Bata v Reetaj Investments Pty Ltd
[2024] VCC 1900
•2 December 2024
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-20-04723
| MARK BATA | Plaintiff/ Defendant by counterclaim |
| V | |
| REETAJ INVESTMENTS PTY LTD (ACN 608 022 911) and Ors (according to the attached schedule) | Defendants/ Plaintiff by counterclaim |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 5-8 February and 6 March 2024 | |
DATE OF JUDGMENT: | 2 December 2024 | |
CASE MAY BE CITED AS: | Bata v Reetaj Investments Pty Ltd and Ors | |
MEDIUM NEUTRAL CITATION: | [2024] VCC 1900 | |
REASONS FOR JUDGMENT
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Subject:CONTRACT, CONSUMER LAW, DEBT, CAVEATS
Catchwords: Contract – whether parties entered into a binding oral agreement to award a building and engineering contract – alternatively, did the defendants make misrepresentations regarding the award of the building contract – whether any losses suffered – quantum of debt and interest owed to the plaintiff under two loan agreements – counterclaim – did the first defendant sustain any compensable loss due to caveats lodged by the plaintiff over the first defendant’s property
Legislation Cited: Australian Consumer Law, Evidence Act 2008, Transfer of Land Act 1958; Wrongs Act 1958; Sale of Land Act 1962; Supreme Court Act 1986; Penalty Interest Rates Act 1983
Cases Cited:Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231; Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622; Bembridge v Just Spectacles Pty Ltd [2006] WASC 185; Branir v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; Delaney v Delaney [2022] VSCA 48; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546; Jasper Nominees Limited v Kairouz and Murdaca [2023] VSC 718; Jones v Dunkel (1959) 101 CLR 298; KB Corporate Pty Ltd v Sayfe and Anor [2017] VSC 623; Li v Mikkelsen [2021] VCC 2027; Lymquartz Pty Ltd v 2 Elizabeth Bay Road Pty Ltd [2007] NSWSC 457; Martorella v Innovision Developments Pty Ltd [2011] VSC 282; Masters v Cameron (1954) 91 CLR 353; Mills v Walsh [2022] NSWCA 255; Mitchell & Anor v Valherie (2005) 93 SASR 76; Natuna Pty Ltd v Cook [2006] NSWSC 1367; New Galaxy Investments Pty Ltd v Thomson and Ors [2017] NSWCA 153; Paciocco v Australia and New Zealand Banking Group Limited (2016) 258 CLR 525; Ramset Fasteners (Aust) Pty Ltd v Advanced Building Systems Pty Ltd (1999) 164 ALR 239; Reetaj Investments Pty Ltd v Bata [2021] VSC 40; RRG Nominees Pty Ltd v Visible Temporary Fencing Australia Pty Ltd (No 4) [2019] FCA 686; Southern Waste Resourceco Pty Ltd v Adelaide Hills Region Waste Management Authority [No 3] [2019] SASC 192; Taleb v National Australia [2011] NSWSC 1562; The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2019] VSCA 91; Viterra Malt Pty Ltd v Cargill Australia Ltd and Anor [2023] VSCA 157; Walker v Masillamani [2007] VSC 172
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P W Lithgow | Starnet Legal |
| For the Defendants | Mr A J Purton | Moray & Agnew Lawyers |
HER HONOUR:
Introduction and summary
1The plaintiff (‘Bata’) is an engineer and a registered builder.
2The first defendant (‘Reetaj’) is a property developer. The second defendant (‘Mohammed’) is the wife of the third defendant (‘Amer’) and a director of Reetaj. Amer has been a director of Reetaj since 10 July 2019.
3Bata made various claims against the fourth defendant (‘Souki Lawyers’), including negligence. These claims were settled prior to trial. Orders were made dismissing the proceeding against Souki Lawyers with a right of reinstatement. The firm remains a party for the purposes of any apportionment claim pursuant to Part IVAA of the Wrongs Act 1958.[1]
[1]See orders made by Registrar Muller dated 7 August 2023
4Bata claims damages from the defendants for breach of an alleged oral agreement to award him a building and engineering contracts relating to the subdivision of a property at 3 Grendon Street, Truganina (‘the property’). In the alternative, Bata seeks damages arising out of a misrepresentation allegedly made to him regarding the award of the building and engineering contracts.
5In addition, Bata claims amounts said to be owing under two separate loan agreements which he had entered into with Reetaj. Mohammed is a guarantor of amounts payable under the first loan agreement and is sued in that capacity.
6By counterclaim, Reetaj claims that Bata lodged two caveats over the property without a reasonable basis for doing so. Reetaj alleges the presence of the caveats caused a delay in obtaining refinance for the property. It seeks compensation from Bata, representing an amount of default interest Reetaj paid to its former lender due to the delay in refinancing.
7For the reasons that follow, I was not satisfied a binding oral agreement was entered into by Bata and Reetaj to award the building and engineering contracts for the property to Bata. The evidence fell far short of establishing an enforceable agreement was made. Nor was I persuaded that the defendants made any actionable misrepresentation to the effect that they would award the contract to Bata. Those claims will be dismissed.
8I was satisfied Bata proved that an agreed fixed sum of $50,000 of interest is due and payable under the terms of the first loan agreement. He is also entitled to interest on this sum at the rate of 14 per cent.
9The amount of $5,000, being the agreed fixed interest payable under the second loan agreement, remains outstanding. I accept the defendants’ submission that the default interest claimed under the second loan agreement at the rate of $500 per day is an unenforceable penalty. Bata is also entitled to statutory interest on the sum of $5,000 at the rate of 10 per cent.
10As for the counterclaim, I was not satisfied Reetaj proved Bata acted without reasonable cause in lodging the caveats. Nor was I persuaded that lodging the caveats caused the loss claimed by Reetaj. Consequently, the counterclaim will be dismissed.
Background
11In 2015, Reetaj entered into a contract of sale to purchase the property for $5,250,000. The contract had a long settlement period of around three years. The property is a large parcel of land and comprises eight acres. Amer intended to subdivide the property into 53 smaller lots to be sold as vacant land upon which purchasers could construct homes. Amer engaged Ms Fatoum Souki (‘Souki’) of Souki Lawyers to act for Reetaj in relation to the purchase of the property.
12In around October 2017, Wyndham City Council endorsed plans for the subdivision of the property. Once the plans were endorsed, Amer started to look for a suitable civil contractor to undertake the civil works at the property.
13Around this time, Souki told Amer that she knew someone who may be able to assist with the civil works. She gave him Bata’s contact details. On 15 December 2017, Amer forwarded a copy of the proposed plan of subdivision and the endorsed plans to Bata. He gave evidence that he forwarded copies of the plans to other parties as well.
14Souki gave evidence that she had discussions with Bata regarding the awarding of the building and engineering contracts on the property to him. She suggested that her brother, who was an engineer, could be involved in the project. She also arranged for a company to be incorporated, Terrain Builders Pty Ltd, with a view to that company being the corporate vehicle for the project.
15On 20 February 2018, Souki forwarded documents regarding the incorporation of Terrain Builders Pty Ltd to her brother, Ahmed Souki, and to Bata. Her brother replied and noted that it was the start of something great to come.
16Amer did not have sufficient funds to complete the purchase of the property, as he had not realised he had to pay GST on the purchase price. On around 20 February 2018, Amer went to see Souki in relation to the shortfall of funds. When he attended Souki Lawyers, Bata happened to be there. Souki introduced the two men to each other. They then had a discussion for about five minutes. After that, Amer and Souki met privately. She told Amer she thought Bata would lend the money needed to complete the purchase but that he would charge interest. Amer said that this was not a problem and he would repay the money once he received the GST refund from the Australian Tax Office.
17Bata agreed to lend Amer the sum of $500,000. Souki Lawyers then prepared a loan agreement (‘the first loan agreement’) to document the transaction. Souki gave evidence that the first loan agreement was prepared by Ms Fatimah Elhouli, an employee solicitor of her firm at the time.
18On around 22 February 2018, the first loan agreement was executed by the parties at the office of Souki Lawyers. The meeting took no more than 15 minutes. Bata says he did not read the agreement before signing it.
19There is conflicting evidence about the discussions that took place surrounding the execution of the first loan agreement. On 20 February 2018, Bata came early to Souki Lawyers and arrived before Amer and his wife. He said that when Amer arrived he told Bata that the job as engineer and builder would be given to him.
20Bata said he signed the first loan agreement on 20 February 2018. He claimed to have had many discussions with Souki and Amer beforehand. He said Amer promised him that he would give him the job as a builder and engineer. Amer said to get the quotation to match his lowest one or to beat any one of them. Bata also gave evidence that Souki told him on 18 February 2018 that Amer had agreed for the building and engineering contracts. She asked Bata if she could get her brother to join in with him for the project. Bata said he had no problem with that.
21In his evidence in chief in his witness statement, Bata claims that he made an oral agreement with Amer between 20 and 23 February 2018, to the effect that in exchange for lending the sum of $500,000, Reetaj would give him the building and engineering contracts for the property. Bata says he told Amer he needed the money returned on time and that they “needed to communicate with one another regarding the building and engineering contracts.”
22Amer denies that he told Bata that he would give him the building and engineering contracts. Amer’s evidence was that he sent the plans to Bata after Souki provided Bata’s email address. He did not have any contact with Bata. The first time he met Bata was on 20 February 2018 at Souki Lawyers’ office. He denied having conversations with Bata on 20 February 2018 relating to the loan of half a million dollars or the award of the engineering and construction work on the property. Nor did he discuss matching or bettering lowest quotes. He met with Bata by chance at Souki’s office that day. He had gone to see Souki about the shortfall of funds for the settlement. He and Souki spoke privately after meeting Bata briefly.
23Amer says Bata told him that he would be lending the money from funds taken from his ANZ mortgage account but there were no discussions about the building and engineering contracts during their meetings on 20 and 22 February 2018. The first loan agreement contained no references to the building and engineering work.
24The amount advanced under the first loan agreement was $500,000 with a fixed interest payment agreed in the sum of $50,000. The loan was advanced to assist Reetaj with the purchase of the property. The due date for repayment of the loan was 60 days post settlement of the property. The agreed fixed sum of interest of $50,000 was fully payable in 60 days. Clause 6 of the first loan agreement deals with an event of default, including the requirement to serve a notice of default. Clause 6(d) provides that interest on the money owing shall accrue from the date of the default notice until rectification of the default at a rate equivalent to 4 per cent higher than the rate for the time being fixed under s2 of the Penalty Interest Rates Act1983. Clause 7 deals with security. The borrower (Reetaj) agreed to give security over the property and the second and third defendants’ home. The clause further provided that the lender (Bata) shall register a caveat against the properties and the borrower signs the agreement as consent to the registration of the caveat.
25Mohammed signed the loan agreement in her capacity as guarantor. The fact that she is a guarantor of the first loan is admitted in paragraph 58 of the defendants’ defence dated 18 July 2023.
26On 23 February 2018, Bata engaged in text messages with Souki.[2] He asked her to email him a copy of the signed agreement with Abo Alhassan (Amer). He also asked “Who can Gurantee all the work of his site will be done by me include what’s the necessary steps to confirm such verbal agreement Please advise (sic)”. Souki replied and said “[a]s for Abu Hasan you signed agreement and made him and his wife sign, as for work I included in the agreement that he will give you the job for the site as engineer/builder”. Bata acknowledged her text and again asked her to email the agreement with Amer and his wife. As it turns out, the text sent by Souki was factually inaccurate as there is no mention of the building contract in the first loan agreement. Souki did send Bata a copy of the signed agreement by email dated 23 February 2018.[3]
[2]Exhibit “P3”
[3] CB 171 – Bata denied in oral evidence he received this but it was appended to his witness statement
27On 23 February 2018, Bata and Amer met at the Malvern ANZ Branch where Bata gave Amer a bank cheque for $500,000.
28On around 23 February 2018, settlement of the sale of the property took place. Under the terms of the first loan agreement, the principal and interest were repayable by 24 April 2018, being 60 days following settlement.
29Souki Lawyers lodged caveat No AQ867017K over the property on behalf of Bata on 27 March 2018.[4] The grounds of claim referred to the first loan agreement dated 23 February 2018 and the interest claimed was freehold estate.
[4]Exhibit “D1”
30Between March 2018 and July 2018, Amer and Bata had a number of discussions, including about the building and engineering works for the property. On 9 March 2018, Amer and Bata met at the property. They then returned to Amer’s home and had a discussion. Amer gave evidence that he said to Bata: “It would be good if you could do it and that if you could assist with funding, then there would be no issue. But as the money has to come from a lender, the lender will decide who will be awarded the work”.
31Amer provided Bata with quotes from competitors by way of emails dated 24 April 2018 and 26 April 2018.
32On 26 April 2018, Bata sent a notice of default to Amer advising him that he was in default of his obligations because he had failed to pay the payment due on 24 April 2018. In paragraph 23 of the first to third defendants’ defence dated 18 July 2023, the defendants plead that they did not receive this notice. They claim they saw it for the first time on or around 25 January 2021. This was after Bata served a copy of his affidavit dated 24 January 2021 filed in proceedings in the Supreme Court commenced by Reetaj to remove two caveats that Bata had lodged over the property.
33On 15 May 2018, Bata submitted his quote of $2,169,573.63 (ex GST) to Amer for the building and engineering works. On the same day, he instructed Souki to commence legal proceedings for the refund of his loan. Souki recognised the conflict of interest and referred Bata elsewhere.
34On 13 June 2018, Reetaj made a payment of $450,000 by cheque drawn on its Westpac bank account in partial repayment of the loan. On 23 June 2018, Reetaj made a further payment of $50,000 by cheque drawn on its Westpac bank account.
35Financial statements relating to Bata’s ANZ bank recorded transfers into Bata’s account in the sum of $450,000 on 14 June 2018 and $49,500 and $500 on 25 June 2018. Consequently, the principal owing under the first loan agreement was fully repaid. The agreed sum of $50,000 for fixed interest and a sum for default interest due to the late repayment remained outstanding.
36The defendants deny they owe any moneys under the first loan agreement. They maintain the balance of any moneys owing under the first loan agreement was paid to Bata on 2 July 2018, via a cash payment of $125,000 given to him at Souki Lawyers’ office. The unusual circumstances regarding this so called ‘cash event’ are discussed more fully in paragraphs 132 to 166 below.
37On 11 July 2018, Souki sent a text to Bata asking him to send the amount due on the loan from Abu Hasan as “I want to finish for you”. Bata replied the same day and gave a breakup of the interest payable as follows:
$3194.19/ month Rate 5.7
4 months
$500/14 June PAID $49500/25 June PAID The payment is $784.06
TOTAL = 3194.19 x 4 + 784.06 = $13,560.82
38Souki replied and said she would check the figures before she sent them off.[5]
[5]Texts on 11 July 2018 comprise part of Exhibit “P3”
39Souki Lawyers lodged a withdrawal of caveat No AQ867017K on 25 July 2018.[6] Bata gave evidence at trial that he had not seen this caveat or the withdrawal of caveat before. He denied giving instructions to Souki Lawyers to lodge these documents. Souki gave evidence that she assumed or believed she had instructions from Bata to lodge both documents. There was a note in evidence from reception to Souki dated 22 March 2018 noting that Bata wanted to come in and discuss the loan/caveat,[7] which would tend to support her evidence that lodging the caveat was discussed. Furthermore, clause 7 of the first loan agreement expressly provided that the lender, i.e. Bata, shall register a caveat.
[6]Exhibit “D2”, withdrawal of caveat dated 25 July 2018
[7]Exhibit “D5”
40Souki sent a text to Bata on 25 July 2018 asking him to let her know if there was progress with the quote as she felt like Amer needed something to get moving and working.[8]
[8]Exhibit “P3”
41On 12 September 2018, Bata and Amer met at the Mercedes dealership on Kingsway. Bata said that they agreed on a price for the building contract in the sum of $2 million. He said he told Amer: “I will prepare a contract for that”. He also said “but he never tell me, ‘it’s yours’ till now”.[9]
[9] Transcript (“T”); T65.L20-25
42On 1 October 2018, Bata prepared a draft contract for the civil works at the property in the sum of $2.2 million, including GST. The contracting parties were Reetaj (as principal) and Terrain Builders Pty Ltd (as contractor). This contract was never signed.
43Bata subsequently agreed to lend Reetaj a further sum of $50,000 on a short-term basis with interest fixed in the amount of $5,000. A second loan agreement drawn by Souki Lawyers was executed by the parties on around 23 February 2019. The loan and the fixed interest was due to be repaid on 23 March 2019. Clause 6(d) of the second loan agreement provided that the plaintiff could charge default interest on all money due and owing which would accrue from the date of a Default Notice until rectification at the rate of $500 per day. Bata gave oral evidence that he wanted this clause because he no longer trusted Amer. Clause 7 provided that in the event that the borrower did not pay the loan amount by the due date, the borrower consented to the lender registering a caveat over the property.
44On 4 April 2019, Amer sent a SMS message to Bata asking if he could give Bata’s phone number to Banner Capital Management (‘Banner’), the finance company that was going to lend the money for the building project at the property. The defendants say that no further discussions with Bata took place regarding the building and engineering works after April 2019.
45On 5 April 2019, Souki wrote in a text message to her employee, Ms Fatimah Elhouli, in response to a request to call Amer (bu Hassan) as Bata (Mark) is leaving next Friday:[10]
he’s so annoying just finished the longest convo with mark he doesn’t want to do the project
[10]Exhibit “D7”
46In response to Amer’s text asking her if Bata is happy to do the job, Souki sent a text message to Amer on 5 April 2019 saying that Bata did not want to do the project.
47Souki gave oral evidence that Bata told her he did not want to do the project as it was beyond his scope and he did not have the capacity to take on the project. Further, the private lender required certain undertakings from whomever took on the project and Bata was not prepared to meet those requirements.
48Banner appointed Winslow Constructors Pty Ltd to conduct the civil and engineering works. On around 22 July 2019, these parties executed a suite of documents, including a Construction Facility Agreement, General Security Agreement, and Tripartite Deed.
49On 12 May 2020, Rabee Mohammad of RS Chase Lawyers lodged caveat AT236463E over the property on behalf of Bata pursuant to the second loan agreement.
50On around 9 July 2020, Reetaj transferred $50,000 into the trust account of Souki Lawyers in two payments of $30,000 and $20,000, respectively. This payment paid off the principal advanced under the second loan agreement. These funds have since been released to Bata. The fixed amount of agreed interest in the sum of $5,000 has not been repaid.
51On 16 July 2020, Bata removed caveat AT236463E from the title to the property.
52On 17 September 2020, Fatima Dennaoui of Dennaoui Lawyers lodged caveat AT612323B over the property on behalf of Bata pursuant to the second loan agreement.
53On 15 October 2020, Banner agreed to extend the expiry of the construction finance facility with Reetaj to 6 January 2021.
54On 17 November 2020, Fatima Dennaoui of Dennaoui Lawyers lodged caveat AT780104W over the property on behalf of Bata.
55On 18 November 2020, Madgwicks Lawyers (who were at the time acting for Reetaj) wrote to Dennaoui Lawyers requesting that caveat AT780104W be removed.
56On 19 November 2020, a certificate of practical completion for the building and engineering works at the property was issued.
57On 4 December 2020, Reetaj commenced proceedings in the Supreme Court of Victoria seeking, amongst other things, an order that caveat AT780104W be removed.
58On 4 January 2021, Reetaj sought a further extension to the construction finance facility. Amer agreed in cross-examination that Banner had granted a further extension to 6 February 2021.
59On 20 January 2021, Dennaoui Lawyers served a letter of demand on Reetaj in respect of moneys owed under the first loan agreement.
60On 21 January 2021, Banner served a notice of default on Reetaj. The notice required Reetaj to remove the caveat from the property immediately.
61On 21 January 2021, Fatima Dennaoui of Dennaoui Lawyers lodged caveat AT968585F over the property on behalf of Bata pursuant to the first loan agreement.
62On 22 January 2021, Amer sent a text to Souki stating that he had paid $125,000 in cash at her office. He asked her to send him an email saying that Bata had collected the money from her office. Souki replied that day and said:
I can confirm that the interest balance you paid to Mark was made in cash through our office regarding your initial loans of $500,000.
63On 5 and 8 February 2021, the Supreme Court made orders directing the Registrar of Titles to remove caveats AT780104W and AT968585F, respectively.[11]
[11]CB 1092-1095. See also Reetaj Investments Pty Ltd v Bata [2021] VSC 40 (Ruling of Daly AsJ dated 5 February 2021)
64Souki Lawyers lodged the plan of subdivision for the property on 12 February 2021.[12] On 17 February 2021, the plan of subdivision for the property was registered, allowing the individual lots to settle.
[12]T339
65On 24 February 2021, Reetaj received a letter of offer to refinance the Banner Facility from Equity-One Mortgage Fund Limited, which Reetaj accepted.
66On 9 April 2021, Reetaj paid out the Banner facility with finance provided from Equity-One. Reetaj was charged and paid default interest to Banner in the sum of $111,015.
Claim and counterclaim
67Bata claims the following relief:[13]
[13]Being the form of relief set out in the plaintiff’s written closing submissions
(a) against Reetaj and Amer:
(i)the balance owing under the first loan agreement of $50,000 plus interest at the rate of 14 per cent per annum;
(ii)the balance owing under the second loan agreement plus interest at the rate of at $500 per day, alternatively at 10 per cent per annum;
(iii)damages for breach of contract, alternatively for misrepresentations as to the engineering contract; and
(iv)costs on an indemnity basis pursuant to Clause 9 of the first loan agreement and the second loan agreement.
(b) against Mohammed:
(i)Mohammed is a guarantor of the first loan agreement;
(ii)therefore, an order for the balance owing under the first loan agreement plus interest at 14 per cent per annum; and
(iii)costs on an indemnity basis pursuant to Clause 9 of the first loan agreement.
68By counterclaim, Reetaj seeks compensation pursuant to s118 of the Transfer of Land Act 1958 in the sum of $111,015. This figure represents an amount of default interest charged by Banner due to an alleged delay in obtaining refinance. Reetaj claims this delay arose as a result of caveats lodged by Bata without reasonable cause.
Witnesses
69Bata gave evidence in chief by way of a witness statement. He was an unimpressive witness. He was combative and repeatedly failed to give responsive answers to questions put to him in cross-examination. I did not regard him as a witness of truth.
70An expert report from Mr David Shi dated 2 June 2023 was filed on behalf of Bata. This report dealt with the loss of opportunity to earn profits on the building and engineering contracts on the assumption that they would have been awarded to Bata or an associated entity. The report was included in the court book without objection and the defendants did not seek to cross examine the expert.
71The defendants called four witnesses: Amer; Ms Hanan Souki; Souki; and Mr Khaled Haddara.
72Amer gave evidence-in-chief by way of a witness statement. Overall, I regarded him as a truthful witness. However, for reasons which follow later, I was unable to accept his evidence that he paid the sum of $125,000 in cash to Bata in July 2018.
73Ms Hanan Souki’s evidence was limited to the circumstances surrounding the cash event. She is currently the office manager of Souki Lawyers, but in July 2018 was employed by the firm as an administrative assistant. She is the younger sister of Souki. Her evidence relating to the cash event conflicted with that of Bata and also her sister’s evidence to some degree. She says she gave Bata a plastic bag containing cash which she did not count. Bata denies receiving any cash. Whilst Hanan Souki appeared candid when giving her evidence, I was not ultimately persuaded that the sum of $125,000 in cash was physically handed to Bata on or about 2 July 2018 for the reasons that follow later in this judgment.
74Souki is an Australian lawyer and principal of Souki Lawyers. Her oral evidence regarding the events of 1 and 2 July 2018 was extremely vague. She appeared to have little or no recall of these events, despite accepting that the receipt of a cash payment of $200,000 at her office was a very unusual transaction. She did not make any file notes or correspond with the parties regarding the events that took place in July 2018, which is a remarkable omission in my view. The absence of any records by Souki Lawyers recording this transaction is an extraordinary state of affairs about which I will say more later in this judgment.
75The defendants’ final witness, Mr Haddara, provided evidence via video link. He runs a fruit business and is a friend of Amer’s. The defendants’ counsel was granted leave to cross-examine him under s38 of the Evidence Act 1958. It was apparent that he answered questions put to him truthfully and to the best of his recollection. I have no difficulty in accepting his evidence. Amer’s counsel noted in closing submissions that Mr Haddara was a truthful witness.
76The events in question occurred a number of years ago so it can be expected that the witnesses’ memories have faded. Despite this, there are differences in the witnesses’ accounts which are irreconcilable and cannot be explained away by poor memory. For example, the accounts given by the witnesses relating to the events on 1 and 2 July 2018 relating to the cash event differed significantly.
Agreed key issues
(1)Was the first defendant contractually obliged to award the building and engineering contracts for the proposed property development at Sayers Road, Truganina, to the plaintiff?
77Bata contends he was entitled to be awarded the building and engineering contracts in relation to the proposed property development in Truganina. He says these matters were extensively discussed between the parties from the end of 2017 into early 2018.
78Bata claims these discussions culminated in an oral agreement that:
· he or his nominated entity would be awarded the building and engineering contracts;
· the price of the works was to be equal to or better than the lowest of three arm’s-length quotations obtained from other suppliers; and
· in fact, the price was agreed at $2,000,000 plus GST.
79Bata says the existence of this contract is supported by the incorporation of Terrain Builders Pty Ltd by Souki Lawyers and acknowledgments by both Souki and Amer in a telephone conversation of 24 August 2023 which Bata recorded.[14] The transcript of this call was in the court book. The parties spoke in Arabic and the translation was officially translated in English. Bata claims that both Souki and Amer confirmed to him that he was to receive the building and engineering contracts. Amer is recorded as having said he was a “bastard” for not doing so. For his part, Amer denies he used that expression or that he ever made such a promise. Even assuming the translation accurately records the discussions, it fell short in my view of amounting to an admission by Amer that he had made a binding oral agreement with Bata to award him the building and engineering contracts some five years earlier.
[14] CB 2549-2550
80Bata also relied upon an email dated 23 February 2018 in which Bata asked Souki to confirm the verbal agreement that all work on the side will be done by him and to include the necessary steps to confirm such verbal agreement. Further, Souki confirmed in a text to Bata that the engineering contract is in the first loan agreement, which as it turns out is incorrect.
81The defendants concede that Amer and Bata had many discussions about the potential for Bata to undertake the building and engineering work for the property in the period leading up to April 2019. However, the evidence does not support the conclusion that Bata and Amer reached an oral agreement about the building and engineering contracts at all, let alone an agreement sufficient to form a binding contract.
82The defendants note that Bata’s evidence was that it was Souki, not Amer, who promised that Bata would be awarded the building and engineering contracts.
83The defendants rely on the evidence of Souki that she had numerous discussions with Bata in which he said he did not want the building and engineering contracts. Souki sent an SMS message to Amer on 5 April 2019 stating that Bata was not interested in the civil works contract.
84If viewed objectively, the defendants submit the legal requirements for a binding contract are not met. The contract contended by Bata is uncertain, incomplete and therefore unenforceable. This is due to:
(a) The agreement contended for by Bata being an agreement to agree.
(b) The agreement contended for does not set out the commercial essentials and necessary structural matters for a binding agreement. It is too vague to constitute a binding agreement that could be enforced by the Court.
(c) The agreement is incomplete. It failed to identify the parties, the price in precise terms, the actual building and engineering work to be completed and a date for performance.
85The defendants submit that a person’s intention to be legally bound by a contract is to be determined objectively and not by reference to uncommunicated subjective motives or intentions of the parties. Intention is manifested by the subject matter of the contract, the parties’ status to it, their relationship with each other and other surrounding circumstances.[15]
[15]Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, 105 [25]
86An offer is conduct which a reasonable person in the position of the offeree would understand to be an expression of willingness to contract on specified terms with the intention that those terms are to become binding as soon as the offer (or counteroffer) is accepted by the offeree, or at some other stipulated time. An acceptance is conduct which, to a reasonable person in the position of the offeror, is a final and unqualified assent to the terms of the offer (or counteroffer).[16]
[16]Heydon on Contract 2019 at 2.10
87In Branir v Owston Nominees (No 2) Pty Ltd, Allsop J said that:[17]
[A] number of authorities discuss the need not to constrict one’s thinking in the formation of contract to mechanical notions of offer and acceptance. Contracts often, and perhaps generally do, arise in that way. They can also arise when business people speak and act and order their affairs in a way without necessarily stopping for the formalities of dotting “i”s and crossing “t”s or where they think they have done so. ... Sometimes this failure occurs because, having discussed the commercial essentials and having put in place necessary structural matters, the parties go about their commercial business on the clear basis of some manifested mutual assent, without ensuring the exhaustive completeness of documentation. In such circumstances, even in the absence of clear offer and acceptance, and even without being able (as one can here) to identify precisely when a contract arose, if it can be stated with confidence that by a certain point the parties mutually assented to a sufficiently clear regime which must, in the circumstances, have been intended to be binding, the court will recognise the existence of a contract.
[17][2001] FCA 1833 at [369]
88In Delaney v Delaney, the Court of Appeal said at that:[18]
The first way in which the term ‘complete’ may be used is to describe whether or not an agreement contains the terms necessary for it to constitute a binding contract — the essential terms. The essential terms are those which the parties or the law regard as ‘essential to the formation of legally binding relations’. The essential terms commonly (although not always) include terms identifying the parties, subject matter, consideration or price, and date(s) for performance. Used in this sense, ‘complete’ describes an agreement that contains (or at least provides an adequate mechanism to ascertain) the essential terms, and ‘incomplete’ describes an agreement that omits or leave to be settled by later agreement one or more essential terms. The presence or absence of inessential terms, however important, has no bearing on whether an agreement is ‘complete’ or ‘incomplete’ in this sense.
The second way in which the term ‘complete’ may be used is to describe whether an agreement which contains the essential terms also contains or omits inessential terms that are important enough to signal the parties’ intention whether or not to be bound. In other words, this use of the term focusses not on whether an agreement contains terms necessary to constitute a legally binding contract, but whether it also contains terms sufficient to signal the parties’ willingness to be immediately bound by that contract...
In this sense, ‘complete’ describes an agreement that contains (or provides a means for identifying) enough of the important but inessential terms to signify the parties’ intention to be bound, and ‘incomplete’ describes an agreement that omits or leaves to be settled by later agreement enough of those important inessential terms to signify the absence of such an intention. The greater the number and significance of the unaddressed important matters, the greater the likelihood that the parties did not intend to be immediately bound by the agreement. Conversely, where all or nearly all of the important matters are addressed, the conclusion that the parties intended to be immediately bound will be difficult to resist.
[18][2022] VSCA 48 at [57]-[59]
89The parties referred to the well-known categories described by the High Court in Masters v Cameron as stated by Dixon CJ, McTiernan and Kitto JJ:[19]
Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
[19](1954) 91 CLR 353 at [9]
90It has been recognised judicially that there is also a fourth category.[20] This was referred to by McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd, where his Honour said:[21]
There is in reality a fourth class of case additional to the three mentioned in Masters v Cameron, as recognised by Knox CJ, Rich J and Dixon J, in Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317, namely, … one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms. Their Honours refer to the speech of Lord Loreburn, in Love & Stewart v S Instone & Co (1917) 33 TLR 475 at 476, where his Lordship said that:
‘It was quite lawful to make a bargain containing certain terms which one was content with, dealing with what one regarded as essentials, and at the same time to say that one would have a formal document drawn up with the full expectation that one would by consent insert in it a number of further terms. If that were the intention of the parties, then a bargain had been made, none the less that both parties felt quite sure that the formal document could comprise more than was contained in the preliminary bargain.’
[20]The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2019] VSCA 91 at [22]
[21](1986) 40 NSWLR 622 at 628
Analysis
91For the following reasons, I was not persuaded on the evidence led that a binding and conclusive oral agreement was made whereby Reetaj agreed to award the building and engineering contracts for the property to Bata, in exchange for Bata advancing the sum of $500,000 to Reetaj.
92The case as pleaded is that in or around January and/or February 2018, Amer and Bata agreed that Bata would lend Reetaj $500,000 for the purchase of the property and Reetaj would enter into a building contract and engineering contract with Bata in relation to the proposed property development. The express terms of the agreement pleaded are that Bata would lend Reetaj $500,000, Reetaj would award the building and engineering contracts to Bata and that Bata would give competitive quotes to carry out the contracts.
93The evidence set out in Bata’s witness statement in relation to the formation of the alleged oral agreement was in very general and conclusionary terms. In paragraphs 8 to 12, he refers to discussions held with Souki on 20 February 2018. He said in paragraph 9, that he would only lend the money to Amer on condition that he would be awarded the building and engineering contracts of the property development. He went on to say that “Fatoum confirmed with me that these terms were agreed”.
94In paragraph 14 to 21 of his written statement, Bata recites matters which he says were agreed upon by Amer at meetings on 20 and 23 February 2018. Again, the statements made are conclusionary in nature and lack specificity. Bata’s oral evidence at trial was also imprecise and vague about the discussions held around 20 February 2018 regarding the formation of the alleged oral agreement.
95Amer denies he discussed the terms of the building contract with Bata at the meeting at Souki Lawyers on 22 February 2018 when they signed the first loan agreement or prior to that date. His evidence was that neither Bata or Souki ever said to him it was a condition of the loan that Bata would be awarded the building and engineering contracts for the property development.
96Whilst Bata no doubt firmly believes he was entitled to receive the building contract, the evidence is lacking to show that Amer ever made such a promise directly to him in late February 2018. Bata appears to have relied upon statements to that effect made to him by Souki in the course of their private discussions. Even accepting Bata’s evidence that the matter was discussed between the two men, the essential terms were not agreed in February 2018, such as the nature of the works to be undertaken, the price to be paid and when the works would commence. Further, on 22 February 2018, Amer had not even completed the settlement of the property and had yet to obtain finance so there was no guarantee at that time Reetaj would be able to undertake the project.
97The negotiations regarding the building contract continued well past February 2018 and were ongoing as can been seen from the factual narrative above. For example, it was not until September 2018 that the parties fixed upon a price of $2 million. All of this leads to the conclusion that there was no binding oral contract made in the terms alleged by 23 February 2018.
98I also accept Amer’s evidence that he told Bata that any decision to award the building contract was a matter that had to be approved by a third party, namely, the lender which was ultimately Banner. Therefore, it was never within Amer’s power to make the final decision to award the building contract which Bata well knew.
99Bata indicated quite clearly in April 2019 that he did not wish to proceed and be involved in the project anymore. Bata denied telling Souki that he did not wish to proceed with the project. I reject Bata’s evidence that he did not tell Souki that he did not wish to proceed with the building contract. As to this issue, I accept Souki’s evidence ahead of Bata’s for the following reasons. The first is that I did not regard Bata as a truthful witness and formed the view that he was willing to give self-serving answers when it suited his cause, this being one of them. The second is I accept the solicitor’s account in preference given there is no reason for her to lie about it. Additionally, she sent a contemporaneous text to her employee on 5 April 2019 and also to Amer confirming that Bata did not want to do the project. Bata can hardly be heard to say there was a binding agreement capable of being enforced when he told Souki he no longer wished to be involved.
100Even assuming that an oral agreement was made, contrary to my findings, a reasonable businessperson would have formed the view that the parties did not intend to create a binding contract until such time as a formal building contract was exchanged. In my view, the alleged oral agreement falls within the third class discussed in Masters v Cameron,[22] where the intention of the parties is not to make a concluded bargain unless and until they execute a formal contract. Support for this intention is evidenced by Bata saying to Amer on 12 September 2018, when they agreed on a price of $2 million, that he would prepare a contract for that sum. Bata did subsequently draft up a contract which he sent to Amer but it was never executed. Additionally, even if the parties had agreed on the terms of the written contract, the ultimate decision to award the building and engineering contracts always depended upon the approval of a third party lender, namely Banner.
[22](1954) 91 CLR 353 at 360-1
101In my view, the first loan agreement was a separate contract and was not contingent or conditional upon the award of the building contract, contrary to the case alleged. The building contract is not mentioned in the first loan agreement. Further, Bata stood to gain financially from providing this short term loan to Reetaj given the high levels of interest charged such that this alone was a sufficient incentive to advance the loan, leaving aside the question of the building contract.
102All of these factors lead inexorably to the conclusion that no binding oral agreement came into existence in February 2018 to the effect alleged and pleaded by Bata. Consequently, the answer to the first issue is no.
(2)If the first defendant was contractually obliged to award the building and engineering contracts for the Truganina development to the plaintiff, was the plaintiff’s loss occasioned by the failure to award the contracts to the plaintiff?
103Bata claims damages from the failure to award the building and engineering contracts, whether based in contract or as a result of the breach of representations made, to be the loss of profit that would ordinarily be expected to accrue form performing the works.
104Bata relied upon the expert report of David Shi dated 2 June 2023.[23] Mr Shi assesses the profit forgone on the construction costs in the sum of $232,000, and $68,640 on the engineering works. Mr Shi’s report was tendered as part of the Court Book without objection. The defendants did not require him to be called for cross-examination.
[23]CB 506
105The defendants’ position is that if the Court accepts there was no binding contract, then it is not necessary to answer this question. However, if the Court finds that there is a binding contract, then it should only award nominal damages because Bata has failed to prove that he would have suffered any loss at all.
106As I have found that there was no binding oral contract, this issue does not arise for determination. But had the first issue been answered affirmatively, I would not have been satisfied that Bata sustained any loss and damage as a matter of causation in circumstances where he chose to withdraw from the project in or around April 2019. Further, the claim made for damages was for the loss of opportunity to earn profits from the building and engineering contracts. Even assuming that Bata had proceeded on, it remained speculative whether his quote would have been preferred and selected by Banner. There was no guarantee that Bata or an entity associated with him would have been approved by the lender to undertake the works.
(3)Are the second and/or third defendants liable for misrepresentation in relation to the engineering contract issue?
107Bata contends that if the contractual claim is not made out, he ought to succeed on the basis of breach of a representation made to him by Reetaj and Amer that Bata would be awarded the engineering contract for the property. Bata alleges that he relied upon this representation when entering into the first loan agreement. As a result, he has suffered loss and damage.
108Paragraph 64(f) of the plaintiff’s further amended statement of claim sets out the sole misrepresentation relied upon at trial, namely:
(f) that the Plaintiff would be awarded the said building and engineering contracts if he lent the First Defendant monies pursuant to the First Loan Agreement.
109Bata’s claim is under section 18(1) of the Australian Consumer Law (‘ACL’), which provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
110Section 18 of the ACL proscribes “conduct” that is or is likely to be misleading or deceptive.[24] This extends beyond “representations”,[25] although “contravening conduct is generally apt to involve misrepresentations”.[26] The essence of a misrepresentation is that, tested objectively, it leads a representee into error.[27] Excluded from the scope of “misrepresentations” (and thus “representations”) are statements which, objectively, are not capable of being reasonably understood as a statement of fact.
[24]Competition and Consumer Act 2010, Sch 2, s 18
[25]Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, [32] (Gleeson CJ, Hayne and Heydon JJ)
[26]Ramset Fasteners (Aust) Pty Ltd v Advanced Building Systems Pty Ltd (1999) 164 ALR 239, [67] (Burchett, Sackville and Lehane JJ)
[27]C Seddon and M P Ellinghaus, Cheshire and Fifoot’s Law of Contract (8th ed, 2002), [11.11]
111The principles governing when a statement is caught by the relevant prohibition have been articulated and applied as follows:[28]
(a) It is clear enough that it is not every statement made in contractual negotiations, or as a prelude to contractual negotiations, which will be regarded as conveying a representation. To constitute a representation, the statement must be a representation of fact.
(b) Statements that are so vague as to be incapable of being given any reasonably precise meaning or because they are exaggerated commendatory opinion rather than a statement of any factual matter do not give rise to an actionable misrepresentation.
(c) There are some introductory comments made at the start of negotiations for the purpose of attracting the interest of possible purchasers which are not reasonably to be understood as conveying a representation of fact.
(d) The more specific the words used, the less likely it is that they will be regarded as mere puffery.
(e) In each case the statements have to be considered in their own context so as to determine what both the speaker and hearer would have understood them to mean.
[28]Mitchell & Anor v Valherie (2005) 93 SASR 76, [71]-[73] (White J), applied in Bembridge v Just Spectacles Pty Ltd [2006] WASC 185; Lymquartz Pty Ltd v 2 Elizabeth Bay Road Pty Ltd [2007] NSWSC 457; Walker v Masillamani [2007] VSC 172; RRG Nominees Pty Ltd v Visible Temporary Fencing Australia Pty Ltd (No 4) [2019] FCA 686; Southern Waste Resourceco Pty Ltd v Adelaide Hills Region Waste Management Authority [No 3] [2019] SASC 192; Li v Mikkelsen [2021] VCC 2027
112Not every statement made in contractual negotiations or as prelude to contractual negotiations will be treated as conveying a representation. To be a representation, the statement must be a representation of fact. Whether the statement leads the representee into error is tested objectively, the question being would a reasonable person in the position of the representee be led into error by the statement.[29]
[29]Mitchell & Anor v Valherie (2005) 93 SASR 76, SA Full Court, per White J at p18
113Whether or not conduct including representations is misleading or deceptive is a question of fact to be determined in the context in which the conduct took place, at the time it took place, having regard to surrounding facts and circumstances.[30]
[30]Jasper Nominees Limited v Kairouz and Murdaca [2023] VSC 718 at [181]
114In Viterra Malt Pty Ltd v Cargill Australia Ltd and Anor,[31] the Court of Appeal noted that the question of whether a person has breached s18 of the ACL involved a four-step analysis:[32]
First, it is appropriate to note the principles set out by the High Court in Allergan:
Determining whether a person has breached s 18 of the ACL involves four steps: first, identifying with precision the ‘conduct’ said to contravene s 18; second, considering whether the identified conduct was conduct ‘in trade or commerce’; third, considering what meaning that conduct conveyed; and fourth, determining whether that conduct in light of that meaning was ‘misleading or deceptive or … likely to mislead or deceive’.
The first step requires asking: ‘what is the alleged conduct?’ and ‘does the evidence establish that the person engaged in the conduct?’. The third step considers what meaning that conduct conveyed to its intended audience. As in this case, where the pleaded conduct is said to amount to a representation, it is necessary to determine whether the alleged representation is established by the evidence. The fourth step is to ask whether the conduct in light of that meaning meets the statutory description of ‘misleading or deceptive or … likely to mislead or deceive’; that is, whether it has the tendency to lead into error. Each of those steps involves ‘quintessential question[s] of fact’.
The third and fourth steps require the court to characterise, as an objective matter, the conduct viewed as a whole and its notional effects, judged by reference to its context, on the state of mind of the relevant person or class of persons. That context includes the immediate context — relevantly, all the words in the document or other communication and the manner in which those words are conveyed, not just a word or phrase in isolation — and the broader context of the relevant surrounding facts and circumstances. It has been said that ‘[m]uch more often than not, the simpler the description of the conduct that is said to be misleading or deceptive or likely to be so, the easier it will be to focus upon whether that conduct has the requisite character’. That said, the description of the conduct alleged and identified at the first step should be sufficiently comprehensive to expose the complaint, because it is that conduct that will ultimately, as a whole, be determined to be or not to be misleading or deceptive.
[31][2023] VSCA 157 (“Cargill”)
[32]Ibid at [522]
115In this instance, the representation supposedly made by Amer is alleged to have been oral. Where misleading conduct is alleged to have arisen as a result of spoken words, special care needs to be taken before determining that the words convey a misleading impression. The words spoken must be proven with a degree of sufficient precision to enable the Court to be reasonably satisfied they were in fact misleading in the proved circumstances.[33]
[33]Jasper Nominees Limited v Kairouz and Murdaca [2023] VSC 718 (supra) at [185]-[186]
116Amer denies that he made any representation to the effect alleged. The defendants say there is insufficient evidence for a finding that Amer made a representation of the kind alleged. What is alleged in this case is an oral representation made sometime between December 2017 and 23 February 2018 to the effect that a contract worth more than $2 million was promised. The defendants note that the alleged representation is said to have occurred at a time before Amer had even secured the property and before settlement.
117Amer contends that Souki made the representation, not himself. He maintains that Bata lent him the money as a favour to Souki, not in exchange for the contract work. Bata stated in a text to Souki dated 15 May 2018 that “I refused several times to go through with this deal. I did it for your favour”.
118The defendants submit the Court should find that Bata did not want to pursue the contract for building and engineering work. Amer and Souki’s evidence supports this proposition. This submission actually goes more to the issue of reliance, as does the contents of the text in the preceding paragraph.
119The first issue to determine, as outlined in Viterra, is whether as a question of fact a representation was made in the terms alleged. Even on the plaintiff’s own case, the evidence of Bata in his witness statement together with his oral evidence did not establish with sufficient precision the alleged representation said to have been made by Amer.
120Further, I accept and prefer Amer’s evidence ahead of Bata’s on this issue and find Amer did not make the representation alleged for the following reasons. The first reason is that I do not accept that Bata’s account is truthful given the adverse view I took about his credibility. The second is that it is unlikely Amer would have made such a representation to a man he had only just met and spoke to briefly on 20 February 2018 at Souki Lawyers’ office. The third reason is that it is improbable Amer would have made such a representation when he did not have the final say on the award of the building and engineering contracts. The fourth reason is that the events afterwards show the parties continued to negotiate about the building contract, and that the price was not agreed until September 2018. All of these factors point to it being inherently unlikely that Amer would have made the representation now alleged.
121Issue 3 referred to the liability of Mohammed and/or Amer for the misrepresentation in relation to the engineering contract issue. There is no evidence at all that Mohammed made any representations to Bata regarding the award of the building and engineering contract. She was present when the first loan agreement was signed but did not participate in the discussions. Bata said that he did not speak with her. On that basis alone, there can be no finding of any misrepresentation on the part of Mohammed.
122In my view, Bata failed to prove that Amer made an actionable representation that Reetaj would award the building and engineering contracts to Bata if Bata lent Reetaj moneys pursuant to the first loan agreement. Consequently, Bata’s misleading and deceptive claim fails at the first hurdle.
(4)If the second or third defendants are liable for misrepresentation in relation to the engineering contract issue, then what was the plaintiff’s loss occasioned by the misrepresentation?
123As I am not satisfied the second or third defendant made any misrepresentation in the terms alleged, then issue 4 falls away. But if that had not been the case, I still would not have been persuaded that the loss claimed was caused by any supposed misrepresentation.
124The plaintiff assesses the damage from reliance on this representation as the loss of profit that would ordinarily be expected to accrue from undertaking such work. The expert report of David Shi relied on by the plaintiff opines that $232,000 in profit on the construction costs and $68,640 (excl GST) for engineering works would be the appropriate loss. No evidence was led regarding any other costs or wasted expenditure incurred by Bata in supposed reliance upon the pleaded misrepresentation.
125Damages for misleading or deceptive conduct are available under s236 of the ACL. To be recoverable, the loss claimed must be suffered because of the conduct.
126In Mills v Walsh,[34] Brereton JA said that:[35]
The purpose of an award of damages under ACL s 236 for a contravention of the prohibition on misleading and deceptive conduct in s 18, as at common law for misrepresentation, is to compensate the plaintiff for the prejudice or disadvantage it has suffered in consequence of having altered its position under the inducement of the misrepresentation made by the defendant. The aim is to put the plaintiff in the position in which it would have been had the misrepresentation not been made, so far as monetary compensation can do so. Typically, this involves making good the loss or expenditure incurred by the plaintiff in consequence of the inducement upon which it relied, offset by any corresponding advantage in money or money’s worth obtained by the plaintiff from the transaction.
[34][2022] NSWCA 255
[35]Ibid at [110]
127The defendants submit that it has been consistently held that an appropriate measure of damage in both misleading and deceptive conduct claims and for false representation claims is the measure of damages for the tort of deceit. That is, the sum representing the prejudice or disadvantage suffered in consequence of the plaintiff having altered his or her position under the inducement of the fraudulent representation.
128The defendants contend the relevant counterfactual is to identify how the plaintiff changed his or her position because of the misrepresentation. Often, as Brereton J said in Mills v Walsh,[36] the answer is that the plaintiff only entered into the transaction because of the representation. In such a case, the applicable measure of damages is the difference between the price paid by the plaintiff and the value it received in return.
[36]Ibid at [111]
129In this case, had Bata known the representation allegedly made was untrue, then the applicable counterfactual is that he would not have advanced the loan moneys.[37] As he has recovered the loan principal sum and is entitled to the balance of the funds sought for interest under the terms of the first loan agreement, then it is difficult to see how he sustained a compensable loss, assuming an actionable representation was made. The other relevant factor is the absence of reliance upon the misrepresentation as Bata decided that he no longer wished to proceed with the project. He also told Souki that he had not wanted to do the project but was only doing it as a favour to her which runs counter to any reliance upon anything that Amer supposedly said to him. Had it been necessary to do so, I would not have been persuaded Bata was entitled to recover the damages claimed, being the loss of profit figures set out in Mr Shi’s expert report.
(5)What amount (if any) is owing:
(a) under the first loan agreement; and
(b) under the second loan agreement –
this includes the question of whether any part of the plaintiff’s claim in relation to the loans is unenforceable as constituting a penalty and the issue of the alleged cash repayment of $125,000 on 1 July 2018.
[37] CB 145 at [9]
(a) First loan agreement
130The principal advanced under the first loan agreement was $500,000 with a fixed interest payment of $50,000 payable in 60 days from the date of execution of the agreement. The agreement was executed on 23 February 2018 and accordingly repayment was due on 27 April 2018.
131Repayment of the principal was made by three payments, $450,000 on 14 June 2018 and payments of $49,500 and $500 on 25 June 2018.
132Amer claims that he does not owe any sums under the first loan agreement as he made a cash payment on 1 July 2018 when he brought a bag of cash containing $200,000 to Souki Lawyers’ office. His case is that $125,000 was then paid over to Bata by Souki Lawyers on the following day. Bata emphatically denied receiving any cash payment.
133The accounts of the witnesses who were involved in the events on 1 and 2 July vary widely.
134Haddara is a friend of Amer’s. His evidence was that he gave Amer $200,000 in cash when he bought a property from him. He said they counted the money in his garage. The next day, he and Amer went to see the lawyer, who was Souki, at Souki Lawyers’ office. Haddara confirmed that the sum of $200,000 in cash was given to Souki on that day. They went into the meeting room and gave her the money as a deposit for a property that he bought from Amer. Haddara told Souki he had bought the block of land from Amer. He told her this was the first deposit. He asked her to prepare the contract for him and to give him a receipt. She gave him a receipt. He could not remember how he received the receipt – whether it was by email or not, but he did get a receipt from Souki.
135Amer’s evidence regarding the cash payment was as follows. He was asked how he arrived at the figure of $125,000 to be paid in cash. He said that when he had paid the second cheque for $50,000 at the same time as he had paid $450,000, Souki Lawyers called him saying that the cheque for $50,000 had bounced. He was told there was not enough funds in his account. It was his understanding that there was $50,000 due for the principal, $50,000 for the agreed interest, and $25,000 for interest caused by the delay in payment. That was why he paid $125,000. In his witness statement, Amer said he only became aware that the cheque had not bounced when preparing the case for trial. He said his wife had access to the online banking account for Reetaj and he did not know in July 2018 that funds totalling $500,000 were paid to Bata by way of electronic transfers in June 2018. Consequently, on his version of events he overpaid Bata the sum of $50,000, representing principal which had already been paid.
136Amer said he called Souki and that Haddara went with him to visit Souki. He said he took with him the sum of $200,000. He then took out $75,000 and put it in a different bag and then left the sum of $125,000 for Bata. He said “We called Mr Bata, informing him the money’s here,” and asked if they could catch up tomorrow to pay him. He said the amount of cash was split into $125,000 and $75,000 at Souki Lawyers. This occurred when Souki was present. He said they left and he called Bata and said “The money is ready”, and “We made our agreement the next day for Bata to get the money”. He said that the money was left in the lawyer’s safe. Amer did not take the $125,000 when he left. This sum was left with Souki Lawyers in a plastic bag. When asked about the $75,000 in cash, Amer said that was for a different matter for his work. He said he did not have a receipt because it was all calculated in the solicitor’s office.
137Ms Hanan Souki’s evidence was to the following effect. She said Amer attended the office with a bag full of cash that he was going to give to Mr Bata. Mr Bata was not present on the day. He came to collect the cash the following day. She said she was there when Amer came to the office with the cash. She did not recall who else was there. She said the principal solicitor was not there but she was there. She did not count the money, but said it was a large sum in a plastic bag. Ms Hanan Souki did not give Amer a receipt. She said that when Bata came he just took the money. He was happy to take it. He said he would discuss the matter with Amer outside of the office and she did not hear anything back. She could not recall how long Bata was in the office on the day that he collected the money. She let Amer know that Bata took the money. She agreed it was an unusual transaction for people to come into the office and leave cash. She did not tell him to come and bring the cash. She agreed that Bata and Amer were never in the office at the same time.
138In cross-examination, Ms Hanan Souki was asked whether she thought to ask one of the solicitors what she should do with the bag of cash. Ms Hanan Souki said she told a solicitor that she put the money in the safe. She said she spoke to Bata and said the money was at the office, and he came to collect it. She gave evidence that Bata came the next day by himself and collected the money. She remembered Bata leaving with the cash, and that he brought it up three years later. She did not recall whether there was someone with Amer at the time. She said her sister was not in the office. She confirmed she did not count the money, and that she had told Amer she was not counting the money, because they both thought they were going to meet at the office. It was just a place for them to meet and exchange the money.
139Souki gave evidence that the bag of cash was intended for Bata because she had been advised by Amer that he had left it there for Bata. She had this conversation around the time that he left the bag. She could not recall if she was present in the office when the bag of money was left. Souki agreed that it was an unusual transaction. At the time, she would have been seven months pregnant and had limited time in the office. She said they were told that they had made arrangements to exchange the money in cash. She believed that Bata did not arrive on time and that Amer had to leave, so he had asked to leave the money at their office. It was not necessary to dock it in trust because it was not put into trust for the benefit of anyone; nor did it come through as a transaction through the office. Souki said it was an agreement ‘between our office’ that was convenient for them.
140Souki’s inability to remember anything at all at trial was at odds with the contents of her affidavit sworn 23 August 2023 and relied upon as her evidence-in-chief.[38] In that affidavit, she could recall that Amer attended her firm’s office and left a bag of cash intended for Bata. Bata then attended her office and collected the bag of cash on the same day. She did not recall looking into the bag to confirm the amount of cash inside. She did not withhold or retain any part of the cash contained in the bag left at her firm’s office prior to it being collected by Bata.
[38]CB 426 (T315)
141In paragraph 10 of Ms Fatoum Souki’s affidavit sworn 23 August 2023, she said as follows:
I accept that on a date that I do not now recall:
(a) the third defendant sent me a text message stating:
And I pay him 115.000 in cash from the 200.000 I got it from Khaled Haddara and you call him to come and collected from your office it was 50.000 balance plus 65.000 interest 50.000 for 90 Dayes pls 15.000 the delay fee…
(b) I sent a text message to the third defendant in reply stating:
Yes you paid it in cash and mark took it at the time.
142The text message quoted from Amer in the preceding paragraph is incomplete. The full text goes onto to say:[39]
And he ask to pay the charge which been charge the bank because he said he re finance his mortgages and I pay him another 10.000 also cash and I remember it was in one and it was short by 400 dollar and you added from the other 10.000
In total I pay him 125.000 50.000 from the amount of loan and 50.000 the interest and 25.000 he charge me the delay
And this was payed from the 200.000 Khaled Haddara pay it as a deposit for the lots he pouted [sic]
[39]CB 436
143Souki confirmed she did not make a file note of this event. She could not recall if she was present when the bag of cash was collected. She could not recall that Haddara had said he had $200,000, nor that they went into a meeting room with a bag of money. Nor could she recall that Amer had counted the money out in her presence, put $125,000 into a different plastic bag and left it with her.
144Similarly, Souki also did not recall that Amer counted $75,000 which he gave to her. She did not recall if he had paid $75,000, but did not believe it was for her legal fees. When asked if he paid it for some other reason, again, Souki was unable to recall. She did not count the money. She could not recall if Amer told her how much was in the bag. She again said she did not receive $75,000 for legal costs.
145Souki also said that she did not believe she was present when Amer dropped off the money. She could not recall if she had turned up at some stage while Amer and Haddara were present in her office, but she said that she was not there when they counted the money. She could not recall if she was present when Bata purportedly collected the money. Again, she could not recall a series of events such as whether she had sent a message to Bata telling him about the cash, whether she saw him collecting the cash from the office, or if she had put the money in the safe. She could not recall if she had asked somebody else to put the money in the safe. All that she could recall was that Amer had advised her that he had left money, but overall she seemingly had little or no recollection of these rather unusual events.
146As the foregoing summary reveals, there are conflicting versions of what occurred on 1 and 2 July 2018. In these circumstances, the Court has to make findings as to which version should be accepted.
147For his part, Bata is emphatic that he did not receive any money – he did not attend the office, nor was he given a bag of cash.
148Bata contends that the Court should accept the evidence of Haddara, which was clear. He had made a cash payment to Amer as a deposit on the purchase of nine lots in a subdivision. This money was not intended for Bata. The evidence of the Souki sisters did not assist. Neither the substance nor the manner in which they gave evidence could give the Court any confidence as to the accuracy of the assertions made in their evidence. Similarly, the evidence of Amer should not be accepted. His evidence was contradictory to all other witnesses and was not supported by any contemporaneous documentary records. It was only some years later that Amer attempted to corral some explanation for his failure to pay the balance of the first loan by asserting a cash payment.[40]
[40] See CB 433-436 text messages and emails generally in January 2021
149The defendants submit the Court should reject Bata’s evidence having regard to the following additional matters:
(i) The caveat in respect of the first loan agreement was withdrawn on 25 July 2018. Bata would not have instructed Souki Lawyers to withdraw the caveat if he had not been paid in full.
(ii) Bata would not have entered into the second loan agreement if there was money owing under the first loan agreement.
(iii) The caveats lodged and demands sent by Bata between September 2020 and November 2020 referred to the second loan agreement only. No satisfactory explanation has been offered as to why it was not until 20 January 2021, some two and a half years later after the caveat under the first loan agreement was removed, that Bata served a demand and lodged a new caveat under the first loan agreement.
150As to the first matter raised by the defendants, I do not regard the withdrawal of the caveat necessarily leads to a finding that Bata had been paid in full. By July 2018, he had been repaid the principal owed of $500,000 and was only owed interest. In relation to the second matter, Bata gave evidence he was willing to help out Amer on a short term basis and provide a further sum of $50,000 as he was still wanting to do the project in February 2019. The third matter relates to the lodging of the caveat in January 2021 in circumstances where Bata said he was continually asking for repayment prior to then. The mere fact that it was not until January 2021 that a further caveat under the first loan agreement was lodged, does not in my view, amount to sufficiently probative evidence to compel a finding that Bata received $125,000 in cash in July 2018.
Analysis
151I accept the evidence of Amer and Haddara that they took an amount of $200,000 in cash to Souki Lawyers’ office on around 1 July 2018. The purpose of this payment was for Haddara to make a cash payment as a deposit for the purchase of nine lots from Amer in the subdivision of the property. I also accept Haddara’s evidence that instructions were given to Souki to prepare a contract of sale for the land that Amer was selling to Haddara. Haddara says that Souki provided him with a receipt. If in fact these moneys were to be applied as a deposit on a sale of land, then arguably these funds would not have been capable of being released to Amer at that time under the Sale of Land Act 1962.
152Amer and Haddara were very clear that they had attended Souki’s office and met with her in person bringing the cash in question. They say the sum of $200,000 was counted in her presence. Amer went further and said that the money was then separated, with $125,000 to go to Mr Bata and $75,000 to Souki for work done on another matter. Souki had no recollection of this occurring. Haddara says he did not see the cash being split. Haddara said that Souki gave him a receipt although no receipt was put into evidence.
153In my view, Haddara was a credible witness. His evidence is consistent with Amer’s evidence. Both Souki sisters were aware that a sum of cash was left at their office at that time. It is also the case that Haddara was purchasing land from Amer and this money was to be treated as a deposit for the purchase. He did in fact subsequently purchase the nine lots in question from Amer. Haddara subsequently provided Amer with further cash payments. These payments were used to reduce the price of the land, which had been originally in the order of $1.7 to $1.8 million but was settled for a final amount in the order of $1.3 million. This reflected the fact that various payments had been made towards the purchase price prior to settlement which had reduced the final payout figure.
154Ms Hanan Souki has a distinct recollection of being given a bag of money which she then placed in the office safe. She handed over the bag to Bata the following day. She did not count the money. There is no record of how much money was in the bag which she says was collected by Bata.
155Souki was extremely vague about the receipt of the cash. She had a recollection of cash being left at the office but was unable to recall any actual involvement on her part in the events that occurred.
156Overall, I am satisfied that the sum of $200,000 was taken to Souki Lawyers on around 1 July 2018 and given to Souki Lawyers, being a deposit on land that Haddara was intending to buy from Amer. I also accept Haddara’s evidence that instructions were given by him to Souki Lawyers to prepare a contract of sale for the land in question.
157The next critical question is whether the sum of $125,000 in cash was then handed over to Bata as alleged by Amer. Ms Hanan Souki said she placed the plastic bag containing cash in the firm’s safe. The next day, she said she handed the bag over to Bata when he attended Souki Lawyers’ office. Although Ms Hanan Souki asserted she gave a bag of cash to Bata (which he denies), she was unable to say how much money was in the bag. The amount of cash that was in the bag was not counted by her or Bata according to her evidence. Therefore, even assuming a bag of cash was handed over to Bata on or around 2 July 2018, the Court could not be satisfied on the state of the evidence as to the amount of cash that was supposedly in the bag.
158In any event, it is improbable then that Amer would have decided to pay the sum of $125,000 in circumstances when Reetaj had already paid the principal sums owing. There was only $50,000 remaining for the agreed interest and some amount for default interest. Amer claimed he was told by Souki Lawyers that the cheque for $50,000 had bounced. He relied upon this information in part to justify the cash payment allegedly made, however, this cheque did not bounce as it turned out. When cross-examined, Souki did not have any actual recollection about Amer paying by cheque. She did not give evidence that she told Amer the cheque for $50,000 had bounced. Bata’s bank records produced at trial showed payments into his account in June 2018 totalling $500,000, being the balance of the principal due under the first loan agreement. There was no dispute at trial that the principal due under the first loan agreement was repaid.
159Amer allegedly paid a further sum of $25,000 representing default interest owed under the first loan agreement. In his witness statement, he says that Bata asked him to pay this sum. Bata denied saying he had made this request.
160On 11 July 2018, Souki asked Bata for details of the amounts owing for interest. He replied by text and said the sum was $13,560.82. Had he been paid cash on 2 July 2018, including the sum of $25,000 for default interest, then nothing would have been outstanding. Therefore, this is a relatively contemporaneous record from Bata advising Souki of the amount of interest then owed which tends to support his version of events that he did not receive any cash payment on 2 July 2018.
161Amer did not say until sometime later in January 2021 when he texted Ms Fatoum Souki, that he had made a cash payment to Bata in 2018. It is curious that if he had made such a payment, he would not have raised this on an earlier occasion and sought confirmation from Souki Lawyers and/or Bata that the cash had been given to Bata in accordance with his instructions. The evidence that Amer asked Souki to confirm in writing in January 2021 that Bata was paid in cash and Souki acceded to his request is self-serving. Such a request made some years later is not necessarily probative of the fact that the cash payment was in fact made in July 2018. Having observed Souki giving evidence, I could have little confidence in her ability to remember anything with certainty. She also did not state how much cash was paid to Bata in her reply email to Amer.
162The defendants bear the onus of proof in establishing that the sum of $125,000 was paid in cash to Bata on or around 2 July 2018. Bata denies it occurred. Souki claims to have been aware that cash was given to Bata but did not give evidence about the amount. Additionally, she did not count the cash. Ms Hanan Souki did not count the cash in the bag she says she gave to Bata. Amer alleges the sum of $125,000 was handed over but he was not present when it supposedly took place. He is the only witness who says the cash was separated into amounts of $125,000 and $75,000. Souki has no recollection of funds being separated, and Haddara says the split did not happen in front of him. Additionally, it makes no sense for Amer to pay the sum of $125,000 when the principal under the first loan agreement had already been repaid. There is no contemporaneous written record of this payment occurring. Amer himself did not allege this sum had been given to Bata until January 2021, some two and half years later.
163Given the totality of the conflicting evidence surrounding the cash event, I was not actually persuaded, on the balance of probabilities, that $125,000 in cash in a plastic bag was physically handed to Bata at Souki Lawyers’ office in July 2018. That being so, the defendants have failed to discharge their onus of proof on this issue.
164The result is that the sum of $50,000 representing the fixed interest amount under the first loan agreement remains due and payable, together with interest under clause 6(d) of that agreement at the rate of 14 per cent. Reetaj as the borrower under the first loan agreement is liable for these amounts as is Mohammed, in her capacity as guarantor. Bata also claimed this amount from Amer but he is not party to the agreement and nor he is sued as a guarantor. He is not named in the body of the agreement and did not sign the document in any capacity. Therefore, the debt under the first loan agreement is not owed by him personally.
Conduct of Souki Lawyers
165I have concerns regarding the conduct of Souki Lawyers arising out of these unusual circumstances; in particular, the firm’s conduct relating to the cash event. The issues which are of potential concern are as follows:
(a) The apparent conflict in acting for both Bata, being the lender, and Amer, being the borrower, in respect of the two loan agreements.
(b) There was no receipt or any written confirmation given by Souki Lawyers about the cash payment which was delivered to Souki Lawyers’ office on 1 July 2018. I am satisfied that Haddara and Amer brought the sum of $200,000 with them to the firm on that occasion. I am also satisfied on the state of the evidence that Souki was present and saw both men when they attended her office with the cash.
(c) There was no receipt given by Souki Lawyers in respect of the alleged cash payment to Bata.
(d) There was no file note kept by the principal solicitor or the administrative assistant in respect of any of the events that occurred on 1 and 2 July 2018. This omission is remarkable given the unusual circumstances of the firm receiving $200,000 in cash.
(e) No accounting record whatsoever was kept of the cash which was provided by one client at the firm’s office and then supposedly handed over to another client in a plastic bag. There was no transit record kept of moneys received. The explanation given by Souki that this was unnecessary because it was a private arrangement between the clients is most unsatisfactory.
(f) Somewhat surprisingly, no letter was sent by the firm to Amer confirming the events that took place on 1 and 2 July; namely, to confirm receipt of the moneys; the purpose for which the moneys were provided; and what was done with the moneys and how they were disbursed, including any sum applied towards legal costs. If, in fact, a payment had been made to Bata in accordance with the instructions given by Amer, this should have been recorded in a letter to Amer. If the sum of $75,000 was paid, as Amer said it was to Souki Lawyers for legal costs on another matter, this should also have been properly recorded and documented.
(g) No letter was sent by the firm to Bata, who had been a client of Souki Lawyers for many years, confirming the alleged payment of cash to him on 2 July 2018.
166The fact that none of these matters were recorded in any way has in part led to the difficulty in the resolution of this cash event issue. Had the solicitors been acting professionally, then there should have been a paper (or electronic) trail kept of this highly unusual transaction.
167Given my concerns about the conduct of Souki Lawyers, I will refer a copy of this judgment and any necessary papers filed in this proceeding to the Victorian Legal Services Commissioner for consideration. It will then be a matter for the Commissioner to determine whether an investigation is warranted.
(b) Second loan agreement
168The principal advanced under the second loan agreement was $50,000 with fixed interest of $5,000. The date of repayment was 23 March 2019.
169Clause 6(d) provided interest on all money due and owing shall accrue from the day of Default Notice until rectification at the rate of $500 per day.
170The principal sum of $50,000 was repaid by two payments made on 9 and 10 July 2020 into the Souki Lawyer’s Trust Account. The agreed interest amount of $5,000 remains outstanding.
171The defendants contend that the second loan agreement provision for interest calculated at $500 per day amounts to a penalty. If the clause is not a genuine pre-estimate of the loss suffered, it may be unenforceable as a penalty.
172The plaintiff does not accept the $500-a-day requirement is a penalty in relation to the principal and interest being outstanding under the loan. If the $500 per day constitutes a genuine attempt to pre-assess the loss incurred in consequence upon breach, the provision will be upheld.
173The plaintiff relies on the test in Paciocco v Australia and New Zealand Banking Group Limited:[41] whether a contractual term amounts to a penalty is based on whether the payment provision protects other legitimate interests of the parties seeking to rely on it.
[41](2016) 258 CLR 525
174The mere fact that the second loan agreement contains an ‘agreed payment provision’ of $500 per day does not, of itself, make that stipulation a penalty. The real question is whether the sole purpose of the provision is to punish the party in breach and not promoting any legitimate interest of the innocent party.
175The following principles emerge from Paciocco:
(1) The essence of a penalty is that it is the predominant purpose to punish the party in breach. The test in whether the impugned stipulation is penal is to ask whether the stipulated sum is extravagant or out of all proportion to, or unconscionable in comparison with, the maximum amount of damage which might be anticipated to flow from breach.
(2) The analysis of whether a term is penal is to be made at the time and taking into account the circumstances applicable in the contract that was entered into.
(3) Mere disposition between the stipulator’s sum and possible damage is not enough to indicate ‘penalty’; the disproportion must be such that it is unconscionable for the lender to rely on the stipulation.
(4) The onus of proving a contractual stipulation amounts to a penalty rests with the person asserting it.
176Bata submits that if the Court is of the opinion that the $500-per-day fee is a penalty, then he ought to be able to recover interest on the outstanding amount owing under the second loan agreement under s58 of the Supreme Court Act1986.
177In relation to the potential penalty clause, the defendants rely on the well-known principles in Arab Bank Australia Ltd v Sayde Developments Pty Ltd,[42] Andrews v Australia and New Zealand Banking Group Ltd,[43] and Paciocco v Australia and New Zealand Banking Group Limited.
[42](2016) 93 NSWLR 231
[43](2012) 247 CLR 205
178The defendants submit that having regard to the cost to Bata of advancing the loan, the amount of interest claimed is out of all proportion to any legitimate interest that Bata could have in ensuring compliance with the primary obligation.
179A significant factor is that by July 2020, the principal had been paid, leaving a debt under the second loan agreement of just $5,000. Because the second loan agreement crudely adopts a fixed sum of default interest per day, it does not adjust to take into account those payments. On the facts of this case, the true annualised rate of default interest once principal is repaid was in fact 3,600 per cent per annum.
180For these reasons, the defendants contend that the default interest clause is a penalty and is unenforceable. I agree. Given the discrepancy between the amount borrowed and the extraordinarily high rate of interest charged, Reetaj has satisfied the onus placed upon it to show the provision is a penalty. The evidentiary onus then shifted to Bata to explain the basis upon which he claimed it was necessary to charge the rates he did.[44] No evidence was led by him to explain or justify the rate claimed other than to say he did it because he no longer trusted Amer. I consider the sum claimed of $500 per day is wholly out of proportion to any loss occasioned by Bata and therefore is unconscionable. Consequently, I find that the default rate of interest claimed under clause 6(d) is an unenforceable penalty.
[44] Jasper Nominees Limited v Kairouz and Murdaca [2023] VSC 718 at [326]
181There is no dispute that the sum of $5,000 is owing under the terms of the second loan agreement for which Reetaj, as the borrower, is liable. Amer is not a party to the second loan agreement and has no personal liability for this debt. Bata is entitled to judgment against Reetaj for the sum of $5,000 together with interest to be assessed under statute.
(6)Did the Plaintiff lodge Caveat 8T780104W and/or Caveat AT968585F without reasonable cause?
182Section 118 of the Transfer of Land Act provides:
Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as a court deems just and orders.
183In KB Corporate Pty Ltd v Sayfe and Anor,[45] Mukhtar AsJ dealt with the principles to be applied in considering applications under s118 of the Transfer of Land Act. In summary, the onus is on the person claiming compensation to show that the caveator did not have an honest belief based on reasonable grounds that it had a caveatable interest.
[45][2017] VSC 623 at [19]
184His Honour conducted a comprehensive review of the case law relating to the application of s118, and he summarised the following propositions which should be applied, namely:[46]
(a)the applicant must show the caveator had no caveatable interest;
(b)the applicant must show the caveator did not have an honest belief based on reasonable grounds that a caveatable interest existed;
(c)the test is partially subjective and partially objective;
(d)the subjective component requires an examination of the caveator’s belief and whether it was honestly held;
(e)it is objective in that it requires that the belief is held on reasonable grounds;
(f)it is a fallacy is to think that the absence of a caveatable interest at the time when the caveat was lodged establishes that the caveator did not have a reasonable basis for a belief that it was entitled to lodge a caveat; and
(g)legal advice that the caveator was entitled to lodge the caveat may be of considerable significance in determining whether the claimant has established that the caveat was lodged without reasonable cause, but the content and accuracy of the legal advice must be evaluated with all other relevant circumstances.
[46]Ibid at [19]
185In terms of the concept of ‘without reasonable cause’, this was referred to by Biscoe AJ in Natuna Pty Ltd v Cook,[47] which was referred to with approval by the New South Wales Court of Appeal in New Galaxy Investments Pty Ltd v Thomson and Ors:[48]
‘Reasonable cause’ for the lodgement of a caveat exists where the caveator has an honest belief, based upon reasonable grounds, that the caveator has a caveatable interest. In order to establish liability [under the provision] the onus is on Mr Cook to prove, first, that Natuna had no caveatable interest and, secondly, that Natuna did not have an honest belief based on reasonable grounds that a caveatable interest existed. As to the second issue, the test is partly subjective and partly objective. It is subjective in that it requires an examination of the caveator’s actual belief and whether it was honestly held. It is objective in that it requires that the belief be held on reasonable grounds: [citations omitted]. A caveator may have reasonable grounds on which to believe that it has a caveatable interest even though it is mistaken and it is ultimately held that it did not...
[47][2006] NSWSC 1367
[48][2017] NSWCA 153 at [324]
186Bata submits that both loan agreements provide for the registration of a caveat against identified properties by way of security.
187Reetaj notes that a caveat protects a proprietary interest in land. It operates as a statutory injunction preventing the registration of a subsequent dealing without first approaching the Court.[49]
[49]J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546
188The power to lodge a caveat is found in s89(1) of the Transfer of Land Act 1958. The claimed estate or interest in land is a central concept in a caveat. A caveat is liable to be set aside if, on the application for its removal, the caveator is unable to demonstrate a prima facie case to the actual interest claimed. Whether a caveator may have some other estate or interest in the land that is not claimed in the caveat is not to the point.[50]
[50]Martorella v Innovision Developments Pty Ltd [2011] VSC 282
189Where a caveator claims that a caveatable interest exists under an agreement, then the agreement must be construed in the usual way. There is no principle that authority to lodge a caveat in connection with an obligation to pay money gives rise to a security interest.[51]
[51]Taleb v National Australia [2011] NSWSC 1562
190Based on the above case law, Reetaj argues that on no view could the first loan agreement or second loan agreement have conferred such interests that Bata claims and requires to lodge the caveats. Reetaj submits Bata lodged the caveats to protect his interests and there is no evidence that he turned his mind as to whether he had a caveatable interest or not.
191Bata gave evidence that Ms Fatima Dennaoui gave him advice about the caveats which she then lodged on his behalf. The defendants contend that a Jones v Dunkel[52] inference should be drawn as Bata did not call Ms Dennaoui to give evidence about the legal advice she gave relating to the caveats.
[52](1959) 101 CLR 298
Analysis
192The interest claimed in the caveats referred to the respective loan agreements and claimed an interest in fee simple. Each of the loan agreements contained a clause entitling the borrower to lodge a caveat over the property.
193In Reetaj Investments Pty Ltd v Bata,[53] Daly AsJ gave a ruling in respect of the application by Reetaj to remove the caveats lodged by Bata. Her Honour noted in respect of the caveat lodged in 2020 arising from the second loan agreement, that clause 7 of the second loan agreement did not, on its proper construction, create an interest in the property sufficient to support the lodgement of a caveat. Her Honour held the only right that it conferred upon Bata was the right to compel Reetaj to execute a charge which might give rise to a caveatable interest. Her Honour also noted there was sufficient doubt as to the meaning of the term ‘loan amount’ which may in any event render clause 7 void for uncertainty. Her Honour therefore ordered that the 2020 caveat be removed.
[53][2021] VSC 40
194As for the 2021 caveat lodged pursuant to the first loan agreement, her Honour found the relevant term of that agreement did confer a security interest upon Bata. In circumstances where the Supreme Court has found that the caveat lodged pursuant to the first loan agreement does confer a security interest upon Bata, then it can hardly be said that Bata acted without reasonable cause in lodging this caveat.
195The Supreme Court’s finding that the clause in the second loan agreement did not confer a valid security interest does not dispose of the issue under s118. It is not enough simply to show that the caveator did not have a caveatable interest.[54] The onus lies on the claimant to show that the caveator acted without reasonable cause. There was no evidence led to support a finding that Bata had acted for an improper purpose when lodging these caveats. The caveats were lodged by solicitors acting on his behalf. He gave evidence that the solicitor told him it was necessary to do so. It can be assumed that the solicitor acting on his behalf turned her mind as to whether the caveats did have a proper basis, noting that the solicitor would be required to provide a certificate to that effect. The issue of legal advice is a factor to consider in determining whether a caveator held an honest belief. The Court knows that Bata was given legal advice to the effect that caveats should be lodged on his behalf but has no knowledge of the actual advice provided by Dennonaui Lawyers. The defendants submit a Jones v Dunkel inference should be drawn because the solicitor was not called. There was no explanation given as to why the solicitor was not called. The rule in Jones v Dunkel only applies where the party accused of not calling the relevant witness was required to explain or contradict something. In the circumstances, although she may have been able to assist the Court, I am not persuaded it can be inferred that the reason Bata did not call the solicitor because he feared to do so, or that Bata was required to explain or contradict something. He gave evidence that he received legal advice that it was necessary to lodge the caveats. It was not suggested that Bata was lying about the fact of receiving legal advice to lodge caveats to protect his interests. Overall, I am not persuaded that a Jones v Dunkel inference should be drawn because Ms Fatima Dennaoui was not called to give evidence.
[54]KB Corporate Pty Ltd v Sayfe and Anor (supra) [2017] VSC 623 at [12]
196The key issue for determination is whether Bata held an honest belief. In circumstances where:
(a) there is no evidence before the Court to suggest that Bata did not have an honest belief or was acting for an improper purpose;
(b) the caveats were lodged relying upon an entitlement to do so contained in each of the loan agreements;
(c) the caveats were lodged on Bata’s behalf by a solicitor on the basis of legal advice (albeit accepting the content of that advice is unknown); and
(c) the Supreme Court has determined that one of the caveats was valid under one loan agreement and that the caveator might have a right to call for an equitable charge in respect of the other loan agreement –
I am not persuaded, having regard to the relevant principles, that Reetaj proved Bata did not hold an honest belief based on reasonable grounds that a caveatable interest existed.
(7)Did the first defendant suffer any loss or damage as a result of the plaintiff lodging the caveats such that it is entitled to compensation pursuant to Section 118 of the Transfer of Land Act
197As I have found that Bata did not lodge the caveats without reasonable cause, then the second limb of s118, being an entitlement to compensation does not arise for consideration. But for the sake of completion, I will deal with this issue briefly.
198Reetaj claims it suffered a loss of $111,015, being the default interest it paid under the loan facility made available by Banner.
199The defendants contend in their final closing submissions that if the caveats had not been lodged, then the plan of subdivision would have been registered earlier. The caveats deprived Reetaj the opportunity of completing the subdivision before the expiry of the facility and of refinancing sooner. On the balance of probabilities, Reetaj contends the Court can be satisfied that Reetaj would have been spared the default interest cost if the caveats had not been lodged.
200Bata argues that even if the caveats are found to be unreasonable in some way, Reetaj has not provided evidence to support any alleged loss. Reetaj can only point to a few days of delay from when it sought to pay out the initial financier and replace it with a new refinance agreement.
201The initial finance payout date was extended to 6 January 2021 and then to 6 February 2021. In any event, Bata notes that when the Supreme Court ordered the lifting of the caveats on 8 February 2021, the defendants were not in a position to obtain refinancing. The refinance was not put into place until later in February 2021. The fact that there was a further delay after the caveats were removed cannot on any sensible basis be sheeted home to Bata.
202I am not satisfied on the evidence that the loss claimed in the sum of $111,015, being the default interest charged by Banner was caused by the lodging of the caveats for the following reasons. The statement from Banner which records the default interest sum claimed reveals that the loan was repaid on 9 April 2021 in an amount in excess of $6m. Whilst the default interest figure is recorded in the statement, there is no breakup of how this sum is calculated, such as the date from which it was charged nor the rate imposed. It is simply listed as a global figure. The original loan facility was extended to 6 February 2021. The caveats were lifted on 8 February 2021. Refinance was then approved in late February 2021. There was no evidence given as to why settlement of the refinance took up until 9 April 2021 to occur.
203I consider the submission put by Bata that any delay in refinancing after 8 February 2021 is not something for which he should be held be liable has some force. This is so, particularly, when no evidence was led by the defendants on this issue other that to say that Reetaj was charged default interest. Additionally, although it was asserted the plan of subdivision could have been registered earlier, there was insufficient evidence led by the defendants about when this could have occurred, how long it would have taken for the plans to be approved and in turn, how this might have affected the timing of any refinance. Consequently, had it been necessary to do so, I would not have been satisfied that the full amount of default interest charged is directly attributable to the presence of Bata’s caveats. Therefore, the counterclaim fails.
Conclusion
204Bata’s claims for breach of contract and misrepresentation under the ACL are dismissed.
205Bata is entitled to judgment against Reetaj and Mohammed in the sum of $50,000, representing the fixed amount of interest outstanding under the first loan agreement. In addition, Bata is entitled to interest on this sum at the rate of 14 per cent under clause 6(d) of the first loan agreement.
206As for the second loan agreement, I was not satisfied that Bata was entitled to charge the default interest claimed of $500 per day as it is a penalty. The fixed sum of $5,000 for interest remains due and payable by Reetaj. The plaintiff is entitled to judgment against Reetaj in the sum of $5,000 together with interest under statute at the rate of 10 per cent.
207The counterclaim will be dismissed.
208I will hear from the parties regarding the orders to be made consequent upon these reasons, including the amounts of interest payable on the debt claims and costs. Subject to hearing from the parties, I propose ordering that the first to third defendants pay the plaintiff’s costs of and incidental to the proceeding on the standard basis, to be taxed in default of agreement.
- - -
Certificate
I certify that these 51 pages are a true copy of the Reasons for Judgment of Her Honour Judge A Ryan delivered on 2 December 2024.
Dated: 2 December 2024
Associate to Her Honour Judge A Ryan
SCHEDULE OF PARTIES
BETWEEN
| Mark Bata | Plaintiff / Defendant by counterclaim |
| and | |
| Reetaj Investments Pty Ltd (ACN 608 022 911) | First Defendant / Plaintiff by counterclaim |
| Ekram Mohammed | Second Defendant |
| Omer Hassan Amer | Third Defendant |
| Souki Lawyers (ABN 15 819 705 950) | Fourth Defendant |
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