Chikal Pty Ltd & Bi Constructions Pty Ltd
[2010] NSWSC 1286
•4 November 2010
NEW SOUTH WALES SUPREME COURT
CITATION:
Chikal Pty Ltd & Bi Constructions Pty Ltd [2010] NSWSC 1286
JURISDICTION:
FILE NUMBER(S):
2010/359687
HEARING DATE(S):
4 November 2010
EX TEMPORE DATE:
4 November 2010
PARTIES:
First Plaintiff- Chikal Pty Ltd
Second Plaintiff- Bi Constructions Pty Ltd
JUDGMENT OF:
Slattery J
LOWER COURT JURISDICTION:
Not Applicable
LOWER COURT FILE NUMBER(S):
Not Applicable
LOWER COURT JUDICIAL OFFICER:
Not Applicable
COUNSEL:
Plaintiffs- P. Bambagiotti
SOLICITORS:
First Plaintiff-Mr H. Macken, Beston Macken McManis
Secondf Plaintiff- Mr R. Rahal, Cambridge Law Group
CATCHWORDS:
PROCEDURE
miscellaneous procedural matters
application by corporate joint venturers under UCPR 41.3 for payment of funds out of court
funds in Court had been paid in by solicitor for the joint venture
history of disputes and litigation among investors in one of the corporate joint venturers
forseeable that future disputes among investors may lead to an application for part of the funds to be paid back into Court
appliction of Uniform Civil Procedure Act 2005, s 56 considered
HELD: directions given for notice of the application to be given to individual corporate investors in joint venture.
LEGISLATION CITED:
Home Building Act 1989 (NSW), Part 2C
Strata Schemes (Freehold Development) Act 1973
Trustee Act 1925 (NSW), Part 4
Uniform Civil Procedure Rules (UCPR), Part 41, Rule 3(1)
CATEGORY:
Procedural and other rulings
CASES CITED:
BI Constructions Pty Ltd v Shad & Anor; Bayeh v BI Constructions Pty Ltd [2010] NSWSC 484
La Trobe Capital [2009] NSWSC 1118
TEXTS CITED:
DECISION:
1.I adjourn the proceedings for further hearing on 22 November 2010 at 9.30am.
2. I direct the plaintiffs to serve the summons and affidavits in these proceedings together with a copy of these reasons personally on Mr Sam Bayeh and Mr Joe Bayeh (or with their agreement upon their authorised attorney appointed for the purpose), by 5pm Wednesday 10 November 2010.
3. With service in accordance with directrion 2 the plaintiffs should inform each of Mr Samir El Bayeh and Mr Joe Bayeh in writing that if he wishes to oppose the orders sought in the summons that he or his attorney should inform the Court of that on the adjourned date of 22 November 2010.
4. I grant liberty to apply.
JUDGMENT:
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
SLATTERY J
THURSDAY, 4 NOVEMBER 2010
2010/359687 CHIKAL PTY LIMITED & BI CONSTRUCTIONS PTY LTD
EX TEMPORE JUDGMENT
HIS HONOUR: The plaintiffs Chikal Pty Limited (“Chikal“) and BI Constructions Pty Limited (“BI Constructions”) are joint venturers in a property development in Raymond Street Bankstown. The proceeds of the property development are now in Court. The two joint venturers now together seek payment of those funds out of Court.
Each of the plaintiffs have retained independent solicitors, Mr Macken for Chikal and Mr Rahal for BI Constructions. Together they have engaged Mr Bambagiotti of counsel to present their application. The application is made under Uniform Civil Procedure Rules (UCPR), Part 41, Rule 3(1) which provides:
"Deposited funds may not be withdrawn or paid except by the authority of these Rules or of a judgment or order."
The plaintiffs, as the only parties said to be interested in the fund, jointly seek an order for its payment out to them.
Before the payment into Court the funds paid into Court were trust funds held on behalf of the joint venture by Mr Shad, its solicitor.
In these circumstances they should in my view be dealt with in much the same way as they would were they funds paid into Court under Trustee Act 1925 (NSW), Part 4: see La Trobe Capital [2009] NSWSC 1118.
I have reached the conclusion that but for the matters of notice identified in these reasons the plaintiffs have established an entitlement to payment of the funds out of Court to them. However I conclude in these reasons that notice should be given to two persons before payment out occurs.
Where a plaintiff seeks payment of funds out of Court that have been paid into Court under Trustee Act, Part 4 the plaintiff must establish first, an entitlement to the funds in Court; secondly, if there are any other claimants over the fund and prove that there are no other claimants; and, thirdly, if there are other claimants, indicate the relative priority of their claims to those funds.
In this case Mr Macken and Mr Rahal have both indicated on affidavit that they do not believe that any person other than the plaintiffs have a claim or entitlement to the money paid into Court. Ordinarily, that would go a long way on its own to satisfy that there are no other claimants to the money in Court. If there are no other claimants it is not necessary for the plaintiffs to establish first priority. However the plaintiffs have in meeting their obligation of candour on this ex parte application provided detailed evidence about the case. That evidence has caused the Court to consider the possibility that two persons may wish to make a claim over the fund. However as Mr Rahal and Mr Macken indicated, those two persons have certainly not indicated the making of such a claim as yet.
One of the Court's concerns on such an application is to ensure that if there is a payment out of Court, that payment occurs in circumstances that will minimise the possibility of future disputes which would require the funds to be paid back into Court upon the application of another party. If the Court can give directions before a payment out of Court, to reduce the possibility of an application for payment back into Court, then it is desirable for the Court to do so. Giving such directions will facilitate the just, quick and cheap solution of the real issues in the proceedings: Civil Procedure Act 2005 (NSW), s 56. With this short background I will now go to the structure of the application.
The parties and the subject matter of these proceedings are already familiar to the Court. I gave a judgment in a claim brought by BI Constructions against Chikal and Mr George Shad on 18 May 2010: BI Constructions Pty Ltd v Shad & Anor; Bayeh v BI Constructions Pty Ltd [2010] NSWSC 484 (“the trust proceedings”). Those proceedings have given the Court a familiarity with the major actors in the matter. This matter has been re-listed before me for hearing today because of that familiarity. A brief narrative of the background facts is necessary.
Background to the Joint Venture funds in Court
Chikal and BI-Constructions are joint venturers under a 2003 joint venture deed in respect of the Bankstown development. The 2003 joint venture deed provided for each party to have 50 percent of the joint venture and to divide and distribute the whole profit from the sale of the Bankstown development in that proportion.
The joint venturers engaged Bidana Constructions Pty Ltd to undertake the construction of the Bankstown development. The construction of the development was the least of the joint venturers’ difficulties. Bidana completed construction satisfactorily in July 2009. A strata plan was registered for the Bankstown property at about the same time under Strata Schemes (Freehold Development) Act 1973 and the common property vested in an owners corporation. All units in the development have now been sold save for two which are being dealt with separately by the joint venture.
Most of the proceeds of sale of the home units were paid to the solicitor for the joint venture Mr George Shad of Shad Legal Services Pty Ltd. During the construction period Mr Shad acted as a stakeholder to receive settlement funds upon the sale of units and to pay certain expenses of the joint venture out of those funds. However troubles developed within the joint venture towards the conclusion of the construction period. These troubles did not directly concern Chikal but the other joint venture party, BI Constructions.
BI Constructions is a corporate entity representing the interests of three individual investors, Mr Yussef (“Joe”) El Bayeh, Mr Sam Issa and Mr Samir El Bayeh. Mr Samir El Bayeh also had a controlling interest in the builder, Bidana.
The dispute within BI Constructions broke out in an unusual way. BI Constructions commenced the Trust proceedings against Mr Shad the solicitor for the joint venture and the other joint venturer, Chikal seeking a range of relief including: declarations that the funds held by Mr Shad were held on trust for the two joint venturers; that the two joint venturers were absolutely entitled to those funds; and, various other forms of relief including damages for breach of trust.
Sensibly, Mr Shad decided as a stakeholder beset by such litigation that the best course would be to pay the funds into Court. That is the course he took. After Mr Samir El Bayeh gave notice that he wished to become involved in the trust proceedings on 27 November 2009, a working compromise was reached among the parties. That consensus resulted in payment of the money held by Mr Shad into Court and the payment of some monies then due to the Commissioner of Taxation in the sum of $1,965,596. The amount paid into Court is understood to be in accordance with order 2 of the orders made on 27 November in the trust proceedings. The precise amount paid into Court is yet to be verified but is said to be of the order of $6,000,000.
The trust proceedings continued. Mr Samir El Bayeh with his one-third interest in BI Constructions was aligned against the two other shareholders Mr Joe El Bayeh and Mr Sam Issa.
Mr Samir El Bayeh launched a challenge in the trust proceedings to BI Constructions’ retainer to commence the action. I ultimately held his challenge to be successful: BI Constructions Pty Ltd v Shad & Anor; Bayeh v BI Constructions Pty Ltd [2010] NSWSC 484. The solicitors acting for BI Constructions were ordered to pay the costs of the other parties to the proceedings.
The trust proceedings had their origins in other disputes within BI Constructions regarding the accounting for the Bankstown development. When the building work on the Bankstown development was completed, some individual investors in BI Constructions were not satisfied with Bidana’s accounting for development expenditure. Distrust developed regarding disclosure of books and records and accounting for construction costs.
The details of the disputes that arose between Mr Samir El Bayeh and BI Constructions and Bidana can be readily found in the history set out in my judgment in the trust proceedings on 18 May 2010 (BI Constructions Pty Ltd v Shad & Anor; Bayeh v BI Constructions Pty Ltd [2010] NSWSC 484, see especially paragraphs [8] - [15]).
After dismissal of the trust proceedings the parties have attended to these deeper issues. Accounting reports have now been commissioned by BI Constructions to audit the accounts between the joint venture and Bidana. Accountants’ reports have been completed by Mr Kirk Maynard, a partner of the accounting firm KM Nominees & Associates. These reports seem to have quelled the internal accounting disputes within BI Constructions.
In late September or early October a further proposal to finally resolve issues within the joint venture and within BI Constructions appears to have been developed and discussed. This resulted in the holding of a directors’ meeting of the three investors in BI Constructions on 15 October 2010 with a view to resolving their disputes as a preliminary to the distribution of joint venture funds. The board resolved by majority to make some provision for a retention fund to provide for the joint venturers’ future obligations under the statutory warranties in Home Building Act 1989, Part 2C.
The minutes of the 15 October meeting show that Mr Samir El Bayeh and Mr Sam Issa supported the resolutions that facilitated distribution of the joint venture profits and this application to Court. This is a different division within BI Constructions from that which existed at the time of the trust proceedings. The 15 October resolutions are resolutions to: accept and adopt the audit report; deal with the joint venture proceeds by setting aside $500,000 in the controlled monies account on account of future defects and rectifications liability; pay the balance of $326,148 due to Bidana; pay the remaining liabilities due and payable by the joint venture (as found by the audit process as correct) payment; and divide the balance of the joint venture proceeds as to 50 percent each to Chikal and BI Constructions.
Further resolutions on 15 October provided machinery for the final distribution of the joint venturer’s profits, deciding that:
(a) the remaining unsold units within the joint venture were to be listed for sale and the profit divided as to 50 percent to Chikal and 50 percent to BI Constructions; and specifically BI Constructsions' share is then to be divided equally among Mr Joe El Bayeh, Mr Sam Issa and Mr Samir el Bayeh;
(b) BI Constructions was to join in the current application before the Court with Chikal for distribution of the funds in Court;
(c) BI Constructions' share of the funds in Court was to be paid out in particular proportions to Mr Joe El Bayeh, Mr Sam Issa and Mr Samir El Bayeh after other legal and other professional expenses;
(d) any money provided for under the earlier resolutions and remaining after the expiry of the Home Building Act defects liability period would be divided between Chikal and BI Constructions equally; and,
(e) BI Constructions would pay certain monies to Barrak Lawyers.
It is clear from a reading of these minutes that Mr Joe El Bayeh voted against most of the resolutions. He did so for reasons sometimes expressed and sometimes unexpressed. But the theme that emerges from the minutes is that he was discontented with the equal distribution of the proceeds within BI Constructions. It can be anticipated from reading these minutes that he may wish to dispute the distribution of monies paid out of Court and he may desire to claim part of those funds.
The last step in this course of events was a deed (“the 2010 joint venture deed”) to amend the 2003 joint venture deed. The 2003 joint venture deed provided for the distribution of all profits from the joint venture to the joint venturers. The parties have now sensibly made provision in the 2010 joint venture deed for a fund of $500,000 to meet their potential future liabilities under the Home Building Act before profit distribution to the joint venturers. The amount of that fund is a matter for the parties. But the proposal that such a fund be set aside is commercially prudent.
The joint venturers now apply for the payment of funds out of court. In my view the joint venturers have generally made out their case. They have established that the funds paid into Court were joint venture funds. They were held on trust for the joint venture by Mr Shad before being paid into Court. The joint venturers have a joint entitlement to the payment of the funds out to them.
Other claims to the Funds in Court
Mr Bambagiotti submits that it is sufficient for the plaintiffs to show their entitlement and to show, as the plaintiffs have, to use Mr Rahal and Mr Macken's words: "they believe that no person has any claim or entitlement to the money that was paid into Court in the trust proceedings other than the plaintiffs".
The plaintiffs have demonstrated that no-one other than Mr Joe El Bayeh or Mr Samir El Bayeh has such a claim. I am concerned by the lessons that are to be learned by the history of the related proceedings. Mr Samir El Bayeh brought proceedings to challenge the retainer of BI Constructions to bring the trust proceedings. Mr Joe El Bayeh is now dissenting from the resolutions to bring these proceedings. There is at least a tangible possibility of a claim being made by one or other of these persons or both of them over BI Constructions’ portion of the funds in Court. Only Mr Sam Issa has over time consistently supported the position being taken by the joint investment vehicle, BI Constructions.
The question for the Court now is what is the best course. I foresee a hazard if the issue of Mr Samir El Bayeh and Mr Joe El Bayeh’s rights to a potential claim are not dealt with now. If the Court pays the funds out under the structure envisaged, Mr Macken will receive the funds and hold them in his trust account on behalf of the joint venture. If disputes break out within BI Constructions shortly after the payment out and litigation commences, a party may seek to have the fund paid back into Court. Mr Macken as the stakeholder of that fund may become involved in fielding litigation and claims to the fund from BI Constructions’ shareholders. If this comes to pass it may simply become convenient to all parties to pay the monies back into Court.
Promoting the just, quick and cheap resolution of the real issues in proceedings (Civil Procedure Act, s 56) means that it is desirable to see that unnecessary but foreseeable future steps in proceedings be avoided. Notice of these proceedings should now be given to Mr Joe El Bayeh and Mr Samir El Bayeh. They should each be asked whether or not they oppose the funds in Court being paid out or whether they now have any claim over the funds inconsistent with their now being paid out of Court.
It is unlikely that any claim on their part would spill over into disturbing the distribution contemplated by the 2010 joint venture agreement made between BI Constructions and Chikal. If this was likely, Chikal's interests and BI Constructions’ interests would be better served if the existence of such a claim is known before any payment out takes place.
I will adjourn the proceedings for approximately 2 weeks. This will allow notice of the proceedings and for a copy of these reasons to be given to Mr Samir El Bayeh and Mr Joe El Bayeh.
The only other person who has been involved in the previous proceedings who appears to need to be mentioned is Mr Shad. But like Mr Issa he adopted a neutral position in the other proceedings. He was not an antagonist. He took the course of paying the funds into Court so that other parties could litigate their entitlements to the funds. He was the beneficiary of the costs order in the trust proceedings. It does not appear to be likely that he would have any claim over the funds. It is not necessary to give any special notice to him or to Mr Issa.
The purpose of making these orders is so Mr Samir El Bayeh and Mr Joe El Bayeh can be given clear notice of these proceedings. It is expected on the return date that if either Mr Samir El Bayeh or Mr Joe El Bayeh has any claim over the fund in Court such that they wish to oppose its payment out of Court by the orders sought in the summons, they should appear on that occasion personally or by a legal representative to make clear what that claim is and why they oppose payment out. If they do not appear on that occasion, it is likely, given the evidence and proof that has been provided to the Court to date, that the funds will be paid out in accordance with this summons.
Orders
Accordingly, I make the following orders:
1.I adjourn the proceedings for further hearing on 22 November 2010 at 9.30am.
2.I direct the plaintiffs to serve the summons and affidavits in these proceedings together with a copy of these reasons personally on Mr Sam Bayeh and Mr Joe Bayeh (or with their agreement upon their authorised attorney appointed for the purpose), by 5pm Wednesday 10 November 2010.
3.With service in accordance with direction (2) the plaintiffs should inform each of Mr Samir El Bayeh and Mr Joe Bayeh in writing that if he wishes to oppose the orders sought in the summons that he or his attorney should inform the Court of that on the adjourned date of 22 November 2010.
4. I grant liberty to apply.
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LAST UPDATED:
9 November 2010
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