Bernard Henricus Lamers as trustee for the Ben and Debra Lamers Family Trust v Arvind Pty Ltd [No 3]
[2023] WASC 30
•10 FEBRUARY 2023
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: BERNARD HENRICUS LAMERS as trustee for THE BEN AND DEBRA LAMERS FAMILY TRUST -v- ARVIND PTY LTD [No 3] [2023] WASC 30
CORAM: HILL J
HEARD: 26 - 29 OCTOBER & 2 - 4, 6 NOVEMBER 2020
DELIVERED : 10 FEBRUARY 2023
PUBLISHED : 10 FEBRUARY 2023
FILE NO/S: CIV 2404 of 2017
BETWEEN: BERNARD HENRICUS LAMERS as trustee for THE BEN AND DEBRA LAMERS FAMILY TRUST
Plaintiff
AND
ARVIND PTY LTD
First Defendant
SARO VINZI CARBONE
Second Defendant
BRIGHT IMAGE DENTAL PTY LTD
Third Defendant
Catchwords:
Contract – Oral agreement for development of property – Terms of contract – Express terms - Implied terms – Express term to develop land through unit trust – Whether development governed by oral agreement or unit trust deed
Equity – Trusts and trustee – Powers, duties, rights and liabilities of trustee – Whether grant of mortgage over trust property was a term of the oral agreement - Whether breach of trust by granting mortgage over trust property – Whether beneficiary knew of mortgage – Whether beneficiary consented to or acquiesced in any breach of trust – Turns on own facts
Equity – Trusts and trustee – Whether trustee should be removed – Appropriate relief
Legislation:
Corporations Act 2001 (Cth), s 1305
Limitation Act 2005 (WA), s 13, s 18
Trustees Act 1962 (WA), s 77
Result:
Application to remove first defendant as trustee allowed
Claim against second and third defendants dismissed
Counterclaim dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | W C J Zappia & A L Spencer |
| First Defendant | : | A Metaxas |
| Second Defendant | : | M I Handcock |
| Third Defendant | : | M I Handcock |
Solicitors:
| Plaintiff | : | Kott Gunning |
| First Defendant | : | Metaxas Legal |
| Second Defendant | : | Effective Legal |
| Third Defendant | : | Effective Legal |
Cases referred to in decision:
Barnes v Addy (1874) LR 9 Ch App 244
Buckland v Ibbotson (1902) 28 VLR 688
Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410
Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253
Cardaci v Filippo Primo Cardaci (as executor of the estate of Marco Antonio Cardaci) [No 5] [2021] WASC 331
Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178
Connell v Bond Corporation Pty Ltd (1992) 8 WAR 352
Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1; (2022) 398 ALR 404
Corin v Patton [1990] HCA 12; (1990) 169 CLR 540
Corporate Systems Publishing Pty Ltd v Lingard [2009] WASCA 158
Costa and Duppe Properties Pty Ltd v Duppe [1986] VR 90
Dewar v Ollier [2020] WASCA 25
Dodson v Sandhurst & Northern District Trustees Executors & Agency Co Ltd [1955] VLR 100
Elovalis v Elovalis [2008] WASCA 141
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471
Fan v Tang [2010] NSWSC 11
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Fletcher v Collis [1905] 2 Ch 24
Gebauer Nominees v Cole [No 2] [2008] WASCA 41
Halford v Halford [2022] WASCA 1
Henderson v Curtis [2008] WASC 283
Hightime Investments Pty Ltd v Lungan (No 2) [2010] WASC 296
Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451
Joyce v Palassis (No 4) [2008] WASC 45
Maguire & Tansey v Makaronis [1997] HCA 23; (1997) 188 CLR 449
McLauchlan v Prince [2002] WASC 274
Palermo v Palermo [2015] WASCA 49
Pilbara Iron Ore Pty Ltd v Ammon [2020] WASCA 92
Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39
Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146; (2011) 6 ASTLR 446
Smith v Partridge [2018] WASC 128
Spellson v George [1992] NSWCA 254; (1992) 26 NSWLR 666
Thorne v Heard [1895] AC 495
Watson v Foxman (1995) 49 NSWLR 315
YZ Finance Co Pty Ltd v Cummings [1964] HCA 12; (1964) 109 CLR 395
Table of Contents
Introduction
Factual background
Delay in judgment
Parties
Pleadings
Issues for determination
Onus and approach to the evidence
Onus and standard of proof
Approach to the evidence
The plaintiff's witnesses
Bernard (Ben) Lamers
Charlie Napoli
Jason Sutherland
Dino Travaglini
The defendants' witnesses
Saro Vinzi Carbone
Mario Antonio Silipo
Joe Filardi
Justin Daryl Watts
Purchase of Ranford Road Property
Discussions regarding development of Ranford Road
Establishment of Trusts
Settlement of the purchase of the Ranford Road Property
Initial valuation of Ranford Road Property
Development of Ranford Road Property
Second valuation of Ranford Road Property
Granting of mortgage over Ranford Road Property
Entry into loan agreements with Mr Lamers Snr
Discussions in late 2011
Initial Rental Payments
Replacement of Guarantee
Discussions between Mr Lamers and Mr Carbone in 2013
Change of banking arrangements
Third valuation of Ranford Road Property
Withdrawal by plaintiff of $55,000
Agreement regarding payment of interest
Approaches for refinancing
Change of arrangement regarding rental income
Breakdown in relationship
Issue of demand
GST Liability
Commencement of proceedings
Showroom 3, Ranford Road Property
Terms of oral agreement
Who owns the Ranford Road Property?
What governed the development of Ranford Road Property?
Is the plaintiff a creditor of the APT Unit Trust?
Did the First Defendant breach its duties to the plaintiff?
Granting of mortgage over Ranford Road Property
Was the granting of the mortgage a breach of trust?
Did Mr Lamers consent to the granting of the mortgage?
Is the plaintiff estopped from asserting a breach of trust?
Is the cause of action statute barred?
Distribution of income
Failure to pay GST liability when due
Failure to keep books and records
Further conduct relied on as grounds for removal of Arvind as trustee
Failure to lease showroom 3
Alleged non-compliance with court orders
Relief
Legal Principles
Removal of Trustee
Equitable compensation and account of profits
Disposition
Removal of Arvind as trustee
Equitable compensation
Claim against the Second and Third Defendants
Counterclaim
Conclusion and orders
HILL J:
Introduction
Mr Lamers and Mr Carbone are brothers-in-law who, with their respective wives, enjoyed a relatively close relationship until late 2016. The relationship between them broke down largely as a result of matters unrelated to the issues in these proceedings.
In 2009, Mr Lamers and Mr Carbone discussed jointly developing a parcel of land on Ranford Road, Canning Vale. In essence, Mr Carbone was to contribute the land and Mr Lamers was to pay the construction costs of the three showrooms which they proposed be built on the land.
Subsequently, the Arvind Property Trust (APT Unit Trust) was established with Arvind Pty Ltd (a company associated with Mr Carbone) (Arvind) as the corporate trustee. The family trusts of each of Mr Lamers and Mr Carbone were the unitholders of the APT Unit Trust, with the plaintiff having 100 units and the third defendant 200 units.
Between 2010 and early 2012, the property at Ranford Road was developed by constructing three showrooms. Each of the three showrooms was subsequently leased.
In October 2016, Arvind ceased making any distributions to the plaintiff of the rental income received from the showrooms. Since then, the relationship between the parties has deteriorated culminating in the issuing of various notices of demand, a statutory demand and, ultimately, the commencement of these proceedings.
Broadly speaking, there are four primary issues raised for determination in these proceedings. First, what were the terms of the oral agreement between Mr Lamers and Mr Carbone. Second, was the development of the property and the management of the showrooms governed by the APT Unit Trust or by the preceding oral agreement, where there is a conflict between them. Third, has Arvind breached its duties as trustee of the APT Unit Trust and did Mr Carbone and the third defendant knowingly assist in any breach of trust. Fourth, what orders should be made, including whether Arvind should be removed as trustee of the APT Unit Trust or whether an order should be made transferring one of the showrooms at the Ranford Road Property to the plaintiff.
For the reasons that follow, it is my view that:
(a)in about July 2009, Mr Lamers and Mr Carbone entered into an oral agreement for the development of the Ranford Road Property. This agreement remains on foot and has not been overtaken or replaced by the Unit Trust Deed;
(b)the Unit Trust Deed must be construed consistently with the oral agreement. Where there is any inconsistency, the oral agreement prevails;
(c)Arvind breached its duties as trustee of the APT Unit Trust in several respects including in granting a mortgage over the Ranford Road Property to secure the financial obligations of the third defendant;
(d)Arvind should be removed as trustee of the APT Unit Trust and Mr Travaglini appointed in substitution;
(e)the plaintiff has not established any entitlement to equitable compensation or that an account should be ordered;
(f)the claim against Mr Carbone and the third defendant should be dismissed; and
(g)the counterclaim should also be dismissed.
Factual background
Much of the factual dispute between the parties concerned what was agreed by Mr Lamers and Mr Carbone in 2009 in relation to the development of the Ranford Road Property. The remaining issues largely arise from the appropriate characterisation of matters that are not in dispute. I set out below a brief summary of the facts that are not in dispute.
On 30 March 2009, Arvind Pty Ltd as trustee for the 'Arvind Property Trust' entered into a contract to purchase vacant land at Ranford Road, Canning Vale, being more particularly described as proposed Lot 1008 on Deposited Plan 63005 and being the whole of the land in Certificate of Title volume 2736 folio 964 (Ranford Road Property) for the sum of $500,000 plus GST (Contract).[1]
[1] Ex 1.1.
At the time the Contract was entered into, no trust by the name of the 'Arvind Property Trust' had been established.
On or about 31 March 2009, a discretionary trust called the 'Arvind Property Trust' was established (APT Discretionary Trust).[2] The Schedule to the APT Discretionary Trust Deed states that it is dated 8 January 2009, although it was not in dispute that the deed was backdated.
[2] Ex 1.2; Ex 1.3.
On 28 May 2009, a declaration of trust signed by Mr Carbone, as 'the sole director and secretary' of Arvind, was lodged for assessment with the Office of State Revenue.[3] At that time, Mr Carbone was not the sole director of Arvind; his wife is, and was at that time, a director and is the current company secretary of Arvind.[4] The declaration of trust is dated 30 March 2009 and declared Arvind as trustee for the 'Arvind Property Trust' purchased the Ranford Road Property as trustee.
[3] Ex 1.16.
[4] Ex 1.252.
Sometime between March 2009 and July 2009, Mr Lamers and Mr Carbone had discussions about jointly developing the Ranford Road Property.
Following these discussions, in July 2009, the Lamers Family Trust was established with Mr Lamers appointed as trustee.[5]
[5] Ex 1.9.
Sometime after 28 July 2009 and before 7 April 2010,[6] the APT Unit Trust was established and Arvind was appointed trustee. Initially, the third defendant was issued with 70 units and the plaintiff 30 units. This was subsequently rectified to reflect the agreement between Mr Carbone and Mr Lamers that Mr Carbone would have two-thirds and Mr Lamers would have one-third of the units of the APT Unit Trust. Ultimately, the third defendant was issued 200 fully paid units and the plaintiff was issued 100 fully paid units. This trust was also named the 'Arvind Property Trust'. The Schedule to the APT Unit Trust Deed states that it is dated 30 March 2009, although it was not in dispute that this was also backdated.[7]
[6] Ex 1.31.
[7] Ex 1.12.
Following the successful subdivision of Lot 1001, in early February 2010, new titles were issued, one of which was for the Ranford Road Property. On 17 February 2010, the transfer of the Ranford Road Property to Arvind was registered at Landgate.[8]
[8] Ex 1.25.
In about October 2010, construction of the three showrooms at the Ranford Road Property commenced.[9]
[9] At trial, the parties adopted the terminology of 'showrooms' to refer to the units that were constructed on the Ranford Road Property to distinguish between these structures and the units in the trust. However, many of the documents tendered at trial refer to these structures as units rather than showrooms. I have adopted the terminology 'showrooms' in these reasons to refer to the structures including in my references to the relevant documentary exhibits unless it is unclear what the parties were referring to in which case I have used the actual words of the parties.
In December 2010, the third defendant received a letter from its bankers, the National Australia Bank (NAB) advising of certain changes being made to the securities it held in respect of the third defendant's banking facilities. A previous guarantee and indemnity of $10.835 million given by Mr Carbone both in his own right and as trustee for the Carbone Family Trust, Mrs Carbone and Bright Image Dental Pty Ltd (Bright Image Dental) was replaced by a guarantee and indemnity of $6.295 million by the same entities together with Arvind supported by a registered mortgage over the Ranford Road Property.[10] The mortgage was registered on 17 December 2010.[11]
[10] Ex 1.48.
[11] Ex 1.79.
Construction of the showrooms was completed in about January 2012. Following completion of the showrooms, Regents Commercial were appointed to manage them. In November 2011, showroom 1 was leased for a period of 10 years, with an option of a further 5 years. Showroom 2 was leased on 1 August 2012 for a period of 5 years with an option of a further 5 years. Showroom 3 was leased on 13 August 2012 for a period of 5 years, with an option of a further 5 years.
In June 2012, Mr Lamers and Mr Carbone opened a joint bank account with the Australia and New Zealand Bank (ANZ) into which the rental income from the Ranford Road Property was deposited. In August 2014, they opened a second joint bank account with ANZ and directed Regents Commercial to pay the rental income into this account. The practice they adopted was that each was entitled from time to time to withdraw their proportion of the rental income on a two-thirds (Mr Carbone), one-third (Mr Lamers) basis. This practice ended in September 2016 when Mr Lamers no longer had access to the rental income or the account into which it was paid.
In approximately June 2013, Owen & Plaistowe were retained by Mr Carbone as accountants for the APT Unit Trust to prepare financial statements for the APT Unit Trust.
In June 2015, with the agreement of Mr Carbone, Mr Lamers withdrew $55,000 from the joint bank account, in excess of his one-third proportion of the rental income.
In about June 2016, the APT Unit Trust had outstanding obligations to the Australian Taxation Office (ATO) for GST. Mr Carbone directed Regents Commercial to pay the amount due on the business activity statement from the rental income from the Ranford Road Property, prior to remitting the balance to the joint bank account.
In about September 2016, the relationship between the parties began to break down, largely because of issues between Mr Lamers and his sister, Mrs Carbone, concerning their father's estate. At this time, there was a discussion about separate strata titles being issued for each of the showrooms and for the parties to separate their interests in the APT Unit Trust. Ultimately, this did not occur because of disputes between the parties as to the accounts and what amounts, if any, were owed, including in relation to the estate of Mr Lamers Snr.
In May 2017, Mr Lamers issued a notice of demand to the defendants for unpaid trust distributions and a statutory demand for repayment of the amount of his loan accounts as recorded in the financial statements of the APT Unit Trust. This included the amounts Mr Lamers had advanced for the construction of the showrooms at the Ranford Road Property. The defendants dispute the amounts claimed are payable and have not paid them. An application to set aside the statutory demand was filed and, ultimately, the statutory demand was set aside by consent.
On 17 August 2017, the tenant of showroom 3 exercised its option to extend the lease for two years.[12] On 12 August 2019, the lease of showroom 3 ended and Arvind was given vacant possession. This showroom was not advertised for lease until 6 February 2020. At the time of the hearing, showroom 3 remained vacant.
[12] Ex 1.107.
On 21 August 2017, the plaintiff commenced these proceedings.
Delay in judgment
The hearing of this matter took place in October and November 2020. It has not been possible to complete the reasons for my decision as quickly as I would have liked.
In order to properly assess the parties' cases and the evidence that was given at trial and to ensure this has not been impaired by the delay between the hearing and the publication of these reasons, I have done the following.
First, my observations of and findings on the credibility of each of the witnesses were written shortly after the hearing concluded, while the evidence of the witnesses was fresh in my mind.
Second, having refreshed my memory by re-reading the transcript of their evidence and relistening to portions of their evidence, I had a clear recollection of the evidence given by Mr Lamers and Mr Carbone, including the manner in which they gave their evidence. At trial, each of them gave evidence in chief and was then cross-examined at some length. During the course of the trial, I made contemporaneous notes of their evidence and my observations of each of them as witnesses. My assessment of the witnesses has been assisted by my review of these notes, my review of the transcript, as well as the documents that were tendered in evidence. I have also re-listened to portions of the oral recordings of their evidence.
Third, I had the benefit of detailed written and oral closing submissions from counsel for the plaintiff and first defendant, and oral closing submissions from the second and third defendant. Each counsel made submissions on the evidence given by the witnesses, including as to the findings of fact that each contends should be made. In addition, counsel for the plaintiff, and for the second and third defendant made submissions on the credibility of the witnesses, whose evidence I should prefer and the reasons for this.
Fourth, my conclusions as to the credit and reliability of the witnesses are primarily based on the consistency of the evidence they gave in chief and cross-examination, and whether their evidence was consistent with contemporaneous records and the facts that were objectively established.
Parties
The plaintiff, Mr Bernard Henricus Lamers as trustee for The Ben and Debra Lamers Family Trust, is one of two unit holders of the APT Unit Trust.[13] The third defendant, Bright Image Dental as trustee for the V & H Carbone Family Trust, is the other unit holder.[14]
[13] Further re-amended substituted statement of claim filed 4 September 2020 [1]; Second further re-amended substituted defence filed 13 September 2020 [1].
[14] Further re-amended substituted statement of claim filed 4 September 2020 [4]; Second further re-amended substituted defence filed 13 September 2020 [4].
The first defendant, Arvind, is the trustee of the APT Unit Trust.[15] The second defendant, Mr Saro Carbone, is a director of Arvind Pty Ltd.[16]
[15] Further re-amended substituted statement of claim filed 4 September 2020 [2]; Second further re-amended substituted defence filed 13 September 2020 [2].
[16] Further re-amended substituted statement of claim filed 4 September 2020 [3]; Second further re-amended substituted defence filed 13 September 2020 [3].
Until 24 March 2015, Mr Carbone was the sole director and company secretary of Bright Image Dental.[17] On that date, Mrs Carbone, replaced Mr Carbone as the sole director and company secretary of Bright Image Dental.[18] In evidence, Mr Carbone accepted that he generally made the decisions about the actions the third defendant took and was effectively the person who controlled it. Mr Carbone agreed that his wife's involvement in the third defendant was limited.[19]
[17] Further re-amended substituted statement of claim filed 4 September 2020 [5]; Second further re-amended substituted defence filed 13 September 2020 [5].
[18] Further re-amended substituted statement of claim filed 4 September 2020 [6], [7]; Second further re-amended substituted defence filed 13 September 2020 [6], [7].
[19] ts 671.
Pleadings
On or about 30 March 2009, Mr Carbone caused Arvind to enter into a contract to purchase the Ranford Road Property for the sum of $500,000.[20] At the time of entry into this contract, Mr Carbone intended to hold the Ranford Road Property on trust for the APT Discretionary Trust.[21]
[20] Further re-amended substituted statement of claim filed 4 September 2020 [8A], [9.7]; Second further re-amended substituted defence filed 13 September 2020 [8A] - [9.7].
[21] Further re-amended substituted statement of claim filed 4 September 2020 [8B].
The plaintiff contends that on an unknown date between 30 March 2009 and 28 July 2009, Mr Lamers (in his personal capacity) and Mr Carbone entered into an oral agreement for the development of the Ranford Road Property. The plaintiff pleads the terms of the agreement included that: Arvind would provide the Ranford Road Property, which was valued at approximately $1.5 million, to develop three commercial showrooms; Mr and Mrs Lamers would provide funds of approximately $780,000 to construct the showrooms; the showrooms, once constructed, would be leased and the rental proceeds divided one-third to Mr and Mrs Lamers and two-thirds to Mr and Mrs Carbone, and the Ranford Road Property would be strata-titled into three lots with one title to Mr and Mrs Lamers and the other two to Mr and Mrs Carbone.[22] The plaintiff says they agreed to establish a unit trust with a corporate trustee to hold the Ranford Road Property and be responsible for developing and managing the proposed development and, either as an express term or an implied term, that any distribution of income and the capital of the unit trust would be subject to the terms of the unit trust.[23] The plaintiff also contends that Mr Lamers and Mr Carbone agreed they could procure their respective family trusts to make the agreed contributions on their behalf and, if this occurred, the trustees of these family trusts would be the beneficiaries under the unit trust and have that party's entitlements.[24]
[22] Further re-amended substituted statement of claim filed 4 September 2020 [8.1] - [8.3].
[23] Further re-amended substituted statement of claim filed 4 September 2020 [8.4].
[24] Further re-amended substituted statement of claim filed 4 September 2020 [8.6].
The plaintiff also says that it was an implied term of the agreement that any in specie distribution of trust assets could only occur if the trustee had discharged all the liabilities of the trust.[25]
[25] Further re-amended substituted statement of claim filed 4 September 2020 [8C].
To give effect to this agreement, the Ben and Debra Lamers Trust was created and Mr Lamers appointed trustee of this trust, Mr Carbone nominated Arvind to be the trustee of the APT Unit Trust, the APT Unit Trust was established, and Arvind declared it purchased the Ranford Road Property on trust for the APT Unit Trust.[26] Settlement of the purchase of the Ranford Road Property occurred on 17 February 2010 with funds provided by the third defendant to Arvind.[27]
[26] Further re-amended substituted statement of claim filed 4 September 2020 [9].
[27] Further re-amended substituted statement of claim filed 4 September 2020 [10].
The plaintiff pleads that between February 2010 and January 2012, he loaned the APT Unit Trust $1,058,636.70 which was used to pay costs associated with the purchase of the Ranford Road Property, ongoing ownership expenses and the construction of three commercial buildings.[28] The plaintiff says he is entitled to payment of interest at 6% per annum on this amount.[29]
[28] Further re-amended substituted statement of claim filed 4 September 2020 [11].
[29] Further re-amended substituted statement of claim filed 4 September 2020 [31A.2].
The plaintiff says that by no later than 17 February 2010, Arvind intended to hold the Ranford Road Property on trust for the benefit of the plaintiff and third defendant and that on its acquisition, Arvind held the Ranford Road Property on trust and owed the plaintiff and third defendant duties as a trustee.[30] On execution of the APT Unit Trust Deed, each of the plaintiff, first defendant and third defendant were bound by its terms, and the rights and obligations of the parties in respect of the Ranford Road Property were governed by that deed.[31]
[30] Further re-amended substituted statement of claim filed 4 September 2020 [12].
[31] Further re-amended substituted statement of claim filed 4 September 2020 [13].
In December 2010, Arvind allowed a mortgage (registration number L510708) to be registered over the Ranford Road Property, to secure a loan facility of the third defendant with the NAB with a monetary limit of $6,295,000 in favour of the third defendant (Mortgage).[32] The plaintiff contends the Mortgage and the loan facility secured by the Mortgage:
(a)were not for the purposes of the APT Unit Trust and did not benefit it;[33]
(b)were transactions which dealt with the asset of the APT Unit Trust solely for the benefit of the defendants;[34]
(c)enabled the third defendant, further or alternatively the defendants, to profit from the asset of the Arvind Property (Unit) Trust to the exclusion of the Arvind Property (Unit) Trust and the plaintiff;[35]
(d)were authorised without his fully informed consent.[36]
[32] Further re-amended substituted statement of claim filed 4 September 2020 [34] - [35].
[33] Further re-amended substituted statement of claim filed 4 September 2020 [36.1], [36.2].
[34] Further re-amended substituted statement of claim filed 4 September 2020 [36.6].
[35] Further re-amended substituted statement of claim filed 4 September 2020 [36.7].
[36] Further re-amended substituted statement of claim filed 4 September 2020 [37].
The plaintiff alleges the conduct of Arvind in permitting the registration of the Mortgage was a breach of its fiduciary duties, alternatively, a breach of the terms of the Unit Trust Deed, and a misuse of Arvind's power under cl 61 of the APT Unit Trust Deed to mortgage trust assets. This is described in the pleadings as the Mortgage Breach.[37]
[37] Further re-amended substituted statement of claim filed 4 September 2020 [39].
In relation to the second and third defendants, the plaintiff pleads that these defendants procured the loan facility and enabled, alternatively caused, the registration of the Mortgage and by doing so, knowingly participated and assisted Arvind in the Mortgage Breach.[38]
[38] Further re-amended substituted statement of claim filed 4 September 2020 [57]. See also [42].
The plaintiff says he has suffered loss and damage by reason of the Mortgage Breach, in that the plaintiff has not had the benefit of an unencumbered beneficial interest in the Ranford Road Property since 17 December 2010 and is entitled to equitable compensation as a result.[39]
[39] Further re-amended substituted statement of claim filed 4 September 2020 [40] - [41].
In the alternative, the plaintiff pleads that to the extent Arvind, Mr Carbone and/or the third defendant have made unauthorised profits as a result of the Mortgage Breach, one third of those profits are held on constructive trust for the plaintiff.[40]
[40] Further re-amended substituted statement of claim filed 4 September 2020 [42].
The plaintiff also contends that from about October 2016, all rental income from the Ranford Road Property has been paid into a bank account controlled by Mr Carbone. From October 2016, Mr Carbone has paid the third defendant their proportion of the net rental income but did not make any distributions to the plaintiff until after July 2018 and has failed to account for the rental income or how these funds have been applied. The plaintiff pleads this conduct is a breach of Arvind's obligations under the APT Unit Trust Deed.[41] This is described in the pleadings as the Income Distribution Breach.
[41] Further re-amended substituted statement of claim filed 4 September 2020 [43] - [47].
The plaintiff also contends Arvind breached its duties as trustee in failing to pay GST liabilities as and when they fell due,[42] and causing the financial statements of the APT Unit Trust to be amended in a manner which is prejudicial to the plaintiff. This is described in the pleadings as the Accounts Breach.[43] The plaintiff pleads Mr Carbone participated in and knowingly assisted in both the Income Distribution Breach[44] and the Accounts Breach.[45]
[42] Further re-amended substituted statement of claim filed 4 September 2020 [49] - [50].
[43] Further re-amended substituted statement of claim filed 4 September 2020[51] - [56].
[44] Further re-amended substituted statement of claim filed 4 September 2020 [58].
[45] Further re-amended substituted statement of claim filed 4 September 2020 [59].
The primary relief sought by the plaintiff is for the removal of Arvind as trustee of the APT Unit Trust.[46] The plaintiff relies on a number of additional matters which he says supports the removal of the current trustee. These include the failure to lease showroom 3 since in or about 12 August 2019,[47] informing the plaintiff it does not intend to make any distributions to the plaintiff from any rental income from the other two units at the Ranford Road Property,[48] requesting the plaintiff accept a transfer of the title to showroom 3 at the Ranford Road Property,[49] claimed anomalies in the books and records of the APT Unit Trust,[50] and the continued failure to account for the benefits received by the third defendant in respect of the Mortgage.[51]
[46] Further re-amended substituted statement of claim filed 4 September 2020 [63].
[47] Further re-amended substituted statement of claim filed 4 September 2020 [62A] - [62G]. [62H] was not pressed at trial.
[48] Further re-amended substituted statement of claim filed 4 September 2020 [62I] - [62J].
[49] Further re-amended substituted statement of claim filed 4 September 2020 [62K] - [62T].
[50] Further re-amended substituted statement of claim filed 4 September 2020 [62U] - [62X].
[51] Further re-amended substituted statement of claim filed 4 September 2020 [62Y] - [62Z].
The plaintiff also seeks as against Arvind, among other things, equitable compensation, an account of profits, an account of administration in common form, further or alternatively, an account for administration on the basis of wilful default by the first defendant, and a winding up of the APT Unit Trust.
As against the second and third defendants, among other things, the plaintiff seeks equitable compensation and an account of profits.
On the pleadings, all matters, including whether the Ranford Road Property is held on trust by the first defendant, are in dispute between the parties. The defences filed by the first defendant, and the second and third defendants are substantially identical, except in relation to the response to specific allegations made only against the second and third defendants.
The defendants plead that Arvind acquired the Ranford Road Property in its capacity as trustee for the APT Discretionary Trust,[52] and that this trust holds the Ranford Road Property on resulting trust for the APT Unit Trust.[53] In support of this pleading, the defendants say the APT Unit Trust had not been constituted as at 30 March 2009.[54] Mr Carbone accepted he gave the instructions to the solicitors for the defendants that the first defendant owned the Ranford Road Property as trustee for the APT Discretionary Trust.[55] However, at trial, this aspect of the defence was not pressed and the defendants did not dispute the Ranford Road Property was held on trust by the first defendant.[56]
[52] Second further re-amended substituted defence filed 13 September 2020 [1.1], [8A], [9.1], [12.1]; Further re-amended substituted defence filed 8 September 2020 [1.1], [8A], [9.1], [12.1].
[53] Second further re-amended substituted defence filed 13 September 2020 [12.3]; Further re-amended substituted defence filed 8 September 2020 [12.3].
[54] Second further re-amended substituted defence filed 13 September 2020 [9.1(c)(iii)]; Further re-amended substituted defence filed 8 September 2020 [9.1(c)(iii)].
[55] ts 672.
[56] See First Defendant's opening submissions [4]. The second and third defendants did not address this at trial.
The defendants agree there were discussions between the plaintiff and Mr Carbone about the possible acquisition and development of the Ranford Road Property commencing in or around May 2009, after it was purchased in March 2009. The defendants refer to this in the pleadings as the Development Agreement.[57] They say the express terms of the Development Agreement were that the plaintiff and Mr Carbone would constitute the APT Unit Trust to be the beneficial owner of the Ranford Road Property; the unitholders of the trust would be the plaintiff (or his nominee) (as to one third) and the third defendant (as to two thirds); three showrooms would be constructed on the Ranford Road Property; the plaintiff would pay the construction costs, which were estimated to be around $1 million, as well as any additional costs associated with the transfer of the Ranford Road Property; after construction, the showrooms would be leased; the Ranford Road Property would be used to secure the third defendant's borrowings from the NAB; and that (either as an express or implied term) the first defendant would apply for strata titles to be issued in respect of the showrooms, with the title for one showroom to be transferred to the plaintiff and two titles to be transferred to the third defendant in satisfaction of their contributions to the APT Unit Trust.[58]
[57] Second further re-amended substituted defence filed 13 September 2020 [8]; Further re-amended substituted defence filed 8 September 2020 [8].
[58] Second further re-amended substituted defence filed 13 September 2020 [8.1] Further re-amended substituted defence filed 8 September 2020 [8.1], [8.3].
The defendants contend it was an implied term of the Development Agreement that when the construction of the showrooms was completed, the trustee would apply for strata titles to be issued, and the title for one showroom would be transferred to the plaintiff and the titles for the two showrooms would be transferred to the third defendant.[59] The defendants say the Development Agreement overrides any obligations the first defendant owes to the plaintiff under the trust deed.[60]
[59] Second further re-amended substituted defence filed 13 September 2020 [8.3]; Further re-amended substituted defence filed 8 September 2020 [8.3].
[60] Second further re-amended substituted defence filed 13 September 2020 [8.2(a)]; Further re-amended substituted defence filed 8 September 2020 [8.2(a)].
The defendants admit that on or around 17 February 2010, the third defendant paid $500,000 to Arvind and that this money was used to purchase the Ranford Road Property but says this money was to purchase two-thirds of the units in the APT Unit Trust.[61] The defendants also accept that, as at 30 June 2012, the plaintiff had paid $1,054,680 to Arvind and say this was paid pursuant to the Development Agreement for the costs of construction of the showrooms as well as additional costs, that it was the purchase price of the plaintiff's units in the APT Unit Trust, and should have been recorded as this in the accounts of the APT Unit Trust.[62] They deny the plaintiff is entitled to any interest on this sum and say this is inconsistent with the Development Agreement.[63]
[61] Second further re-amended substituted defence filed 13 September 2020 [10]; Further re-amended substituted defence filed 8 September 2020 [10].
[62] Second further re-amended substituted defence filed 13 September 2020 [11]; Further re-amended substituted defence filed 8 September 2020 [11].
[63] Second further re-amended substituted defence filed 13 September 2020 [31A]; Further re-amended substituted defence filed 8 September 2020 [31A].
The defendants admit Arvind was obliged to act in accordance with the terms of the APT Unit Trust Deed but deny Arvind has breached any obligations to the plaintiff.[64]
[64] Second further re-amended substituted defence filed 13 September 2020 [25]; Further re-amended substituted defence filed 8 September 2020 [25].
The defendants admit the granting of the Mortgage was not for the purposes of the APT Unit Trust but deny it did not benefit the APT Unit Trust or was detrimental to it.[65] In addition, the defendants plead the granting of the Mortgage was a term of the Development Agreement.[66] The defendants also contend the plaintiff is estopped from making any complaint about the Mortgage as Mr Lamers has been aware of it since about February 2010, but made no complaint until January 2017.[67] In the alternative, the defendants say that any complaint about the Mortgage is statute barred.[68]
[65] Second further re-amended substituted defence filed 13 September 2020 [36.1] - [36.5]; Further re-amended substituted defence filed 8 September 2020 [36.1] - [36.5].
[66] Second further re-amended substituted defence filed 13 September 2020 [36.6]; Further re-amended substituted defence filed 8 September 2020 [36.6].
[67] Second further re-amended substituted defence filed 13 September 2020 [36.7]; Further re-amended substituted defence filed 8 September 2020 [36.7].
[68] Second further re-amended substituted defence filed 13 September 2020 [36.8]; Further re-amended substituted defence filed 8 September 2020 [36.8].
In relation to the alleged Income Distribution Breach, the defendants say the initial arrangements between the parties were contrary to the express provisions of the APT Unit Trust Deed, that monies were paid into the account of the Foreshore Drive Property Trust to prevent the plaintiff from accessing these funds and for the purpose of accumulating sufficient funds to pay the outstanding GST liabilities, these payments were recorded as a loan, and Arvind has subsequently opened a bank account in the name of the APT Unit Trust.[69]
[69] Second further re-amended substituted defence filed 13 September 2020 [45]; Further re-amended substituted defence filed 8 September 2020 [45].
The defendants plead that the penalties and general interest charges imposed for overdue GST payments have been remitted and that, as a result, no loss or damage has been caused by any late payment. In addition, they say Arvind's inability to pay GST when it was due was because of the plaintiff's failure to repay a loan and not due to any conduct of the defendants.[70]
[70] Second further re-amended substituted defence filed 13 September 2020 [49] - [50]; Further re-amended substituted defence filed 8 September 2020 [49] - [50].
The defendants say the financial statements of the APT Unit Trust between 2011 and June 2016 incorrectly recorded the value of the plaintiff's loan account and that amendments were made to the financial statements for 30 June 2017 to correctly reflect the terms of the Development Agreement.[71]
[71] Second further re-amended substituted defence filed 13 September 2020 [51]; Further re-amended substituted defence filed 8 September 2020 [51].
The second and third defendants deny the plaintiff's claim against them.
In answer to the matters relied upon by the plaintiff to support his primary relief, the defendants say that after the lease for showroom 3 expired, the plaintiff was not entitled to any income from the tenants of showrooms 1 and 2 given Arvind's efforts to transfer showroom 3 to the plaintiff and give effect to the Development Agreement.[72]
[72] Second further re-amended substituted defence filed 13 September 2020 [62I]; Further re-amended substituted defence filed 8 September 2020 [62I].
The first defendant says that, given the relationship between the parties, the appropriate order is for showroom 3 to be transferred to the plaintiff, showrooms 1 and 2 to the third defendant and for the APT Unit Trust to vest.[73] The second and third defendants seek this relief by way of counterclaim.[74]
[73] Second further re-amended substituted defence filed 13 September 2020 [63].
[74] Further re-amended substituted defence filed 8 September 2020 [69].
The plaintiff denies he is obliged to accept a transfer of showroom 3 and for a charge to be granted over that showroom in favour of Arvind to secure Arvind's right of indemnity as trustee, or that the defendants have pleaded any basis which would give rise to these orders being made.
Issues for determination
On the pleadings, the primary issues that require determination are the terms of the oral agreement between Mr Lamers and Mr Carbone in relation to the development of the Ranford Road Property (Agreement) and whether, where there is a conflict, this Agreement or the Unit Trust Deed governs the rights of the parties in relation to the Ranford Road Property.
Many of the additional issues that require determination depend on the terms of the Agreement. These include:
(a)whether it was a term of the Agreement (either express or implied) that it take precedence over the Unit Trust Deed;
(b)what was agreed in respect of the contributions each made to the APT Unit Trust and how these should be recorded in the financial statements of the APT Unit Trust;
(c)whether Arvind was entitled to register the Mortgage over the Ranford Road Property or whether this was a breach of its duties as trustee; and
(d)whether it was agreed that Mr Carbone would receive showrooms 1 and 2 and Mr Lamers showroom 3 (including whether they would each only receive the rental income derived from their specific property or properties prior to any transfer of the showroom).
The other issues that require determination are:
(a)whether the financial statements of the APT Unit Trust for the year ending 30 June 2016 correctly record its financial position and if not, what the correct position is;
(b)whether the plaintiff is entitled to interest on the amounts he paid for the construction of the showrooms and settlement of the purchase of the Ranford Road Property; and
(c)what, if any, remedy ought be granted.
Onus and approach to the evidence
Onus and standard of proof
The plaintiff accepts he bears the onus of proof in establishing his claim. The defendants bear the onus of proof in relation to the defences of consent to any breach of trust[75] and estoppel, as well as the counter-claim.
[75] Spellson v George [1992] NSWCA 254; (1992) 26 NSWLR 666.
The standard of proof is, at all times, the balance of probabilities.
Approach to the evidence
At trial, each of the parties gave evidence about the Agreement which was said to have been entered into in or around 2009. Given that, at the time of the hearing, these discussions had occurred more than 11 years ago, it was not surprising that both Mr Lamers and Mr Carbone had difficulty recalling the specific details of the conversations which are said to give rise to the Agreement.
Human memory of what was said in a conversation is fallible for a variety of reasons. Ordinarily, this increases over time, particularly where disputes or litigation intervene. This is because the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often, what is actually remembered is little more than an impression from which plausible details are then again, often subconsciously, constructed.[76]
[76] Watson v Foxman (1995) 49 NSWLR 315, 318 ‑ 319 (McLelland CJ in Eq).
The credibility of a witness and their veracity may be tested by reference to objective facts which can be proved independently, in particular by reference to the documents in the case. In cases such as this, which involve events which occurred long before the litigation, it is often preferable to rely on contemporaneous documents. Often the only safe course in such cases is to place primary emphasis on the objective factual surrounding material, the inherent commercial probabilities and the contemporaneous documents. Documents will often provide more valuable information than the attempted recollection of the facts by witnesses with an interest in the outcome of the litigation. This is particularly the case when the documents are accepted as genuine and were prepared by a person who had no reason to misstate the facts in these documents.
In addition, contemporaneous statements and documents are likely to be a more accurate reflection of events than later statements. This is because false memories can intrude, especially when the person recalling events has tried to assemble recollections logically. In doing so, the person can attempt to have some rational explanation as to what has happened.
In considering the evidence of the witnesses, in particular Mr Lamers and Mr Carbone, I also recognise that:[77]
Memory is a constructive and reconstructive process. What is remembered about an event is shaped by how that event was experienced, by conditions prevailing during attempts to remember, and by events occurring between the experience and the attempted remembering. Memories can be altered, deleted and created by events that occur during and after the time of encoding, during the period of storage, and during any attempts at retrieval.
[77] McClellan P, 'Who Is Telling the Truth? Psychology, Common Sense and the Law' (2006) 80 Australian Law Journal 655, 665, quoting Australian Psychological Society, Guidelines Relating to Recovered Memories (2000).
In determining the terms of an oral agreement in the absence of a contemporaneous record or other corroboration, the court must be alive to the reality that the words that were spoken are capable of bearing different and potentially opposing meanings depending on the nuance and emphasis that is given to particular words. A person's appreciation of the significance of these matters must necessarily be considerably diminished if there is a significant delay between the date when the conversation took place and the hearing at which the evidence of that conversation is given.
As Hammerschlag J stated in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd: [78]
Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved.
[78] John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 [94].
In this case, I have carefully assessed the evidence of the witnesses in the context of the contemporaneous materials, the facts that are either not in dispute or can be objectively established, and by considering the apparent logic of the events in accordance with the observations summarised above.
The plaintiff's witnesses
The plaintiff adduced evidence from four witnesses: Mr Lamers, Charlie Napoli, Jason Sutherland, and Dino Travaglini.
Bernard (Ben) Lamers
Mr Lamers is a licensed valuer (since 1991) and a licensed real estate agent (since 2015). He is a member of the Australian Property Institute, the Real Estate Institute of Western Australia, the Property Council of Australia and the Royal Institute of Chartered Surveyors.[79] At the time of the trial, Mr Lamers was a buyer's agent and property adviser at Acumentis, formerly known as Hegney Property Advisors (Hegneys), where he had worked for almost 10 years.[80] Prior to this, he worked as a property manager for an aged care provider.
[79] ts 283 - 284.
[80] ts 203.
Mr Lamers has been married to his wife, Debra, since 1998 and has three children. He has two sisters: an elder sister, Helga, who is married to Mr Carbone, and a younger sister Lisa.[81]
[81] ts 204.
Counsel for the first defendant did not make any submissions about the credibility of any of the parties, including Mr Lamers. Given his role in acting for the trustee of the APT Unit Trust, this was entirely appropriate.
Counsel for the second and third defendants submitted that Mr Lamers' credibility was significantly impacted by the events which led to two loan agreements with Mr Lamers' Snr being entered into and the provision of a further $112,000 by Mr Lamers' Snr to Mr Lamers which was undocumented. Ultimately, counsel for the second and third defendants agreed these matters were not centrally relevant to the issues in these proceedings, except for context as to the reasons for the breakdown in the relationship between Mr Lamers and Mr Carbone.[82]
[82] ts 884.
Counsel for the plaintiff accepted that, in this case, because of the length of time that had passed since the original discussions as well as the relationship between Mr Lamers and Mr Carbone, it was appropriate to treat the oral evidence of each of them cautiously, if it was not otherwise corroborated.[83]
[83] ts 919.
Mr Lamers gave evidence over almost three days at trial (spread over four days). In his evidence-in-chief, Mr Lamers gave evidence of the conversations he had with Mr Carbone setting out, to the best of his recollection, the words that were spoken by each of them. Where he refreshed his memory from other documents or matters, he generally explained what he had considered and what recollections were based on his refreshed memory. In giving his evidence in this manner, Mr Lamers created the impression that he had a relatively good recollection of the events in question.
However, in the course of his lengthy cross-examination, it was apparent that Mr Lamers did not have a specific recollection of many of these conversations or events and that his recollection of the events was influenced by the position he now takes in these proceedings. I also formed the impression that Mr Lamers gave evidence in a manner which he considered to be most favourable to assist his case and would portray him in a favourable light.
The most striking example of this was in relation to the meetings that occurred in September and October 2016 which resulted in the breakdown of their relationship. Mr Lamers' evidence-in-chief was that the first meeting commenced with Mrs Carbone effectively storming in and waiving a document at him. Under cross-examination, his evidence was of a very different complexion. He agreed the meeting commenced after a dinner to celebrate his daughter's birthday and that his sister initially asked him whether he had any information he wanted to disclose about his late father's estate. Mr Lamers accepted in cross-examination that it was only towards the end of the meeting that his sister became agitated.
There are three other notable examples.
First, Mr Lamers sought to downplay his understanding of the financial statements of the APT Unit Trust. In his evidence in chief, his evidence was that he did not really understand them and that when he received them, he simply passed them on to his accountant. In cross-examination, after a number of questions from counsel for the first defendant, he ultimately accepted that he understood a profit and loss statement and a balance sheet and what could be discerned from these documents.[84] He continued to deny, however, that he was capable of understanding the financial documents of the APT Unit Trust.[85]
[84] ts 286 - 287.
[85] ts 287.
Second, Mr Lamers' evidence about the purpose of the loan that was secured by the mortgage over the Ranford Road Property was that it was for tax purposes or tax deductibility. There is no suggestion in the financial statements or any contemporaneous documents that Arvind ever took out a loan itself or that Mr Carbone ever raised the issue of tax deductibility of any loan. The only person who ever raised any questions or issues about the tax deductibility of any finance was Mr Lamers.
Third, Mr Lamers initially denied he was the only one of his siblings who knew the full extent of his father's finances and insisted Mrs Carbone 'would have known as well'. Mr Lamers accepted Mrs Carbone had not seen the loan agreements, although they were in his father's possession, and no-one had seen the bank document from November 2013.[86] Subsequently, Mr Lamers accepted he had the best understanding of his father's financial affairs at the date of his death and that at the date of his father's death he had a 'gut feel' he owed the estate money.[87] In September 2018, Mr Lamers paid the estate $140,000 to settle the claims made against him.[88] These claims included repayment of the loans, as well as a claim that Mr Lamers had withdrawn cash from his father's account for his personal use.[89]
[86] Ex 2.
[87] ts 434 - 435.
[88] ts 435.
[89] ts 437.
Mr Lamers had to be reminded on a number of occasions during his cross-examination to answer the question that had been asked of him. On a number of occasions, Mr Lamers' initial response was to explain the purpose or reason for what had occurred as opposed to simply giving evidence of what had occurred.[90]
[90] See for example, ts 466.
In my view, Mr Lamers' evidence has been impacted by the position he takes in this litigation and what he seeks to achieve from it. While I do not consider that Mr Lamers was deliberately untruthful in his evidence, and make no adverse finding against him, in weighing his evidence, I have considered whether his evidence is supported by facts which have been objectively proved or any contemporaneous documents.
Charlie Napoli
Mr Napoli is a chartered accountant and, at the time of the hearing, was the principal of his own firm.[91] Prior to establishing his own firm, Mr Napoli was a partner of Barringtons. Mr Napoli is Mr Lamers' accountant and has been for approximately 15 to 20 years.[92]
[91] ts 488.
[92] ts 489.
Mr Napoli's evidence-in-chief was extremely detailed, which contrasted with his evidence in cross-examination. Although it was not specifically put to him, on this basis, I formed the impression that Mr Napoli had refreshed his memory from his file, and that his actual recollection of events was more limited and was based on his file notes.
I accept Mr Napoli was an honest witness. However, in determining the reliability of his evidence, given my view that Mr Napoli refreshed his memory, I have considered whether his evidence is supported by the contemporaneous documents.
Jason Sutherland
Mr Sutherland is a business banking manager at the NAB, a role he has held since mid-2013. Mr Sutherland is Mr Carbone's relationship manager with the NAB, a role he has held since about 2013.[93]
[93] ts 514 - 515.
Mr Sutherland had no independent recollection of any relevant matter. Accordingly, I have placed no weight on his oral evidence and have placed primary emphasis on the contemporaneous documents.
Dino Travaglini
Mr Travaglini is a registered auditor.
The plaintiff proposes that Mr Travaglini be appointed as replacement trustee of the APT Unit Trust. The defendants required Mr Travaglini attend for cross-examination and clarified with him the estimated costs of any appointment.
I accept Mr Travaglini's evidence in its entirety.
The defendants' witnesses
The defendants adduced evidence from four witnesses: Mr Carbone, Antonio Silipo, Joe Filardi and Justin Watts.
Saro Vinzi Carbone
Mr Carbone is a dentist by occupation. From 2009 until around mid-2012, Mr Carbone worked part-time as a dentist doing locum work. From about mid-2012, Mr Carbone commenced full-time work as a dentist in his own practice.
Mr Carbone has known Mr Lamers since about 1986 or 1987. Mr Carbone married Mr Lamers' sister, Helga, in 1989.
Counsel for the plaintiff contended that Mr Carbone was evasive, did not answer or respond to a number of questions and failed to make appropriate concessions. He submitted there were a number of inconsistencies in Mr Carbone's evidence and that much of Mr Carbone's evidence was not corroborated by the objective facts or documentary evidence.[94] The cumulative effect of these matters, it was submitted, raised 'serious questions about the veracity' of his evidence and his credibility.[95]
[94] ts 927.
[95] Plaintiff's closing submissions Annexure A [2].
In contrast, counsel for the second and third defendants submitted that Mr Carbone gave a 'more natural and compelling' account of the Agreement,[96] and that the evidence of Mr Carbone should be preferred to that of Mr Lamers.
[96] ts 894.
Mr Carbone gave evidence over two days (spread over three days). Much of the critical evidence given by Mr Carbone was either in conclusory terms or in a manner which reflects the legal characterisation of his case. Both of these matters impact the view that I have ultimately formed of the reliability of his evidence.
By way of example, when asked in evidence-in-chief to give his account of the discussions which led to the Agreement between the parties, Mr Carbone's evidence was:[97]
I said I am going to sell my interest on the – in the property on the corner of Nicholson Road and Ranford Road, and as part of that deal I will be acquiring some land adjacent to that, 404 Ranford Road. My intention is to build a 1550 square metre showroom, partition it more than likely to into three units. Was he interested in - - -
Are you interested?---Are you interested in partaking in this investment?".
[97] ts 556 - 557.
This evidence followed attempts by counsel for the first defendant for Mr Carbone to give evidence of the words used by him and Mr Lamers as opposed to a general statement of what was 'agreed' by them. This very specific evidence-in-chief contrasts with the general evidence that he gave to a similar question in cross-examination. In cross-examination, when asked about the discussions that led to the Development Agreement, Mr Carbone's evidence was that:[98]
The – the discussions at the time were that Mr Lamers would pay for the building, worth about a million dollars. He would receive a unit worth a million dollars. And as far as the transaction reflected, it would mean that I would have a property worth $2 million to put into the books, to put into the accounts.
[98] ts 618.
While there is no dispute that Mr Lamers and Mr Carbone discussed the development of the Ranford Road Property, it is, in my view, implausible that Mr Carbone would have said to Mr Lamers words to the effect that 'I will be acquiring some land adjacent to that' or 'Are you interesting in partaking in this investment?'.
Mr Carbone was reluctant in cross-examination to make any appropriate concessions, including as to matters which were not centrally relevant to the issues in the proceedings. By way of example, in cross-examination, Mr Carbone was shown a copy of the trust deed for the APT Discretionary Trust, which is dated 8 January 2009,[99] and asked whether this was the document referred to in an email dated 30 March 2009. Mr Carbone refused to concede this was the case and responded that 'it was possible' and said he had inserted the date of '8 January 2009 if that document is the trust document'.[100]
[99] Ex 1.3.
[100] ts 607.
In my view, Mr Carbone's evidence was impacted two significant matters: first, his desire that his evidence be consistent with the legal characterisation of his case, and second, his views about Mr Lamers' conduct in relation to the estate of Mr Lamers' Snr.
For these reasons, in assessing his evidence, while I make no adverse finding against Mr Carbone, I have considered whether his evidence is supported by any other contemporaneous or objective evidence or contemporaneous documents.
Mario Antonio Silipo
Mr Silipo has a Bachelor of Commerce degree from the University of Western Australia and is a chartered accountant. The firm he works for is a registered tax agent.[101]
[101] ts 792.
Mr Silipo is Mr Carbone's accountant and has been for approximately 15 years. He does accounting and tax work for Mr Carbone, his family trusts and his various related entities.[102] Mr Silipo explained that in preparing the accounts or financial statements, he generally receives information electronically. One of his staff prepares the relevant financial statements or returns and in doing so, liaises with Mr Carbone's bookkeeper. Mr Silipo reviews the work done by his staff and finalises the relevant documents.[103]
[102] ts 792.
[103] ts 792 - 793.
Mr Silipo came across as an honest and reliable witness. I accept Mr Silipo's evidence in its entirety.
Joe Filardi
Mr Filardi is a commercial real estate agent and has been a licensed real estate agent since 1983. He is employed by Roy Weston Corporate Pty Ltd, which trades as Regents Commercial. He is currently the property manager of the showrooms at the Ranford Road Property and has been since their completion.[104]
[104] ts 777.
Mr Filardi was an honest and reliable witness and I accept his evidence in its entirety.
Justin Daryl Watts
Mr Watts is a forensic document examiner. His evidence concerned whether a document purported to be signed by Mr Carbone in October 2015 was, in fact, signed by Mr Carbone.
Mr Watts explained in clear terms the basis for the opinions that he reached. I address the detail of his evidence at [399] - [414] below.
Before turning to the legal issues that require determination, I set out my findings on the various contested factual matters that arise in this matter with one exception. In relation to the issue of whether certain matters were terms of the Agreement, it is permissible, in determining whether a term is a term of the Agreement, to consider the subsequent conduct of the parties.[105] For this reason, I have set out my conclusions in relation to these contested terms after taking account of all of the facts as found by me.
[105] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1; (2022) 398 ALR 404 [177] (Gordon J).
Purchase of Ranford Road Property
Around 2006 or 2007, Mr Carbone and Andrew Hopkins purchased Lot 1 Nicholson Road, Canning Vale (1 Nicholson Road) which was located at the corner of Nicholson Road and Ranford Road in Canning Vale. Mr Carbone's evidence was that the NAB had security over this property for his banking facilities.[106]
[106] ts 585.
Around 2008, Mr Carbone agreed with Mr Hopkins that he (Mr Carbone) would sell his 50% interest in this property to Mr Hopkins. At that time, Mr Hopkins and Mr Graham Gallot owned 404 Ranford Road, Canning Vale (404 Ranford Road). They agreed to subdivide 404 Ranford Road and that Mr Hopkins would acquire the portion that became the Ranford Road Property. As part of Mr Carbone's agreement with Mr Hopkins to sell his interest in 1 Nicholson Road, Mr Carbone agreed to purchase the Ranford Road Property.[107]
[107] ts 553 - 554.
As at January 2009, Mr Carbone was a reasonably experienced property developer who had developed about a dozen properties (a mix of residential, industrial and commercial properties) personally or through his associated entities.[108] Mr Carbone used loan facilities from the NAB to fund the purchase of these properties and provided these properties as part of the security for obtaining these facilities. To his knowledge, the NAB generally applied a loan to value ratio criteria in considering applications for finance of about 70% for commercial properties and 80% for residential properties.[109] Mr Carbone accepted that at the beginning of 2009, the residential market had 'some negative growth' and the outlook for 2009 was negative.[110]
[108] ts 595 - 597.
[109] ts 598.
[110] ts 599.
On 30 March 2009, Mr Carbone, on behalf of Arvind 'as trustee for the Arvind Property Trust', executed an offer and acceptance for the Ranford Road Property. Mr Carbone's recollection was that he signed the Contract during business hours at the offices of his solicitors, James Chong Lawyers.[111] At that time, James Chong Lawyers had been Mr Carbone's solicitors for approximately six or seven years and had done most of his property settlements and related transactions.[112]
[111] ts 603.
[112] ts 554.
As at 30 March 2009, the Ranford Road Property was still part of 404 Ranford Road and a subdivision was required prior to settlement.[113] The proposed lot was an area of 2,714 m2 (plus or minus 5%) as marked on the plan attached to the Contract. Settlement was to occur 21 days from the issue of a separate certificate of title for the Ranford Road Property.[114]
[113] Ex 1.1.
[114] Ex 1.1, Annexure A, Special condition 3.
Mr Carbone ultimately accepted that at the time he signed the Contract, the trust deed to establish the discretionary trust had not been signed.[115]
[115] ts 607.
At 11.12 pm on 30 March 2009, Mr Chong instructed one of his solicitors to draft the necessary documents to establish a discretionary trust known as the Arvind Property Trust with the trustee to be Arvind.[116] Mr Carbone could not recall the instructions he gave Mr Chong or when he gave those instructions but said they were 'probably' to create a trust or discretionary trust prior to settlement.[117]
[116] Ex 1.2.
[117] ts 605.
I find that at the time the Contract for the Ranford Road Property was executed by Mr Carbone on behalf of Arvind, there was no trust known as the Arvind Property Trust in existence. Given the APT Unit Trust was not established until some months later (in late July 2009), the parties accept and I find that the reference in the Contract to the Arvind Property Trust is a reference to the APT Discretionary Trust and not the APT Unit Trust.
On 28 May 2009, a declaration of trust signed by Mr Carbone, as 'the sole director and secretary' of Arvind, was lodged for assessment with the Office of State Revenue.[118] At that time, Mr Carbone was not the sole director and secretary of Arvind; his wife was also a director and is the company secretary of Arvind.[119] The declaration of trust is dated 30 March 2009 and declared Arvind, as trustee for the Arvind Property Trust, purchased the Ranford Road Property as trustee. Mr Carbone's evidence was that he did not write the date on the document, did not recall telling anyone at his solicitors to give the document this date and did not recall the date this document was signed.[120]
[118] Ex 1.16.
[119] Ex 1.252.
[120] ts 667.
I find that the declaration of trust was signed by Mr Carbone on an unknown date between 31 March 2009 and 28 May 2009. At that time, the APT Unit Trust had not been established. For this reason, I find that the declaration of trust by Arvind was that it purchased the Ranford Road Property as trustee for the APT Discretionary Trust.
Prior to his discussions with Mr Lamers, I accept Mr Carbone intended to develop the property on his own through the APT Discretionary Trust.[121] As at May 2009, Mr Carbone had not attempted to obtain finance for the development of or the construction of the showrooms on the Ranford Road Property. His explanation was that this was because settlement had not occurred and he had not turned his mind to the question as to whether he would be able to obtain finance to develop the Ranford Road Property, prior to his discussions with Mr Lamers.[122]
[121] ts 662 - 663.
[122] ts 601 - 602.
In cross-examination, Mr Carbone denied he did not have the ability to fund the development of the Ranford Road Property, that he was not able to obtain further finance or that he was fully leveraged at this time.[123] However, Mr Carbone accepted that at this time (May to July 2009), he was only working part-time as a locum dentist, his taxable income was low,[124] and he needed funds to meet his expenses. Mr Carbone accepted his income was insufficient to meet his expenses and that he funded his expenses through 'accumulated funds', which included term deposits, some of which were security for his loans.[125] In re-examination, Mr Carbone explained that in addition to the term deposits, at that time, he also had property investments, some term deposits with BankWest (of approximately $300,000) that did not secure his facilities and with some stockbroking firms, as well as some shares.[126]
[123] ts 609.
[124] Mr Carbone's taxable income for the year ended 30 June 2010 was $1,816 (Ex 1.159, p 3), and for the year ended 30 June 2011 was $13,009 (Ex 1.159, p 11).
[125] ts 610 - 611.
[126] ts 759 - 760.
To the extent that it is relevant, while I accept that Mr Carbone had not approached the NAB for finance for the development of the Ranford Road Property, I do not accept he had not turned his mind to this. In my view, it is more consistent with the following objective facts that Mr Carbone approached Mr Lamers to fund the construction of the showrooms because he did not believe it was likely he could fund this himself. First, Mr Carbone and Mr Lamers had only done one joint development before, which was a significant time before (in 1992).[127] Second, there is no evidence that doing a joint development had been discussed by them at or around this time, or prior to entry into the Contract. Third, at that time, Mr Carbone and his related entities had very significant banking facilities in relation to his existing property developments, the market was in negative growth, and he was only working part-time.
[127] ts 205.
Discussions regarding development of Ranford Road
It was not in dispute that sometime between May and July 2009, Mr Carbone first raised with Mr Lamers the joint development of the Ranford Road Property, and that over this time, they had several discussions. Both agree that the first discussion occurred outside Mr Lamers' then residence in Hunter Street, North Perth.[128]
[128] ts 206 (Lamers); ts 672 (Carbone).
Mr Lamers' evidence of the first discussion was as follows. Mr Carbone approached Mr Lamers and told him he had got his hands on a piece of land on Ranford Road in Canning Vale as part of a land swap and was looking to develop the property. Mr Carbone asked whether Mr Lamers was interested in going in and Mr Lamers said he was. Mr Lamers asked where it was, what suburb it was and other related questions. Mr Lamers' recollection was that the initial discussion took about 15 to 20 minutes, although it possibly was half an hour.[129]
[129] ts 206; ts 471 (XXN).
At that time, Mr Lamers had been looking at a property in Warnbro to develop, so Mr Carbone was aware of his interest in undertaking a property development. Mr Lamers knew Mr Carbone had some land holdings, a beachfront holiday home in Mandurah, some larger landholdings south of Mandurah, as well as a property on St George's Terrace that was leased as a café. Mr Lamers had not discussed with Mr Carbone and had no knowledge about Mr Carbone's level of debt, or the ownership structure of these properties, including whether Mr Carbone had any family trusts.[130]
[130] ts 207.
Mr Carbone's evidence-in-chief of his first conversation with Mr Lamers was that he said to Mr Lamers 'I'm going to sell my interest in the property on the corner of Nicholson Road and Ranford Road, and as part of that deal I will be acquiring some land adjacent to that, 404 Ranford Road. My intention is to build 1550 m² showroom, partition it more than likely into three units. Are you interested in partaking in this investment?' In response, Mr Lamers said 'I'm interested in that development. I've been looking for an investment and I'm interested in that property'. Following this, Mr Carbone said they had some discussions about the size of the proposed building, he asked Mr Lamers whether he was interested in driving out and having a look at the Ranford Road Property. Immediately after this discussion, they drove out together to have a look at the site which, at that stage, was vacant land.[131]
[131] ts 556 - 557.
Mr Carbone did not recall how long the first discussion went for.[132]
[132] ts 673.
For the reasons set out above at [111], I do not accept Mr Carbone's evidence of this initial conversation. In my view, the evidence of Mr Lamers in relation to this initial conversation is more plausible and is more consistent with the nature of a conversation between family members who, at that stage, had a good relationship.
Mr Lamers could not recall whether he inspected the Ranford Road Property prior to telling Mr Carbone he was interested in the development but recalled that he drove out to inspect it at some stage.[133] His recollection was that at this time, the Ranford Road property was basically flat sand in an area that was being developed along a long strip of road.[134]
[133] ts 208.
[134] ts 208.
To the extent that it is relevant, I do not accept that, as part of the first conversation, Mr Carbone and Mr Lamers immediately drove out to inspect the site. Given the conversation occurred outside Mr Lamers' then residence after a family gathering, it is, in my view, unlikely that they would have immediately driven out to inspect the Ranford Road Property.
Following this initial discussion, Mr Carbone and Mr Lamers agree they had a number of additional conversations relating to the Ranford Road Property, in which they discussed how they might move forward with the development.
Mr Lamers was unable to give evidence of the detail of each of these discussions but recalled broadly what was discussed over this period. His recollection was that Mr Carbone told him he had a piece of land he was looking to develop into three showrooms and that Mr Carbone said to him:[135]
'I've got the land. If you pay for the construction, then we can put the whole property together, and the property would be three showrooms. If we get my brothers to build it, we can do it for a cheaper rate.'
[135] ts 207 (XN in chief); 474 (XXN).
Mr Lamers agreed with this proposal.[136]
[136] ts 292 (XXN).
In a subsequent conversation, Mr Lamers' evidence was that they discussed how the agreement would work and the likely construction costs. In his evidence in chief, Mr Lamers' evidence was that:[137]
He [Mr Carbone] said it would be approximately 780 [thousand dollars]. I said, "Fine, because that's the type of money that I've got at the moment." He said to me that he has effectively paid 1.5 [million dollars] for the property. I said, "Okay, that's great."
[137] ts 207 - 208.
Mr Lamers was unable to give any evidence as to the detail of their discussions concerning the likely construction costs. He accepted that if the showrooms comprised a 1,500 m² building, in order for the construction costs to be $780,000, the construction costs would have had to be between $500 and $520 per m2, which was significantly lower than market rates (of about $800 m2). Mr Lamers' evidence was that, at this time, they did not discuss how big the units would be but only the amount of money Mr Lamers had.[138] In cross-examination, Mr Lamers accepted he ultimately contributed approximately $1,058,000 for the costs of the construction of the showrooms and had never accused Mr Carbone of misrepresenting the foreseeable cost of the construction or complained about the additional costs.[139]
[138] ts 304.
[139] ts 304 - 305.
When Mr Lamers was asked about whether they had discussed how he would fund the construction costs, his evidence was that Mr Carbone told him that if they were short of funds, he would pick up any shortfall.[140] He could not recall the date of this conversation but recalled they had several conversations concerning the construction costs and the development.
[140] ts 220.
While Mr Carbone agreed he had a number of conversations with Mr Lamers from about May 2009 in relation to the Ranford Road Property, his evidence of what was discussed was significantly different.
Mr Carbone's evidence was that in these subsequent discussions, which occurred at his late father-in-law's house, by phone, at Mr Carbone's then home and Mr Lamers' house in Hunter Street North Perth, they did some calculations to work out whether it was a viable project, including an assessment as to what the likely construction costs would be. Mr Carbone's evidence was that a building had already been designed for the site and was close to approval. Mr Carbone explained that the original site, prior to the subdivision, was approximately 5,500 m² and a building had been designed for an electrical goods supplier of about 3,000 m² across the entire property. He expressed the view it was a 'small thing' to put in a dividing wall and redraw the building for the Ranford Road Property. He said there were architectural drawings that had been approved by council as part of a development application, as well as specifications which were close to being finalised. Mr Carbone said he showed Mr Lamers the drawings.[141] Mr Carbone explained that Mr Lamers provided input as to what the likely returns on the showrooms were likely to be and Mr Carbone expressed some views as to the likely cost of the building, given that his brothers are builders. On the basis of what their rough calculation of the return would be, they discussed that it was more than likely each of the showrooms would be 500 m².[142] His evidence was that the conversations about the likely construction costs occurred at his then house.
[141] ts 558.
[142] ts 559.
I do not accept Mr Carbone's evidence that he showed Mr Lamers the drawings, development application and specification. First, there is no evidence these documents were in existence at that time. Second, Mr Carbone's evidence is inconsistent with the broad or relatively high level discussions that each gave evidence about. Third, this evidence is also inconsistent with the evidence Mr Carbone gave in 2017 of these initial discussions (discussed below), email exchanges at or around settlement, which do not support an inference being drawn that Mr Carbone had these documents or discussed them with Mr Lamers, as well as the handwritten documents on which Mr Carbone relied, Ex 1.153 and Ex 1.154, which I address below.
Mr Carbone's evidence was that Mr Lamers told him he had some cash to fund the construction of the showrooms, which was estimated to be approximately $1 million, and that he would pay for the construction through this cash together with borrowings against his (Mr Lamers') property in Shakespeare Avenue, Yokine.[143] In cross-examination, Mr Carbone denied he told Mr Lamers the building costs would be $780,000.[144]
[143] ts 564.
[144] ts 674.
Mr Carbone also denied he told Mr Lamers he had effectively paid $1.5 million for the Ranford Road Property. His evidence was that there was no discussion about the value of the land and that:[145]
the basis for the deal or the agreement was that I would put the land in. Mr Lamers would pay for the building. He would receive one suite and I would receive two.
Right?---And it was based on the end value of that – of that suite, so if his contribution was $1 million, he would get a suite worth $1 million.
[145] ts 613.
Mr Carbone was then taken to an affidavit sworn in these proceedings in which he deposed that:[146]
I'm selling my interest in a property in Ranford Road, Canning Vale, to the owner, and part of the selling price is going to be paid by the transfer of an adjoining property at 404 Ranford Road to me so it's a land swap. The area of that property to be transferred to me is about 3000 square metres. And it's worth about $2.1 million.
[146] Ex 3 [7.19], p 7.
Given the defendants disputed they should be liable for the plaintiff's costs, they also contended there was no basis to order indemnity costs. In any event, they disputed the matters relied upon by the plaintiff were sufficient for the court to depart from the usual order of party‑party costs.[859]
Reserved Costs
[859] ts 981.
The plaintiff identified six instances where costs were reserved: the plaintiff's application for an interlocutory injunction, the application to appoint a court expert, the application for further injunctive relief (orders for costs on 2 and 13 December 2019), and the application for a stay of the orders of Strk AJ (orders for costs on 11 and 24 March 2020). The plaintiff submitted that he should be entitled to the costs of each of these applications.
The defendants advanced separate arguments as to why they denied the plaintiff should be entitled to the costs of the application for an interlocutory injunction. The first defendant's submission was that the plaintiff should pay the first defendant's costs of the interlocutory injunction, which was consistent with the first defendant's position as to costs generally. Counsel for the first defendant submitted 'it was a rule of practice' that a statement of claim be filed before an application for an injunction is heard so that the defendant knows the case it has to meet and so the evidence can be properly confined. Because this was not done in this case, much of the evidence that was filed by the plaintiff was irrelevant and should disentitle him to any costs of the application.
The second and third defendants contended the application effectively proceed ex parte as they did not have a sufficient time to file any answering affidavits. They contended the grounds for the application were baseless and that the plaintiff should be ordered to pay the defendant's costs of the application, including the costs of the affidavit of the second defendant filed 14 September 2017.
Special costs orders
The plaintiff sought special costs orders in relation to the following items:
(a)statement of claim (item 1(c));
(b)reply and other pleadings (item 4);
(c)requesting particulars of a pleading (item 6(a));
(d)discovery (item 7);
(e)the chamber summons for an interlocutory injunction (item 10(a));
(f)the plaintiff's application for an appointment of a receiver (item 10(a));
(g)preparation of case (item 19); and
(h)trial (items 22(a) and (c)).
In support of its application, the plaintiffs relied on three affidavits of Timothy Wayne Kennedy, a director of the plaintiff's solicitors, filed 3 March 2023, 16 March 2023 and 1 May 2023. The plaintiff submitted that, on the basis of this evidence, it was clear the hourly limits provided by the relevant costs determinations were inadequate because these limits were significantly less than the hours actually spent by the plaintiff's solicitors and counsel.
The plaintiff submitted the matter was both legally and factually complex and emphasised the significant passage of time between the events in question and the trial, as well as the absence of any significant written documentation.
The defendants denied that, in this case, it was appropriate for any special costs orders to be made. This was for two primary reasons. First, the lack of admissible evidence adduced by the plaintiff in support of the application. Second, they contended the manner in which the plaintiff ran his case, particularly in relation to the issues on which he did not succeed, unnecessarily contributed to the length of the trial and any alleged complexity.
Is Arvind entitled to an indemnity from the APT Unit Trust?
The plaintiff contended that Arvind should not be entitled to an indemnity from the APT Unit Trust for its costs or for any of the costs it is ordered to pay and should be ordered to repay to the trust any money it received for payment of its costs. In support of this submission, the plaintiff emphasised that the Unit Trust Deed did not entitle Arvind to an indemnity where the liability arose from a breach of trust. The court having found there was a breach of trust, the plaintiff submitted Arvind had no contractual entitlement to an indemnity. In addition, the plaintiff contended the defence of Arvind as trustee was run for the benefit of Mr Carbone and not Arvind.
While the defendants did not specifically address this question in their oral or written submissions, the first defendant relied on his contractual right of indemnity at trial.
Costs of the second and third defendants
The plaintiff contended that, given the relief he sought in the proceedings, the second and third defendants were necessary parties to the litigation. In particular, the plaintiff submitted it was necessary to commence the proceedings against the second defendant so that he was bound by the term of the interlocutory injunction, and that the third defendant was joined to the proceedings on 1 March 2018 because it was directly affected by the orders sought in these proceedings.
The defendants disputed this characterisation and emphasised that specific Barnes v Addy claims were made against each of the second and third defendants.
Disposition
Appropriate costs orders
As set out in the Primary Reasons, there were four primary issues raised for determination in these proceedings.[860] I accept that the plaintiff was not successful in all of these issues, particularly whether the development of the property and management of showrooms was governed by the APT Unit Trust or the preceding oral agreement, or whether the plaintiff was a creditor of the APT Unit Trust. However, it is my view and I find that, broadly speaking, the plaintiff was the successful party at trial. This is evident from the orders made on 17 February 2023 which included an order that the first defendant be removed as trustee of the Arvind Property Trust. All the defendants opposed any order for the removal of the first defendant as trustee.
[860] Primary Reasons [6].
Given this finding, the prima facie position is that the plaintiff is entitled to receive his costs of the action, subject to any discount that is appropriate for the issues raised by the plaintiff on which he did not succeed.
I accept the defendants' submission that some of the questions raised by the plaintiff on which he did not succeed were the subject of evidence and argument at trial. In particular, the defendants emphasised that the plaintiff was unsuccessful in his argument that the oral agreement was irrelevant to the issues in the proceeding and did not obtain any relief in respect of the grant of the mortgage because of the limitation period.
While I accept the plaintiff did not obtain an order to remove the mortgage or seek damages for the grant of the mortgage, the actions of the first defendant in granting the mortgage was a matter, together with other breaches of trust, justified the removal of first defendant as trustee of the Arvind Property Trust. On this basis, I do not accept the defendants' submissions that the time and cost of this issue is a matter which would warrant a departure from the usual costs order. In addition, while the plaintiff was not successful in obtaining any order for equitable compensation, this was because the plaintiff led no relevant evidence. Self‑evidently, no significant time was spent at the trial in addressing this issue.
However, I accept that the position of the plaintiff in respect of the oral agreement, on which he was unsuccessful at trial, was a significant issue at trial and was addressed by the parties at length in both their evidence and submissions. On this basis, I consider there should be some reduction of the plaintiff's costs to take account of this. In my view, the appropriate discount is 25%. That is, I consider the plaintiff is entitled to an order for 75% of his costs of the proceedings.
In respect of the costs of the second and third defendants, I do not accept the plaintiff's submission that these parties were joined to the proceedings as necessary parties. The plaintiff made separate claims against each of these defendants and did not succeed in those claims. Prima facie, these defendants are entitled to an order that the plaintiff pay their costs of the action.
In this case, for a significant time, the defendants were represented by one set of solicitors. On 14 February 2020, the second and third defendants filed a notice of change of representation appointing Effective Legal to act on their behalf. While a separate defence was filed by these defendants, it was, in all material respects, identical to the defence of the first defendant except in so far as it dealt with the specific claims against the second and third defendants.
While I accept that nothing that has been raised by the plaintiff are matters that would justify a departure from the usual costs order that the second and third defendants are entitled to their costs, it is my view that these costs should be limited to the costs of defending the specific claims brought against these defendants and not the costs of the proceedings more generally.
Should costs be ordered on an indemnity basis from 6 April 2018?
It was not clear from the plaintiff's submissions why it was contended costs should be paid on an indemnity basis from 6 April 2018, which was two days after the defendants filed a substituted defence and counterclaim.
Each of the matters referred to by the plaintiff in support of this application are matters which occurred well after this date, were taken into account in determining whether to order the removal of the trustee and have been taken into account in considering the appropriate costs orders for the proceedings. In my view, none of the matters referred to by the plaintiff are sufficient to justify an order for indemnity costs.
In my view, the costs of these proceedings should be assessed on a party‑party basis.
Reserved costs
Where costs have been reserved by the court, the position at general law was that the court had expressed no opinion as to how the costs should be borne at all.[861] Costs will often be reserved on an application that effectively proceeds on an ex parte basis because, at that stage, both sides of the story have not been heard.[862]
[861] How v Winterton (Earl) [No 4] (1905) 91 LT 763, 765.
[862] Dal Pont, 'Law of Costs' (5th ed) [14.28].
In relation to the reserved costs in these proceedings, it is my view that, for the following reasons, it is appropriate to order that the plaintiff receive his costs for each of these matters.
First, in relation to the application for an interlocutory injunction, I do not accept the first defendant's submission that there is a rule of practice that a statement of claim be filed prior to the hearing of the application or that the plaintiff's failure to do so disentitles him to costs. As occurred in this case, it is not uncommon for an application for urgent interlocutory injunctive relief to be sought at the same time proceedings are commenced by writ with a simple indorsement of claim. While it may be helpful to the parties and the court for a statement of claim to be filed prior to any substantive hearing, I do not accept this, of itself, is sufficient to refuse to allow the costs of the application.
Second, I accept that the application for an injunction effectively proceeded on an ex parte basis. This is evident from the orders made by Master Sanderson on the first return date, which included an order that the defendants file and serve any responsive affidavits. The second defendant filed a responsive affidavit within the time specified. However, after this, the defendants did not seek to relist the application or apply to discharge the order that had been made. It appears from the court records that the parties agreed that pleadings should be filed and the matter be referred to mediation.
Third, in respect of the two applications for injunctive relief, orders were made by the court to protect the assets of the trust pending trial. Orders were made at trial to replace the trustee because of the trustee's conduct.
Fourth, the usual practice on an application for an interlocutory injunction, that is not heard ex parte, is that costs be in the cause. An application which has been brought reasonably to preserve the status quo pending the final determination of the proceedings is usually regarded as an 'incidental cost of those proceedings, properly borne by the ultimate loser'.[863] In my view, each of these applications was reasonably brought to preserve the status quo and the trust assets pending final determination of the proceedings. I do not consider either of these applications were brought unreasonably or in a manner which unreasonably inflated the costs of these applications. In these circumstances, I consider that the usual rule should apply to the costs of these applications.
[863] Perdaman Chemicals and Fertilisers Pty Ltd v Griffin Coal Mining Company Pty Ltd [No 3] [2011] WASCA 203 (S) [11].
Fifth, in relation to the application for a court appointed expert, while the plaintiff consented to orders being made, the plaintiff incurred some costs in relation to this application. This evidence was tendered at trial and the court accepted the evidence of the court appointed expert. On this basis, in my view, this application was an incidental cost of the proceedings and should be borne by the defendants. I do not consider there is any good reason for the plaintiff not to receive his costs of the application, however limited they may be.
Sixth, in relation to the costs of the application for a stay, I also consider the plaintiff should have these costs. The question for this court is not whether the costs are inconsequential, as contended by the second and third defendants; that is a matter for the taxing officer. The question is whether this application is an incidental cost of the proceedings which should be borne by the unsuccessful party and whether it is appropriate for the plaintiff to have these costs. The Consolidated Practice Direction at [4.7.1.1] specifically contemplates an allowance being made of and incidental to a consent order. In this case, the defendants sought a stay of court orders pending the appeal. The application was not proceeded with because the Court of Appeal dismissed the appeal. In these circumstances, I consider it is appropriate for the plaintiff to have his reserved costs of 11 March 2020 and 24 March 2020, given the application did not proceed to a hearing.
Costs of transcript and chronology
The plaintiff also sought orders for a certificate for the costs of the transcript and that an allowance be made under item 35 of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2020 (WA) (2020 Costs Determination) for the costs of preparing a chronology.
Given the conclusion I have reached as to the costs of the application, I consider it is appropriate to award the plaintiff costs he incurred in obtaining a transcript. Given the length of the trial and the reliance on an oral agreement, I accept that it was both necessary and appropriate for the plaintiff to obtain a transcript of the trial. While I accept this is a disbursement incurred by the plaintiff, to the extent required, I consider a certificate should be given for this cost.
No item in the 2020 Costs Determination specifically addresses the preparation of a chronology. In this case, the preparation of a chronology is a matter relied upon by the plaintiff for the lifting of the hourly limited of preparation of trial.[864] In my view, the preparation of the chronology, which was filed pursuant to an express order of the court on 11 June 2020, properly forms part of preparation for trial and should not be the subject of a separate allowance under item 35.
Should the second and third defendants be jointly and severally liable for the costs of the proceedings?
[864] Affidavit of Timothy Wayne Kennedy filed 3 March 2023 [34].
In this case, Mr Carbone was a party to the proceedings in his own name. At trial, Mr Carbone accepted that he made the decisions about the actions taken by the third defendant and effectively controlled it.[865] While Mr Carbone was not the sole director of Arvind, all the matters which were found to be breaches of the trust involved conduct of Mr Carbone as the controlling mind of Arvind.[866]
[865] Primary Reasons [36].
[866] Primary Reasons [769].
I do not accept the second and third defendants' submission that this is a case about piercing the corporate veil. In my view, the issue is whether these defendants are the 'effective litigants' or 'real parties'.
I accept the plaintiff's submission that the issue in these proceedings was whether Arvind should be removed as trustee of the APT Unit Trust due to Mr Carbone's conduct. I also accept that Mr Carbone caused each defendant to defend these proceedings, including to resist the removal of the first defendant as trustee of the trust. While I accept that, in these circumstances, Mr Carbone was the effective defendant to the plaintiff's claim and should, accordingly, be liable for the plaintiff's costs of the proceedings, for the following reasons, I do not consider this should extend to the third defendant. First, the third defendant is a beneficiary of the APT Unit Trust and was joined to the proceedings in that capacity. Second, the conduct relied upon by the plaintiff in the proceedings to justify the removal of Arvind as trustee was conduct of Mr Carbone as the controlling mind of Arvind. There was no suggestion that any of this conduct was conduct of the third defendant. Third, I do not accept the third defendant was the 'effective litigant' or 'real party' to the proceedings.
On this basis, I consider the appropriate costs order is that Arvind and Mr Carbone should pay 75% of the plaintiff's costs of the proceedings jointly and severally.
Should special costs orders be made?
Both counsel who appeared for the defendants criticised the evidence filed in support of the application by the plaintiff. Counsel for the first defendant contended that in support of the application, it was usual practice for a party to prepare a draft bill of taxation. I do not accept this submission. As has been set out above, in determining an application for special costs, the court's decision is made as a matter of impression rather than detailed eventuation.[867] If it were otherwise, the costs of any application for special costs would be disproportionate to the significance of the application and the resources that should be devoted to it. It is in the interests of all parties, as well as the public in the allocation of scarce judicial resources, that disputes as to costs be resolved as quickly, efficiently and inexpensively as possible.
[867] See also the discussion by Martin CJ in Heartlink Ltd v Jones as liquidator of HL Diagnostics Pty Ltd (in liq) [2007] WASC 254 (S) [20] ‑ [21].
As set out above, the plaintiff relied on three affidavits of its solicitor, Mr Kennedy. The affidavits that have been filed set out Mr Kennedy's calculation of the professional time spent by the plaintiff's solicitors and counsel on each of the relevant items, as well as the maximum allowance provided for each item in the relevant costs determinations. However, Mr Kennedy does not give any evidence of how these figures have been calculated, which items in the invoices of solicitors and counsel have been allocated to each item, which practitioners were involved (and their level of seniority), or the work that was actually performed. In my view, the plaintiff's evidence is of very limited value because it does not allow the court to undertake any meaningful comparison of the work performed against the work allowed for in the relevant item of the appropriate costs determination.
While the evidence is, in my view, inadequate, this does not mean that the plaintiff's application must fail. The court must undertake an assessment of the application on the materials available and address the application as a matter of impression rather than undertaking a detailed evaluation.
Before considering whether there is a fairly arguable case that the certain items may be taxed or assessed at an amount greater than the limit imposed by the relevant costs determination, it is convenient to address the second limb first.
In this case, the only basis relied upon by the plaintiff was that the proceedings were legally and factually complex. In my view, that submission was correct. While there were not a significant number of witnesses nor documents in this case, the evidence of the parties covered a relatively lengthy time period (from the initial purchase of the Ranford Road Property in 2006 or 2007 until the date of the trial in 2020) and a significant number of legal issues, even taking into account the issues on which the plaintiff did not succeed. The legal and factual complexity of the matter is evidenced by the lengthy Primary Reasons.
Statement of claim (item 1(c))
Under item 1(c) of each of the relevant costs determinations that cover the preparation of the statement of claim, the maximum allowance is 10 hours of a senior practitioner's time.[868]
[868] Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2016 (WA) (2016 Costs Determination); Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2018 (WA) (2018 Costs Determination); 2020 Costs Determination.
The evidence of Mr Kennedy is that the plaintiff's solicitors and counsel spent at least 153.1 hours in preparation of the seven versions of the statement of claim that were filed in this matter. This included 48.7 hours of counsel, 43.2 hours of senior practitioners, 55.7 hours of junior practitioners and 5.5 hours of a restricted practitioner.
There is no explanation in Mr Kennedy's affidavit as to what work was done by each of these practitioners or whether there was duplication in the work undertaken by each of these practitioners.
The final statement of claim relied upon by the plaintiff at trial is 53 pages long and raises a significant number of legal and factual matters. Although I accept the plaintiff withdrew some of these matters at trial and did not succeed on other arguments, in my view, it is fairly arguable that more than 10 hours of a senior practitioner's time was properly spent preparing and finalising the statement of claim, even taking into account these matters. On this basis, I consider the hourly limit on this item should be removed for the purpose of taxation.
Reply and defence to counterclaim (item 4)
Under item 4 of each of the relevant costs determinations that cover the preparation of a reply and defence to counterclaim, the maximum allowance is 10 hours of a senior practitioner's time.[869]
[869] 2016 Costs Determination; 2018 Costs Determination; 2020 Costs Determination.
The evidence of Mr Kennedy is that the plaintiff's solicitors and counsel spent at least 111.1 hours in preparing the four versions of the reply and two versions of the defence to counterclaim that were filed. This included 52.8 hours of counsel, 38.8 hours of senior practitioners, 14.1 hours of junior practitioners and 5.4 hours of a restricted practitioner.
Once again, there was no explanation in Mr Kennedy's affidavit as to what work was done by each of these practitioners or whether there was duplication in the work undertaken by each of these practitioners.
The plaintiff filed separate replies to the first defendant's defence and the second and third defendant's defence as well as a defence to the third defendant's counterclaim. The reply to the first defendant's defence was 22 pages long and the reply to the second and third defendants' defence and defence to the third defendant's counterclaim was 31 pages long. These documents made appropriate admissions to narrow the issues between the parties and responded to a number of factual and legal matters raised by the defendants. Having reviewed these documents, I consider it is fairly arguable that more than 10 hours of a senior practitioner's time was properly spent preparing and finalising these documents. On this basis, I consider the hourly limit on this item should be removed for the purpose of taxation.
Request for particulars of a pleading (item 6(a))
Under item 6(a) of the 2016 Costs Determination (which applies to this work), the maximum allowance for the preparation of a request for particulars is three hours of a junior practitioner's time.
The evidence of Mr Kennedy is that the plaintiff made two requests for further and better particulars of the defence. The plaintiff's solicitors spent at least 7.6 hours in preparing the first request being 0.6 hours of senior practitioners and 7 hours of junior practitioners. In respect of the second request, the evidence is that plaintiff's solicitors and counsel spent at least 10.6 hours in preparing this request being 2.3 hours of counsel, 5.7 hours of senior practitioners, and 2.6 hours of junior practitioners.
Mr Kennedy's affidavit does not explain what work was done by each of these practitioners or how this work differed.
The first request is four pages long and requests particulars of 11 separate paragraphs of the first defendant's defence. The second request is seven pages long and requests particulars of a further 10 paragraphs of the first defendant's defence.
Neither of these documents are particularly complex. Given this and on the basis of the evidence before me, I am not able to conclude there is a fairly arguable case to lift the limit imposed by the 2016 Costs Determination in relation to the requests for particulars of a pleading.
Discovery (item 7)
Under item 7 of the 2016 Costs Determination (which applies to this work), the maximum allowance for discovery is 10 hours of a senior practitioner's time.
The evidence of Mr Kennedy is that the plaintiff's solicitors spent at least 51.8 hours in completing the plaintiff's discovery in this matter. This included 23.3 hours of senior practitioners, and 28.5 hours of junior practitioners.
There was no explanation in Mr Kennedy's affidavit as to what work was done by each of these practitioners or whether there was duplication in the work undertaken by each of these practitioners. His evidence is that the plaintiff discovered 113 documents in total, which included 'at least' seven bundles of documents.
Given the limited number of documents produced by the plaintiff and on the basis of the evidence before me, I am not able to conclude there is a fairly arguable case to lift the limit imposed by the 2016 Costs Determination in relation to discovery.
Chamber summons for an interlocutory injunction (item 10(a))
Under item 10(a) of the 2016 Costs Determination (which applies to this work), the maximum allowance for a chamber summons, where junior counsel is instructed, is $11,880. This assumes a one‑day hearing and two days' preparation.
The evidence of Mr Kennedy is that the plaintiff's solicitors and counsel spent at least 94.6 hours in preparation of and attendance at the chambers summons for an injunction. This included 12.5 hours of counsel, 8.4 hours of senior practitioners, 73.7 hours of junior practitioners. Mr Kennedy deposes that there was no substantive oral argument on this application.
Mr Kennedy does not explain what work was done by each of these practitioners or whether there was any duplication in the work undertaken by each of these practitioners. In particular, there is no explanation of what was done by the junior practitioners for the significant amount of time recorded.
The chambers summons for an injunction was supported by a lengthy affidavit of the plaintiff filed 21 August 2017, which included 51 annexures. The court's records indicate that the appearance on 29 August 2017 took less than 10 minutes and that the plaintiff was represented by counsel.
Given the limited evidence before me, it is not clear why the plaintiff contends an allowance of $11,880 is inadequate (apart from the number of hours spent by a junior practitioner). In these circumstances, I am unable to conclude there is a fairly arguable case to lift the limit imposed by the 2016 Costs Determination in relation to this application.
Plaintiff's application for an appointment of a receiver (item 10(a))
Under item 10(a) of the 2018 Costs Determination (which applies to this work), the maximum allowance for a chamber summons, where junior counsel is instructed, is $12,540. This assumes a one‑day hearing and two days' preparation.
Mr Kennedy's evidence is that the plaintiff's solicitors and counsel spent at least 105.9 hours in preparation of the seven versions of the statement of claim in this matter. This included 7.5 hours of counsel, 36.5 hours of senior practitioners, and 61.9 hours of junior practitioners.
There is some explanation in Mr Kennedy's affidavit of the work that was done for this application including drafting three affidavits in support of the application, reviewing the four affidavits that were filed in opposition, the preparation of written submissions (both in support of the application and responding to the defendants' submissions) as well as four appearances, including three directions hearing and the substantive hearing.
Court records indicate that the substantive application was heard on the afternoon of 12 December 2019 and the hearing went for over 1.5 hours.
I accept that significant work was done for this application, particularly taking into account the number of appearances that were required and the documents that were filed. However, some of these documents were solely concerned with the application to appoint a receiver, on which the plaintiff did not succeed. Given the limited evidence before me, it is not clear why the plaintiff contends an allowance of $12,540 is inadequate (apart from the number of hours spent by a junior practitioner). In these circumstances, I am unable to conclude there is a fairly arguable case to lift the limit imposed by the 2018 Costs Determination in relation to this application.
Preparation of case (item 19, 18 or 17)
Under the relevant items of the costs determination which apply to this work, the maximum allowance for preparation of the case for trial is 120 hours of work by a senior practitioner.[870]
[870] Item 17, 2016 Costs Determination, Item 18, 2018 Costs Determination; Item 19, 2020 Costs Determination.
Mr Kennedy's evidence is that the plaintiff's solicitors and counsel spent at least 254.85 hours in preparation of this matter for trial. This included 34.65 hours of counsel, 79.3 hours of senior practitioners, 98.1 hours of junior practitioners and 42.8 hours of a restricted practitioner.
There is some explanation in Mr Kennedy's affidavit of the work that was undertaken in preparing the matter for trial. This included preparing witness outlines for three witnesses (including Mr Lamers), issuing four subpoenas, preparing an electronic trial bundle, papers for the judge as well as a chronology. No further evidence was given as to the time taken for each of these matters, nor is there any explanation of the nature of the work done by each of these practitioners or the extent to which there may be duplication in the work undertaken.
However, even on the limited evidence before me, given the breadth of the evidence that Mr Lamers gave at trial, and the number of issues that were required to be addressed in the outlines and in the materials for trial, I consider it is fairly arguable that item 19 may be inadequate for the work that was properly spent preparing this matter for trial. The question of whether the allowance is adequate and the amount that should be allowed is a matter for the taxing officer, who will need to take into account matters such as the extent to which work done by Ms Spencer is claimable under this item or as part of the trial costs. On this basis, I consider the hourly limit on this item should be removed for the purpose of taxation.
Trial (item 22 or 21)
Under the 2020 Costs Determination, which covers the duration of the trial, item 22 sets out the costs that can be claimed for a trial. These matters are identical to those set out in item 21 of the 2018 Costs Determination. The costs that can be claimed include a fee on brief for counsel (3.5 days' preparation and for the first day of trial), fees for the second and subsequent day of trial, the attendance of a legal practitioner attending the trial, the preparation of written closing submissions, and an additional fee on brief for each five hearing days after the first five.
The evidence of Mr Kennedy is that unless the time in the relevant costs determination is lifted, the plaintiff may be prejudiced by being unable to claim any cost for the work done by Ms Spencer, who appeared as counsel at trial with Mr Zappia. Mr Kennedy's evidence is that Mr Zappia spent 11.46 days preparing for trial and 7 days attending trial and that Ms Spencer spent 15.02 days preparing for trial and 7 days attending trial. Both of these exclude the time spent by them in preparing written closing submissions.
I note that the plaintiff does not appear to have taken into account the additional fee on brief or that an allowance can be made for the preparation of written closing submissions. However, even on the limited evidence before me, given the possibility the plaintiff may not be able to claim for the work of Ms Spencer without a special costs order, I accept it is fairly arguable that this item may be inadequate for the work that was done by counsel for the trial. The question of whether the costs sought for the attendance of Ms Spencer at trial should be included in this item or item 19 and whether they are reasonable is a matter for the taxing officer to consider and determine. On this basis, I consider the hourly limit on this item should be removed for the purpose of taxation.
Is the first defendant is entitled to an indemnity from the trust assets of the Arvind Property Trust?
In this case, the first defendant resisted its removal as trustee of the Arvind Property Trust. Having found that the first defendant should be removed as trustee, as a general rule, the first defendant is not entitled to an indemnity from the trust for its costs of the proceeding.
For the following reasons, I am satisfied in this case that the general rule should apply.
First, this was adversarial litigation. Nothing in these proceedings concerned the proper construction of the trust deed nor the nature of the trustees' duties under the trust deed. The first defendant was not successful in resisting its removal as trustee.
Second, in my view, Arvind acted unreasonably in resisting its removal as trustee of the Arvind Property Trust. I have found that Arvind preferred the interests of the third defendant over the interest of the plaintiff and failed to separate the issues concerning the trust from the issues arising from the estate of Mr Lamers Snr. Notwithstanding these matters, Arvind defended the proceedings on the basis that its conduct was justified.
Third, in acting in the manner referred to at [109], Arvind misunderstood the nature of its duties as trustee and the obligations to which it was subject. In my view, the defence of the proceedings by Arvind was not for the benefit of the trust but was for the benefit of each of the defendants.
Fourth, the failure by Arvind to carry out its duties as trustee and to act impartially, particularly in seeking to raise issues which were not connected with the trust, is what, in my view, caused or at least significantly contributed to this litigation.
Arvind should restore to the APT Unit Trust the trust funds used by it to pay the costs of these proceedings, together with interest, and an account should be taken for that purpose. My preliminary view is that interest should be calculated at 6% per annum, which is the rate prescribed by s 8 of the Civil Judgments Enforcement Act 2004 (WA).
Conclusion
For the reasons set out above, the appropriate orders as to costs are as follows:
1.The first and second defendants, jointly and severally, should pay 75% of the plaintiff's costs of the proceedings, including reserved costs to be taxed if not agreed.
2.Pursuant to s 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA), the taxation of the plaintiff's costs is to proceed with reference to the hourly limits of items 1(c), 4, preparation of case and trial in the relevant costs determinations.
3.There be a certificate for the costs of the transcript.
4.The plaintiff should pay the second and third defendants' costs of the proceedings limited to the costs of the specific claim made against those defendants.
5.The third defendant pay the plaintiff's costs of the counterclaim.
6.The first defendant is not entitled to an indemnity from the assets of the trust for its costs and should repay to the APT Unit Trust any amounts it received for payment of its costs, together with interest at 6% per annum and an account should be taken for that purpose.
Given the orders that I consider should be made, it is my view that the defendants, jointly and severally, should pay the plaintiff's costs of this application, to be taxed if not agreed.
Prior to making any orders, I will hear from the parties as to the precise orders that should be made to give effect to these reasons.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JN
Associate to the Honourable Justice Hill
14 JUNE 2023
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