Christopoulos v Krishna
[2017] VSC 154
•4 April 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2016 01136
| DIMITRI CHRISTOPOULOS | Plaintiff |
| v | |
| BADRISH KRISHNA (and others according to the Schedule) | Defendants |
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JUDGE: | JUDD J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6 March 2017 |
DATE OF JUDGMENT: | 4 April 2017 |
CASE MAY BE CITED AS: | Christopoulos v Krishna & Ors |
MEDIUM NEUTRAL CITATION: | [2017] VSC 154 |
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CONTRACT – Illegality – Contract created as an instrument of deception – Void – Plaintiff’s claims under the contract dismissed.
RESTITUTION – Loan to defendant – Independent of illegality – Unjust for defendant to retain the benefit of the loan – Plaintiff may apply to amend statement of claim to seek Restitution.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Cawthorn, one of Her Majesty’s Counsel with Ms S Worsfield | Moray & Agnew |
| For the Second Defendant | Mr I Upjohn, one of Her Majesty’s Counsel with Mr E Moon | Thomas Egan |
SCHEDULE OF PARTIES
DIMITRI CHRISTOPOULOS Plaintiff and BADRISH KRISHNA First Defendant and PRABHU FAMILY PTY LTD (ACN 160 700 756) Second Defendant and HOLISTIC DENTAL PTY LTD (ACN 006 743 282) Third Defendant and HOLISTIC DENTAL HOLDINGS PTY LTD
(ACN 120 148 521)Fourth Defendant and HOLISTIC DENTAL BRUNSWICK PTY LTD
(ACN 110 328 321)Fifth Defendant
HIS HONOUR:
Introduction and background
The plaintiff, Dimitri Christopoulos, is an attorney at law carrying on practice in Athens, Greece. He commenced this proceeding against Badrish Krishna and four related corporate entities in the Commercial Court on 29 June 2016 to recover €600,000 pursuant to an alleged loan agreement made on 21 October 2015, and US$2.8 million pursuant to a further alleged loan agreement made on 23 October 2015, as amended by an extension agreement alleged to have been made on 9 November 2015. In the alternative, the plaintiff claimed US$3.5 million pursuant to a compromise agreement alleged to have been made on 12 November 2015.
Dr Krishna was the registered proprietor of a property at 70 Price Avenue, Mount Waverley, Victoria which, the plaintiff alleged, had also been provided as security. The plaintiff further alleged that three properties owned by the second defendant, Prabhu Family Pty Ltd, had been charged in his favour as security for repayment of the loans. The properties were at 6 Marchori Road, Blackburn North, Victoria; 7 Melville Road, Brunswick West, Victoria; and Unit 3, 90 Mitcham Road, Donvale, Victoria. The third, fourth and fifth defendants, Holistic Dental Pty Ltd, Holistic Dental Holdings Pty Ltd and Holistic Dental Brunswick Pty Ltd, respectively owned and operated dental clinics which, the plaintiff alleged, had been given as additional security for repayment of the obligation under the compromise agreement dated 12 November 2015.
The plaintiff sought declarations supporting each charge, the right to maintain caveats, an order requiring the creation and execution of a registerable mortgage over each title, and an order requiring the transfer to him of the assets of the various dental businesses.
The defendants gave notice of appearance on 20 July 2016. Their solicitor was and is Thomas Egan, although the second defendant has recently changed solicitors. At a directions hearing on 5 August 2016, attended by Jonathan Sumskas, solicitor for the plaintiff, and Mr Egan for the defendants, orders were made by consent requiring the defendants to file and serve their defences by 26 August 2016. Any application for security for costs was to be filed and served by the same date, made returnable on 2 September 2016. Other pre-trial directions were made.
No defences were filed or served. In the Commercial Court, a party to a proceeding under judicial management may not enter judgment in default of defence without the leave of the Court. On 8 September 2016 the plaintiff filed a summons, described as ‘ex parte’, seeking judgment in default of defence against the first defendant in the sum of $4,559,100. Declarations and consequential orders were also sought in respect of the property at 70 Price Avenue, Mount Waverley.
The ex parte summons was returnable on 16 September 2016. Mr Sumskas had filed an affidavit in support, affirmed on 8 September 2016. He deposed to a telephone conversation in which Mr Egan advised that Dr Krishna would not be filing a defence. The application for judgment was for the Australian dollar equivalent of US$3.5 million. In other words, the plaintiff sought recovery under the alternative, compromise agreement, dated 12 November 2015.
In a further affidavit, affirmed by Mr Sumskas on 15 September 2016, he deposed to another telephone conversation in which Mr Egan reiterated that Dr Krishna would not be defending the proceeding. Mr Egan also conveyed an assertion by Dr Krishna that a letter purporting to have been sent by him to the plaintiff dated 12 November 2015 (the compromise agreement) was fraudulent. The assertion was to the effect that Dr Krishna had neither prepared nor signed the document.
On 16 September 2016 the plaintiff sought leave to amend his summons. Leave was granted and orders were made directing the amended summons, and supporting material, to be served on the defendants. The amended summons was returnable on 21 October 2016. The application eventually came before the Court on 9 December 2016.
In support of his application for summary judgment, the plaintiff filed an affidavit sworn 11 November 2016, in which he briefly described the circumstances in which the agreements, upon which he sued, had been made. The plaintiff exhibited each agreement, pointing out that the terms of an Investment Agreement emailed to him on 20 October 2015 recorded that, ‘the purpose of the loan was to finance the establishment of a dental practice in Dubai’. I am now satisfied that, at the time of making his affidavit, the plaintiff knew that the purpose of the advance disclosed in the Investment Agreement was false.
The summons was dismissed. Brief reasons were published on 15 December 2016. In substance, I formed the view that the agreements on which the plaintiff sued were so uncommercial, and the stated purpose so implausible, as to make the whole transaction highly suspicious. Those factors made it inappropriate for the Court to lend its processes to enforcing the claims in the absence of a trial, at which an explanation of the transaction would be required. The plaintiff was required to prove his case in the usual way.
Since the commencement of the proceeding, the properties alleged to be charged with the repayment obligation have been sold, and a liquidator appointed to the corporate defendants. The plaintiff cooperated with the sales by withdrawing caveats.
The trial of the claims against the first defendant were set down for hearing on Monday 6 March 2017. On 2 March 2017 the plaintiff sought leave to proceed against the second defendant in liquidation, Prabhu Family Pty Ltd, over a dispute concerning the proceeds of sale of the Blackburn North property. There had been some urgency about the application, because the plaintiff sought protection of some funds held by the liquidator. The liquidator indicated his willingness to preserve the funds, and formal undertakings were negotiated between the parties. The liquidator did not oppose the application for leave to proceed, and conditional leave was granted. It was common ground that the trial of the issues between the plaintiff and the second defendant would not be determined at the trial scheduled to commence a few days later, which only concerned the first defendant, Dr Krishna.
The liquidator sought leave to participate in the trial of the claim against Dr Krishna, to the extent that he might be concerned with the claims against him. He identified common issues, and a basis to support his participation. It was accepted by the parties that further directions would be required if the plaintiff was to proceed to trial against the second defendant. It was common ground that the trial, scheduled for 6 March 2017, should not be adjourned, because the plaintiff had arranged to travel from Greece to give evidence on that day.
At the trial on Monday, 6 March 2017, the liquidator was represented by senior and junior counsel. His solicitor was Mr Egan, who had filed an appearance on behalf of all defendants. Dr Krishna did not attend, although the Court was later advised that his wife was in attendance as an observer. The liquidator indicated, through his counsel, that certain instructions had been obtained from Dr Krishna, although counsel did not represent him. The plaintiff and Harry Tsalikidis gave evidence. The various affidavits were not tendered at the trial, and do not form part of the evidence.
The liquidator participated in the trial, cross-examined witnesses and tendered a bundle of documents, some of which had been provided by Dr Krishna’s wife. The whereabouts of Dr Krishna was not explained. While the Court was assisted by a contradictor, the position of Mr Egan, and to some extent the liquidator, was compromised by advancing a case on instructions from Dr Krishna, but in his absence. Nevertheless, the importance of a contradictor cannot be overlooked.
Facts
According to the plaintiff, he had been introduced to an investment opportunity by his client and close friend, Mr Tsalikidis, who lived in Ivanhoe, Victoria. Mr Tsalikidis was involved in a tourism project on an island in Greece. Mr Tsalikidis was also a friend of Dr Krishna. The relationship between Mr Tsalikidis and Dr Krishna seemed to involve numerous business meetings, although the nature of the business conducted at those meetings was not explained.
Mr Tsalikidis was of the opinion that Dr Krishna was a successful businessman, operating a number of dental practices. His opinion was based upon such superficial trappings as ‘flashy cars’. Any astute businessman would be highly sceptical of ‘flashy cars’ as an indicator of financial worth or capacity. Such trappings would ordinarily invite caution and scepticism.
Shortly before 19 October 2015, Mr Tsalikidis received a telephone call from Dr Krishna, who was in Dubai. Dr Krishna said he was putting together a couple of business deals and needed some short-term loans. Mr Tsalikidis claimed that during his initial discussion with Dr Krishna, he was not told the purpose of the loan, but offered to make some phone calls. Mr Tsalikidis telephoned the plaintiff to explore his willingness to invest.
On Monday, 19 October 2015, Dr Krishna sent an ‘Investment Loan Agreement’ by email to Mr Tsalikidis. The Investment Loan Agreement purported to be made between Dr Krishna and Kosta Katsouranis, a professional football player and client of the plaintiff. The document purported to record an agreement by Mr Katsouranis to provide an investment loan of US$600,000 to Dr Krishna ‘for business purposes in Dubai’. The document was signed by Dr Krishna, but not the putative investor. Mr Katsouranis had been put forward by the plaintiff as a potential lender.
The initial Investment Loan Agreement had no repayment date or amount, and did not make any reference to security. Later the same day, Dr Krishna sent another incomplete draft agreement to the plaintiff and Mr Tsalikidis. The description of the draft had changed from ‘Investment Loan Agreement’ to ‘Investment Agreement’, although the amount of the proposed ‘investment’ sum was the same (US$600,000). The stated purpose remained the same – ‘business purpose in Dubai’. Provision was made in the draft for additional details to be provided by Mr Katsouranis, including passport details and address. Importantly, the document now provided:
The investment along with the profit of One Million two hundred thousand US dollars ($1,200,000 US) will be returned to Mr. Kosta Katsouranis on or before 4th November 2015.
Once again, the document was signed by Dr Krishna. The same remittance details were provided, and a copy of the photograph of Dr Krishna’s passport included in the email.
At this time, the plaintiff, purporting to act on behalf of Mr Katsouranis, ‘had a couple of telephone conversations with his bank’. The plaintiff claimed that he did not enquire as to the purpose of the proposed investment, or why the money was required so quickly. That draft was the last to be heard of Mr Katsouranis. He was replaced, as the potential investor, by the plaintiff. The circumstances in which that change took place were not explained. In later communications between the plaintiff and Dr Krishna, it would appear that Dr Krishna believed that the plaintiff continued to participate on behalf of a client or clients.
At trial, the plaintiff relied upon a version of a PowerPoint proposal, prepared by Dr Krishna and sent to the plaintiff by email, with a copy to Mr Tsalikidis, on 22 October 2015, to explain the purpose of his investment. The plaintiff described the document as ‘a teaser about potential dentist clinic development in the UAE’. The content of the PowerPoint proposal corresponded generally with the description of the stated purpose for the investment introduced into the next version of the Investment Agreement, dated 20 October 2015, prepared for the plaintiff’s bank, the EFG Bank, based in Luxembourg.
An earlier iteration of the PowerPoint proposal was produced by the liquidator. It had been sent to the plaintiff and Mr Tsalikidis on 20 October 2015. In his covering email, Dr Krishna wrote:
Dear Dimitri and Harry
This is the project I am going to do once we finish this deal and my funds come in
Dimitri please have a look only for you
Keep it confidential
Regards
Badrish[1]
[1]Emphasis added.
Dr Krishna did not suggest that the PowerPoint proposal had anything to do with ‘this deal’, for which funds were urgently required. Nevertheless, the content of the PowerPoint proposal was soon embraced by the parties as the ‘purpose’ for which the money was required. The plaintiff wanted to use the PowerPoint to show to his bank, ‘because my bank, without any legitimate document, would not proceed to the wire transfer because of the compliance’. He noticed that the management team described in the PowerPoint presentation did not include Dr Krishna. The plaintiff responded to Dr Krishna:
Dear Badrish
Thank you for this.
You need to show your relationship to Navara.
This needs to be shown to the bank for due diligence purposes; if you object then you need some other evidence to prove the prodactivity (sic) and legitimacy of the investment.
DC[2]
[2]Emphasis added.
In response, Dr Krishna prepared a further version of the PowerPoint proposal, in which he was identified as a director. Later in the day on 20 October 2015, Dr Krishna sent an electronic version to the plaintiff’s bank. The PowerPoint proposal was deployed by the plaintiff and Dr Krishna to induce the bank to approve the transfer. As the plaintiff put it, the document was to lend ‘legitimacy’ to a transaction.
Mr Tsalikidis recalled receiving the PowerPoint document, or ‘teaser’. He conceded that it had been prepared for the bank. When asked whether the content of the PowerPoint corresponded with what he understood to be the purpose of the investment, he said that he later discovered the true purpose, by reference to a ‘refinery’. When asked directly whether he now understood that the purpose of the advances was something other than what was described in the PowerPoint proposal, Mr Tsalikidis responded:[3]
[3]T 72 L30 to T73 L6.
To be honest with you, at that stage I was not that concerned what he wanted his money for. That might seem quite ridiculous, but my understanding, once he was prepared to give — and as he’s pledged the guarantees for the properties, I advised Dimitri that, based on my knowledge of banks giving up to 60, 70 per cent first mortgages, they don’t proceed much more than that, that his funds would be safe.
When pressed to answer the question, Mr Tsalikidis said:[4]
Now I see that he was - obviously everything happened within two or three weeks, as all the documents suggest, so in that course of two or three weeks, when he wasn’t able to facilitate paying back the loans, I did find out that — why obviously he was giving those great returns was based on another business transaction that he was putting together, but that was of no interest to Dimitri.
That is a different point?---Sorry. My apologies if I’m - - -
Is it now your understanding that the content of the teaser document was not genuine as the purpose for which the money was sought? Do you understand that question?---I understand it. I don’t think — the way it’s transpired now, it seems like the document was not one of maybe complete transparency from the doctor.
Mr Tsalikidis eventually conceded knowledge of the gold transaction, but claimed to have only discovered the truth after the advances had been made by the plaintiff.
[4]T 73 L13 to L26.
On 20 October 2015, Dr Krishna sent a revised version of an Investment Agreement to the plaintiff, with a copy to Rita Georgiou, an officer at EFG Bank. On this occasion, the revised agreement was presented on Holistic Dental letterhead. It was emailed to the bank at about the same time as the revised PowerPoint presentation. There was a real sense of urgency. Dr Krishna required the funds in Dubai by 11.00 am the following day.
The terms of the Investment Agreement sent to EFG Bank had changed in material respects. It purported to be an agreement between Dr Krishna and the plaintiff ‘representing himself or any of his representative of his choice for up to Euros 900,000 …’. The document stated:
The purpose of this investment is to open dental practises in UAE. The return on the investment is 2 to 3 times on the invested amount and will be returned by November 2016.
We are one of the leading practices in oral health care in Melbourne, Australia
We have 3 practices in 3 different locations in Melbourne
I decided to take our expertise and technology to cater the needs of people of UAE
I am leading practitioner in Sleep Apnoea and Temporomandibular Dysfunction
At the moment there is no single practice in UAE, which caters for this need
Our practice will be the first of its kind in the Middle East
We will be requiring the fund for buying equipment’s like the 3D ICAT, Light walker laser, Sirona CAD CAM that includes the Cerec as well.
We will also use the part of the fund to put furniture’s[5]
The document contained the same remittance details as the earlier versions.
[5]Emphasis added.
The stated ‘purpose of this investment’ was ‘to open dental practices in UAE’. The return on investment was said to be ‘two to three times of the invested amount, to be returned by November 2016’. There was no specified sum to be returned. The Investment Agreement did not purport to be a loan agreement. It was an agreement to invest in a business opportunity, to assist Dr Krishna to purchase specified business equipment. It presented as a long-term investment with an uncertain return to the investor.
The plaintiff said the document was prepared to satisfy the bank’s ‘compliance department to accept the transaction’. Counsel for the plaintiff submitted that the date for the return of the investment (November 2016) was in error, and ought to have referred to the year 2015, although that assertion was not the subject of any evidence. The better explanation is that the longer investment period (ending November 2016) was intentional, to give the transaction additional legitimacy.
Having received the revised Investment Agreement on Holistic Dental letterhead (the version sent to the bank), the plaintiff called for an additional document, characterised as an ‘agreement/declaration’. It was apparently prepared by Dr Krishna, executed by him and witnessed by Mr Tsalikidis and George Kalomallos, of Lower Templestowe, Victoria. Mr Kalomallos was a friend of Mr Tsalikidis and an acquaintance of the plaintiff. The new document, dated 21 October 2015, was purportedly made in Dubai. At that time, Dr Krishna and Messrs Tsalikidis and Kalomallos were in Dubai. The plaintiff went to Dubai the following day. The funds were required by 11.00 am, Dubai time, that day.
The ‘agreement/declaration’ had been prepared in response to a request from the plaintiff to Dr Krishna. On 20 October 2015 the plaintiff wrote:
Please draft and sign a letter declaring that pursuant to the letter you addressed today the sum wired will be returned in double the latest by the 2nd of November 2015.
Please guarantee personally the due execution by providing a list of real property of your ownership in Melbourne, Victoria, Australia.
Please have your signature certified by an authority or two witnesses stating their names, addresses, phones, passports.
The terms of the ‘agreement/declaration’, prepared by Dr Krishna at the plaintiff’s request and sent to him on 21 October 2015, were as follows:[6]
[6]Court book, page 28.
Dated today 21/10/2015 Dubai, UAE
This agreement/declaration is between Dimitri Christopoulos and Badrish Krishna of 9 Dower Street Camberwell, Melbourne
I Badrish Krishna declare that I am the pursuant (sic) of the sum 900000 euros wired on 21/10/2015 to my account in Dubai will be returned back in double on or before 2/11/2015.
I personally guarantee the sum of 900000 euros with its profits of 900000 euros.
The list of properties I am offering to keep as guarantee are following
1. 36 Newmans Road, Templestowe, VIC 3106
2. 70 Price Avenue, Mt.Waverley VIC 3149
3. 6 Marchori road Blackburn North VIC 3130
4. 7 MELVILLE Road, Brunswick west VIC 3055
5. 90 Mitcham road, Donvale, VIC 3111
6. Suite 3 and 4 , level 1 ,20 Collin street Melbourne 3000
I declare that I am the rightful owner/share holder of the above listed properties
A further version was prepared, apparently executed the same day in Dubai, in identical terms, save that the amount of the proposed investment had been reduced to €600,000. The revised document was prepared in the form of a ‘declaration’. A copy of the 21 October ‘declaration’, with the reduced sum, was sent by Dr Krishna to the plaintiff and Rita Georgiou at the plaintiff’s bank. Documents produced by the bank included a copy of the 20 October 2015 version of the Investment Agreement, on Holistic Dental letterhead, executed by Dr Krishna and the plaintiff, with an endorsement to the effect that the amount of the advance had been varied to €600,000.
There was evidence that Rita Georgiou sought to persuade the bank compliance officers to authorise the transaction. On the afternoon of 21 October 2015 she wrote,[7]
Hello all,
I do confirm that the client is a very reputable lawyer and individual, i know him for the past 7 years and always the relationship was of high standards.
I did communicated to him our concerns regarding this investment. He is aware of the risks and wants to proceed with the transfer.
He is traveling to Dubai this evening in order to finalize the deal and will need the funds available by tomorrow morning.
By speaking to him i dont have any concern regarding the transfer. It is his investment and the risk is totally his. I will be at your disposal for farther information.Thank you in advance,
[7]Court book, page 31.
The plaintiff was unable to elaborate his bank’s ‘concerns regarding this investment’, or the associated ‘risks’. There was evidence of a conference call between the plaintiff and bank officers about the transfer in which the bank ‘confirmed the client is informed about our concerns …’. The bank eventually transferred the amount of €600,000 to Dr Krishna’s bank on 21 October 2015, but after the 11.00 am deadline.
The plaintiff arrived in Dubai on 22 October 2015, and met with Dr Krishna and Messrs Tsalikidis and Kalomallos. The plaintiff said that Dr Krishna asked for an extension of time to repay, and agreed to repay the initial investment with a penalty of €50,000. According to the terms of the ‘declaration’, dated 21 October 2015, the date for repayment was 10 days away. The plaintiff said that Dr Krishna asked for a new loan of US$1.3 million on similar terms to the initial investment, but with a later repayment date. The plaintiff agreed to make a further advance of US$1.3 million.
As is often the case, the more reliable evidence is to be found in contemporaneous documents. On 23 October 2015, Dr Krishna wrote to the plaintiff:[8]
[8]Court book, page 46.
Dear Dimitri,
Dimitri unfortunately the deal has been delayed due to the unfortunate banking system here in Dubai. As per the bank statement [please see attached} you can see the funds hit at 1.38 PM Dubai time and the banking system unfortunately shuts down at 2.00PM.
I cannot believe that the bank even though pre-arranged with management they did not have the full funds available for withdrawal same day. There was no time to organize the balance of the funds from alternative branches.
We will be transferring back you clients 600K EU including an additional 50K EU for good faith Business. This transfer will be executed on the 24th Saturday to ensure it’s received on Monday.
As you are aware the banking system is shut on Fridays in Dubai. A remittance of the transfer will be email to you upon execution.
As a result of the fragmented banking system here in Dubai, we have now incurred demerger charges and flight/cargo cancelation and rebooking fees that are extensive.
The next available flight is on Friday the 30th of October.
We now would like to ask you if possible; to speak with your client for a new sum to be invested.
We will require approx.. 1.3 Million US, {approx.. 1.167 M EU} the same deal and condition and securities will apply. These funds would be required to be sent same day transaction Monday the 26th October. We seek US dollars if possible as we have assurances that clearance will be faster.
Attached is a renewed agreement for you records in the chance that your client agrees and we can execute.
The only change we will require is the payback of the funds to be extended from the 2nd of November to the 10th of November.
In anticipation we look forward to a positive outcome, please come back to me the soonest possible.
Kindest Regards[9]
[9]Emphasis added.
Quite plainly, Dr Krishna was drawing the plaintiff’s attention to the failure of the first transfer to meet the required deadline and sought a ‘new sum to be invested’. In my opinion, he was proposing a replacement transaction, not an additional advance. He proposed repayment prior to the due date, with a compensating amount, which the plaintiff characterised as for the use of money over a few days. The written proposal is inconsistent with the plaintiff’s case that there remained an obligation to pay the profit component of the first advance.
The email of 23 October 2015 proceeded on the basis that the initial payment of €600,000 could not be utilised for the project. Dr Krishna proposed ‘we will be transferring back your client’s 600K’ with the compensation amount. He explained that additional charges had been incurred and a larger sum would now be required in US dollars. The basis for the payment was ‘the same deal and conditions and securities’. He attached a ‘renewed agreement’, with a variation to extend the payback date to 10 November.
There was to be one investment by the plaintiff. Over the course of negotiations the amount varied. At first it was €600,000, then it became US$1.2 million. The amount changed to €900,000, then became €600,000 again, and eventually US$1,300,000. I am persuaded that the plaintiff understood that his payment of €600,000 was to be returned (with some compensation for use over a few days) and replaced by a new advance. The plaintiff accepted Dr Krishna’s proposal. Consequently, a new ‘declaration’ was prepared, the original sum repaid, and a new advance made.
The new ‘declaration’, dated 23 October 2015, was purportedly prepared in Dubai. It was signed by Dr Krishna, and witnessed by Messrs Tsalikidis and Kalomallos. The declaration provided:[10]
[10]Court book, page 47.
This Declaration is between Mr Dimitri Christopoulos and Badrish Krishna of no 9 Dower St Camberwell Melbourne Victoria Australia, and forms part of the previous agreement already signed.
I Badrish Krishna declare that I am pursuant (sic) of the sum of 1.3 Million US Dollars { One Million three hundred thousand dollars} to be wired on the 26th October, Monday to my account in Dubai which will returned back in double on or before the 10th of November 2015.
I personally guarantee the sum of 1.3 Million US {One million Three hundred thousand dollars} with its profits of 1.3 Million US {One million Three hundred thousand dollars}
The list of properties I am offering to keep as guarantee is the following:
I personally pledge that from the date of this declaration and signing there will be no truncation on these below mentioned properties.
1} 36 Newmans Rd Templestowe Vic 3106
2} 70 Price Avenue, Mount Waverley Vic 3149
3} 6 Marchori Rd Blackburn North Vic 3130
4} 7 Melville rd, Brunswick West Vic 30355
5} 90 Mitcham Rd, Donvale, Vic 3111
6} Suite 3 and 4, Level 1, 20 Collins St Melbourne 3000
On 23 October 2015, Dr Krishna performed his side of the bargain by transferring €647,000 to the plaintiff’s account. The plaintiff’s acceptance of Dr Krishna’s proposal, is evidenced by the transfer of US$1.3 million on 26 October. I am persuaded that, on a proper construction of the documents, Dr Krishna’s obligations under the earlier agreement, to pay a profit of €600,000, had been discharged.
I am also satisfied, from the plaintiff’s own evidence, that he well understood that the second transfer was to replace the first, and that by repaying the initial sum, together with an amount for compensation, Dr Krishna was discharged from further performance under the investment agreement. Thus, it was surprising that the plaintiff thought it appropriate to advance his claim for the €600,000 profit component and seek a default judgment. In the circumstances, the plaintiff’s claim for the profit component of €600,000 was opportunistic, misconceived, and must be rejected.
The email of 23 October 2015 also provided insight into the real nature of the transaction for which the money was advanced. There was a cargo of goods to be transported by air. It became clear from the oral evidence that the cargo was gold, to be flown into the Middle East from Africa. The gold was to be processed in a refinery somewhere.
The plaintiff’s evidence, in which he purported to explain the purpose of his advances, was unsatisfactory. Under cross-examination by the liquidator, the plaintiff finally conceded that the scheme for which Dr Krishna required the money involved a gold refinery, although claimed not to have known of that connection at the time he made the advances. He said, ‘I cared about the money being repaid, not the cause of it’. The plaintiff sought to persuade the Court that he was unaware of the true nature of the transaction until after the advances had been made. He sought to convey the impression that the gold importation scheme had nothing to do with him.
The plaintiff opened his case on the basis that the purpose stated in the Investment Agreement, dated 20 October 2015, sent to his bank, was the true purpose of the advances. That purpose was false by his own admission. He knew it to be false when he opened his case. I am also satisfied that the plaintiff knew of the real purpose at the time each advance was made by him, and sought to mislead the Court about the state of his knowledge at the time.
When asked whether he was concerned about Dr Krishna’s ability to repay a further advance of US$1,300,000, the plaintiff claimed that Dr Krishna provided an explanation by reference to a ‘sophisticated funding scheme, one that could have attracted a lot of potential investors to him, and this would create overheads from which he could repay me back that amount of money’. When asked what he understood the ‘demerger charges and flight cargo cancellation and rebooking fees’ to mean, the plaintiff replied that he did not understand, but asked his friend, Mr Tsalikidis, what it was all about. He claimed to have been told that Dr Krishna ‘most likely [had] another business going on, an opportunity which was relevant to paying my debt’. I reject those explanations. I am persuaded that, from the very outset, the plaintiff knew the true nature of the transaction with which he became involved. The reference in the Investment Agreement, to the purpose of the investment as the purchase of dental equipment, was intended by the plaintiff and Dr Krishna to mislead the plaintiff’s own bankers.
In submissions, the plaintiff perversely relied on the communication of the false purpose to his bank as a factor giving credibility to the transaction. His submission in this regard was misplaced. The presentation by the plaintiff and Dr Krishna, to the plaintiff’s bank, of an investment opportunity in dental practices, was designed to conceal the true purpose and mislead the bank. There was no evidence that the true purpose of the transaction was ever disclosed to the bank. The plaintiff conceded that he required the PowerPoint presentation to give legitimacy to the proposal. He understood that in the absence of such legitimacy, the bank would, or might, decline to participate. It may safely be inferred that the real purpose was of such a character that it would not have been in the plaintiff’s interests to disclose that purpose to the bank. Bank cooperation depended upon camouflage and deceit.
The sum of US$1.3 million was transferred from the plaintiff’s bank to Dr Krishna’s account in Dubai on 26 October 2015. The plaintiff sought confirmation of account details for the transfer. On 28 October 2015, he sent an email to Dr Krishna enquiring, ‘How’s everything going?’, to which Dr Krishna responded,
Hi dimitri
All good
We are going as planned till now
Will update you all the stepsRegards
Badrish Krishna
When asked what he understood Dr Krishna meant by ‘all the steps’, the plaintiff responded, ‘the banking transfer itself’. The transfer had, of course, been successfully made two days earlier.
On 8 November 2015, Dr Krishna sent a letter by email to the plaintiff and Messrs Tsalikidis and Kalomallos. He wrote:
Dear Dimitri,
The status of our agreement is as follows:
Our agreed timeframe for repayment will not be met.
We have been delayed at the refinery by approximately 14 working days according to the Managing Director.
We are happy to pay a penalty of $200,000 to your clients for the delay
Please appreciate that such matters are out of our control and reassured your clients that their money is secured; they have been provided with assets that far exceed the capital and return.
The reiteration of this reassurance is appreciated.
We apologise for the delay in closing thus (sic) matter.[11]
[11]Emphasis added.
This email revealed a little more of the true nature of the transaction. There was a ‘refinery’ involved. When asked by his counsel about the reference to a refinery, the plaintiff replied,
I thought that it was another business of his (Krishna) which, as I told you, Mr Tsalikidis told me that it had to do with the funding that he was pursuing, but I didn’t really investigate on this further.
That answer was disingenuous. When asked what was the significance of the refinery to Dr Krishna’s ability to repay, the plaintiff said,[12]
I remember we had also a telephone conversation, Your Honour, either at this date or the day before. I was, as I said to you, quite upset about this. To be honest, I wasn’t as calm as I should on the phone. He never mentioned something about a refinery when we chatted. Then this refinery came again on this letter. I didn’t really expect him to make me understand things, as he hasn’t done so the very next morning — the previous morning we spoke, so I didn’t really went over it. … there is a lot of days that pass by and there was no reference whatsoever to a refinery before that, prior to this, so I thought that was another, you know, simple explanation that he was giving just to gain some time.
These answers were misleading.
[12]T37, L22 – T38, L6.
On 9 November 2015, Dr Krishna sent another letter to the plaintiff. He wrote:
Dear Dimitri,
I want to give you an update on the progress of our project here in Dubai.
All has been travelling well there have been bumps along the way like any business but we have moved forward for closure.
I have been given a ‘fluid’ timeframe with the refinery here, which means that our timeslots to enter production of the consignment has moved.
We have a delay of approx. 14 business days before the refinery will begin production on our consignment.
This delay is exacerbated by the fact that the MD is celebrating the Indian Holiday of Diwali over the next few days and will not be handling our consignment.
I seek an extension on my obligation based on the refinery delay, I am hoping that we can start the process sooner and am on the case to do so.
I also propose a delay penalty of $200,000US (Two Hundred Thousand Dollars).Please confirm whether your client can accept my delay and proposal.
Following the plaintiff’s email enquiry, ‘How’s everything going?’, the responses from Dr Krishna clearly assume that the plaintiff was aware of his scheme. The plaintiff did not respond and ask, ‘What are you talking about?’. He knew exactly what the project involved, and that it was not the purchase of dental equipment. He needed no elaboration about the significance of the ‘refinery’, ‘cargo’ and ‘production’, or the nature of the ‘consignment’.
Suffice to say the money was not repaid with the ‘profit’ on the due date. On 12 November 2015 a further letter was prepared in the form of an offer from Dr Krishna to the plaintiff. The letter was apparently signed by Dr Krishna, and witnessed by Messrs Tsalikidis and Kalomallos. I say ‘apparently’ because I am not satisfied that the letter was in fact signed by Dr Krishna. The author wrote:
Dear Dimitri,
Following My letter to you last week please firstly accept my apology for not being in a position to repay the agreed funds. As stated we are delayed with the refinery.
Unfortunately, due to things out of our control I have had to fly back to Melbourne to attend to the matter.
It is extremely difficult to transfer the funds from Australia as the banking system here is extremely tight and has several layers of complexity in terms of compliance. I have spoken to my bankers who assure me that without contractual arrangements in place with third parties that authorities will questions (sic) and in turn block transfers.
In order not to fail again with a promise of repayment that is contingent on matters out of my control I propose the following:
I operate 3 dental clinics; beyond the properties I have listed as security on my initial agreement I am offering further security my holistic dental chain as business which has a goodwill value of in excess of a $10 million AUD.
Having presented this in addition to my properties I seek to have a repayment understanding that is extended to 45 Business days from the date of this agreement and with a total repayment value of $3.5 Million US (Three Million Five Hundred Thousand dollars)
If I fail to repay this amount you can take legal action. As of this date I Badrish will not alter the deeds of the properties and the ownership of my dental practices.
I Baddish Krishna of 9 Dower st Camberwell Melbourne Australian Passport: N2628159 personally guarantee this amount reflected in this agreement.
In relation to the purported offer made on 12 November 2015, the plaintiff said, ‘I never replied back to him’. In other words, the offer was not accepted. The letter does not record the terms of an agreement between Dr Krishna and the plaintiff.
The evidence of Mr Tsalikidis was also unsatisfactory. He sought to maintain that he introduced the plaintiff to a lending opportunity that would yield a super profit, without knowing the purpose of the advance. He sought to explain why, in such a state of ignorance, he invited his attorney and good friend to risk his, or a client’s, money with a person unknown to the plaintiff. He sought to justify such conduct by claiming to be satisfied with the value of the properties put up as security by Dr Krishna. He referred to bank mortgage lending practices. The evidence given by Mr Tsalikidis in this regard was contrived. He made no enquiry about the value of, or encumbrances on, any of the properties. His explanation was misleading, and his denial of prior knowledge was false.
Mr Tsalikidis further damaged his credit by insisting that documents containing Dr Krishna’s signature, witnessed by him and Mr Kalomallos, had been signed by Dr Krishna in his presence. He eventually conceded that a form of electronic signature had been prepared and applied. Mr Tsalikidis eventually conceded that he may not have been present to witness Dr Krishna sign documents. In particular, Mr Tsalikidis gave very detailed evidence about a meeting in Prospect Hill Road, Camberwell, with Mr Kalomallos and Dr Krishna on 12 November 2015, when the offer document of that date was signed by all three men. When presented with evidence that he was in Greece at the time, Mr Tsalikidis conceded ‘I might not have been present at that one in particular’. There is no evidence that Dr Krishna ever signed the letter. The evidence suggests that he did not. I am not satisfied that he did. In any event, the proposal contained in the letter of 9 November 2015 was never accepted by the plaintiff.
Mr Tsalikidis conceded that, at some point after he arrived in Dubai, he became aware of a deal under discussion between an Indian gentleman, Manaf, and Dr Krishna involving the importation of gold from Benin, a country in Africa. He conceded that, arising out of the transaction for which the plaintiff’s funds were to be advanced, there was a prospect of his obtaining a €10 million loan to assist with his hotel development in Ithaca. Mr Tsalikidis said that it was two or three days after he arrived in Dubai that Dr Krishna disclosed the real nature of the transaction, involving the importation of gold. He conceded that he definitely knew about the ‘gold deal’ by 12 November 2015, but had no knowledge of it prior to going to Dubai. I am persuaded that Mr Tsalikidis knew of the true purpose for which the money was required before the advances were made, and conveyed that purpose to the plaintiff.
Illegality
When dismissing the plaintiff’s application for summary judgment, I expressed reservations about the propriety of the transaction and emphasised the role of the Court in protecting its processes from misuse. In that context, I said:
Before the Court will lend its processes to enforcing such an unusual and uncommercial transaction it must be satisfied that its processes are not being used for an unlawful or improper purpose.
Thus, the question of impropriety had been clearly raised. The plaintiff was required to satisfy the Court that its processes were not being used to give effect to a contract that may be void, illegal or unenforceable on public policy grounds. The plaintiff did not challenge the correctness of such an approach, and advanced evidence designed to persuade the Court that, while the loan agreements were unusual, they were not improper or unlawful and ought to be enforced.
Illegality was not, of course, raised in the pleadings. The defendants had not filed defences, and Dr Krishna, the only defendant against whom judgment is sought in this part of the trial, had indicated through his solicitor that he did not intend to defend the proceeding. The question of illegality was raised by the Court. The liquidator, while assuming a role as contradictor, did not make submissions on the question. During final submissions the Court again raised the prospect that relief may be denied because it might be found that the agreement was deliberately structured to mislead the plaintiff’s bank.
In the absence of a full defence, in which a defendant raised the question of illegality, with a corresponding obligation to challenge the plaintiff’s evidence about his knowledge and purpose, the Court was at a considerable disadvantage. Submissions on the issue were inadequate. There are, of course, cases where all parties would prefer that the question of illegal conduct not be raised at all. The reluctance of parties to ‘confess’ their role in an illegality does not, however, relieve the Court of its duty to the administration of justice, and more broadly, the community, to refuse enforcement of illegal contracts, or contracts offending public policy. Where the evidence compels the conclusion that a contract is illegal or relevantly tainted, it cannot be ignored.[13]
[13]Ashton v Pratt (No 2) [2012] NSWSC 3, [37].
A useful starting point is the seminal expression of the underlying public policy by Lord Mansfield in Holman v Johnson.[14]
No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.
[14](1775) 1 Cowp 341, 343; 98 ER 1120, 1121.
In Fitzgerald v F G Leonhardt Pty Ltd,[15] Kirby J aptly described the jurisprudential difficulty associated with the defence of illegality. His Honour said:
Illegality, and the associated problems of statutory construction and public policy, have been described as a “shadowy” and “notoriously difficult” area of the law where there are “many pitfalls”. Many of the authorities on the point are difficult to reconcile. Commentators claim that some of them are marked by “obscurities, supposed distinctions and questionable techniques of decision”. They suggest that this is an area of the law which is “intensely controversial and confused”. The House of Lords has recently proposed that it is ripe for thorough re-examination by the Law Commission so that it may be subjected to legislative reform. Special concern has been expressed about the danger that illegality, in some way connected with a contract, will (unless tightly controlled) let loose the “unruly horse” of public policy to a “blind gallop through the doctrinal forests of [the law]”. Various other equine metaphors are invoked to express the suggested dangers of uncertainty and the potentially harsh and unjust outcomes that would follow enlargement of court discretions to decline relief on the ground that a contract is somehow touched by illegality.
[15](1997) 189 CLR 215, 231 (citations omitted).
In the present case, the nature of the relevant conduct under consideration may be expressed in the following terms. The parties to the Investment Agreement, and its subsequent variations, modifications and declarations, agreed to prepare and propound a document that contained a false description of the purpose of the investment, and to deploy the document as an instrument of deceit. The document was prepared for the purpose of deceiving the plaintiff’s bank into believing that the purpose of the advance was legitimate, so that the transfer would be approved by the bank’s compliance officers.
The agreement to prepare a document for the purpose of deceiving a third party, and thereby gain a financial advantage, might form the basis of criminal conduct of the kind proscribed under s 82 of the Crimes Act 1958. But it is unnecessary to reach any such conclusion. It is enough, in my view, to be satisfied that such conduct is generally regarded as involving serious moral delinquency. I make that finding, comfortably persuaded that the parties knew that the stated purpose was false at the time the document was sent to the bank.[16]
[16]Briginshaw v Briginshaw (1938) 60 CLR 336.
By the conclusion of his evidence the plaintiff accepted that the true purpose of the advances (which he chooses to characterise as loans) was to assist Dr Krishna with his gold importation scheme. Throughout the trial he claimed to have no knowledge of the true purpose until well after the advances had been made. He feigned indifference to Dr Krishna’s purpose. He persisted in his reliance on the PowerPoint presentation as evidence to explain the innocent purpose of the transaction, and relied upon disclosure to his bank as evidence of propriety. Nothing was said of the true purpose of the transaction until the plaintiff and his witness, Mr Tsalikidis, were cross-examined by the liquidator.
From the evidence, documentary and oral, I am persuaded that the plaintiff and Dr Krishna knew the true purpose of the advances from the outset. But even if the plaintiff did not know precisely what the funds were to be used for (and why he might reasonably expect to receive a profit of 100 per cent within a few days), he was well aware that the purpose stated in the Investment Agreement was false.
I have also considered whether it is open to conclude that the true purpose of the loan may have been unlawful. Such an inference might be drawn because the plaintiff acknowledged the bank’s reluctance to participate in the absence of a ‘legitimate’ purpose and sought to conceal the true purpose from the bank’s compliance officers. It seems to me, however, that there is insufficient evidence about Dr Krishna’s gold importation scheme to justify a conclusion that it was unlawful, in the sense that it was contrary to law in Dubai or elsewhere, or contrary to some public policy. A suspicion, even a grave suspicion that the transaction may have been unlawful, is not enough. On the other hand, the very terms of the contract, which were prepared for the purpose of concealing the true nature of the transaction, made it a dishonest instrument, deployed with the intention of deceiving a third party. That deceit was, in my view, fundamental to the formation of the contract. It was not trivial, or incidental to the contract. It was not capable of being severed. It was an intentional falsehood woven into the fabric of the written document. Such conduct must be discouraged. In the circumstances, this Court should refuse to approve the contracts, which are unlawful due to their contravention of well understood public policy.
I have already found that Dr Krishna’s obligations under the first transfer of €600,000 was discharged by agreement. In my opinion, the subsequent transaction, involving the advance of US$1.3 million is infected with a common illegality. The agreed intention to deceive, through the deployment of the Investment Agreement, was continuing. Documents produced by the plaintiff’s bank, and tendered in evidence, included a notation on the second page of the Investment Agreement document, on which Dr Krishna’s bank details were set out, noting the US$1.3 million transaction. A bank stamp indicates a signature check was carried on 26 October 2015, the date of that transfer. The bank debit advice made reference to the Investment Agreement. In his email of 23 October 2015, Dr Krishna referred to the requirement for the investment of the ‘new sum’ of US$1.3 million to involve ‘the same deal and condition and securities’. By his declaration, dated 23 October 2015, Dr Krishna declared that the new transfer ‘forms part of the previous agreement already signed’. Thus, the plaintiff relied on the same unlawful agreement to recover US$2.6 million, comprised of the original advance or loan of US$1.3 million, his super profit of US$1.3 million and an amount for compensation (US$200,000) offered by Dr Krishna.
The effect of including a material falsehood, as a term of a contract, with the intention of using the instrument to deceive a third party, is to render the contract void. The contract is not amenable to severance. There is no innocent party to the contract. The deception was not incidental or collateral to its performance.
Restitution
Might the plaintiff be entitled to restitution of his payment of US$1.3 million, notwithstanding the illegality?
The plaintiff has not made an alternative claim for restitution, contingent upon a finding that the agreement on which he sued might be held to be void or unenforceable. Such a claim might well have been made had Dr Krishna filed a defence alleging illegality. Thus, should the plaintiff now seek to amend his statement of claim to seek such alternative relief, I will hear his application. Should leave to amend be granted, in the absence of new material militating against such a claim, I would order restitution of the sum of US$1.3 million paid by the plaintiff to Dr Krishna on 26 October 2015.
Authority on the question of restitution in such circumstances is difficult to reconcile. I am persuaded, however, that notwithstanding the delinquency of both parties, Dr Krishna is amenable to an order that he repay the funds advanced by the plaintiff, on the basis that he would be unjustly enriched were he not obliged to do so.
The rule that no cause of action arises out of illegality might be expected to apply equally to restitutionary claims made upon the failure of a contract. In the present case, while the contract itself was unlawful, as an instrument of deceit, the evidence does not support a conclusion that the actual advance or payment by the plaintiff to Dr Krishna was made for an unlawful purpose. While the contract is void, denying the plaintiff his super profit of 100 per cent, there was a transfer of value (US$1.3 million) for which nothing was given in return. The usual reluctance of the courts to imply an obligation to repay in such a case, following a total failure of consideration, does not have such force in the present case because the purpose of the payment has not been found to be unlawful..
Ultimately, the question for determination on a claim for the return of funds, on the failure of a contract for illegality, will depend upon whether it would be unjust for the defendant to retain the payment.[17] I do not overlook the conduct of the parties, as a factor counterbalancing what might otherwise be considered as plainly unjust for the defendant to retain funds advanced to him for which the plaintiff has received no return. This case is not concerned with the question whether the policy of a statute was such as to deny a claim in restitution.[18] In the present case the claim for restitution does not confront the same hurdle of illegality as the claim by the plaintiff for repayment and his super profit under the written contract. The unlawful conduct, engaged in by both parties, was their scheme to practise a deception by presenting a dishonest instrument to the plaintiff’s bank. Policy considerations aimed at discouraging such conduct do little to inform the justice or otherwise of permitting Dr Krishna to retain the advance of US$1.3 million for which the plaintiff received no return. In that regard, any claim for restitution would be independent of the unlawful conduct. Put another way, a claim for restitution would not be founded on the illegality.
[17]Equus Corp Pty Ltd v Haxton (2012) 246 CLR 498 at 518.
[18]Ibid at 544.
The plaintiff’s claims, as presently formulated in his statement of claim, are dismissed.
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