Chammas v Risk

[2015] NSWSC 1213

Supreme Court

New South Wales

Medium Neutral Citation:	Chammas v Risk [2015] NSWSC 1213
Hearing dates:	5 June 2015
Date of orders:	28 August 2015
Decision date:	28 August 2015
Jurisdiction:	Equity
Before:	Slattery J
Decision:	Judgment stayed for a limited period to allow the plaintiff to amend to join the judgment creditor as a defendant and seek relief against it.
Catchwords:	PROCEDURAL RULING – motion by plaintiff joint venturer for a stay of judgment against joint venture vehicle – counter motion by judgment creditor to enforce judgment – application to set aside judgment allegedly given in the absence of a party – whether applicant relevantly affected by the judgment made where the applicant is a shareholder of a party which consented to the order made – where entry of consent judgment may be an act of oppression against a minority shareholder.
Legislation Cited:	Corporations Act 2001 (Cth), s 588FF Supreme Court Rules 1970, Part 40, rule 9 Uniform Civil Procedure Rules 2005, r 36.16(2)(b)
Cases Cited:	PROCEDURAL RULING – motion by plaintiff joint venturer for a stay of judgment against joint venture vehicle – counter motion by judgment creditor to enforce judgment – application to set aside judgment allegedly given in the absence of a party – whether applicant relevantly affected by the judgment made where the applicant is a shareholder of a party which consented to the order made – where entry of consent judgment may be an act of oppression against a minority shareholder.
Category:	Procedural and other rulings
Parties:	First Plaintiff: Dr George Chammas Second Plaintiff: GCG Corporation Pty Limited ACN 153 007 017 First Defendant: Gary Risk Second Defendant: Cannarg Corporation Pty Ltd ACN 153 006 547 Third Defendant: RFG Corporation Pty Ltd ACN 153 006 903 Fourth Defendant: Que Developments Pty Ltd ACN 147 800 244
Representation:	Counsel: Plaintiffs: F. Assaf First, Second and Fourth Defendants: P. Ashfar Third Defendant: D. Pritchard SC Solicitor: Plaintiffs: George Hadchiti, Paramonte Legal First, Second and Fourth Defendants: Karl Burnett, KB Legals Third Defendant: Francisco Gutierrez, Avondale Lawyers
File Number(s):	2013/159036
Publication restriction:	No

Judgment

1. From 2011 to 2013 three joint venture parties involved in these proceedings completed a residential property development (“the development”) in Sans Souci, a suburb of Sydney. The development was financially successful, generating some $3.25 million in gross proceeds that have since been held in a solicitor’s trust account. From this sum about $750,000 is said to be due to the Australian Taxation Office. A number of other trade creditors of the development are still to be paid before the balance can be distributed to the venturers.

2. But the sound commercial judgment that guided these parties into this venture seems since largely to have deserted them. They cannot agree on how to distribute these funds, which have now been idle for over two years. After one failed mediation the parties are mired in procedural trench warfare. This matter came before me in the Equity Duty list on 31 March this year, when the Court was told steps would be taken to progress the proceedings. When it returned on 5 June the Court learned of that progress: the parties had launched more procedural ordnance against one another.

3. The parties bring two motions. In May 2014 the corporate vehicle of the joint venture consented to entry of a substantial judgment in favour of an entity associated with one of the joint venturers. Another of the joint venturers now seeks by the first motion to set aside that consent judgment. The associated entity seeks by the second motion to enforce it.

A Joint Venture Development in Sans Souci

4. The three joint venture parties who together agreed to the development are GCG Corporation Pty Ltd (“GCG”), of which Dr George Chammas is the sole director and shareholder (collectively “the Chammas/GCG parties”), Cannarg Corporation Pty Ltd (“Cannarg”), of which Mr Gary Risk is the sole director and shareholder (collectively “the Risk/Cannarg parties”) and RFG Corporation Pty Ltd (“RFG”), of which Mr Hany Taouk is the sole director and shareholder (collectively “the Taouk/RFG parties”). The parties agreed to establish a company as a joint venture vehicle, to act as a trustee for the benefit of the joint venture parties.

5. That joint venture vehicle was Que Developments Pty Ltd (“Que”). Each of the three groups, the Chammas/GCG parties, the Risk/Cannarg parties and the Taouk/RFG parties hold close to one third of Que. But Que’s shares are actually held through four shareholders: Dr Chammas and Mr Risk respectively own 33.3 per cent each; a Mr Raymond Jabbour holds about 27 per cent, on behalf of Mr Taouk, and a Mr Fadi Bechara owns some 5 per cent. Que operates under a unit trust deed under which the corporate entities GCG, Cannarg and RFG are each allocated 100 units respectively. Mr Risk and Mr Jabbour are the directors of Que.

6. The Chammas/GCG parties, commenced the present proceedings on 23 May 2013 by statement of claim (“the principal proceedings”). The plaintiffs claim to be entitled to the entire sale proceeds of the development against the Risk/Cannarg parties (as first and second defendants) and RFG (as third defendant) and Que (as fourth defendant). Mr Taouk has not been joined as a party to the principal proceedings. On 23 August 2013, the Court noted the undertaking of the defendants in these proceedings that the defendants would deposit the sale proceeds of the development into the plaintiffs’ solicitor’s controlled monies account. That occurred and ever since the proceedings have progressed slowly.

7. But on 20 February 2014, Saint Peter Holdings Pty Ltd (“Saint Peter”) commenced other proceedings 2014/54297 (“the Saint Peter proceedings”) against Que (the fourth defendant in the principal proceedings) seeking repayment of funds that it had allegedly advanced to Que in relation to the development of the Property. Mr Jabbour, a director of Que, partly owns and controls Saint Peter.

8. On 27 May 2014 Robb J made consent orders in the Saint Peter proceedings. The orders included judgment in favour of Saint Peter and against Que in the sum of $879,320.25 and a declaration that this judgment debt arose out of a loan agreement by which Saint Peter advanced funds to Que to enable Que to develop the Property. The Chammas/GCG parties had been given general notice of the Saint Peter proceedings, but say that they had no notice that the consent judgment was to be entered.

9. On 31 July 2014 a Deputy Registrar of this Court made a garnishee order in favour of Saint Peter for the recovery of the judgment sum from credit balance owing to Que on its bank accounts. About a week later, on 8 August 2014 in response to the garnishee order, St George Bank forwarded Saint Peter a bank cheque in the sum of $503,709.90 from a bank account in Que’s name.

10. Two motions must now be decided. By motion dated 23 March 2015, the Chammas/GCG parties seek in the principal proceedings an order setting aside, or indefinitely staying, Robb J’s 27 May 2014 orders in the Saint Peter proceedings and the subsequent garnishee order. The Chammas/GCG parties also seek an order that any of Saint Peter, RFG, Mr Jabbour or Mr Taouk pay into court the amount of $503,709.90 paid from Que’s bank account under the garnishee order. A motion to set aside a judgment in the Saint Peter proceedings should obviously be brought in the Saint Peter proceedings. But I will overlook this procedural irregularity for now, as there are more substantial issues at stake.

11. Saint Peter appears to bring its own competing notice of motion dated 18 March 2015. It seeks the payment out of the Chammas/GCG parties’ solicitor’s controlled monies account of the balance of the judgment debt of $375,610.35 due under Robb J’s consent judgment, together with interest of $24,526.19 to Saint Peter. I say Saint Peter ”appears” to bring this motion because the motion is actually brought in the name of RFG in the principal proceedings. At one stage Mr Pritchard SC announced himself as appearing for Saint Peter, which was quite logical as the relief sought on the motion is really to pursue Saint Peter’s rights.

12. Two encouraging developments should be mentioned. About a quarter of the way into the argument, Mr Assaf on behalf of the Chammas/GCG parties made an open offer that: (1) Robb J’s orders be stayed; (2) both motions otherwise be dismissed; and (3) that there be no order as to costs. As will be seen below the result of these reasons is not very dissimilar to this offer. However the offer was only made in the course of and not before the proceedings and is probably unlikely to have any cost consequences.

13. The other encouraging procedural development is that after the hearing of these proceedings on 5 June the parties agreed that there should be a joint venture accounting. The parties sent consent orders to the Court which were made in chambers on 19 June 2015 to appoint Mr Matt Fehon of McGrath Nichol to be a single forensic accounting expert to examine the books and records of Que and Cannarg together with other material.

14. Mr F. Assaf of counsel appeared for the Chammas/GCG parties. Mr P. Ashfar of counsel for the Risk/Cannarg parties and Mr D. Pritchard SC for RFG.

15. Before considering the two motions some further background is required about each of the principal proceedings and the Saint Peter proceedings.

The Principal Proceedings

16. The principal proceedings seek a range of relief calibrated to deal with the breakdown of a relationship among these joint venturers. The general allegations made in the principal proceedings were to the following effect. Que acquired an option to purchase a property in December 2010. The Rockdale City Council approved construction of the project in May 2011. Que exercised the option to purchase in July 2011, signed a construction contract in late July 2011, obtained construction loan facilities in September 2011 and then commenced construction.

17. The joint venture was formed among Mr Risk, Dr Chammas and Mr Taouk through their respective companies, Cannarg, GCG and RFG. For convenience in these reasons the individuals and their parties will be referred to by their composite names, without distinguishing the companies from the individuals, except where necessary in context.

18. Que, (by Mr Risk), Cannarg (by Mr Risk), GCG (by Dr Chammas), and RFG (by Mr Jabbour). All signed a unit trust joint venture deed in September 2011, with the object of acquiring the property, constructing the development and splitting any profits one third each, after contributing one third of the acquisition costs, and by using Que as the trustee of their unit trust. All parties are said to have agreed that Que’s management would be conducted by consensus and that each of Messrs Risk, Taouk and Dr Chammas would be involved in the day-to-day management of Que. The Chammas/GCG parties claim they invested $1,464,583.05 into the joint venture but that the Risk/Cannarg parties made no monetary contribution whatsoever and the Taouk/RFG parties contributed $787,500. The $1,464,583.05 the Chammas/GCG parties advanced was the full purchase price of the property on which the development took place.

19. The allegations in the Statement of Claim suggests that the relationship among these parties broke down early in 2012. The Chammas/GCG parties requested the Risk/Cannarg parties to reimburse funds, so there would be an equal contribution towards the acquisition costs of the development property by each of the joint venture parties. The Risk/Cannarg parties did not reimburse the Chammas/GCG parties, who responded by expressing an intention to leave the joint venture in March 2012.

20. By mid June 2012 the Chammas/GCG parties were pressing for greater management involvement in Que. But the Chammas/GCG parties allege that did not occur and that the Risk/Cannarg parties have since refused to appoint Dr Chammas as a director of Que or involve him in the management of Que.

21. The allegations of breach of the joint venture agreement cover a period from late 2011 and extend through to early 2013. The allegations include the Risk/Cannarg parties preferring their own interests over the interests of the Taouk/RFG parties and the Chammas/GCG parties by paying amounts to the Risk/Cannarg parties without authority and declining to provide information on behalf of Que to the other joint venturers. Moreover the Risk/Cannarg parties are said to have engaged in misleading and deceptive conduct and breached their fiduciary duties to their fellow joint venturers.

22. Moreover the Chammas/GCG parties allege that they requested information from Que as trustee of the unit trust such as profit and loss statements, balance sheets, cashflow projections, ledgers, sales advices, bank statements, tax returns, ATO accounts and lists of current outstanding creditors. But they allege that Que has failed to provide the requested information.

23. The Chammas/GCG parties further allege in the principal proceedings that certain representations Mr Risk is alleged to have made to Dr Chammas were misleading and deceptive, namely representations as to the joint development of the project, as to the equal contribution towards acquisition costs of the property, as to the equal entitlement to one third of the profits, as to a probable profit of at least $2 million and that Dr Chammas if he contributed $1.5 million would be reimbursed $1 million within a few weeks. These representations are said to be misleading and deceptive on the basis that Mr Risk had no reasonable grounds for making them. Mr Risk is further alleged to have made the representations on behalf of the Risk/Cannarg parties. The Chammas/GCG parties complain the Risk/Cannarg parties and the Taouk/RFG parties did not contribute their one third towards the acquisition costs of the development property, no profits have been realised and that the Chammas/GCG parties were not reimbursed.

24. The same events are said to have resulted in Cannarg breaching its fiduciary duties to GCG, and a break down in trust and confidence between the three groups of parties. The Chammas/GCG parties deploy other equitable doctrines to ground their claims for relief in the principal proceedings: the alleged breakdown in trust and confidence in the joint venture; doctrines of constructive trust and resulting trust and equitable lien arising out of the Chammas/GCG contributions to the joint venture.

25. Moreover, the Chammas/GCG parties alleges that Que breached the unit trust deed of the joint venture by failing to keep proper books of account and by failing to cause accounts to be provided to unit holders during the course of the development.

26. Finally, much of this relief is also framed in the form of a claim as to the oppressive or unfairly prejudicial or unfairly discriminatory conduct of Que’s affairs to the prejudice of the Chammas/GCG parties, within the meaning of Corporations Act 2001 (Cth), s 232, based on the failure to appoint Dr Chammas as a director, Cannarg preferring its own financial interests in the manner already identified, together with the failure to provide trust information as alleged.

27. These allegations are in large measure in contest, as appears from the Defences filed. There has not yet been any final hearing of these allegations.

28. Although the principal proceedings were commenced in May 2013 they have proceeded slowly since and with repeated non-compliance with the Court’s orders. Defences were filed by late August 2013 and the parties engaged in an unsuccessful mediation in September 2013. The Chammas/GCG parties served their evidence on all the defendants in March 2014. On 4 April 2014 the Court ordered the defendants to serve their evidence before 9 May 2014. The defendants did not comply with those orders.

29. Similar orders for the filing of the defendants’ evidence were made on 30 May 2014, 4 July 2014, and 3 October 2014. The defendants finally complied with the last of these orders made on 3 October 2014, requiring the filing of evidence by 24 October 2014. From December 2014 through until March of this year the plaintiffs, the Chammas/GCG parties, say that they have been unable to comply with existing orders to file evidence in reply because of the failure of some of the defendants, and in particular Cannarg, to respond to subpoenas for the production of documents. Once documents were produced in February 2015, suspicions among these parties were such that the Chammas/GCG parties sought to have some of them examined to test their authenticity. All of these matters have caused procedural delay. But in the meantime and in parallel with these events in February 2014 in the principal proceedings Saint Peter launched the Saint Peter proceedings. The relative progress of both proceedings and the orders made within them are relevant to the arguments advanced on the present motion.

The Saint Peter proceedings

30. In the Saint Peter proceedings, the plaintiff, Saint Peter joined only one defendant, the joint venture vehicle Que. It did not join any individual joint venturers. Saint Peter’s Summons sought the following principal relief against Que:

“(1)   A declaration that 'Que Developments Pty Limited’ (ACN 147 800 244) ('the defendant’) through its servants and agents entered into the Deed of Loan and Guarantee on or about September 2011 Saint Peter Holdings Pty Ltd (ACN 107 351 404) ('the plaintiff’).

(2)   Further and in the alternative a declaration that there is a binding and enforceable agreement between the plaintiff and the defendant, the terms and conditions of which are contained in the undated Deed of Loan and Guarantee.

(3)   Further and in the alternative a declaration that in or about September 2011 the defendant borrowed from the plaintiff the amounts of $26,000.00 and $881,000 (Total $907,000.00) pursuant to the Deed of Loan and Guarantee and that such amount is due and payable with interest.

(4)   An order that the defendant and or its servants and agents specifically perform and carry into execution the Deed of Loan and Guarantee and or loan agreement.”

31. No pleadings were ordered in the Saint Peter proceedings. The Summons sought parallel relief to the relief in the principal proceedings: that the net proceeds of the sale of the development be deposited into the plaintiffs’ solicitor’s controlled monies account (prayer 5). The Summons sought orders that Saint Peter holds priority of payment from the controlled monies account in the total sum of $907,000 referred to in prayer 3 and an order that Que pay Saint Peter that sum plus interest at the rate of 10 per cent per annum from the controlled moneys account (prayers 6 and 7). The Summons also sought relief restraining Que from drawing upon any further monies in the controlled monies account, and other consequential relief.

32. On 27 May 2014 after a hearing before Robb J Saint Peter secured the entry of a consent judgment (in the Saint Peter proceedings) in its favour against Que in an amount of $879,320.25. In addition a declaration was made by consent as to the nature of the judgment debt. The declaration was based on evidence read before Robb J. These orders relevantly were as follows:

“1.   Judgment for the Plaintiff in the sum of $879,320.25 ('the Judgment Debt').

2.   A declaration that the Judgment Debt owed to the Plaintiff by the Defendant arose out of an agreement between the Plaintiff and the Defendant made in September 2011, pursuant to which the Plaintiff loaned to the Defendant the amount of $879,320.25, to enable the Defendant as owner and developer, to undertake the residential property development of the premises located at [the development property].”

33. Based on the 27 May 2014 judgment, Saint Peter later applied for and was granted a garnishee order on 31 July 2014 to enforce the judgment against Que’s bank accounts. St George Bank complied with the garnishee order on 8 August 2014 and forwarded a bank cheque in the sum of $503,709.90 to Saint Peter.

33. Saint Peter then took steps to pursue the balance of the judgment from RFG. Curiously, on 19 November 2014 Saint Peter served a letter on RFG, who was not the defendant to the Saint Peter proceedings, demanding payment of $375,709.90, being the balance of the loan said to underlie the judgment in the Saint Peter proceedings. The letter of demand gave little information about the nature of the loan it claimed to be pursuing against RFG:

“We are instructed to act on behalf of Saint Peter Holdings Pty Ltd for the above matter.

We are instructed that you failed to pay the loan back in full to our client with the fees arises of this loan and the amount of $375,709.90 remains outstanding in addition to interest calculated at 2% monthly and legal costs.

We are instructed that unless this amount is paid by cash or bank cheque in favour of our client within 7 days from the date of this letter, then legal proceedings will be commenced against you and your client without further notice and you may have to bear the costs of those proceedings and a 2% monthly interest will apply from the date of the loan agreement.”

35. Mr Jabbour who acted on behalf of RFG in the principal proceedings also swore that Saint Peter was entitled to the balance of the judgment outstanding against Que, calculated as follows:

Judgment as at 27 May 2014:   $879,320.25

Less payment:            $503,709.90

Total due (excluding interest):   $375,610.35

36. Mr Jabbour deposed to the effect that the $375,610.35 plus interest and costs was due and payable by Que to Saint Peter “and should be dispersed forthwith from the plaintiffs’ solicitor’s [in the principal proceedings] controlled monies account as they are funds which were required to generally fund the purchase of the San Souci development site as set out in paragraphs 6 to 14 of my affidavit above”.

37. Mr Jabbour was also a director of a company known as Micro-Formwork Pty Limited (“Micro-Formwork”), a formwork company that did sub-contract work for Que at the development. Micro-Formwork also claims to have an agreement with Que and to have issued a final tax invoice pursuant to that agreement for the balance due of $222,446.31. Mr Jabbour says he enquired of Mr Risk in December 2013 as to when he could expect Que to pay Micro-Formwork and did not receive a definite answer. He requested the Court to make the following payments from the funds held in the controlled monies account as follows:

1. The sum of $375,610.35 on account of the balance of the judgment entered against Que in the Saint Peter proceedings in favour of Saint Peter;

2. The sum of $24,526.19 to Saint Peter on account of post judgment interest incurred pursuant to s 101 of the Civil Procedure Act 2005;

3. The sum of $107,398.52 on account of legal costs incurred in obtaining and enforcing the judgment entered 27 May 2014 against Que in the Saint Peter proceedings; and

4. The sum of $214,799.96 on account to Micro-Formwork.

38. Micro-Formwork’s claim need be considered no further. It is not a party to either the Saint Peter proceedings or the principal proceedings. It is not an applicant on either motion. The Court has no power to make orders in its favour in the proceedings with the pleadings as presently constituted.

39. The Chammas/GCG parties say that they were not aware of the declaration Robb J was making on 27 May 2014. This much can be accepted at least as a working hypothesis based upon the correspondence before the Court on the present motions. It may later become a contested issue and does not have to be decided for present purposes. But the correspondence between representatives of Saint Peter and representatives of the parties to the principal proceedings makes this a reasonable working assumption.

40. On 29 May 2014 Avondale Lawyers on behalf of Saint Peter informed the lawyers representing the parties in the principal proceedings of the entry of the judgment and the making of the declaration and demanded that the solicitors for Chammas/GCG pay Saint Peter the following day.

41. The other parties’ response was immediate. Paramonte Legal on behalf of the Chammas/GCG parties protested that both Saint Peter and Que had failed to keep the Chammas/GCG parties appraised of the Saint Peter proceedings and that they were unaware of the consent judgment being entered on 27 May 2014. They requested a copy of court documents in the Saint Peter proceedings.

42. Avondale Lawyers replied on behalf of Saint Peter. They pointed out that all court documents in the Saint Peter proceedings had been served on the registered officers of Que, declared that the Chammas/GCG parties’ position as shareholders of Que was of no relevance and directed the Chammas/GCG parties to make further enquiries of the board of Que. Avondale Lawyers foreshadowed the motion for the release of the funds held in the controlled monies account and the issue of a statutory demand to Que.

43. Paramonte Legal provided a more detailed response on behalf of the Chammas/GCG parties by letter on 2 June 2014. Paramonte Legal protested that they had only received a copy of the Summons in the Saint Peter proceedings in mid February 2014 and that the Chammas/GCG parties had received no other information or communications about the progress of those proceedings before judgment was entered.

44. The Chammas/GCG parties alleged in this letter, as they do on this motion: that Saint Peter is an alter ego of Mr Taouk; that Que was not only the defendant in the Saint Peter proceedings but the fourth defendant in the principal proceedings; and that Mr Taouk as the substantive plaintiff in the Saint Peter proceedings and an actor through RFG in the principal proceedings must have been aware of the overlapping issues between the Saint Peter proceedings and the principal proceedings and must have equally been aware that the parties in the principal proceedings were unaware of what was unfolding at Mr Taouk’s instigation in the Saint Peter proceedings.

45. Paramonte Legal identified in their 2 June 2014 letter the overlapping issues between the principal proceedings and the Saint Peter proceedings as being how the net proceeds of sale of the development should be distributed among the parties. Paramonte Legal contended that the declaration made in order 2 of the consent orders before Robb J on 27 May is identical to the key issues in the main proceedings as it will affect the respective entitlements of the defendants in the principal proceedings. Paramonte Legal suggested to Avondale Lawyers that Saint Peter and RFG, (i) should be seen as alter egos of Mr Taouk and not as separate corporate entities, and (ii) as having sought in substance to determine by their mutually arranged consent judgment in the Saint Peter proceedings an issue which they well knew would be strongly contested among a wider group of entities in the principal proceedings.

46. Because of the common issues in the proceedings, Paramonte Lawyers suggested that both matters be heard together. Paramonte Lawyers also asked again for the documents in the Saint Peter proceedings that had previously been requested, protested at the peremptory nature of Saint Peter’s requests for action, complained that the Saint Peter proceedings should never have been brought separately and that the Court had been misled. Paramonte Lawyers concluded by contending that the consent orders “are liable to be stayed pending determination of the main proceedings” and invited Saint Peter to agree on the consent orders being set aside.

47. Saint Peter did not accept these contentions. Yet serious though their allegations were, Paramonte Lawyers remarkably did not follow through to seek to set aside the consent orders in the Saint Peter proceedings. As Mr Pritchard SC on behalf of RFG rightly submitted, their delay in seeking to do anything to set aside Robb J’s judgment was lengthy. On 16 June 2014 Saint Peter issued a statutory demand as a preliminary to winding up Que.

RFG’s Case in the Principal Proceedings

48. In the principal proceedings Mr Raymond Jabbour gives the following account in his first affidavit dated 23 October 2014 of his involvement in the development. He is a director of RFG and a co-director of Saint Peter, and a co-director of Que with Mr Risk, who introduced him to the development. Mr Jabbour seems to have been able to speak in his evidence on behalf of both Saint Peter and Que.

49. Mr Jabbour gives an account that he, Mr Risk and Mr Taouk have been close family friends and occasional business partners for more than 20 years. Mr Jabbour says that he and Mr Risk each agreed to take a one third joint venture in the development with a then unnamed third party making up the other third, with Mr Taouk as the project builder. Mr Jabbour says that between June and September 2011 Saint Peter advanced $872,652.25 “at the direction of RFG” towards the development project. Mr Jabbour says that it was his intention at the time to loan the monies from Saint Peter to RFG and then use those funds on the project as the contribution from RFG pursuant to “a joint venture agreement” that he later explains. But the monies were in fact advanced directly by Saint Peter to Que “at the direction of Que”. Thus his evidence in the principal proceedings would appear to justify the conclusion that RFG first received the benefit of the money as a loan from Saint Peter and immediately directed the funds be contributed on its behalf to Que. But Mr Jabbour says no loan documents were signed “because Mr Risk and I were friends” and often did business together without documents. He explains his conduct in more detail as follows:

“17.   To the best of my recollection, the monies were advanced primarily in two lots by Saint Peter to Que at the direction of RFG. The first lot being in or about May 2011, the following amounts:

Incidental Expenses: $26,000.00

18.   At the time given that we were all friends we did not prepare a loan instrument or agreement. However, shortly after, a loan agreement was circulated in draft form at the request of my co-director of Saint Peter, which set out the initial $26,000 contribution and allowed for further funds to be advanced under the same instrument.

19.   The loan agreement was not signed because Mr Risk and I were friends and we were accustomed to doing business together without signing documents.

20.   Between June 2011 and September 2011 and after the initial advance of $26,000 and the circulation of the loan agreement a request was made by Mr Risk for further funds required, which I will describe was the second lot of payments, which consisted of the following:”

50. By August 2011 Mr Risk had invited Dr Chammas to join the joint venture. A draft joint venture agreement was circulated among Mr Jabbour, Mr Risk and Dr Chammas but Mr Jabbour says he was never aware the draft had been signed or formally adopted. Strangely, the version attached to his affidavit is apparently executed by all parties as described earlier in these reasons. Instead Mr Jabbour says that Mr Risk instructed an accountant to set up Que and create a trust structure for the joint venture with Que as trustee and known as the “Que Development Unit Trust”. Mr Jabbour explains that each of RFG, GCG and Cannarg had issued to them 100 of the 300 units issued in the trust. Que then borrowed funds for the development from St George Bank and started construction. Mr Jabbour says that the parties are still in dispute: about the extent of each’s contribution; the amount of the remaining project expenses; and the resulting profit to be distributed.

51. In his second affidavit sworn on 2 February 2015 Mr Jabbour says that when RFG received Saint Peter’s 19 November 2014 letter of demand the balance of the judgment was “due and payable by [Que] to [Saint Peter]” and “should be disbursed forthwith from the plaintiff’s solicitor’s controlled moneys account”. But why was Saint Peter issuing this letter of demand to RFG if Saint Peter had simply loaned the money directly to Que?

52. The demand, made six months after the entry of judgment in the Saint Peter proceedings is more consistent with the evidence in the principal proceedings. The evidence in the principal proceedings does not comfortably support Que’s liability to repay the loan direct to Saint Peter. It better supports Que’s liability to account to RFG as a contributor to a joint venture, and RFG’s liability for the loan moneys to Saint Peter. This is so notwithstanding that judgment and declarations were made in the Saint Peter proceedings that Que owed the money directly to Saint Peter.

Saint Peter’s case in the Saint Peter proceedings

53. A different impression was given to the Court on behalf of Saint Peter in the Saint Peter proceedings. There the evidence inferred that Saint Peter had loaned the money directly to Que. The parties agreed on these applications that the Court could take into account the file in the Saint Peter proceedings.

54. The principal source of this evidence in the Saint Peter proceedings was Mr Fady Romanos a director of Saint Peter. In his affidavit read in the Saint Peter proceedings, Mr Romanos advanced an unsigned loan agreement for a facility of $26,000 which named Saint Peter as lender and Que as borrower. There is no mention of RFG anywhere in this document.

55. Mr Romanos deposed in paragraphs 5, 6, 7, 8 and 9 of his 10 April 2014 affidavit as follows:

“5.   On or about 26 September 2011 I recall attending a meeting with Raymond Jabbour, a director of Saint Peter Holdings Pty Limited and Que, along with Gary Risk director of Que Developments in relation to the residential development under way at the Properties. At the meeting words were said to the following effect:

Gary:      ‘Que needs some extra funds for the project’

I said:      ‘What do you need more funds for?’

Gary said:   ‘We need to release funds to the company that have been used to pay the land tax liability, council contributions, and the 10% option fee. You will get it back in a year, at the end of the project plus 10% interest’

I said:   ‘OK so all the funds are going to be invested into the project?’

Gary:    ‘Yes because our loan with St George requires us to free up $1 million dollars before they will agree to release funds to us’.

I said:       ‘OK. What do you need now?’

Gary:    ‘I need $26,000 straight away to cover the soft costs, all up though, nearly $1 million’

I said:    ‘OK no problem. We'll get it organised. Any further amounts let me know.’

5(sic).   In or about 26 September 2011 a document was prepared which set out the terms of Loan Agreement, known as the Deed of Loan Agreement. This included all terms which were agreed as between St Peter Holdings and Que Developments, however the parties did not get around to executing the documents.

6.   The reason that the Deed of Loan was not executed was due to the fact that it was not unusual to borrow and lend money to each other without signing any documents. When I say each other I mean between myself, Raymond Jabbour and Gary Risk.

7.   Mr Risk, Mr Jabbour and I had developed a friendship and a great deal of trust over the years.

8.   Although the Loan Agreement had not been executed, there is no doubt that the terms contained therein reflected what was agreed at our meeting on 26 September 2011.

9.   On 26 September 2011 Pursuant to the Loan Agreement, Que Developments borrowed the sum of $881,000.00 from St Peters, for use on the construction project. $881,000.00 was to be provided to Que Developments and the remainder ($100,000) was a separate transaction not related to this matter. Interest was to be charged on any monies borrowed in accordance with the Loan Agreement at the Rate of 10% (Item 13, refer to clauses 1.1 and 3).”

56. Again there was no mention here of RFG, or of funds “being advanced at the direction of RFG” to the project, as has been said in the evidence in the principal proceedings.

57. The difference between the Jabbour evidence in the principal proceedings and the Romanos evidence in the Saint Peter proceedings is essentially that the former mentions RFG and keeps open the possibility that RFG rather than Que may owe moneys to Saint Peter. The latter makes no mention of RFG as a possible borrower. It is not surprising on the evidence with which he was presented that Robb J made the declarations that he did based on the evidence before his Honour.

58. The evidence in the Saint Peter proceedings included correspondence with the joint venturers and with Que but none of it suggested that RFG may have borrowed the money from Saint Peter and then RFG on lent or contributed it as equity to Que. The draft balance sheets of Que are consistent with this.

59. But Saint Peter’s single advance of $850,000 cannot both be a loan to Que (as seems to be alleged in the Saint Peter proceedings) and an equity contribution by RFG (as seems to be alleged in the principal proceedings). Although in correspondence on 30 June 2014 the solicitors for RFG and Saint Peter, Avondale Lawyers, remarkably seem to contend otherwise.

60. The differences in the evidence between the two proceedings at least raise the question as to whether or not the full picture was put before Robb J. If the full picture was not put before Robb J this in turn may provide at a final hearing its own independent basis for setting aside Robb J’s orders. But whether or not such a basis exists will only be known when the matter is fully examined at a final hearing. I have also referred these reasons to Robb J for his consideration.

61. On an application such as this the Court clearly does not have the full evidentiary picture as it would at a final hearing. One matter which seems unclear on the evidence on this motion is whether RFG is claiming that the same money, the $850,000 that Saint Peter originally advanced and which ultimately found its way to Que, is also sought to be characterised as RFG’s own equity contribution to Que. If only one tranche of money was advanced either Saint Peter advanced loan funds to Que or RFG contributed equity to the venture and is entitled to its profits based on that equity contribution. It cannot be both. There is no clear evidence so far that both a Saint Peter loan and an additional RFG equity contribution were made to Que.

62. Mr Pritchard SC submits that Que properly retained lawyers to consent to the judgment in the Saint Peter proceedings. There is certainly some evidence of the retainer of the solicitor who acted for Que in the Saint Peter proceedings. This solicitor was Mr Carl Burnett of KB Legal. The judgment that Robb J entered was on 27 May 2014. Mr Burnett had been served on 24 February 2014 with the Summons in the Saint Peter proceedings and Mr Risk apparently on behalf of Cannarg gave instructions to Mr Burnett to accept service on behalf of Que, although the instructions were cryptic. Mr Burnett sent a costs agreement to Que in late February 2014 and had a number of conversations with Mr Risk and Mr Jabbour between March and May 2014, which appraised him of the fact there was a deadlock on the board of Que as to the stance Que should take in relation to the Saint Peter proceedings. Mr Burnett later became aware of an application for summary judgment that Saint Peter was bringing against Que. Mr Burnett received from representatives of Saint Peter proposed consent orders for the judgment to be entered against Que and sought a written authority from Mr Jabbour. Instructions were given by Mr Jabbour on 27 May 2014 to consent to the judgment. Mr Risk, the other Que director, gave Mr Burnett oral instructions which were confirmed in email correspondence. The Court does not have to decide upon validity of the retainer of KB Legal to consent to this judgment. There does not seem to be any board resolution of Que available, giving clear instructions from both directors, Mr Jabbour and Mr Risk for Mr Burnett to consent to the judgment but there were individual instructions. The nature of Mr Burnett’s instruction may become an issue should this question be ventilated in the principal proceedings. But he had implied and ostensible authority to compromise the proceedings in this way: Donellan v Watson (1990) 21 NSWLR 335 at 342C.

The Chammas/GCG Argument

63. The Chammas/GCG parties claim to be able to set aside St Peter’s judgment in the St Peter proceedings. The Chammas/GCG parties claim the benefit of Uniform Civil Procedure Rules, r 36.16(2)(b), which provides as follows:

“(2)   The court may set aside or vary a judgment or order after it has been entered if:

[...]

(b)   it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order”.

64. It might be assumed that the word “party” in the context of UCPR, r 36.16(2)(b) should be read as indicating a person on the record against whom orders have been made. But the Chammas/GCG parties argue that it has an extended meaning and may include any party directly affected by the making of the orders. The Chammas/GCG parties submit that they are both such parties and are entitled now to move under UCPR, r 36.16(2)(b) to set aside the judgment which has been given in their absence. They rely upon Re Octaviar Limited [2013] NSWSC 62; (2013) 93 ACSR 316 as authority for the proposition that in some circumstances the expression “the party” in UCPR, r 36.16(2) is not confined to a person formally on the record as a party to proceedings but may extend to a person whose interests may be affected by the order.

65. The Chammas/GCG parties submit that if Robb J had been informed of the existence of the principal proceedings before the entry of judgment in the Saint Peter proceedings and if the Chammas/GCG parties had been present before its entry they would have made the submission that no order should be made in favour of Saint Peter.

66. But Re Octaviar is distinguishable. It is not authority upon which the Chammas/GCG parties can rely upon in the present case. Re Octaviar concerned an unusual situation. The liquidator of Octaviar Limited applied to this Court for an order pursuant to Corporations Act, s 588FF(3)(b) extending time to bring proceedings in respect of a voidable transaction under s 588FF(1). The application was granted and time extended (the extension order). But before the extended time ran out the liquidator applied to vary the order to extend it further (the variation order) and the liquidator subsequently commenced proceedings against a number of entities within the time so extended. The defendants against whom the proceedings had been commenced brought an interlocutory application to set aside the variation order on the basis that it was beyond the powers of this Court to vary the extension order under r 36.16 by means of the variation order. The parties so sued argued that UCPR, r 36.16(2) was not available as a basis to “vary a judgment or order” after it has been entered and that the proceedings had therefore been commenced in the absence of the proper authority of a Court order. The parties sued contended that the variation order not “given or made in the absence of a party” within r 36.16(2)(b), because the parties on the record, namely the liquidators of Octaviar Limited and Octaviar Limited itself, were present when the variation order was made.

67. Black J rejected this argument. His Honour found that UCPR, r 36.16(2)(b) had a wider meaning and included persons whose interests are affected by the order. Black J examined authority in relation to the predecessors of UCPR, r 36.16, namely the Supreme Court Rules 1970, Part 40, rule 9, namely Nicholson v Nicholson [1974] 2 NSWLR 59, Douglass v Gillman (1990) 19 NSWLR 570 at 571 and Workers Compensation Nominal Insurer v Detailed Flooring Pty Ltd (2010) 80 ACSR 1; [2010] NSWSC 1056 (“Detailed Flooring”). Barrett J observed in Detailed Flooring the principle that a non-party with a clear interest in the subject matter had been regarded as a competent applicant under predecessor provisions to rule 36.16(2)(b). After analysis of these authorities Black J said in Re Octaviar at [22]:

“[22] In my view, the reference to “party” in r 36.16(2) of the UCPR should also be interpreted with regard to the principles as to the circumstances in which a party should be heard before an order is made that effects his or her interests. At general law, a person affected by an order of the court, who has not had an opportunity to be heard, is entitled as of right to have that order set aside: Cameron v Cole (1994) 68 CLR 571; [1944] ALR 130; BP Australia Ltd v Brown(2003) 58 NSWLR 322; 46 ACSR 677;[2003] NSWCA 216 at [133] (BP Australia); John Alexander’s Clubs Pty Ltd v White City Tennis Club (2010) 241 CLR 1; 266 ALR 462; [2010] HCA 19 at [131] and following. If r 36.16(2)(b) of the UCPR were read as having a narrower scope, a person who had not been joined as party to the proceeding, although his or her interests were affected by the orders made, could not rely on that rule to set aside the order made in his or her absence, although an application under general law principles would still be available to that person.”

68. The principle in Re Octaviar clearly applies where the order made permits the bringing of proceedings against a party who has not been heard. But it quite a different question whether the Octaviar principle allows a shareholder of a party who was represented and consents to the making of an order to apply for its variation under r 36.16.

69. Were shareholders generally able to deploy UCPR, r 36.16(2)(b) in this way the consequences would be remarkable. Were the shareholders of a corporate judgment debtor automatically to qualify as “an absent party” within UCPR, r 36.16(2)(b), no judgment creditor could safely enter judgment without searching the share register of a potential judgment debtor and then giving notice to every shareholder before entering judgment. If Que’s directors caused it to consent to judgment in circumstances that are actionable by the joint venturers or by Que’s shareholders that may provide a private right of action under the Corporations Act and at general law between those shareholders and Que or its directors. But it will not immediately result in those same shareholders having the capacity to appear in Que’s stead to seek to set aside the judgment so entered.

70. Where there is no connection to the judgment creditor, the corporate judgment debtor or its shareholders, it is difficult to envisage any circumstances in which a shareholder could deploy UCPR, r 36.16(2) to set aside or vary a judgment in circumstances where the corporate judgment debtor has consented to its entry. The judgment was not made in the absence of the corporate judgment debtor, Que. And Que is a party quite distinct from its shareholders (Lee v Lee’s Air Farming Ltd [1961] AC 12 and Industrial Equity Limited v Blackburn (1977) 137 CLR 567; [1977] HCA 59) and its actions, assets, rights and liabilities are distinct from those of its members (Williams & Humbert Ltd v W&H Trade Marks (Jersey) Ltd [1986] AC 368, and Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd (2003) 9 VR 171; [2003] VSC 291.

71. If the shareholders of a corporate judgment debtor were persons whose interests were affected as shareholders by a consent judgment, any application by a shareholder to set the judgment aside would immediately throw up a procedural conundrum. On the application to set aside the judgment the corporate judgment debtor would no doubt be consenting to the continuation of the judgment. But the shareholder would be seeking to set it aside. The contrasting positions of the corporate judgment debtor and the shareholder create a contest not readily soluble upon a simple application to set aside the judgment. The judgment creditor is not interested in the contest between corporate judgment debtor and its shareholder.

72. The corporate judgment debtor and its shareholder would have to resolve their differences in one of two obvious ways. Either the shareholder will demonstrate or will fail to demonstrate that the corporate judgment debtor has properly consented to the entry of judgment. If the entry of judgment was not proper, the shareholder may be able to compel the judgment debtor to attempt to set the judgment aside for example using remedies such as those available under Corporations Act, Part 2FA. But the judgment debtor will not do this under UCPR, r 36.16 because the judgment debtor was present when the judgment was entered. If in the context between shareholder and corporate judgment debtor the original entry of judgment is adjudged proper, then the judgment debtor will not be authorised to move to set the consent judgment aside. An application by a shareholder to set aside a judgment will generally be met with a persuasive submission that the shareholder should resolve its differences with the consenting judgment debtor first.

73. Analysis of the general law points to the same conclusion: merely because a shareholder’s interests may be indirectly affected by the entry of judgment against a corporation, does not mean that the shareholder has an immediate right to set aside the judgment. Re Octaviar gives effect to the general principle that a party should be heard before an order is made that directly effects his or her interests. But when the origins of that principle are examined the principle does not obviously apply to the shareholders of a company which was represented before a judgment was entered against it. The precise question which authority indicates should be posed for determining whether an absent person has a right to set aside a judgment or an order is: “will his rights against or liabilities to any party to the action in respect of the subject matter of the action be directly affected by any order which may be made in the action”: Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52 (“Pegang”) at 55-6 per Lord Diplock, delivering the opinion of the Privy Council.

74. The same principle has been expressed in Australian authority. In News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410; [1996] FCA 870 (“News Limited”) at 524 the question was posed thus “[an order] which directly affects a third person’s rights against or liabilities to a party should not be made unless the person is also joined as a party. If made, the order would be set aide”. In The State of Victoria v Sutton (1998) 195 CLR 291; [1998] HCA 56 (“Sutton”) McHugh J referred with approval, at [77] and [78], to both Pegang and News Limited. The High Court recently re-stated the law in John Alexander’s Clubs Pty Ltd v White CityTennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [131] and [132] in similar terms, approving Sutton and News Limited and a submission which stated the test in terms that “where a Court is invited to make, or proposes to make, orders directly affecting the rights or liabilities of a non-party, the non-party is a necessary party and ought be joined” [emphasis added].

75. In my view the entry of Saint Peter’s judgment against Que does not directly affect the rights or liabilities of the Chammas/GCG parties in respect of the subject matter of the action. In contrast the interests of the proposed defendants in Octaviar were directly affected in respect of the subject matter of the action.

76. But the situation may be otherwise if there is a relationship between the judgment creditor, the judgment debtor and the shareholder, as is alleged to be the situation here.

77. If it is shown that Saint Peter is a creature of or affected by the knowledge of a party to the principal proceedings, and that the entry of the consent judgment in the Saint Peter proceedings is for example shown to be an act of oppression by those who controlled Que, then, subject to Saint Peter being joined in to the principal proceedings, the Court has well established jurisdiction to set aside the judgment in the Saint Peter proceedings, to give full relief to the Chammas/GCG parties in the principal proceedings. The basis on which this might be done needs no substantial elaboration. The Court has well established jurisdiction to set aside a judgment entered against good faith or by fraud: Wentworth v Rogers (No. 5) (1986) 6 NSWLR 534. An order setting aside the judgment is well within the range of consequential relief for oppression that might be ordered under Corporations Act, s 233, provided Saint Peter were joined as a defendant in the principal proceedings: s 232(1)(f) and (j); Short v Crawley (No. 30) [2007] NSWSC 1322 and Turnbull v NRMA Limited (2004) 186 FLR 360; [2004] NSWSC 577.

78. But the present motions are not the proper place for such relief to be obtained. Saint Peter is not a party to the principal proceedings. The nature of any relief available either under Corporations Act, s 233 or under the other general equitable grounds for relief pleaded in the Statement of Claim have not been properly articulated against Saint Peter. The Chammas/GCG parties have not properly articulated their allegations about the way in which Saint Peter’s conduct by entering judgment in the Saint Peter proceedings was alleged oppression or other misconduct.

79. It is not possible to begin to set aside the Saint Peter judgment on the Chammas/GCG motion, because none of these procedural steps has been taken. Such relief could not readily be granted except at a final hearing. Between now and that hearing it may be that the parties and pleadings in the principal proceedings will be adjusted to allow such relief to be obtained.

Should Any Relief on the Two Motions be Granted?

80. The Chammas/GCG parties’ motion seeks orders setting aside Saint Peter’s judgment. For the reasons given this claim to relief has failed. Such relief could only be granted in the principal proceedings if Saint Peter were joined as a defendant to those proceedings and the Chammas/GCG parties were successful in demonstrating proper grounds for setting the judgment aside.

81. But should Saint Peter’s judgment be stayed? I see no basis for granting this alternative relief unless the Chammas/GCG parties now make clear that they do propose to amend the principal proceedings to join Saint Peter as a defendant and claim relief to set aside Saint Peter’s judgment. The appropriate course is to give the Chammas/GCG parties 21 days to decide whether or not to take this course after considering these reasons. If they do not move to amend the proceedings there would be no basis in view for the continuation of the stay and it should be dissolved.

82. Saint Peter also seeks to enforce the judgment against Que as to the balance of the judgment debt. The disposition of Saint Peter’s motion depends in my view on similar considerations to the disposition of the Chammas/GCG parties’ motion.

83. If the Chammas/GCG parties do apply to amend the principal proceedings to claim relief against Saint Peter and the stay of the Saint Peter’s judgment continues, then there will be no question of enforcement of the balance of the judgment pending the resolution of the principal proceedings involving Saint Peter. Only if the Chammas/GCG parties fail to join Saint Peter to the principal proceedings will it be necessary to consider this issue. This part of the motion can be adjourned for mention before me after the time has expired for the Chammas/GCG parties to amend the principal proceedings.

84. If the Chammas/GCG parties elect to amend their claims for relief in the principal proceedings then any claim to set aside the judgment in the Saint Peter proceedings should be heard with the principal proceedings. When the matter is next before the Court, directions will be made for them to be heard together, unless any party wishes to contend otherwise. These reasons make clear there are substantially overlapping issues of fact and law between the two proceedings.

Conclusions and Orders

85. In the result on the Chammas/GCG parties’ motion the Court will not set the Saint Peter’s judgment aside but will stay it for a short period to permit the Chammas/GCG parties to consider whether they wish to join Saint Peter into the principal proceedings and claim relief against it and Que to set aside the judgment. If the Chammas/GCG parties elect to take this course the stay will continue until further order. Saint Peter may wish to apply to dissolve the continuation of this stay, depending on the form of the pleading filed. But should it take that course it will need to file a motion in a timely manner.

86. It might not be necessary for the Court to consider the issues raised in Saint Peter’s motion to further enforce Saint Peter’s judgment, if the Chammas/GCG parties do not amend the principal proceedings and there is no continuing stay on Saint Peter’s enforcement of the judgment. But if the principal proceedings are amended the question of enforcement of Saint Peter’s judgment can be adjourned to be dealt with at the hearing of the principal proceedings.

87. Both parties have had a measure of success in relation to their motions. The Chammas/GCG parties have not successfully set aside Saint Peter’s judgment but have obtained a conditional opportunity to stay that judgment. Saint Peter has not lost its right to enforce the judgment, but it may later lift the stay and enforce the judgment at the hearing.

88. In the circumstances, the order for costs which suggests itself is that the parties’ costs of these two motions be each parties’ costs in the proceedings. In a case in which there have already been substantial procedural disputes the Court hopes the parties will be able to resolve questions of costs by agreement. If the parties cannot do this then they may wish to put further costs argument at their own risk as to costs.

89. The orders of the Court therefore will be as follows:

1. Stay the judgment entered in favour of the plaintiff, Saint Peter Holdings Pty Limited on 27 May 2014 in proceedings no. 2014/54297 (“the Saint Peter proceedings”) until 4pm on Friday, 25 September 2015;

2. Direct that the plaintiffs in these proceedings no. 2013/159036 file by 5pm on 18 September 2015 any motion to join Saint Peter Holdings Pty Limited as an additional defendant to these proceedings and to claim any relief against it;

3. Adjourn the proceedings for further directions to 9.30am on 25 September 2015;

4. Direct the parties in both sets of proceedings to confer with a view to resolving issues of costs on the two motions the subject of these reasons and with a view to agreeing upon further directions to bring both proceedings to final hearing together as efficiently as possible.

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Decision last updated: 28 August 2015