Beamer Pty Ltd v Star Lodge Supported Residential Services Pty Ltd - [2005] VSC 236

F**f

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 8145 of 1998

Beamer Pty Ltd	Plaintiff
v
Star Lodge Supported Residential Services Pty Ltd & Ors	Defendants

No. 6604 of 1999

Najjar Special Accommodation Services Pty Ltd & Ors	Plaintiffs
v
Kimis Pty Ltd & Ors	Defendants

---

JUDGE:	Hollingworth J
WHERE HELD:	Melbourne
DATE OF HEARING:	21-23, 26-30 July, 3-6, 9-13, 16, 17, 23, 24, 31 August, 1-3, 6-10 September 2004
DATE OF JUDGMENT:	1 July 2005
MEDIUM NEUTRAL CITATION:	[2005] VSC 236	1^st revision 4 July 2005

---

LANDLORD AND TENANT – whether landlord properly determined lease pursuant to Property Law Act 1958 ss. 146, 198 – application for relief against forfeiture – relevant discretionary principles – effluxion of lease – failure of tenant to purport to exercise option to renew – tenant’s demonstrated incapacity to respond to serious breaches of municipal fire standards – grant of relief not appropriate in the circumstances.

TRUSTS – whether trustee breached duty of care owed to beneficiaries – failure to seek relief against forfeiture - no breach of duty in circumstances where trustee could not afford to carry out the works required to retain the business and comply with obligations under the lease – whether failure to ensure statutory registration in name of trust company a breach of duty – trustee lodged transfer form with statutory body – nothing more required in the circumstances.

CORPORATIONS - whether director of trustee company breached duty of care to beneficiaries – failure to seek relief against forfeiture - duties ceased upon appointment of new trustees – failure to ensure DHS certificate registered in company name – no breach of duty in the circumstances.

TRADE PRACTICES - vendor sold half-interest in business to purchaser – whether representations made by vendor were misleading and deceptive Trade Practices Act 1974 s.52 – purchaser’s decision not made in reliance on vendor’s misrepresentations.

EVIDENCE - whether Jones v Dunkel (1958) 101 CLR 298 inference available – applicable principles – effect of inference where witness in both camps – adverse inference not relevant to facts in issue – inference not appropriate where witness is party’s solicitor and evidence would be subject of privilege .

---

APPEARANCES:	Counsel	Solicitors
For Beamer Pty Ltd, Kimis & Co Pty Ltd, George Moutidis & Louis Moutidis	Mr G Hevey Dr A Ciro	Anthony Peterson & Co
For Hidek International Pty Ltd	Mr R McGarvie	McDonald Slater & Lay
For Zenn Nominees Pty Ltd, Western Lodge Supported Residential Services Pty Ltd, Manuel Jiminez	Mr P W Collinson Mr M Ravech	Brygel Lawyers

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

The parties........................................................................................................................................... 2

The Moutidis parties..................................................................................................................... 2

Star Lodge...................................................................................................................................... 2

The Najjar parties.......................................................................................................................... 3

The Jiminez parties....................................................................................................................... 3

Hidek............................................................................................................................................... 4

Mitsios............................................................................................................................................. 4

Summary of the Beamer proceeding.............................................................................................. 5

Summary of the Najjar proceeding................................................................................................ 6

The witnesses...................................................................................................................................... 7

The Moutidis family..................................................................................................................... 8

Witnesses for the Najjar defendants........................................................................................... 9

Hidek witnesses.......................................................................................................................... 12

Council witnesses........................................................................................................................ 13

DHS witnesses............................................................................................................................. 13

Fire witnesses............................................................................................................................... 14

Other witnesses........................................................................................................................... 14

Background....................................................................................................................................... 15

Kimis starts the business............................................................................................................ 18

Sam Najjar becomes involved................................................................................................... 20

Transfer of registration from Kimis to Star Lodge................................................................. 24

Supplementary agreement......................................................................................................... 25

Sam Najjar starts running the business.................................................................................... 26

Payment of rates and bills.......................................................................................................... 27

Fire services.................................................................................................................................. 29

Paul Dedek obtains legal advice............................................................................................... 33

The default notice............................................................................................................................ 34

Scope of the dispute.................................................................................................................... 34

Creation of the default notice.................................................................................................... 35

Service by Paul Dedek on Star Lodge...................................................................................... 37

Service by Alena Dedek at the Moutidis home...................................................................... 39

Delivery by Sam Najjar to the Moutidis home....................................................................... 45

Exhibit N54................................................................................................................................... 49

Between the default and re-entry notices.................................................................................... 53

Payment under the supplementary agreement...................................................................... 53

Further cheques........................................................................................................................... 55

The 11 and 14 August letters..................................................................................................... 57

The emergency order.................................................................................................................. 58

The re-entry notice........................................................................................................................... 61

Scope of the dispute.................................................................................................................... 61

The evidence................................................................................................................................ 61

Louis Moutidis attends the premises on 14 August.............................................................. 64

After the re-entry.............................................................................................................................. 65

The boat and birdcage removal................................................................................................ 66

The events of 2 September............................................................................................................. 68

After 2 September............................................................................................................................ 70

The Moutidises’ actions.............................................................................................................. 70

Appointment of new trustees.................................................................................................... 71

DHS’s actions............................................................................................................................... 73

Subsequent leases............................................................................................................................ 78

Termination of the Star Lodge lease............................................................................................ 84

Legal principles relating to termination.................................................................................. 84

Briginshaw principles................................................................................................................. 86

Factual findings........................................................................................................................... 87

Repudiation and acceptance.......................................................................................................... 88

Relief against forfeiture.................................................................................................................. 89

Introduction................................................................................................................................. 89

General principles....................................................................................................................... 89

Relevant considerations............................................................................................................. 92

Continuing breach of clause 2.3............................................................................................... 92
The expiry of the Star Lodge lease and options to renew......................................................... 92
Fire safety issues...................................................................................................................... 95
Delay and prejudice................................................................................................................. 97
Other considerations................................................................................................................ 99

Breaches of duty............................................................................................................................... 99

The pleadings............................................................................................................................... 99

Duties owed by Star Lodge...................................................................................................... 99
Duties owed by Sam Najjar................................................................................................... 100
Breaches of director’s and trustee’s duties............................................................................. 101

The breach evidence................................................................................................................. 105

The lease breaches................................................................................................................... 105
The DHS breaches.................................................................................................................. 108

Knowing assistance and knowing receipt................................................................................ 111

Najjar SAS................................................................................................................................... 111

The pleadings......................................................................................................................... 111
The evidence........................................................................................................................... 112

Zenn............................................................................................................................................ 112

Western Lodge and Jiminez.................................................................................................... 113

The supplementary agreement.................................................................................................... 116

The claim in the Najjar proceeding............................................................................................ 117

The profitability representation.............................................................................................. 117

The satisfactory operation representation............................................................................. 118

The market value representation............................................................................................ 118

The chattels representation...................................................................................................... 119

The reasonable expectation claim........................................................................................... 119

Loss and damage....................................................................................................................... 120

Evidence in the Najjar proceeding............................................................................................. 120

Profitability - representation................................................................................................... 120

Profitability - falsity.................................................................................................................. 122

Operating satisfactorily - representation............................................................................... 125

Operating satisfactorily - falsity.............................................................................................. 126

Market value.............................................................................................................................. 128

Chattels - representation.......................................................................................................... 128

The handwritten inventory.................................................................................................... 129
Was the disputed inventory attached to the contract of sale?............................................... 131

Chattels - falsity......................................................................................................................... 133

Reliance....................................................................................................................................... 137

Loss.............................................................................................................................................. 139

Jones v Dunkel submissions......................................................................................................... 140

Wayne Cuthbertson.................................................................................................................. 141

Peter Cohen................................................................................................................................ 143

Conclusion....................................................................................................................................... 144

HER HONOUR:

Introduction

These two proceedings arise out of events which occurred mainly in 1998 in relation to a supported residential services business (“the business”) conducted from 155-161 Gordon St, Footscray (“the premises”).

Kimis & Co Pty Ltd (“Kimis”), a Moutidis family company, established the business in late 1997. By a contract dated 1 July 1998 (“the contract of sale”), Kimis sold the business to Star Lodge Supported Residential Services Pty Ltd (“Star Lodge”), the trustee of the Star Lodge Trading Trust (“the Star Lodge trust”). The beneficiaries of the Star Lodge trust were a Moutidis family company called Beamer Pty Ltd (“Beamer”), and a company connected with Bassam (or Sam) Najjar called Najjar Special Accommodation Services Pty Ltd ("Najjar SAS"). Kimis also assigned to Star Lodge its lease with the owner of the premises, Hidek International Pty Ltd (“Hidek”).

Within a couple of months after the sale of business and assignment of lease, Hidek purported to terminate Star Lodge’s lease for the non-payment of certain rates and taxes. Thereafter, Najjar entities took over the business on their own. Later that year, the business was taken over by Western Lodge Supported Residential Services Pty Ltd ("Western Lodge"), a company owned by Manuel Jiminez (or Jiminez-Navarro).

Proceeding No 6604 of 1999 ("the Najjar proceeding") involves a claim by companies associated with Sam Najjar, arising out of misrepresentations allegedly made in early 1998 by Kimis or members of the Moutidis family, which are said to have induced the Najjar entities to acquire an interest in the business.

Proceeding No 8145 of 1998 ("the Beamer proceeding") involves a claim by Beamer against the landlord, Hidek, and various Najjar and Jiminez entities. In very general terms, the Beamer proceeding challenges the purported termination of Star Lodge’s lease and the subsequent acquisition of the business by Najjar and Jiminez entities.

On 29 October 2003, Master Kings ordered that the Beamer and Najjar proceedings be heard at the same time. I ordered that the evidence in each of the Beamer and Najjar proceedings stand as evidence in the other.

The parties
The Moutidis parties

Kimis is the first defendant in the Najjar proceeding. Kimis owned and operated the business until July 1998. On 9 September 1996, Elias (known as Louis) Moutidis and Sophia (known as Sophie) Moutidis resigned as directors and their son, George Moutidis, was appointed a director and company secretary. Another of their sons, Kim Moutidis, was appointed a company secretary on 30 September 1997. Louis and Sophie Moutidis are the sole shareholders of Kimis. Kimis is not a party to the Beamer proceeding.

Beamer, the sole plaintiff in the Beamer proceeding, was the vehicle through which the Moutidis family held their interest in the business after July 1998. Since 19 May 1998, the sole directors and shareholders have been George and Kim Moutidis. Beamer owned half of the units in the Star Lodge trust, which became the beneficial owner of the business after its trustee, Star Lodge, purchased the business from Kimis. The parties proceeded on the agreed basis that Beamer had standing to sue on behalf of the Star Lodge trust and its beneficiaries, in circumstances where the current trustee has failed or refused to sue. Beamer is not a party to the Najjar proceeding.

George and Louis Moutidis are the second and third defendants, respectively, in the Najjar proceeding. They are not parties to the Beamer proceeding.

Star Lodge

Star Lodge is the first defendant in the Beamer proceeding. It was the trustee of the Star Lodge trust from the inception of the trust until 9 October 1998. The Star Lodge trust bought the business from Kimis in July 1998 under the contract of sale.

Star Lodge was acquired as a shelf company in June 1998. Its sole current director is George Moutidis, who was appointed on 9 June 1998. Mr Najjar was also a director at all relevant times. George Moutidis and Sam Najjar each own one of the two issued shares in the company. Star Lodge is not a party to the Najjar proceeding and was not represented at trial.

The Najjar parties

Sam Najjar is the second defendant in the Beamer proceeding and the second plaintiff in the Najjar proceeding. His claim in the Najjar proceeding and the claim against him in the Beamer proceeding are both stayed, as he is an undischarged bankrupt. He gave evidence but was not represented at trial.

Najjar SAS is the third defendant in the Beamer proceeding and the first plaintiff in the Najjar proceeding. From 21 January 1998 until 27 October 2003, it was the trustee of the Najjar Family Trust (“the Najjar trust”). Najjar SAS owned the other half of the units in the Star Lodge trust. There was some confusion at various times during the trial as to whether or not Najjar SAS had been deregistered. That confusion was eventually resolved by the tender of a current ASIC search which shows that the company has never been deregistered. It was not represented at trial.

Zenn Nominees Pty Ltd ("Zenn") is the tenth defendant in the Beamer proceeding and the third plaintiff in the Najjar proceeding. On 27 October 2003, Sam Najjar, as appointor of the Najjar trust, removed Najjar SAS and appointed Zenn as the trustee of the Najjar trust.

The Jiminez parties

Western Lodge, the fourth defendant in the Beamer proceeding, is a company owned and controlled by Manuel Jiminez, the sixth defendant in that proceeding. It is not a party to the Najjar proceeding. Since early December 1998, it has conducted an SRS business at the premises. Sam Najjar is employed by Western Lodge as the manager of that business.

Between 9 and 17 January 2002, Peter Vince was the interim receiver and manager of the assets and undertaking of Western Lodge, pursuant to an order of this Court made on the ex parte application of Beamer.

Other companies owned or controlled by Mr Jiminez were the eighth and ninth defendants in the Beamer proceeding. The claims against them were dismissed by consent during the course of the trial.

Zenn, Western Lodge and Mr Jiminez were represented at trial by the same counsel and solicitors. For the purpose of convenience, where appropriate they are referred to collectively in these reasons as “the Najjar defendants”.

Hidek

Hidek is the fifth defendant in the Beamer proceeding. It is not a party to the Najjar proceeding. Hidek is owned by Paul Dedek and his wife, Alena Dedek. They were the only directors at all relevant times.

Until October 2003, Hidek was the registered owner and lessor of the premises. At that time, it transferred its freehold interest in the premises to Paul and Alena Dedek for no consideration. That transfer was not discovered by Beamer or disclosed to the court until well into the trial; this issue will be discussed later.

Mitsios

Nicholas Mitsios is an accountant who has been employed by various Moutidis entities. On 9 October 1998, he and Jack Feldman were appointed as trustees of the Star Lodge trust in the place of Star Lodge. Mr Feldman resigned as a trustee in December 1998. Mr Mitsios is still a trustee.

On 9 August 2004, during the course of the trial, Beamer was granted leave to amend its pleadings in the Beamer proceeding to add Mr Mitsios as the eleventh defendant. This was done with the consent of Hidek and the Najjar defendants.

On 8 October 2004, on the application of Mr Mitsios, I ordered that he cease to be a defendant. He remains a party by reason of a notice of contribution served by the Najjar defendants during the course of the trial. The contribution proceedings were not heard at the same time as, and are being held in abeyance pending the outcome of, the trial of the main proceedings.

Summary of the Beamer proceeding

By its tenth amended statement of claim dated 9 September 2004 (“the Beamer claim”), Beamer makes a number of discrete claims for relief, all of which arise out of the events of mid to late 1998 which resulted in Beamer losing any interest in the business or the premises.

Beamer’s principal claim arises out of the circumstances in which the Star Lodge lease was terminated. In terminating the lease, Hidek relied upon a notice of default dated 28 July 1998 (“the default notice”) and a notice of re-entry dated 14 August 1998 (“the re-entry notice”). The Beamer claim pleads that the Star Lodge lease has not been validly terminated or, if it has, Beamer is entitled to relief against forfeiture.

Much of the trial was spent exploring Beamer’s allegations of some sort of conspiracy between Hidek and the Najjar defendants, to wrongfully remove Beamer and the Moutidises from the business and the premises. Beamer disputes that the default and re-entry notices were prepared or served on or about the dates they bear. Beamer alleges that they were created at some later date or dates and dishonestly backdated (“the conspiracy claim”).

Beamer also challenges the circumstances in which the Najjar defendants acquired their respective interests in the business after the termination of the Star Lodge lease. In considering this part of its claim, Beamer says that the assets and undertaking of the business are the goodwill, the leasehold interest and a certificate of registration issued to Kimis by the Department of Human Services (“DHS”) in November 1997 (“Kimis’ DHS certificate”).[1] In essence, Beamer alleges that Najjar SAS and Western Lodge acquired or “received” the business with knowledge that Sam Najjar had breached his director’s duties to Star Lodge, and Star Lodge had breached its trustee’s duties to Beamer.
[1]In fact no evidence was led that the business had any goodwill independent of or not constituted by the lease and the certificate of registration.

The Beamer claim also raises a number of claims which were expressly or impliedly abandoned. For example claims based on trespass[2] or disposition of property contrary to s. 172 of the Property Law Act 1958 (“PLA”).[3]
[2]Beamer claim paragraphs 48-50.
[3]Beamer claim paragraphs 41-42.

In general terms, Hidek and the Najjar defendants deny the allegations against them. A number of specific defences will be considered later in these reasons.

The pleadings in the Beamer proceeding are not always easy to understand, and will be considered in greater detail below.

Summary of the Najjar proceeding

By the third amended statement of claim dated 6 September 2004 ("the Najjar claim"), Najjar SAS and Zenn (“the Najjar plaintiffs”) seek damages from Kimis, George and Louis Moutidis (“the Moutidis defendants”) in respect of alleged misrepresentations. The Najjar claim alleges that between February and June 1998 the Moutidis defendants made the following representations to Najjar SAS and Mr Najjar:

(a) That the business was profitable;

(b) That the business was operating successfully;

(c) That the market value of one half share of the business was $100,000;

(d) That the chattels listed in the inventory referred to in schedule A to the contract of sale were owned by Kimis.

Najjar SAS paid $100,000 to acquire half of the issued units in the Star Lodge trust. Sam Najjar lent Najjar SAS that sum, which he raised by mortgaging his home. The Najjar plaintiffs say that these things were done in reliance on the representations.

Each of the representations is said to have been false and untrue and made in breach of a duty of care and of s. 52 of the Trade Practices Act 1974 (“TPA”) and s. 11 of the Fair Trading Act 1985. George and Louis Moutidis are also alleged to have accessorial liability under s. 75B(1) of the TPA.

The Najjar plaintiffs allege that because Hidek re-entered the premises and terminated the lease for Star Lodge’s breach, the business and the units in the Star Lodge Trust thereby became worthless. They claim the sum of $100,000 as their loss.

By their defence dated 12 May 2004 (“the Moutidis defence”), the Moutidis defendants deny the making and the falsity of the representations. They also deny that there was any reliance on any such representation and say that from April until 1 July 1998, Sam Najjar or Najjar SAS managed the business and made their own assessment as to profitability. In particular, they allege that Mr Najjar or Najjar SAS were responsible for receiving the takings and paying the expenses of the business, and were therefore in a position to make their own assessment as to the profitability and worth of the business. They also plead that Sam Najjar and Najjar SAS sought the advice of their financial advisors and solicitors in assessing the profitability of the business, incorporating Star Lodge, drawing the contract of sale and assigning the lease.

Although the Moutidis defence pleads that the Najjar plaintiffs are prevented by various estoppels from pursuing their claim, no submissions were made by any party in relation to those allegations and they were effectively abandoned.

The Najjar plaintiffs neither pleaded nor led any evidence that George Moutidis made any of the relevant representations. Given those matters, I do not understand why he was made or remained a defendant in the Najjar proceeding. The claim against George Moutidis must be dismissed.

The witnesses

Given the nature of Beamer’s claims, particularly the conspiracy claim, and the absence of independent written records, many of the important issues in these proceedings turn on findings as to credit. The task of assessing the evidence was not assisted by the fact that the events under consideration occurred approximately 6 years before the witnesses gave evidence. Even honest witnesses can be mistaken, particularly in their detailed recollection, after such a time.

A total of 32 witnesses gave evidence during the trial. The following is a summary of the roles and backgrounds of the various witnesses, together with some general comments about credibility issues. More specific findings on credit are made elsewhere in these reasons.

The Moutidis family

George Moutidis was born in Australia. He was 26 years old at the time of giving evidence, making him only 20 years old in 1998. He completed schooling up to Year 12. Since then, he has worked with his father in the building industry. At the time of trial he was completing a plumbing apprenticeship. He gave no impression of ever wanting to be involved with the business in the first place. Although he and his brother Kim were officers of both Kimis and Beamer, they did not play an active role in either company and their parents made all relevant company decisions. George's involvement in and memory of key events was limited and reflects his role in the company. On some occasions, he appeared to engage in the reconstruction of events.

Sophie Moutidis was born in Greece and came to Australia when she was 11 years old. She had a total of five years of education in Greece and Australia and left school when she was 13 years old. Her only employment experience was five years as a sales assistant in a dress shop, and six months in a factory. She displayed a strong sense of grievance against Hidek and the Najjar defendants, and was prone to making sometimes emotional speeches against them. She often exaggerated or answered questions in a non-responsive manner. She was not an easy witness for counsel to pin down on specific details.

Louis Moutidis was also born in Greece. He was 16 years old when he came to Australia. Upon arrival, he worked in factories for almost two years. Later, he established his own painting business, and conducted that business until he obtained a licence as a registered builder. His English language skills were the least developed of any of the principal witnesses. He read English slowly and with obvious difficulty, a matter which is of some relevance in this case. His ability to recall specific details was at times quite limited. He also seriously exaggerated or understated in his evidence. The evidence of both Sophie and Louis Moutidis in some areas was implausible and patently self-serving.

Chris Moutidis is the younger brother of George and Kim Moutidis. He gave limited evidence in relation to a visit to the premises with his father to pick up a boat and birdcage. I do not doubt that he tried to answer questions truthfully. However, he was only 13 or 14 years old at the time of the visit some time in 1998.

Witnesses for the Najjar defendants

Sam Najjar was born in Lebanon in 1970. He was therefore 28 years old at the time of the relevant events in these proceedings. Mr Najjar came to Australia when he was three years old. He attended a technical school until Year 10, then completed a certificate of electronics at Footscray TAFE. Towards the end of his TAFE course, in about 1989, Mr Najjar obtained employment with Toshiba. He was responsible for the repair of photocopiers, faxes, cash registers, computers and printers. After working with Toshiba for a number of years, Mr Najjar was employed by a company called Data Systems, where he was involved in hospitality systems. He left Data Systems at the end of 1997. From late 1997 until July 1998, Mr Najjar’s only income (other than anything he may have earned from the business) was from casual work delivering pizzas. He clearly wanted to rise above being the pizza delivery man and office machinery repairer, to running his own business. He seems to have got in over his head with the business.

Sam Najjar was not an impressive witness, for a number of reasons. I do not mean this unkindly, but Mr Najjar was clearly a man of somewhat limited intelligence. The transcript of his evidence reads more fluently than the evidence was actually given. There were often very lengthy delays in answering questions or completing sentences. He calculated months and counted on his fingers, and had trouble even spelling his own cousins' surnames. On occasions his evidence about the dates and precise details of events was obviously incorrect, but I believe was proffered with honest intentions.

Most significantly, Sam Najjar was, as his own counsel conceded, a witness who reconstructed evidence on important topics. Instead of saying he could not remember an event, he would try to reconstruct what he thought might have happened. Specific examples of his reconstruction will be discussed later in these reasons. Whilst I do not believe that he reconstructed out of a desire to mislead the court, there were significant problems with his evidence that could not be explained away, even making allowance for the fact that his evidence was broken up over a number of days. I do not feel comfortable accepting his evidence on a number of contentious matters, without corroboration from some other source.

Manuel Jiminez was born in Spain and migrated to Australia with his parents in October 1965, when he was 14. Upon arriving in Australia, he attended primary school for one month, and did no further schooling. As at September 1998, he was a director of at least four companies, and had been involved in directorships of companies since 1978. Some of those companies own or have owned special accommodation homes. Mr Jiminez has held the position of treasurer or financial director of the Melbourne Opera and the Australian Opera. He also acts as a business advisor to clients of his business, Australian Land and Development Company (“ALDC”).

Although his written English may not have been perfect, Mr Jiminez displayed no problems with spoken English. I have no doubt that he fully understood and exploited the nuances of the English language in his evidence.

Manuel Jiminez was a most unimpressive witness. He thought long and hard about questions, analysing their meaning and carefully choosing a response which he thought best suited his case. Unfortunately, the transcript does not convey the full flavour of his evidence. He often paused for a considerable period of time before answering questions, apparently thinking through where a particular answer might take him. Sometimes he would glance surreptitiously at documents before answering questions. When he was giving his most implausible evidence, he would turn towards me and fix me with a long, direct stare and often also a half-smile or smirk; at such times, he frequently adopted a particularly deferential tone of voice or address. His demeanour on these occasions was almost a caricature of somebody trying to appear sincere. I have no doubt that Mr Jiminez was utterly indifferent as to whether or not he was telling the truth.

Bobi Doslakoski was an administrative assistant to Mr Jiminez at his office in Elizabeth Street, Melbourne (“the Jiminez office”) between 1997 and 1999. In that capacity Mr Doslakoski was directly involved in the preparation, annotation and sending of various relevant documents. I have no reason to doubt his honesty.

David Phillips is a solicitor running a sole legal practice in suburban Melbourne. In the early stages of the Beamer proceeding, Mr Phillips acted for both Western Lodge and Hidek. His evidence was limited to the question of whether an important document, exhibit N54, had been discovered prior to the trial. It is not necessary for me to determine this question for the purposes of liability, although it may be relevant to the question of costs.[4]
[4]On the evidence currently before me, I am not satisfied that N54 was discovered by Mr Phillips or provided to Beamer’s then solicitors, Pryles & Defteros in early 1999.

Joe Dicks is a partner of the chartered accounting firm PPB. Using documentation provided by the Najjar defendants, Mr Dicks provided his expert opinion on the profitability of the business during the period from 18 December 1997 to 30 April 1998.

Camille Nahas is the accountant who prepared the financial accounts for Western Lodge for the 1999, 2000 and 2001 financial years. He claimed privilege from self-incrimination whilst answering questions about the tax affairs of Mr Jiminez’ company.

Hidek witnesses

Paul Dedek was born in Prague in 1941 and worked in the television industry until he migrated to Australia in the early 1970s. He worked for ABC Television as a video tape technician. He later started his own businesses, involving the servicing of electronic equipment and a manufacturing business. His main business interest since 1997 has been the premises. His spoken English was good, although he was not confident about the quality of his written English and relied on his daughter, Simone Pardo, for assistance with the latter.

I have borne in mind when assessing his evidence that Paul Dedek was the only witness who had the benefit of sitting in court throughout the trial and hearing what other witnesses said. As a result, he displayed some familiarity with court processes and rules of evidence. He was cautious in answering questions in cross-examination, perhaps as a result of having seen how a skilled cross-examiner could exploit any inconsistencies in the evidence of a witness. I thought he was generally a truthful witness.

Alena Dedek is married to Paul Dedek. She was born in Prague in 1942 and was engaged in home duties during the period relevant to the proceedings. Although a director of Hidek at relevant times, it is clear that her husband was the person who ran the company. She only got involved in Hidek's business when her husband asked her to. It was therefore not surprising that she had little recollection of dates or some other details of events. Alena Dedek was a quietly-spoken women who appeared to be very nervous in the witness box. I formed the impression that she was an honest witness.

Simona (known as Simone) Pardo is the daughter of Paul and Alena Dedek. Her role in relevant events was limited to checking the default notice which her father prepared. She impressed me as a truthful witness.

Jack Bock is a partner of the law firm, Cohen Woolf & Weinberg. During the relevant period he was a solicitor employed by the Dedek interests. Initially, he was a principal of the firm called Chrapot Bock & Co in Malvern Road, South Yarra, which became Bock & Co in February 1998. In approximately October 1998, Bock & Co merged with Cohen Woolf & Weinberg, the firm who acted for the Najjar defendants at relevant times. Mr Dedek consulted Mr Bock in relation to the emergency order served on the business, the means by which the Star Lodge lease could be terminated and drafting the Najjar SAS lease of the premises.

Council witnesses

Several witnesses were called from the Maribyrnong City Council (“the council”).

Paul Gibcus is a registered qualified building surveyor. He worked for the council as its municipal building surveyor between late 1995 and the end of 1999. He gave evidence about inspections he carried out at the premises and various statutory notices which he issued. He impressed me as an honest witness who tried to be helpful and impartial.

Patricia (or Patsy) Bucci has been working in the council’s rate office as an administration clerk for many years. She was called to identify the handwriting of one of her co-workers, Anne Prideaux, on several documents. She also gave evidence about her calculations of outstanding rates for the premises. Her evidence was not contentious.

DHS witnesses

Dale Siebuhr was employed by DHS as a nursing advisor responsible for monitoring the standards of care and accommodation in SRS facilities in the western region of Melbourne. He was still employed by DHS at the time of giving evidence. He gave evidence about a number of inspections of the premises which he carried out at relevant times. He was an honest witness, although displayed some understandable defensiveness about certain mistakes made by DHS in relation to the registration of the SRS.

Fire witnesses

Martin McNeill and Shane Gore were two fire-fighters employed by the Metropolitan Fire Brigade (“MFB”). They both gave evidence in relation to an inspection which they carried out at the premises on 26 May 1998. I have no doubt that they both gave their honest recollections of that inspection. In assessing their evidence, I have borne in mind the fact that together they perform hundreds of such inspections every year and that this particular inspection occurred some six years before they gave their evidence.

Graham Millard was the proprietor of GEM Fire Services (“GEM”), a company that designs, supplies, installs and tests fire sprinklers and fire alarms. He gave evidence that he was involved in inspecting the premises from 1994 onwards and detailed the fire-safety deficiencies present at the premises. Employees of GEM were engaged in conducting weekly tests at the premises.

Alan Watts was an employee of GEM responsible for the routine testing of fire sprinkler systems. He gave evidence about his visits to the premises to inspect the fire-fighting equipment.

Other witnesses

Walter Russell is an electrician specialising in fire protection. He gave evidence of a visit to the premises in mid-1998 for the purpose of providing Louis Moutidis with a quote for fire protection work.

Dennis Koutsantonis was an old friend of the Moutidis family who had experience in the boarding house industry. He introduced Louis Moutidis to Walter Russell and gave evidence of their visit to the premises.

Mary-Ann McKenzie was a real estate agent in the aged care industry. She gave evidence in relation to how she would value an SRS business. Given my finding that no representation was made as to the market value of the business, her evidence was ultimately irrelevant.

Nicholas Kavadias was an accountant employed by some of the Moutidis interests. His firm prepared a summary of the receipt books kept by Kimis during the time it operated the business. His evidence was not controversial.

Denise Waugh was a nurse who had been employed at the premises by Woodbury Way Pty Ltd (“Woodbury Way”), a previous tenant. She later worked for Kimis for about three days in December 1997, until Paul Dedek demanded that she leave the premises. Mrs Waugh displayed an obvious and visible antipathy towards Paul Dedek, both whilst she was in the witness box and in her demeanour during the many weeks when she sat in court with Sophie Moutidis and other members of the Moutidis family, long after Mrs Waugh had completed her evidence. Her antipathy may be due, at least in part, to the circumstances of her departures from the premises under the Kimis lease or the Woodbury Way tenancy. Mr Dedek’s behaviour on both occasions was undoubtedly heavy-handed. Mrs Waugh could not be regarded as an independent witness.

Michael Powell was one of the directors of Woodbury Way. His evidence dealt primarily with the issue of what chattels were left on the premises when Woodbury Way vacated them.

Gary Story is a forensic document examiner and principal of the firm Forensic Document Examination Australia. He was commissioned to prepare an expert report on certain contentious documents, including exhibit N54.

Background

Much of this case turns on questions of credit. There are few documents or pieces of objective evidence on some of the most critical issues. It is therefore desirable to set out in some detail the background to the critical events of 1998, as it helps in understanding the possible motivations of the parties and the likelihood of certain disputed events having occurred. However, there were many “red herrings” in this case, and I do not propose to refer to or resolve every factual dispute that arose between the parties.

In 1975, Louis and Sophie Moutidis met and married. They acquired Kimis as a shelf company in November 1985, initially running it as a painting business. Louis ran the business, whilst Sophie looked after their sons. In 1989, Louis became a registered builder and turned his attention to residential and later commercial building work through another company, Harleymoore Pty Ltd ("Harleymoore").

In the early 1990s the Moutidis interests bought a boarding house business at 348 Beaconsfield Parade, St Kilda ("the St Kilda business") for $100,000. The St Kilda business contained approximately 65 rooms, accommodated 100 residents and had an occupancy rate of between 50% and 80%. Sophie Moutidis gave evidence that she "had never seen so much cash in her life", and after being run by the Moutidises for two years, the St Kilda business was sold for $200,000.

The Moutidises remained interested in the boarding house industry. Harleymoore soon purchased a property called "Staffa House" located at 148 Nicholson Street, Fitzroy. Although Staffa House was bigger and could accommodate more people, it was also purchased for $100,000. After operating Staffa House for two years, the Moutidises started a café at the front of the boarding house. They needed to buy a cash register. The operator of the milk bar next door had a cousin who sold cash registers. It was in this way that the Moutidises first met Sam Najjar. After selling a cash register to them, Mr Najjar started attending the Staffa House café and became friendly with the Moutidises. Mr Najjar often said that he and the Moutidises, especially Kim, became “very, very good friends”, with whom he used to spend a lot of time. Louis and Sophie Moutidis were not as effusive in their description of the friendship or the frequency of contact with Sam Najjar.

Although Staffa House was apparently operating profitably, the construction side of Harleymoore’s business had serious financial problems. Harleymoore’s financial problems required the Moutidises to consider selling Staffa House. Mr Najjar and his cousin were identified as potential buyers. Harleymoore required the injection of $200,000 in order to avoid having to sell Staffa House. On that basis, Mr Najjar was offered a 50% interest for $200,000. However, Mr Najjar was only able to arrange finance for $100,000, which was insufficient. Soon thereafter, Staffa House was sold to another party for $345,000 and the proceeds employed to reimburse creditors. In September 1996, it went into liquidation and George and Kim replaced Sophie and Louis as directors of Kimis.

A few months after selling Staffa House, the Moutidises started looking for another boarding house business. In June or July 1997, a real estate-agent took Louis and Sophie Moutidis to view the premises.

The premises are comprised of a double-storey building of approximately 1940’s design with a brick frontage and four wings. If entering from the front of the building, one would move through twin glass doors into an entrance foyer. There are kitchen facilities, bathrooms, some office space and approximately 100 bedrooms, of which the majority are twin-share and the remainder are single bedrooms. Towards the rear of the premises, three separate courtyards adjoin the building and there are two sets of gates opening onto a rear street.

From 1991 to October 2003, the premises were owned by Hidek. By a lease dated 21 January 1991, the premises were let to Thomas and Rita McKenna, who subsequently assigned their lease to Woodbury Way, the principals of which were Mr and Mrs Powell. In 1994, Woodbury Way registered the premises as an SRS pursuant to the Health Services Act 1988 (Vic) ("the HS Act").

The HS Act defines an SRS as "premises where accommodation and special or personal care are provided or offered for persons (other than members of the family of the proprietor of the premises) for fee or reward but does not include a residential care service or a State funded residential care service."[5] The registration of an SRS is the responsibility of the Secretary to the DHS. Prior to being registered as an SRS, premises are inspected by a building inspector appointed by the DHS as well as DHS's own nursing advisors. The proposed operators and any directors of the operating company are also interviewed to assess whether they are "fit and proper" persons and have the necessary financial capacity to operate such an establishment.
[5]HS Act s.3.

Although it should have vacated the premises around March 1997, Woodbury Way did not vacate until May 1997, in circumstances which were the subject of heated disagreement between various witnesses, but of no issue relevance.[6]
[6]The dispute related to what happened on the day that Woodbury Way finally vacated the premises. Mr Dedek accused the tenants of attempting to steal Hidek’s property, smashing windows and damaging property as they left. Mrs Waugh denied any theft and accused Mr Dedek of swinging a chain around or near the head of Mr Powell, which Mr Dedek denied. The situation was clearly heated. Eventually the police were called and a “ceasefire” was negotiated.

Kimis starts the business

After inspecting the premises in mid-1997, Louis and Sophie Moutidis started negotiations with the Dedeks on behalf of Hidek. Initially it was proposed that Kimis would purchase the premises outright. During August 1997, Hidek’s solicitors, Bock & Co, prepared various versions of a proposed contract of sale of the freehold of the premises.

However, apparently for financial reasons, the purchase did not go ahead. Instead, in September 1997, Kimis entered into an agreement to lease the premises from Hidek (“the Kimis lease”). The Kimis lease was for an initial term of two years commencing on 26 September 1997, with an option to renew for four further terms of five years each. Rent of $8,666.66 was payable monthly in advance. The tenant agreed to keep effective insurance over the premises, and to pay all municipal and water rates, land tax, and charges for electricity, telephone, garbage and trade waste disposal and fire equipment maintenance.

Hidek also granted Kimis an option to purchase the premises, which expired on 31 March 1998 (“the option agreement”). The option agreement provided that if Kimis did not purchase the premises and later sold the business operating from them, it would pay Hidek $20,000 for the furniture on the premises which was owned by Hidek.

After Kimis took possession in late September 1997, the Moutidises set about repairing the premises and furnishing the various rooms. There is a significant dispute as to the condition of the premises, and what furnishings and chattels were at the premises, when the Kimis lease commenced. As that dispute is relevant primarily to the Najjar proceeding, the evidence on these topics will be discussed in that part of these reasons.

By around late November 1997, the premises were ready to operate as an SRS. At that time there were approximately 14 SRS facilities in the western metropolitan region of Melbourne, of which the premises were the largest. DHS co-ordination of SRS facilities in the western metropolitan region was conducted by Ian Shaw and Dale Siebuhr.

The DHS interview process in 1997 and 1998 required each director or officer who might exercise control over an SRS to be interviewed separately on their knowledge of the HS Act and regulations, problem-solving abilities and understanding of broader care-related issues. If an applicant was unable to perform satisfactorily at interview, it was DHS policy to offer them a second interview at a later date.

On 19 November 1997, George and Kim Moutidis both performed satisfactorily in interviews with Mr Shaw and Mr Siebuhr and were approved as operators of an SRS. The premises were also inspected and it was noted that carpet-laying and installation of a communication system had to be completed before final approval would be granted. The Kimis DHS certificate was issued on 1 December 1997, with an expiry date of 31 December 2000. The Kimis DHS certificate confirmed the decision under the HS Act to register the premises as a health service establishment and authorised Kimis to conduct an SRS at the premises.

The business started accommodating residents by mid-December 1997. Some of the residents had family, financial or psychological problems, while the remainder were drawn to the cheap accommodation. Rates were either paid by the resident personally or by one of approximately 60 crisis housing referral agencies. Breakfast and dinner were offered at an additional cost.

After assisting with the renovation and refurbishment work, Louis Moutidis returned to his building work and only dropped into the premises occasionally. George Moutidis provided some assistance to his mother in running the business, but Sophie Moutidis had primary responsibility for the day to day running of the business. All commercial decisions were made by Sophie and Louis Moutidis. Kim Moutidis was not involved with the business.

In the early days of operation of the business, Kimis engaged Denise Waugh, a nurse who had worked at the premises when Woodbury Way was the tenant. A few days after Mrs Waugh started working for Kimis, Mr Dedek attended at the premises and recognised her. It is common ground that he demanded that she leave the premises and that the Moutidises complied with his demand. There is an evidentiary dispute as to how and to whom the demand was communicated, but it is not necessary for me to resolve that. Mr Dedek had no legal basis for trying to dictate who the tenant could employ, even if he believed the employee to be somebody who had tried to steal from him in the past.

Kimis was in significant financial difficulty almost as soon as the business commenced. The Moutidises say that this was because income from the business was being poured into their construction business and they had had to pay substantial amounts to repair and refurbish the premises. It was in this environment, a fledgling business owned by a company in financial difficulties, that Sam Najjar began frequenting the premises.

Sam Najjar becomes involved

Based on their experience with Staffa House, the Moutidises were aware that Mr Najjar was interested in buying into a boarding house type of business and that he was able to pay around $100,000. In the early days of operation of the business, they invited Mr Najjar to visit the premises. The date of his first visit to the premises is unknown, but on 23 December 1997 Mr Najjar made his first record of a resident’s attendance and wrote his first receipt.

Mr Najjar kept in touch with the Moutidises by calling them or dropping by the premises. Discussions about the possibility of Mr Najjar acquiring an interest in the business soon commenced.

Mr Najjar was offered an interest because of the parlous financial state of Kimis. Sophie Moutidis gave evidence that by September 1997, Kimis had accumulated approximately $200,000 in debt. This had arisen primarily from the construction business. Furthermore, establishing the business had required a significant capital outlay, and in early 1998 any spare revenue generated was being used to build the business.

A further reason for involving Mr Najjar appears to have been the option agreement. The Moutidises had planned to finance the purchase of the premises with a bank loan of $500,000 and by transferring to Mr Dedek two units they were building in Park Grove, Richmond (“the Richmond units”). However, in January 1998, the Richmond units were still not completed and were subject to a bank mortgage of $140,000; time was running out for Kimis to exercise its rights under the option agreement.

Sophie Moutidis was not enamoured with the idea of going into business with Mr Najjar. She initially proposed that Mr Najjar lend the Moutidis interests $100,000, in return for a repayment of $150,000. When that was rejected by Mr Najjar, the discussion turned to a sale of half of the business.

The $100,000 purchase price for a half interest was agreed upon without any debate. According to Louis Moutidis, agreement for Mr Najjar to purchase an interest was reached by February 1998. Mr Najjar initially disagreed, stating that his decision was made in March or April 1998. However, in cross-examination he agreed that his decision was made in January of that year.

As a 28 year old with very little commercial acumen, Mr Najjar sought the advice of his cousin, Ali Sleiman. Mr Sleiman had a friend, Manuel Jiminez, who had assisted him with a tenancy dispute and also had some experience as the owner of various properties on which SRS businesses were conducted. In early January 1998, Mr Sleiman introduced Mr Najjar to Manuel Jiminez at the Jiminez office.[7] With Mr Jiminez’ assistance, Najjar SAS was incorporated on 21 January 1998 and the Najjar trust was established. For advice on the legalities of the purchase, Mr Jiminez recommended that Mr Najjar contact Peter Cohen of Cohen Woolf & Weinberg, solicitors, and on 21 April 1998 wrote a letter of introduction to Mr Cohen on behalf of Mr Najjar.
[7]Although Mr Jiminez said on a number of occasions that he first met Mr Najjar in May 1998, eventually, when confronted with documentary proof, he reluctantly conceded that he had met him in January of that year and helped him set up a corporate structure.

Mr Najjar began visiting the premises more regularly. Around April 1998 he began some sort of trial period. He started involving himself more fully in the affairs of the business. In particular, Mr Najjar collected and opened mail and handled much of the office administration.

During the first half of 1998, patronage of the business increased substantially. By May and June 1998, the business was experiencing occupancy levels around 90% and income of almost $40,000 per month. Mr Najjar was able to assess the income figures first-hand, and an analysis of the receipt book for May and June 1998 indicates that he signed over 60% of the rent receipts issued in that period.

Mr Najjar was adamant that he was not paid any salary prior to July 1998. In direct contrast, Louis and Sophie Moutidis both gave evidence that Mr Najjar was paid a cash salary of $600 per week during May and June. There are no documents which shed light on this issue. Although curious, in my view it is not necessary to resolve this dispute.

Mr Najjar was pushing to settle the transaction from April 1998 onwards. The Moutidis’ preference was to settle on 1 July 1998.

In May or early June, Mrs Moutidis and Mr Najjar approached the Moutidis’ accountant, Nicholas Mitsios, for advice on how to accommodate each party's 50% interest in a new business structure. Mr Mitsios advised them to form a unit trust to hold the business, to incorporate a new trustee and then allocate one unit in the new trust to each party's family trust.

On 5 June 1998, Louis Moutidis, Mr Najjar and Mr Mitsios attended a meeting at the offices of Cohen Woolf & Weinberg. The proposed structure of the new business was outlined to the parties, and it was resolved that Peter Cohen would draft the contract of sale of business from Kimis to the new entity.

On 9 June 1998, the Star Lodge trust and its trustee, Star Lodge, were set up. George Moutidis and Sam Najjar were appointed as directors of Star Lodge. The Moutidis interest in the Star Lodge trust was held by Beamer whilst the Najjar interest was held by Najjar SAS.

The contract of sale drafted by Peter Cohen reflected the sale of the business by Kimis to Star Lodge for consideration of $200,000. A transfer of the Kimis lease to Star Lodge was signed on 1 July 1998 (“the Star Lodge lease”). Two days later, three copies of the contract of sale were executed by Mr Najjar in Mr Mitsios' office. At that time, Mr Najjar handed Louis Moutidis a cheque for $100,000, which he had obtained by remortgaging his home. Beamer did not in fact pay Kimis any money for its half of the business.

Upon receipt of the Najjar money, Kimis immediately set about satisfying its many creditors. In fact, by 30 July 1998, only $4,163 of the Najjar money remained in the Kimis bank account.

Unfortunately, the original contracts of sale relied upon by Beamer and the Najjar defendants differ in one material respect. The document relied upon by the Najjar defendants contains an inventory of chattels at the end of the document, which the Moutidises say was not attached to the contract of sale when they signed it. This dispute is relevant to the Najjar proceeding and the evidence will be considered later.

Transfer of registration from Kimis to Star Lodge

As a result of the sale of business, it was necessary for Star Lodge to obtain DHS registration. An application for variation of registration (“the DHS transfer form”) was prepared by Peter Cohen and given to the Moutidises to sign. Kimis was shown as the applicant transferor, and Kimis’ name and the relevant details of the business were typed into the standard form. Kim and George Moutidis subsequently signed it in their capacity as directors of Kimis. The DHS transfer form is dated 26 June 1998.

After his sons had signed, Louis Moutidis gave the DHS transfer form to Mr Najjar to give back to Mr Cohen. Mr Cohen was not called and no evidence was led as to when the form was actually lodged with DHS. Sam Najjar met with and spoke to DHS staff on several occasions during July 1998. He said that one of the matters he discussed with them was how the transfer of registration was going.

In evidence-in-chief, Louis Moutidis said that the DHS transfer form had a blank space for the transferee’s name to be inserted and that Mr Najjar had specifically asked him to leave the name of the transferee blank. That assertion was consistent with a statement which was attributed to Louis Moutidis in one of George Moutidis’ affidavits and with previous correspondence sent on behalf of the Moutidises. I have no doubt that these statements were intended to convey the impression that Mr Najjar was acting suspiciously and plotting to be rid of the Moutidises even before the completion of the contract of sale. When it was pointed out to Louis Moutidis in cross-examination that there was no place for the transferee’s name to be inserted on the DHS transfer form, Mr Moutidis tried in a rather unconvincing way to distance himself from all the earlier assertions and suggested that he had been talking about some other, unidentified document.

Although in the form prescribed by the HS Act, the DHS transfer form did not provide for the name or signature of the transferee to be inserted anywhere. This glaring omission meant that the DHS transfer form was able to be used later to effect a transfer of DHS registration from Kimis to Najjar SAS, without Kimis’ consent.

Supplementary agreement

The contract of sale was supplemented by a further agreement between Najjar SAS and Beamer outlining how the business would be conducted by Star Lodge and how profits and expenses would be allocated. At all times it was agreed that Mr Najjar was to be responsible for the day to day running of the business.

The pleadings and the evidence of both Beamer and the Najjar defendants in relation to this further agreement are unsatisfactory in many respects.

The Moutidises said that it was initially proposed that Beamer would receive $22,000 per month payable in arrears and would pay the rent, taxes, rates, maintenance and insurance for the business. Najjar SAS would retain any revenue above $22,000. Sam Najjar denied that any such agreement was entered into. However, he did allege that the Moutidises wanted a piece of paper to show to their bank, which demonstrated a monthly income of $22,000, even though no such agreement had been reached. Louis Moutidis denied that was the case.

At some stage in late July, the parties orally agreed that Beamer would receive a monthly payment of $13,335, not $22,000, and in return Najjar SAS would assume responsibility for paying rent.

Mrs Moutidis and Mr Najjar asked Mr Mitsios to draw up an agreement reflecting the general terms which had been agreed. Mr Mitsios drafted such a document and delivered it to Mr Najjar at the premises. Given that the document which he drafted expressly referred to a report, the ESR, which was not received before 21 July 1998, I find that Mr Mitsios cannot have drafted the written document prior to that time. Mr Najjar, Mr Mitsios and the Moutidises were all vague and somewhat inconsistent about the timing of the oral agreement and the preparation of the written agreement. It is possible that the written agreement was not prepared until early August.

Although Mr Mitsios wanted Mr Najjar to sign the agreement in his presence, Mr Najjar told Mr Mitsios that he did not have the Najjar SAS company seal with him. The written agreement was never signed.

The unsigned document stipulated that Najjar SAS would manage the business "for the term of the agreement" subject to certain conditions. In essence, Beamer was to receive $13,335 per month whilst retaining responsibility for the payment of insurance, water and council rates. Beamer was required to provide a guarantee that it would rectify all problems identified in the ESR. Najjar SAS guaranteed all other costs and was then entitled to any residual profits.

Although no written document was executed, I am satisfied that around late July or early August 1998, Najjar SAS and Beamer entered into an oral agreement which included the terms set out in the unsigned document ("the supplementary agreement").

Sam Najjar starts running the business

It is apt to describe the beginning of Mr Najjar's term as a part-owner and operator of the business as a "baptism of fire". Mr Najjar was immediately faced with the problem of dealing with service providers who were owed money by Kimis. For example, Telstra cut off the telephone. People attended to turn off the gas, but Mr Najjar successfully pleaded for an extension of time for payment. Similar problems arose with respect to rubbish collection, linen suppliers and sanitary cleaning services.

In an endeavour to regain control over the situation, Mr Najjar contacted Mr Jiminez for advice. Whilst Mr Jiminez was initially reluctant to assist, because Mr Najjar had not paid a previously agreed fee, he eventually agreed to help.

Mr Jiminez met with Mr Najjar and Wayne Cuthbertson, one of the staff, one Saturday in the second half of July 1998. Mr Najjar explained that he had paid $100,000 to the Moutidises and that within days of taking charge of running the business the telephone lines were cut off, the linen supply stopped and problems with various other services arose. According to Mr Jiminez, Mr Najjar also explained that the Moutidises were asking for $13,500 which Mr Najjar had agreed to pay them on a monthly basis. Mr Jiminez said that he asked Mr Najjar how much money was in the account and Mr Najjar replied that there was not enough money to pay $13,500 at that stage. Mr Jiminez said he agreed to help out because “really, the whole thing was in a bit of a mess, and I told him that I would contact Peter Cohen to find out how this came about”. Some days later, Mr Jiminez informed Mr Najjar that he would require $800 per month for the period in which Mr Jiminez would be involved in helping him out. Mr Najjar agreed to that.

After discussing the matter with his solicitor, Peter Cohen, Mr Jiminez agreed that he would contact suppliers on behalf of Mr Najjar, inform them of the change in management and ask them to continue to provide their services. Consequently, various letters were written to suppliers in the last week of July. The letters were dictated by Mr Jiminez and typed by one or other of his staff, Bobi Doslakoski or Mira Clarick. Mr Doslakoski apparently prepared one or more Star Lodge letterheads on the computer, which were used for these and other letters. Where necessary, an electronic copy of Mr Najjar's signature was inserted by Mr Jiminez’ staff. Mr Najjar did not see all the letters that were sent out in his name.

Payment of rates and bills

Of particular importance in this case were various unpaid rates and taxes, the non-payment of which was later relied upon by Hidek in terminating the Star Lodge lease.

In late April 1998, Hidek received a land tax assessment notice dated 24 April, at the Dedek’s home address (“the land tax notice”). Under the Kimis and Star Lodge leases, the land tax was payable by the tenant. Mr Dedek said it was his practice to make a copy of any such notice and give it to the tenant at the premises. Mr Dedek said he handed a copy of the land tax notice to Louis Moutidis in late April 1998 and Mr Moutidis said he would take care of it.

By June 1998, Mr Dedek was aware that Kimis had not complied with the land tax notice. On 16 June, he attended at the State Revenue Office and paid the outstanding amount of $222.24 himself. Mr Dedek said that he then took a copy of the receipt and gave it to Mr Moutidis on 23 or 24 June, with a request for re-imbursement, at the same time as he collected the rent cheque for June.

Although he initially denied that he knew the tenant had to pay land tax for the premises, Louis Moutidis ultimately conceded that he knew that Kimis was liable to pay land tax. However, he denied that Mr Dedek ever gave him a copy of the land tax notice or that he requested reimbursement. Mr Moutidis claimed that he would have paid the land tax notice had he been given it. Given that the Moutidises were regularly late in paying accounts, often bounced cheques, had no apparent system for making or recording payments, and displayed a careless attitude towards paperwork generally, I do not accept Mr Moutidis’ bald assertion that he would have paid the amount in the land tax notice had he received it.

I find that Mr Dedek did give a copy of the land tax notice to Mr Moutidis in April and June 1998.

A problem also arose regarding unpaid water rates. Mr Dedek gave evidence that his practice with respect to City West Water, and other accounts for which the tenant was responsible, was to arrange for them to be delivered directly to the premises for the tenant to pay. This was because the Dedeks were often away for months at a time and did not want correspondence to lie unattended in their letterbox. That practice is borne out by the addresses on various accounts which were in evidence.

A copy of a City West account for $1,790.65, dated 16 April 1998, was discovered by the Moutidises. However, they were unable to explain how it came to be in their possession or their discovery. I infer that they received it in or around April 1998, but simply ignored it, as they did with other accounts. In any event, there is no evidence that at the time of delivery of the water notice in July 1998 Kimis had paid anything at all to City West Water in respect of its first nine months of occupation of the premises.

On or about 8 July 1998, Hidek was served by Davies Moloney, solicitors for City West Water, with a Magistrates’ Court complaint, seeking recovery of $1,986.90 in respect of current and unpaid water rates for the premises for the period 1 October 1997 to 30 June 1998, and $362.20 in respect of legal costs relating to the complaint, being a total sum of $2,349.10 (“the water notice”).

Mr Dedek said that this was first time he became aware that there were unpaid water rates in respect of the premises. He said that he telephoned Mr Moutidis shortly after receiving the water notice and received what he termed “the usual answer, ‘Don’t worry I’ll fix it’”.

Patricia Bucci of the council, gave evidence that council rates were due and payable on a quarterly basis, namely, 30 September, 30 November, 28 February and 31 May of each year. Ratepayers were made aware of their payment obligations by instalment notices sent approximately three weeks before the payment date. The instalment notices for 30 September 1997 and 28 February 1998 were tendered at trial. They were sent to Hidek, care of Paul Dedek at his private residence. The council rates to which the default notice refers would have become due and payable on 31 May. The relevant instalment notice was never produced. There is no evidence that Kimis or the Moutidis interests received the instalment notice for 31 May before the end of July.

Fire services

Unfortunately, the problems with services also extended to the maintenance of adequate fire protection. Given the type of accommodation involved, the high number of residents and community sensitivity after the Kew Cottages disaster, it is not surprising that the premises were the subject of some scrutiny from local authorities.

On 31 March 1998, Paul Gibcus conducted an essential services inspection on behalf of the council. The inspection was prompted by notification from the MFB that there had been a small, contained fire at the premises and a subsequent request for an inspection from the Health Services Department. Upon inspection, Mr Gibcus formed the view that there were serious matters that required attention. However, he did not prepare a report on his inspection until 2 July 1998, and for reasons which were not adequately explained, he did not serve that report until late July.

On 26 May 1998, Martin McNeill and Shane Gore of the MFB attended the premises in response to a public complaint about the sprinkler system. They were met by Louis Moutidis and conducted an inspection of the building using a fire safety checklist. At the conclusion of the inspection, Louis was served with and signed a document called a "Maintenance Advisory Notice" (“the MFB notice”) which documented various defects, including that the exit doors required immediate attention.

There is a dispute as to whether Sam Najjar was present when the MFB inspection occurred and when he first learned of the MFB notice. As the dispute is primarily relevant to the Najjar proceeding, the conflicting evidence will be considered later. It was not disputed that Mr Dedek was not aware of the MFB notice until after service of an emergency order in August 1998.

GEM conducted weekly inspections of the fire sprinkler system at the premises. Due to non-payment of outstanding fees, GEM attended at the premises on 17 June 1998 and suspended testing on that date. Mr Najjar was aware of this at the time. GEM only agreed to start re-testing on 3 August 1998 when Mr Najjar, on behalf of Star Lodge, and GEM entered into an agreement for the maintenance of the fire sprinkler system for a further 12 months, and made an advance payment of $800.

Mr Gibcus’ report dated 2 July 1998 is described as an "Essential Services Report" ("ESR") and made 21 recommendations concerning, inter alia, ventilation systems, emergency lighting, removal of unapproved furniture, provision of appropriate extinguishers, fire hydrants, smoke alarms, sprinkler systems and communication systems. The ESR is addressed to Hidek. The ESR concluded with the following bold and underlined text:

“It is strongly recommended that all the items outlined above are urgent and pose the real threat to the lives of the people who inhabit this building, therefore it is our highest priority to advise you, being the owner of the above specified property to attend to these issues as outlined in this report Immediately.”

The urgent language in the notice does not sit particularly well with the fact that it took the council more than three months to prepare the ESR. Like a number of the fire or building notices in this case, the ESR conveyed a sense of great urgency in its language. I agree with Mr Hevey that some of these notices give one the impression that the council or relevant authority was, quite understandably, concerned about protecting its position in case of a future disaster or litigation, and that not every item on the notices was in fact substantial or urgent.

The ESR bears a “received” stamp with the date of 21 July 1998, but it is not clear who applied that stamp. The ESR was sent to DHS, as well as to Mr Dedek; the latter did not receive it until 24 July, as he had been away earlier that month.

Mr Najjar’s recollection was that he did not have any knowledge of outstanding fire orders prior to a meeting held at DHS and attended by the council on 23 July. However, it seems likely that Mr Najjar had learned of some of the fire problems a day or two earlier. The council’s file records that a copy of the ESR was faxed to Mr Najjar “as requested by him” on 21 July. In any event, Danielle Chiron of the council gave him a copy at the premises on the 23^rd.

The meeting on the 23^rd was attended by Ms West from the council, Mr Siebuhr from DHS and Mr Najjar and Mr Cuthbertson from the business. The meeting was called by DHS because of concerns they had with the premises in regards to safety, in particular fire safety.

Mr Moutidis did not attend the meeting on the 23^rd. Mr Moutidis said that he was not invited to the meeting.

Mr Dedek said that he was not aware of the March inspection by the council at the time it occurred, and that the first he knew of it was when the ESR was received by him on 24 July. After he received it, he dropped in at the premises where he met Mr Najjar and went through the document. Mr Najjar said that Mr Dedek was “a little bit upset” on this occasion and wanted to walk around the premises with Mr Najjar, so they could look at the particular points raised in the ESR.

Mr Dedek’s visit to the premises also seems to have been a response to a phone call he received from Danielle Chiron of the council, who asked whether she could provide his telephone number to “the new owner”. Mr Dedek was most surprised at hearing that there was a new owner, and he and Mrs Dedek drove to the premises to find out what was happening. However, the use of the term “new owner” probably misled Mr Dedek, as he was aware at the time the lease was transferred from Kimis to Star Lodge on 3 July 1998 that Mr Najjar was a financial contributor to the business, and was involved in its operations. He was aware that the Moutidises were “putting a new guy” into the business, or taking on a partner.

This representation is said to be untrue in that many of the chattels on the disputed inventory (including the cool room, chattels in the TV room and dining room, and many of the chairs and beds in the residents’ rooms) were in fact owned by Hidek and not Kimis.

However, before turning to questions of falsity, it is necessary to determine whether in fact the representation was ever made. Was the disputed inventory prepared in the manner alleged by the Najjar plaintiffs? If so, was it attached to the contract of sale executed by Kimis and Star Lodge?

The handwritten inventory

There is a dispute as to how the handwritten inventory was prepared. Mr Najjar said it was prepared in the presence of Mr Moutidis, whilst the two men undertook what was effectively a stock-take of chattels at the premises. On the other hand, Mr Moutidis denied participating in such an exercise or having seen the document before.

Mr Najjar’s evidence was that he wrote the handwritten inventory whilst he and Louis Moutidis were walking around the premises writing down what Kimis had actually bought by way of beds, tables, chairs, kitchen items such as cutlery, the cool room, microwaves, ovens and “other bits and pieces”.

Mr Najjar said that as they went around the premises, Mr Moutidis would call things out and Mr Najjar would write them down. Whatever was in each room was included on the handwritten inventory, with the exception of broken down tables, chairs and couches and other bits and pieces which were going to be thrown out. Mr Moutidis was with him when they recorded items such as the washing machines, dryers, cool room and kitchen items. According to Mr Najjar, he then asked “What do I have to do? Go into all the rooms” and Mr Moutidis replied “No, just write down 100 chairs, 100 beds, 80 single beds because there are 80 rooms which are single and whatever the rest of the rooms which are double”. If Mr Najjar’s evidence is accepted, it is evident that a stock-take of the residents’ bedrooms was not done physically, but rather was an approximation by Louis Moutidis of what was present in those rooms.

Mr Najjar did not say and was not asked when this exercise occurred. After preparing the handwritten inventory, Mr Najjar gave it to his solicitor, Peter Cohen. All of the handwriting on the handwritten inventory is Mr Najjar’s, with the exception of the capitalised headings for each room, which he thought was his solicitor’s handwriting.

Louis Moutidis said that he had never seen the handwritten inventory and did not recognise the handwriting on the document. He denied that he ever went around the premises with Mr Najjar working out which chattels were going to be acquired by Star Lodge from Kimis.

A comparison of the handwritten inventory and the disputed inventory shows that they are identical in substance, and almost identical in form. Exactly the same chattels are listed on both inventories. However, in the disputed inventory they have been moved into a different order and appear under more appropriate headings. In my view, this lends strong support to the inference that the typed inventory was prepared from the handwritten version. Peter Cohen drafted the contract of sale, to which he clearly envisaged that a list of chattels would be attached. Page 10 of the contract of sale lists three schedules, the first of which is described as follows:

“SCHEDULE A

(GC1)

ASSETS INCLUDED IN THE PRICE

See Inventory attached.”

In the circumstances, I accept as more credible Mr Najjar’s evidence that he prepared and gave the handwritten inventory to Mr Cohen, who then used it as the basis for preparing the disputed inventory. However, the evidence does not allow me to reach any conclusion as to when the handwritten or disputed inventories were prepared, save to infer that it would have been some time before 1 July 1998.

Was the disputed inventory attached to the contract of sale?

Mr Najjar said that the first time he saw the contract of sale was when he went by himself to Peter Cohen’s office on or about 1 July 1998. Although the contract of sale had been discussed before then, this was the first time that Mr Najjar had actually seen it. He remembered seeing three unexecuted copies of the contract of sale, which he took and later gave to Louis Moutidis to have them signed by his sons. Mr Najjar could not remember whether he gave the contracts of sale to Mr Moutidis at the premises or at Mr Mitsios’ office.

Mr Najjar saw Mr Moutidis with the three contracts at Mr Mitsios’ office on the morning of 3 July 1998. Only Louis Moutidis, Mr Mitsios and Mr Najjar were present at the time. The company seals of Kimis had already been applied, next to what appeared to be the signatures of George and Kim Moutidis. Mr Najjar signed the contract then and there. Mr Najjar said he took either two or three copies of the contract back to Peter Cohen’s office.

Mr Mitsios agreed that Peter Cohen had drawn up the contract of sale and Mr Najjar had brought copies of the contract of sale to Mr Mitsios’ office. Mr Mitsios did not recall whether the contract of sale was executed in his office. He also could not remember whether or not the disputed inventory was attached to the contract of sale when he saw it. His evidence was simply neutral in this regard.

George Moutidis could not remember seeing the contract of sale in any form and said that the signatures on the original contract of sale tendered by Beamer were not his. Curiously, this was not the only document which bore a signature which one or more members of his own family said they saw him sign, yet which George categorically denied was his signature.[79] I can only infer one of two things from these circumstances – either George is lying or seriously mistaken, or the relevant family member is lying or seriously mistaken (and possibly was also involved in forging George’s signature). Neither inference is a helpful one for Kimis or the Moutidises.
[79]See for example his evidence in relation to the Star Lodge resolutions for the ANZ Bank dated 6 August 1998.

Louis Moutidis said that he was present when the contract of sale was executed by George and Kim Moutidis at the Moutidis home. He identified the signatures on a version of contract of sale which included the disputed inventory as those of his sons, George and Kim. However, he was adamant that the disputed inventory was not on the document when his sons signed it and was “never given to us” with the contract of sale.

In the court books prepared for and used at trial, the disputed inventory was located at page 220, at the end of the contract of sale. In her witness statement, Mrs Moutidis had said that:

“Pursuant to the Sale of Business Contract Kimis also sold to Star Lodge the chattels as set out in the inventory (p.220) accompanying the contract document.”

In oral evidence, Mrs Moutidis at first agreed that her witness statement had indeed referred in those terms to the disputed inventory at page 220 of the court book. She then switched – somewhat unconvincingly – to asserting that the first time she had ever seen the disputed inventory in her entire life was when it was shown to her during cross-examination. The reason for the discrepancy in her evidence was not explained.

Mr Dedek’s evidence supports Mr Najjar’s version of events. He did not see the contract of sale at the time it was prepared or executed. However, he gave evidence of attending the premises later in July and asking Mr Najjar who the new owner was. Sam Najjar replied “Oh you don’t know, I purchased the business.” Mr Dedek asked whether there were any purchase contracts and Mr Najjar proceeded to show him a contract of sale which include the disputed inventory. At that point Mr Dedek informed Mr Najjar that the chattels on the disputed inventory belonged to Hidek.

The Moutidis evidence about the disputed inventory and the contract of sale was contradictory and most unsatisfactory. The Najjar and Dedek evidence was consistent, plausible, not seriously challenged in cross-examination and inherently more probable. Accordingly, I am satisfied that the disputed inventory was attached to and formed part of the executed contract of sale.

It follows that I find that the chattels representation was made, at least in the disputed inventory attached to the contract of sale. I also accept Mr Najjar’s evidence that he and Louis Moutidis undertook the stock-take exercise described earlier, but am unable to make any finding as to when that occurred, save that it was before 1 July 1998. The failure to establish even an approximate date for any oral representation by Louis Moutidis may cause problems for the Najjar plaintiffs in relation to the question of reliance.

Chattels - falsity

The contents of the disputed inventory are described in the following terms. General: Washing Machine - Clean America Commercial Washer, Dryer - General Electric Commercial Dryer, Cool Room, 1 x Sharp Fax, 2 x TVs – Black & White, 3 x TVs – Colour, Unicom Intercom System: TV Room: 3 Tables, 4 Large 3 seater chairs, 6 Chairs; Dining Room: 6 Dining Tables, 55 Chairs; Kitchen: 1 x Goldstein 6 Burners Oven, 1 x Microwave, 2 x Freezers, 3 x Toasters, 2 x Electric Kettles, 1 x Urn, 1 x Gorenje Pacific Fridge, Plates 100, Bowls 80, Coffee Cups 90, Assorted Cutlery 350; Residents Rooms: 100 Chairs, 80 Single Beds, 40 Double Beds.

The evidence as to what chattels were purchased and by whom was most unsatisfactory in a number of respects. The parties could not even agree on the state of the premises and which chattels were on the premises when Kimis commenced the business.

It is not necessary for me to describe the disputed evidence as to who did precisely what renovation or repair work to the premises and when. My impression is that both the Dedeks and the Moutidises exaggerated the amount of work that they had done and underestimated the amount the other had done, by way of repairs and renovations. I reach the same general conclusion in relation to their evidence as to who had acquired what chattels.

Mr Powell had “a rough idea” of what was left behind when Woodbury Way vacated the premises in May 1997. In his recollection it was “mainly the larger stuff”. For instance, the equipment in the kitchen was left behind. He said that Woodbury Way left more than 10 but less than 100 blankets and mattresses, a considerable quantity of chairs, a fridge and a chest freezer. Mr Powell agreed that the cool room was Mr Dedek’s property. He also said the oven was there when Woodbury Way took the business over and Woodbury Way bought and left a large electric hotplate for the kitchen.

The Kimis lease imposed an obligation to keep all “chattels” referred to in the schedule in good repair.[80] The schedule referred to the following “CHATTELS: All fixed floor coverings, light fittings, fans, cool room, heating units, hot water services, fire equipment and sprinkler system, window furnishing and furniture and fittings installed by the Lessor.” That does not help in identifying specific furniture.
[80]Some of the items in the schedule are clearly fixtures, not chattels, but nothing turns on their misdescription for present purposes.

According to Mr Dedek, a further page headed “Additional list of chattel” also formed part of the Kimis lease (“the additional chattels list”). The additional chattels list does not resemble either the handwritten or the disputed inventories. Unfortunately, a copy of the Kimis lease with the additional chattels list was only tendered very late in the trial and the Moutidises were not shown it or asked about it. The version of the Kimis lease which had been tendered and relied upon by all parties up until that time had no such list. Furthermore, Mr Najjar’s evidence was that the copy of the Kimis lease that he took to his solicitor did not have a list of chattels attached to it.

Mr Dedek said that the additional chattels list contained furniture and other items which he had bought from the Alfred Hospital and left on the premises when Kimis took over. This included 196 chairs which had been stamped “Alfred Hospital” or “hospital equipment” and underneath which a rectangular sticker had been placed. He said most of the curtains had a big stamp in the corner with “Alfred Hospital” on them. He could not remember if anything else had such a stamp on it. He did not say how much he paid for these items. Unfortunately, this allegation was not opened on by counsel for the Najjar defendants or put to any of the Moutidises. Nor did Sam Najjar identify equipment by reference to any such stamps.

Of course, Hidek had no interest in the Najjar proceeding, and therefore there was no obligation on its counsel to put the evidence about the Alfred Hospital chattels and the additional chattels list to the Moutidises. Even if counsel for the Najjar plaintiffs had not been aware that Mr Dedek would give this evidence, it would be unfair to allow the Najjar plaintiffs to rely on such potentially harmful evidence without having put it to the Moutidises for them to respond to. It would also be inconsistent with Mr Najjar’s own evidence that there was no list of chattels attached to the Kimis lease.

The option agreement between Kimis and Hidek provided that in the event that the freehold of the premises was not bought and Kimis sold the business, Kimis would pay $20,000 to Hidek for the furniture on the premises owned by Hidek. There is no list of chattels included in the option agreement, so this does not assist in identifying specific chattels belonging to Hidek.

Mrs Dedek’s evidence was only in general terms, namely that the Moutidises would not have had to go out and buy many items to run the business.

The Moutidises painted a very different picture of the situation when Kimis took over. They said that building repairs and renovations were complemented by a refurbishment of each bedroom. Pillows, blankets, bedspreads, curtains and, where necessary, mattresses were purchased for each room. New beds were bought for all except about 20 of the rooms. Louis Moutidis said that when Kimis took over, the premises contained an oven, a non-functional cool room, some dining room tables, 10 to 15 beds and approximately 20 chairs. He said Kimis bought the rest of the furniture. Mr Moutidis said that most of the chattels on the disputed inventory were owned by Kimis, although a small number of them may have belonged to Hidek.[81]
[81]For example, he conceded that Hidek might have owned 20, not 55, dining chairs and 2 or 3, not 6, dining tables.

Sophie Moutidis gave evidence that they were able to keep 15 to 20 beds, 5 to 10 mattresses and about 40 wardrobes when Kimis moved in. Mattresses and wardrobes are not listed in the disputed inventory. She said that Kimis purchased about 40 chairs for the premises and two or three different style chairs and couches for the TV room. She could not remember whether televisions had to be purchased. Sophie Moutidis said that no chairs were bought for the dining room. In relation to the beds and bedding which had been left by Hidek, Sophie Moutidis said that half of it was not worth using and had to be disposed of. Kimis paid a lot of money to buy the industrial washing machine and dryer. She also said there were not enough cutlery, saucepans and plates when Kimis took over the premises, so they had bought them.

Some inconclusive evidence was also given as to what chattels were taken over by Western Lodge in December 1998. Ultimately it did not assist in resolving the question of what chattels were on the premises on 1 July 1998 or who owned them.

The biggest problem faced by the Najjar plaintiffs in establishing falsity of the representation is in identifying specific chattels and proving that they did not belong to Kimis. Most of the chattel descriptions are so general as to be unhelpful in this regard, for example, generic references to tables, chairs, beds and many kitchen items. It is common ground that the cool room did not belong to Kimis and therefore could not be sold to Star Lodge.[82] I also accept that some of the furniture on the disputed inventory belonged to Hidek, such as some of the dining room tables and chairs, but am unable to make findings as to specific items other than the cool room. Conversely, I accept that many of the items on the disputed inventory did indeed belong to Kimis, but am unable to conclude precisely which ones.

[82]The cool room was probably a fixture not a chattel, but it was treated as a chattel by the parties for the purpose of the representation.

Accordingly, I find that the chattels representation was false in relation to the cool room and less than half of the dining room tables and chairs. The only evidence I have as to the value of those items which belonged to Hidek is that it is considerably less than $20,000; precisely how much less, I simply cannot say.

Reliance

Before considering the question of reliance, it is helpful to summarise my findings as to which misrepresentations were made. I have found that the profitability representation was made, but falsity has not been established. The market representation was not made. The representation as to satisfactory operation was made, but was false (if at all) – depending on when it was made - to a minor extent. The chattels representation was made and was false in relation to some chattels.

For the reasons which follow, I do not accept that when Najjar SAS paid $100,000 on 3 July 1998 to acquire units in the Star Lodge trust, it did so in reliance on the two misrepresentations.

It is clear that Sam Najjar was very keen to become some sort of businessman. He had originally wanted to buy an interest in the Staffa House business, but that had fallen through. Sam Najjar was not working full time when he first met Sophie and Louis Moutidis at the premises; it appears he may have finished full time work in the previous year, when he had been interested in Staffa House. His only income in late 1997 and early 1998 was from casual work delivering pizzas. When the Moutidises offered him a chance to acquire an interest in the business, he jumped at it.

There were no formal negotiations between the parties. The deal to sell a half share in the business for $100,000 was struck around January 1998 and the price never changed thereafter. Najjar SAS and the Najjar trust were set up in January 1998, because Mr Najjar had decided to buy into the business by that time. Sam Najjar said he was happy to be going into business with the Moutidises, as he classed them as "very, very good friends".

The formal ownership structure was not considered until Mr Mitsios was consulted some months later. The corporate structure was a formality and played no role in the parties’ decision-making.

Sam Najjar started attending the premises regularly by December 1997. By about April 1998, he was attending on a daily basis, working in the office. He was working long hours, between 4 and 7 days per week. There was a dispute as to whether or not Sam Najjar was paid for that work. The Moutidises said that he received $600 cash per week throughout that period. Sam Najjar denied that he was paid anything for that work. There is no documentary or other evidence to support either side. It is not necessary for me to resolve that dispute. Whether or not he was paid for the work, it is undoubtedly the case that Sam Najjar was working regularly at the premises from April onwards.

It is clear that Sam Najjar was anxious to get into the business and was pushing Louis Moutidis to settle before 1 July 1998. It seems that 1 July was chosen because it was the start of the new financial year.

Commercially inexperienced and uneducated as he was, there is no evidence that Mr Najjar asked or had any particular queries or concerns about the operations of the business, either before he made the decision to buy into it, or before Najjar SAS invested its money. Nor is there any evidence that his solicitor served any requisitions or sought any information from any of the Moutidis entities.

I have found that the “operating satisfactorily” representation was made, based on Mr Moutidis’ admission that he had made it on several occasions between April and June 1998. However, Mr Najjar gave no evidence of in fact relying on any such representation.

Further, I have found that this representation was false, if at all, only in relation to the MFB notice of 26 May 1998. It has not been established that the representation was made on any particular occasion after 26 May. That notice had not been complied with by 1 July. Even had he been shown or told about the notice, I am not satisfied that it would in fact have concerned Mr Najjar or had any effect on his decision to go ahead with the deal.

In relation to the chattels representation, the Najjar plaintiffs have not established when the stock-take occurred or that it had the slightest impact on their decision- making. It may well be that it only occurred in the last few days of June, presumably after Mr Cohen asked Mr Najjar for a list to attach to the contract of sale. Nor is there any evidence that Sam Najjar was remotely concerned to ensure that the disputed inventory or indeed any list of chattels was attached to the contract of sale.

In response to a specific question from Mr Collinson at the end of his evidence in chief, Mr Najjar said that he probably would not have bought or gone into the business if he had known that most of the chattels on the disputed inventory list were owned by Hidek rather than by Kimis. The question was asked on a premise which has not been made out. I am not satisfied that “most” of the chattels were owned by Hidek; the cool room certainly was, as were less than half of the dining room chairs and tables. Falsity has not been established in relation to any other chattels. Nor have the Najjar plaintiffs established what value those few Hidek chattels had.[83]
[83]Save that it is something considerably less than $20,000.

Considering the evidence overall, I agree with Mr Hevey’s characterisation of Mr Najjar, namely that he was paying $100,000 to be a business owner, “not to buy 20 chairs or a cool room”.

For these reasons, I conclude that the Najjar plaintiffs did not rely in the relevant sense on either of the misrepresentations.

Loss

Given all of the above, it is not necessary for me to make any findings in relation to loss and damage flowing from any misrepresentation.

Had it been necessary to consider this question, the Najjar plaintiffs had a number of hurdles to overcome in proving and quantifying their damages. One such hurdle is the fact that, after Hidek terminated the Star Lodge lease, Sam Najjar and/or Najjar SAS took the benefit of the whole business and the right to occupy the premises; that is to say, he or they got the entire business for the price Najjar SAS had paid for one half of it. Then, by December 1998, Sam Najjar had decided to give the business to Manuel Jiminez "for nothing", because he no longer wanted the business and all the worry that went with it. That may have been relevant to questions of mitigation. Finally, there is the problem caused by the fact that since December 1998, Western Lodge has continued to pay $1,000 per month off Sam Najjar’s mortgage.

Jones v Dunkel submissions

The unexpected failure to call a witness may, in appropriate circumstances, lead to an inference that the uncalled material would not have assisted that party. This is referred to as the principle in Jones v Dunkel.[84]
[84](1958) 101 CLR 298.

The principle in Jones v Dunkel may apply to both parties, if a witness might be expected to have been called by both. In that case, the operation of the principle is not that the failure of one party excuses the failure of the other, but that the competing inferences that the uncalled evidence would not have assisted either side arise, and the trier of fact must consider the evidence which is before it in the light of those inferences.[85]
[85]Brandi v Migot (1976) 12 ALR 551 at 560.

At various stages during the trial it was suggested that adverse inferences could be drawn in relation to the failure to call Wayne Cuthbertson, one of the staff employed at the premises, and Peter Cohen, the solicitor for Sam Najjar and Manuel Jiminez and their companies.

Wayne Cuthbertson

Wayne Cuthbertson was present at a number of important events, including meetings in late July and August with council officers and meetings between the Moutidises and Sam Najjar in early August; most critically, he was said to have been present when Mr Dedek served the re-entry notice and subsequently appointed Mr Najjar as his agent on 14 August. Mr Cuthbertson could have been expected to have given relevant and important evidence as to what was said and done and who was present on these occasions.

The Najjar defendants and Beamer each argued that Mr Cuthbertson ought to be perceived as being firmly in the other’s “camp”.

At the start of the trial, Mr Cuthbertson would certainly have been placed in the Beamer camp. On 9 January 2002, Beach J granted Beamer’s ex parte application for mareva injunctions against various Jiminez defendants and the appointment of a receiver and manager to Western Lodge. In support of that application, Beamer had relied upon an affidavit of Wayne Cuthbertson.

Although the Cuthbertson affidavit was not before me, it was common ground that allegations in it were also responsible for those versions of the Beamer statement of claim in the Beamer proceeding which positively asserted that the default and re-entry notices had been fraudulently created on 1 September 1998. I was told that Mr Cuthbertson had also provided Beamer’s lawyers with a witness statement to similar effect. In seeking leave to withdraw that positive assertion from the claim, Beamer’s counsel said that Beamer would not be calling Mr Cuthbertson as a witness and could not make out the positive assertion without him.

Mr Cuthbertson’s apparent allegiances took a sudden turn during the trial, when Mr Najjar unexpectedly produced a folder of hitherto undiscovered documents which became known as “the black folder”. The black folder contained a number of important documents, including originals of the default, re-entry and police notices. Mr Najjar said that Mr Cuthbertson had given him the black folder during the course of the trial. It then transpired that Mr Najjar had met with Mr Cuthbertson on several occasions over the past weeks.

On the evidence before me, it would be hard to conclude that Mr Cuthbertson belonged more obviously in one camp than the other. He was in recent, voluntary contact with both Beamer and the Najjar defendants. Either side could have called him to give evidence, but chose not to. His character and credibility were maligned on several occasions from various corners of the bar table. I infer that counsel on both sides made the decision not to call him based on their assessment of how Mr Cuthbertson might perform as a witness and to what extent he might assist or harm their clients’ case. I conclude that neither side thought he would have been a credible or reliable witness.

A Jones v Dunkel inference can only be drawn where the court can be certain that there was some evidence that could have been given and on what subject matter. I was not shown his affidavit or witness statement. Beyond knowing from what other witnesses have said that he was at a certain number of meetings and might have given evidence about what occurred at them, I do not know whether his evidence on any particular subject would have been more favourable or harmful to one side than the other.

Notwithstanding the heat which had been displayed from both sides of the bar table whenever Mr Cuthbertson’s non-appearance was mentioned during the running of the trial, by the time we came to closing addresses Mr Collinson did not press a submission that I could draw an adverse inference against Beamer in relation to Mr Cuthbertson.

Beamer’s counsel did argue in closing that I should draw such an inference against the Najjar defendants. When asked what specific evidence it was asserted that Mr Cuthbertson might have given, Mr Hevey said that Mr Cuthbertson ought to have explained the provenance of the black folder. When, how and from whom did Mr Cuthbertson acquire such critical documents and were there any other important documents in his possession? Whilst the provenance of the black folder is one of the many mysteries in this case, it is not sufficient to lead to any adverse inference that might impact on any relevant findings.

Peter Cohen

Peter Cohen was the solicitor for the Najjar defendants at all relevant periods in 1998. In my opinion, he might have been able to give evidence in relation to at least the following matters: the handwritten and disputed inventories, lodgement of the DHS transfer form, and any contact he had with Sam Najjar and Manuel Jiminez in relation to and around the time of the default and the re-entry notices. Legal professional privilege was claimed, and not challenged, in relation to a number of documents on Mr Cohen’s firms’ files, including three handwritten notes dated 28 or 29 July 1998.

Whilst Mr Collinson informed me from the bar table that Mr Cohen would not be giving evidence because he was at the Olympics, no evidence was led in this regard, in particular no evidence as to when he had left and for how long. Given that the trial ran over seven weeks, and had been listed some months in advance, in the absence of such evidence I am not prepared to find that Mr Cohen was unavailable to be called.

However, the principle in Jones v Dunkel does not apply where the witness not called is the party’s solicitor, at least where the evidence which is in consequence not given is privileged and the privilege has not been waived. The court will not permit the destruction of the privilege by this back door.[86] In this case, the Najjar defendants did not waive any legal professional privilege. Beamer did not point to any specific, non-privileged evidence which it was asserted that Mr Cohen could have given.
[86]Wentworth v Lloyd (1864) 33 LJ (Eq) NS 688 (HL).

In relation to the Moutidises’ failure to call their solicitor, Peter Pryles, Mr Collinson correctly conceded that he could not ask for the Jones v Dunkel inference to be drawn in relation to that failure, given issues of privilege.

For these reasons, my findings are not affected by the failure to call Mr Cuthbertson or Mr Cohen.

Conclusion

In the Najjar proceeding, the Najjar plaintiffs’ claim should be dismissed.

In the Beamer proceeding, I propose to order as follows:

(1) Najjar SAS pay the plaintiff the sum of $6,137.75 pursuant to the supplementary agreement.

(2) The plaintiff’s claim is otherwise dismissed.

I will hear from the parties as to the precise form of orders, including the appropriate scale or basis for any costs orders.

---

CERTIFICATE

I certify that this and the 143 preceding pages are a true copy of the reasons for judgment of Hollingworth J of the Supreme Court of Victoria delivered on 1 July 2005.
DATED this 1^st day of July 2005.
______________________________

R G Craig

Associate to Justice Hollingworth

“ (1) A right of re-entry or forfeiture under any proviso or stipulation in a lease for a breach of any covenant or condition in the lease shall not be enforceable, by action or otherwise, unless and until the lessor serves on the lessee a notice –

(a) specifying the particular breach complained of; and

(b) if the breach is capable of remedy, requiring the lessee to remedy the breach; and

(c) in any case, requiring the lessee to make compensation in money for the breach-

and the lessee fails, within a reasonable time thereafter, or the time not being less than fourteen days fixed by the lease to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money, to the satisfaction of the lessor, for the breach. …”