El Rihani v Hotait (No 2)

Case [2023] FCA 375

FEDERAL COURT OF AUSTRALIA

El Rihani v Hotait (No 2) [2023] FCA 375

File number: NSD 807 of 2018
Judgment of: FARRELL J
Date of judgment: 24 April 2023
Catchwords: CONTRACT – separation and termination of construction and development business – Deed of Separation – whether obligation to make  contributions into Trust Account for liabilities of jointly held construction company – where liabilities of jointly held construction company disputed – whether claims for contribution made bona fide – whether indemnity obligations under Deeds of Guarantee and Indemnity signed on same day as Deed of Separation are triggered by obligations imposed by Deed of Separation
Legislation:

Federal Court of Australia Act 1976 (Cth) s 54A

Federal Court Rules 2011 (Cth) pt 23.01

Home Building Act 1989 (NSW) ss 18B-18BA
Cases cited:

Cochrane v Cochrane [1985] 3 NSWLR 403

El Rihani v Hotait [2020] FCA 912

Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560

Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs: 190
Date of last submission: 24 August 2022
Dates of hearing: 13 October 2021, 2 February 2022, 25 August 2022
Counsel for the Plaintiff: Mr T Lynch SC, Ms A Carr
Solicitor for the Plaintiff: HWL Ebsworth
Counsel for the Defendant: Mr AR Davis, Mr A Jucha
Solicitor for the Defendant: Chamberlains Law Firm (ceased to act from 16 June 2022)

ORDERS

NSD 807 of 2018
BETWEEN:

HUSSEIN EL RIHANI

Plaintiff
AND:

BILLAL HOTAIT

Defendant
AND BETWEEN:

BILLAL HOTAIT

Cross-Claimant
AND:

HUSSEIN EL RIHANI

Cross-Respondent

ORDER MADE BY:

FARRELL J

DATE OF ORDER:

24 APRIL 2023

THE COURT ORDERS THAT:

1.Subject to Order 2, on or before 4 pm on Tuesday, 9 May 2023, the parties must provide to Justice Farrell’s associate agreed draft orders consistent with the reasons published on 24 April 2023 (reasons).

2.If the parties cannot agree the form of orders consistent with the reasons by 4 pm on Tuesday, 9 May 2023:

(a)By 4 pm on Thursday, 11 May 2023, Mr El Rihani must provide to Justice Farrell’s associate draft orders consistent with the reasons for which he contends and brief written submissions in support of those orders;

(b)By 4 pm on Thursday, 18 May 2023, Mr Hotait must provide to Justice Farrell’s associate draft orders consistent with the reasons for which he contends and brief written submissions in support of those orders.

3.Written submissions must be:

(a)No longer than five pages unless the Court otherwise orders.  Submissions exceeding five pages may be disregarded;

(b)In a typeface no smaller that Times New Roman font size 12; and

(c)1.5 times line spaced.

4.Issues raised by the materials provided pursuant to Order 2 will be determined on the papers unless any party requests a hearing in the submissions provided.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

FARRELL J:

INTRODUCTION

  1. In the latter part of 2016, Hussein…

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AGLC
El Rihani v Hotait (No 2) [2023] FCA 375
Case
[2023] FCA 375
Decision Date

CaseChat Overview and Summary

The case of El Rihani v Hotait (No 2) involved a dispute between the parties regarding the obligations and liabilities arising from the separation and termination of their construction and property development business. The matter was heard in the Federal Court of Australia. The primary issue before the Court was whether the parties were obligated to make contributions into a Trust Account to cover the liabilities of a jointly held construction company, Skyworks NSW. The dispute arose from the interpretation of the terms of the Deed of Separation, which outlined the terms of the separation and termination of the business relationship between the parties.

The Court was required to determine whether the claims for contribution made by Mr El Rihani to Mr Hotait were bona fide and whether the indemnity obligations under the Deeds of Guarantee and Indemnity signed on the same day as the Deed of Separation were triggered by the obligations imposed by the Deed of Separation. The Court considered the terms of the Deed of Separation, the Deeds of Guarantee and Indemnity, and the circumstances surrounding the contributions made to the Trust Account.

The Court found that the claims for contribution made by Mr El Rihani to Mr Hotait were not bona fide, as they were not made in accordance with the terms of the Deed of Separation. Furthermore, the Court held that the indemnity obligations under the Deeds of Guarantee and Indemnity were not triggered by the obligations imposed by the Deed of Separation. Consequently, the Court dismissed Mr El Rihani's claims against Mr Hotait.

The Court ordered that the parties should confer as to the payment of moneys out of Court. They were required to provide draft orders consistent with the Court's reasons. If the parties were unable to agree on the form of orders, they were to provide the orders for which they contended and brief written submissions in support of the proposed orders. The Court also set out specific requirements for the written submissions, including length, typeface, and line spacing.

Orders

Orders of the court

1. Subject to Order 2, on or before 4 pm on Tuesday, 9 May 2023, the parties must provide to Justice Farrell’s associate agreed draft orders consistent with the reasons published on 24 April 2023 (reasons).

2. If the parties cannot agree the form of orders consistent with the reasons by 4 pm on Tuesday, 9 May 2023:

(a) By 4 pm on Thursday, 11 May 2023, Mr El Rihani must provide to Justice Farrell’s associate draft orders consistent with the reasons for which he contends and brief written submissions in support of those orders;

(b) By 4 pm on Thursday, 18 May 2023, Mr Hotait must provide to Justice Farrell’s associate draft orders consistent with the reasons for which he contends and brief written submissions in support of those orders.

3. Written submissions must be:

(a) No longer than five pages unless the Court otherwise orders. Submissions exceeding five pages may be disregarded;

(b) In a typeface no smaller that Times New Roman font size 12; and

(c) 1.5 times line spaced.

4. Issues raised by the materials provided pursuant to Order 2 will be determined on the papers unless any party requests a hearing in the submissions provided.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

None of the deponents was required for cross-examination.BACKGROUNDDeed of Separation I summarised the Deed of Separation in the earlier reasons at J[21]-[39]. What follows replicates that summary and notes additional features. The “Introduction” to the Deed of Separation is as follows:A.Hotait and El Rihani, through their nominated entities and personally, have engaged in various joint business ventures in the property development and construction industry.B.Hotait and El Rihani have agreed to separate from each other and to do all things necessary to procure their nominated entities to separate from each other to bring about the end of their joint business ventures.C.The parties have reached an agreement in accordance with the terms of this document. Clause 1 of the Deed of Separation contains definitions. There is no definition of “nominated entities” and I am not able to glean a meaning for that term from the Deed of Separation as a whole. Relevantly for the purposes of these reasons and the interpretation of cl 10 of the Deed of Separation, there is a broad definition of “Claims” in cl 1.1(d) as follows:Claims means any right, action, application, arbitration, cause of action, complaint, cost including legal costs, damage, debt due, demand, determination, enquiry, judgment, loss, proceedings, claim, verdict or liability:(i)at law;(ii)in equity; (iii)arising under any statute or statutory duty Clause 2 of the Deed of Separation provides as follows:2.Agreement2.1Hotait and El Rihani have agreed to separate and end their business relationship in accordance with this document.2.2The parties agree that they must not take any steps to revive, recover or otherwise re-establish the business ventures which are contemplated by this document unless both parties agree in writing. One of the purposes of the Deed of Separation was to effect the immediate transfer of:(a)Mr Hotait’s shares and interests in Parramatta Project to Mr El Rihani; and(b)Mr El Rihani’s shares and interests in Beauchamp Developments to Mr Hotait. Clause 8 of the Deed of Separation provides for:(a)The sale of shares in Parramatta Project by Mr Hotait to Mr El Rihani or his nominee;(b)Mr El Rihani to be responsible for the assessment and payment of stamp duty and notifications consequent on the sale of those shares;(c)Mr Hotait to be responsible for any capital gains tax incurred on the sale of the shares and the parties agree that GST is not payable;(d)Mr Hotait to warrant only that he is the absolute owner of the shares and Mr El Rihani to acknowledge that he is not relying on any representation in relation to the sale;(e)Mr Hotait to resign as a director and secretary of Parramatta Project immediately and Mr El Rihani to notify the Australian Securities and Investment Commission (ASIC) of those facts;(f)Mechanical provisions dealing with constitutional compliance and board meetings relating to the sale and transfer of the shares;(g)Agreement that on completion of the sale of the shares in Parramatta Project to Mr El Rihani, all existing agreements between the parties in relation to Parramatta Project, such as shareholders agreements, are immediately terminated;(h)Mr El Rihani to assume responsibility for the conduct, management and operations of Parramatta Project and Mr Hotait to cease all involvement with those functions;(i)Mr El Rihani to release Mr Hotait against claims relating to those shares which arose from any period up to the date of the Deed of Separation;(j)Mr El Rihani to indemnify Mr Hotait against any claim by a third party in connection with Parramatta Project “past, present or future”;(k)The parties to do everything necessary to terminate the construction contract between Parramatta Project and Skyworks NSW (that is, the PP Construction Contract) by 15 February 2017 and Skyworks NSW to forfeit the retention sum under that contract: Parramatta Project was to enter into a new construction contract with another builder nominated by Mr El Rihani;(l)Upon completion of the sale of the shares in Parramatta Project, Mr El Rihani to procure that all finance facilities obtained by Parramatta Project are amended so that Mr Hotait and the Hotait Entities (as defined in the Deed of Separation) are not named as a guarantor or obligor under them. All such finance facilities are to be refinanced and new facilities entered into whereby Mr Hotait and the Hotait Entities are not named as a guarantor or obligor;(m)If Mr El Rihani was unable to comply with the requirement to have the finance facilities relating to Parramatta Project amended to remove Mr Hotait as a guarantor or obligor by 15 February 2017 and he had not remedied that default within 14 days of Mr Hotait serving a default notice in relation to that non-compliance, Mr El Rihani “shall pay [Mr] Hotait liquidated damages at the rate of $1,081.00 per day from the expiry of the 14 days period until such time as [Mr] El Rihani complies”. The parties agreed that payment of that sum constitutes a genuine pre-estimate of the loss and damage that would be suffered as a result of the non-compliance; and(n)Mr El Rihani to be responsible for the tax liabilities of Parramatta Project.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The parties should confer as to the payment of moneys out of Court. They should provide draft orders. If orders cannot be agreed, they should provide the orders for which they contend and brief submissions in support of the proposed orders.CONCLUSION I will require the parties to bring in draft orders consistent with these reasons. To the extent they are unable to agree orders, they will be given the opportunity to provide draft orders for which they each contend and brief written submissions.

Ratio Decidendi

Legal Principle Established

One of the documents prepared by Madison Marcus is entitled Deed of Separation. The parties to it are Mr Hotait, Mr El Rihani, Beauchamp Developments and Parramatta Project. By the Deed of Separation and subject to its terms, Mr El Rihani and Mr Hotait formally agreed on a basis for the separation and termination of their construction and property development business by, among other things, the transfer of ownership and control of Beauchamp Developments to Mr Hotait and Parramatta Project to Mr El Rihani. It also provided for (among other things) contribution by Mr El Rihani and Mr Hotait to a Trust Account (as defined in cl 1.1(t) of the Deed of Separation) to meet liabilities of Skyworks NSW. It is not in dispute that each of Mr Hotait and Mr El Rihani contributed $200,000 to the Trust Account in December 2016 or that Mr El Rihani contributed a further $100,000 to the Trust Account on 16 March 2017. In relation to an amount of $100,000 contributed on 28 March 2017, Mr El Rihani claimed that the contribution was made by him on Mr Hotait’s behalf as a loan as provided for in the Deed of Separation. By 3 May 2017, the balance of the Trust Account had reduced to $10,484.96. It is notable that the Australian Taxation Office (ATO) issued a notice of audit decision dated 13 July 2017 to Skyworks NSW claiming:(a)Unpaid income tax, including interest and penalties, of $1,888,317.46 (Income Tax Debt); and(b)Unpaid goods and services tax (GST), including interest and penalties, of $1,996,471.78 (GST Debt), together, the ATO Debt. On 10 December 2018, Mr El Rihani lodged an amended statement of claim (ASOC) in which, at [25(a)], he sought orders directing Mr Hotait to pay moneys into the Trust Account on the condition that Mr El Rihani contribute an equal amount, which he said he is willing and ready to do. Mr El Rihani asserted that the liabilities which must be met from the Trust Account are as set out in Annexures A to C of the ASOC. Mr El Rihani claimed that, in accordance with cl 10.5 of the Deed of Separation:(a)On 28 March 2017, by email sent from Sammy Soliman (on behalf of Mr El Rihani) to Mr Hotait, Mr El Rihani requested Mr Hotait to make a “third contribution” to the Trust Account in respect of the liabilities set out in Annexure A to the ASOC. There are 14 numbered Items in Annexure A to an aggregate value of $166,265.81;(b)On 20 September 2017, by email from Mr Soliman (on behalf of Mr El Rihani) to Mr Hotait, Mr El Rihani requested Mr Hotait to make a “fourth contribution” to the Trust Account in respect of liabilities of Skyworks NSW set out in Annexure B to the ASOC. There are 10 Items in Annexure B, all of which are invoices from Piper Alderman (see [72] below) for an aggregate amount of $235,299.29; and(c)On 23 October 2018, by letter from HWL Ebsworth to Shaw McDonald Lawyers, Mr El Rihani requested Mr Hotait to make a “fifth contribution” in respect of the liabilities of Skyworks NSW identified in Annexure C of the ASOC. There are 136 Items in Annexure C for an aggregate amount of $2,570,820.70.