being an artistic sort of romantic photo. She did not think the photo had been on the wall for the whole time from 2006 until 2009.
112 Ms Zhang believed she had seen Mr Mondello go into an empty room for maintenance in order to make sure that everything was in order. At the time the rooms contained a double bed, some had an additional sofa, a bedside table and some drawers and a mirror.
Mr Wei Zheng
113 Although Mr Zheng gave evidence that he was present at meetings with Mr Mondello including a meeting with Mr Cao, Ms Chin and Mr Mondello at a lawyers or business office, he could not remember when the meetings had occurred nor what was discussed. Mr Zheng's evidence does not assist the defendants.
Mr Salvatore Mondello
114 Mr Mondello was cross-examined extensively about receiving cash rent in respect of the premises after 2006. Bank statements (exhibit 1) show a cash payment of $5,900 was banked into the plaintiff's account on 1 May 2013 consistent with the agreed rent payment. Other rent payments are mainly recorded as being by cheque. Mr Mondello said the cash entry was consistent with him collecting cash rent on that occasion in order to deposit it in the bank. He also collected cash that was owed to him by Mr Cao for personal debts and disbursements. He denied it was inconvenient to call at 835 Beaufort Street, Inglewood to collect money and then to personally go to a bank in Mount Lawley when his principal residence was Willetton and he managed busy companies. He said he needed to ensure that money was received from Mr Cao each month because Mr Cao had financial difficulties. He attended monthly so that the mortgage would be met.
115 Mr Mondello denied receiving additional cash payments for rent. He admitted receiving cash in respect of personal loans, recovery of insurance premiums or by way of reimbursement.
116 Mr Mondello denied sending the email (exhibit 1.4) in respect of rent payment in 2012, however the email address is consistent with Mr Mondello's business email address for Multistruct. The email relates to a rent component and a cash component. The cash component is not described as being rent and the wording of the email is equally consistent with the cash component being unrelated to rent. I do not accept that reference to the cash payment in the email necessarily relates to a cash rental agreement between the parties.
117 In his statement Mr Mondello referred to receiving therapeutic services from the premises in 2010. Although he was not cross-examined in respect of this assertion, I do not accept that he received therapeutic services in 2010 because I do not accept that the business ever provided therapeutic services.
118 However, given that the onus is on the defendant and there is no reliable evidence led by the defendant consistent with Mr Mondello using sexual services the evidence has minimal impact on my assessment of Mr Mondello's credibility.
119 Mr Mondello denied arranging for signs and therapeutic massage tables to be placed in rooms prior to council inspection with the intention that he would subsequently remove them. He accepted that he was present when the council inspections took place and he did not dispute taking the photographs, exhibit 1.396 to 1.400.
120 Mr Mondello repeatedly said that it was his intention to terminate the lease. The lease was ultimately terminated in 2013.
Findings relevant to the preliminary issues
121 The defendants asserted that the plaintiff's knowledge and intention that the business operate as a brothel after 2006 was consistent with the following:
1. Mr Mondello received cash money for rent in addition to the agreed cheque for rent.
2. Mr Mondello used sexual services and the use of sexual services by his friends was consistent with his knowledge that the business operated as a brothel.
3. Mr Mondello's monthly attendance at the premises over a period of over 10 years is consistent with his knowledge and intention that the premise operate as a brothel.
Did Mr Mondello receive cash money for rent in addition to the agreed cheque for rent?
122 Mr Cao accepted that he paid cash to Mr Mondello to reimburse him for construction costs and insurance. He does not dispute Mr Mondello's evidence in relation to Mr Mondello providing personal loans to him but he denies that cash paid to Mr Mondello each month related to cash repayment for these debts.
123 Mr Cao was insistent that rent was always paid by cheque. The bank records of 2013 are consistent with rent being paid on at least one occasion by cash.
124 Mr Cao asserted that the email 'Please note the rent for 1st July 2012 is $5,901 to go into the bank and for me to pick up $2,005.50 every 1st of the month' relates to cash rent payments consistent with Mr Mondello receiving undeclared cash. The email is equally consistent with a regular repayment of cash owed by Mr Cao to Mr Mondello. I do not accept that the defendants have demonstrated that the reference to $2,005.50 cash relates to cash rent. I reject the evidence that Mr Mondello received cash money for rent in addition to the cheque for rent that was paid consistent with the terms of the 2006 lease.
Did Mr Mondello use sexual services? Did he facilitate the use of sexual services by his friends consistent with having an intention and knowledge that the business operate as a brothel?
125 Mr Cao is the only witness who said that Mr Mondello used sexual services. Mr Cao asserted that the receptionist would confirm Mr Mondello's conduct, however neither Ms LH Zhang nor Ms Lui Zhang gave any evidence of Mr Mondello using services, paying for services personally or entering a room when a prostitute was present.
126 Ms LH Zhang's evidence that Mr Mondello arranged for a discount for prostitutes for his friends on a Friday night every couple of months was very vague and unconvincing. I do not accept Ms LH Zhang's evidence in relation to this assertion. Although I have concerns about Mr Mondello's statement that he attended the premises for therapeutic massage in 2010 and reject that this occurred this does not significantly impact on his credibility and reliability. There is no evidence that I accept that he attended the premises for sexual services or facilitated sexual services for others.
Was Mr Mondello's monthly attendance at the premises over a period of over 10 years consistent with his knowledge and intention that the premise operate as a brothel?
127 Mr Mondello personally attended the premises on an almost monthly basis. Ms LH Zhang and Ms Lui Zhang refer to Mr Mondello being present in the reception area or the staff area. On occasion he went into one of the rooms, however there is no evidence that prostitutes were present when he entered the room. People resided at the premises from time-to-time. The rooms were set up as basic bedrooms. There were no sexually explicit photographs or images nor were sexual services advertised at the premises. The business card identifying Top 835 was small, dark and displayed in one location only. I do not accept that Mr Mondello knew or intended that the premise operate as a brothel. Accordingly, I do not accept that the plaintiff received rent contrary to s 190(1)(c) Criminal Code.
Answers to specific questions
1. The plaintiff was not nor did he become aware of the usage of the leased premises in question as a brothel.
2. The lease is not void in whole or in part.
Key Legal Topics
Areas of Law
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Contract Law
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Property Law
Legal Concepts
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Contract Formation
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Unlawful Conduct
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Specific Performance
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Unconscionable Conduct
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