El Rihani v Hotait (No 2)
[2023] FCA 375
•24 April 2023
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
In the latter part of 2016, Hussein El Rihani and Billal Hotait jointly engaged Madison Marcus Law Firm Pty Ltd in connection with their negotiations for the termination of a construction and development business that they had been carrying on through various entities.
On 19 December 2016, Messrs Hotait and El Rihani and entities associated with them entered into four documents which had been prepared by Madison Marcus. It is not in dispute that, at that time, Mr Hotait and Mr El Rihani each held an equal number of shares in (among other entities) Parramatta Project Pty Ltd, Beauchamp Developments Pty Ltd and Skyworks NSW Pty Ltd and they were both directors of those companies.
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.
I have previously published reasons addressing separate questions in relation to the Deed of Separation which were raised by the defence filed by Mr Hotait on 23 January 2019 (D) at D[26]: see El Rihani v Hotait [2020] FCA 912 (earlier reasons or J). I note that the procedural history of this matter and related proceedings are summarised at J[5]-[8] as follows:
5In proceedings NSD1514/2017 commenced in this Court on 1 September 2017, Mr Hotait sought an order under s 461(1)(k) of the Corporations Act 2001 (Cth) that Skyworks NSW be wound up on the just and equitable ground, under s 461(1)(e) on the basis that directors acted in their own interest rather than that of the members as a whole, or s 233(1)(a) on the basis that Skyworks NSW’s conduct was contrary to the interests of its members or otherwise oppressive or unfairly prejudicial to a member or members. Skyworks NSW and Mr El Rihani were named as defendants in those proceedings.
6On 14 March 2018, Mr El Rihani commenced proceedings in the Supreme Court of New South Wales seeking an order restraining Mr Hotait from continuing with the winding up proceedings in this Court and damages for breach of the Deed of Separation. On 6 April 2018, on Mr Hotait’s application, the Supreme Court made orders transferring those proceedings to this Court. The transferred proceedings were numbered NSD807/2018.
7On 6 June 2018, by consent of the parties, this Court made orders winding up Skyworks NSW under s 461(1)(k) of the Corporations Act and appointing Liam Bailey of O’Brien Palmer as its liquidator.
8An amended statement of claim and a defence have been filed in proceedings NSD807/2018.
In my earlier reasons at J[11], I summarised the issues raised by the separate questions as being:
(a)Should the term “future liabilities” in cl 10.2 of the Deed of Separation be read restrictively, as contended by Mr Hotait, as applying only to liabilities which arose and were invoiced after 19 December 2016 when the Deed of Separation was signed? Or should it be read as applying to both liabilities unpaid on 19 December 2016 and those which arose for payment after that date having regard to the context and purpose of the whole Deed, as contended by Mr El Rihani? I preferred the interpretation for which Mr El Rihani contended;
(b)Can a party who has not made a contribution to the Trust Account call upon the other party to make a contribution? I found that the parties have standing to enforce cl 10.5 of the Deed of Separation from the time Skyworks NSW’s liabilities exceed the amount in the Trust Account; and
(c)Did the fact that Skyworks NSW went into liquidation on 6 June 2018 affect obligations to contribute funds to the Trust Account under cl 10.5 of the Deed of Separation? I found that the Deed of Separation was not frustrated by that appointment.
Following delivery of my earlier reasons, the parties sought to establish which of the claims made in the Annexures to the ASOC were agreed or remained in contention and any other claims which the parties sought to make. On 19 August 2020, Mr El Rihani’s lawyers provided to Mr Hotait a table in the format of Annexures A to C of the ASOC marked up with claims made by Mr El Rihani: see TAB 17 of exhibit XF-1.
In late 2020 and early 2021, the parties took some steps towards the appointment of an expert for the purpose of determining claims as an alternative to the procedure set out in the Deed of Separation. A proposed expert (who I understand to be Robert Zikmann) was identified and each party contributed $50,000 towards the expert’s costs. The parties agreed a “Consolidated Table of Outstanding Liabilities” which is marked MFI-1. MFI-1 was primarily derived from the Annexures to the ASOC and TAB 17 together with some further claims made by Mr Hotait. This document was produced to the Court and marked for identification on 3 December 2020. It contains:
(a)A list of 7 Items being liabilities which Mr El Rihani contends were agreed by Mr Hotait in an aggregate amount of $98,190.23. One of those Items (for an amount $40.99) also appeared in Annexure A of the ASOC; the rest derive from Annexure C of the ASOC;
(b)A list of 55 Items (numbered 8 to 62) in an aggregate amount of $3,555,509.94 which were liabilities for which Mr El Rihani contended which Mr Hotait did not agree;
(c)Item 63, which indicates that there were no liabilities contended for by Mr Hotait which Mr El Rihani agreed; and
(d)Items 64-66, which listed liabilities for which Mr Hotait contended but were not agreed by Mr El Rihani, being:
(i)The ATO Debt (I note this predates the ATO’s assessment referred to at [16] below);
(ii)Mr Hotait’s builders licence for $1.5 million; and
(iii)A liability said to be owed to the Owners of Strata Plan 92638 for $1 million.
Not mentioned in the ASOC or the defence or in issue at the hearing of the separate questions were the three other documents dated 19 December 2016 to which Messrs Hotait and El Rihani were parties. They are Deeds of Guarantee and Indemnity and what follows are agreed facts:
(a)One deed is between Beauchamp Developments (as Principal), Mr Hotait (as Guarantor), Skyworks NSW (as Contractor) and Mr El Rihani (as Beneficiary) (BD G&I Deed). Clause 1(b) of the BD G&I Deed defines “Construction Contract” to mean the Design and Construct Contract between Beauchamp Developments as Principal and Skyworks NSW as Contractor in respect of 48-50 Beauchamp Road, Hillsdale NSW 2036 dated 6 May 2015, to which I will refer as the BD Construction Contract and the project to which it related as the BD/Hillsdale Project;
(b)A second deed is between Parramatta Project (as Principal), Mr El Rihani (as Guarantor), Skyworks NSW (as Contractor) and Mr Hotait (as Beneficiary) (PP G&I Deed). Clause 1(b) of the PP G&I Deed defines “Construction Contract” to mean the Design and Construct Contract between Parramatta Project as Principal and Skyworks NSW as Contractor in respect of 88 Blaxland Road, Ryde NSW 2112, which I will refer to as the PP Construction Contract and the project to which it related as the PP/Ryde Project. The PP Construction Contract was dated 15 October 2015; and
(c)A third deed is between Belair Projects Pty Limited (as Principal), Mr El Rihani (as Guarantor), Skyworks NSW (as Contractor) and Mr Hotait (as Beneficiary) (Belair G&I Deed). Clause 1(b) of the Belair G&I Deed defines “Construction Contract” to mean the Design and Construct Contract between Belair as Principal and Skyworks NSW as Contractor in respect of 2-8 Belair Close and 43 Sherbrook Road, Hornsby dated 10 October 2014, to which I will refer as the Belair Construction Contract and the project to which it related as the Belair/Hornsby Project. The Belair Construction Contract was practically complete and an occupation certificate for the work was issued on 15 December 2015. As at 19 December 2016, Mr Hotait never held shares in, nor was he a director or otherwise interested in, Belair; and
(d)After 19 December 2016, the BD Construction Contract and the PP Construction Contract were terminated in accordance with the Deed of Separation.
I will refer to the PP G&I Deed and the Belair G&I Deed together as the El Rihani G&I Deeds. I will refer to PP Construction Contract and the Belair Construction Contract as the El Rihani Construction Contracts and the PP/Ryde Project and the Belair/Hornsby Project as the El Rihani Projects.
A notable feature of the Deed of Separation and the Deeds of Guarantee and Indemnity (Four Deeds) is that, although they bear the same date and (with the exception of the Belair G&I Deed) have different combinations of the same parties, they do not cross-refer to each other.
With consent, on 8 March 2021, Mr Hotait lodged a cross-claim which relied on the El Rihani G&I Deeds to assert that Mr El Rihani was liable to indemnify Mr Hotait for his liability arising under the Deed of Separation for that part of the ATO Debt (as defined above) which relates to the El Rihani Projects. Mr El Rihani filed a defence to the cross-claim on 22 April 2021. Issues raised by the cross-claim were the subject of a hearing on 13 October 2021 and they were further addressed at hearings on 25 February 2022 and 25 August 2022.
The parties advised the Court at a case management hearing held on 11 October 2021 that they had resolved issues raised by the ASOC at [25(b) to (e) and (g)] and as a result Mr El Rihani did not press those issues. By consent, on 13 October 2021, I made orders reserving costs associated with those issues. ASOC [25(b)] was a claim for repayment of a loan of $100,000 said to have been advanced to the Trust Account on 28 March 2017 by Mr El Rihani on Mr Hotait’s account. ASOC [25(c)] was a claim for interest on that loan. ASOC [25(d)] was a claim for liquidated damages in an amount of $12,972. ASOC [25(e)] was a claim for “interest” and ASOC[25(g)] was a claim for “interests on costs”.
The parties lodged an amended statement of agreed facts, disputed facts and real issues for determination on 12 October 2021. At the hearing on 13 October 2021, the parties agreed that, although Skyworks NSW’s liquidator had filed objections to the ATO Debt, it was an obligation of Skyworks NSW and would remain so until the outcome of the objection process has been determined. The objections were not then in evidence.
At the conclusion of the hearing on 13 October 2021, I enquired as to the progress of the expert determination process on which the parties had embarked in December 2020 but counsel were not then in a position to provide that advice. Over the course of several later case management hearings, it transpired that Mr El Rihani was not prepared to engage further in that process because of his concern as to whether Mr Hotait would be in a position to comply with any expert determination.
While judgment was reserved, on 22 November 2021, the ATO issued revised assessments in an aggregate amount of $1,138,477.22 (revised ATO Debt) derived as follows:
(a)Unpaid income tax of $442,947.60 (reduced from $914,945) and interest of $113,417.44 for the year to 30 June 2015 (TY2015) and a nil assessment for the financial year to 30 June 2016 (TY2016) (revised Income Tax Debt);
(b)Unpaid GST of $284,843.84 (reduced from $915,917) and interest of $297,268.34 for the quarters ending 30 June, 30 September and 31 December 2015 (revised GST Debt); and
(c)All penalties were remitted.
The parties do not dispute that the revised ATO Debt is a liability of Skyworks NSW to the ATO.
In December 2021, Mr Hotait filed an interlocutory process seeking an order under s 54A of the Federal Court of Australia Act 1976 (Cth) or Part 23.01 Federal Court Rules 2011 (Cth) referring questions for determination to a referee for inquiry and report. I dismissed that application because I did not consider that this was an appropriate course having regard to the processes prescribed by the Deed of Separation. Instead, orders were made for the provision of evidence for determination of residual issues arising out of the pleadings. The parties acknowledged that that evidence may be of use in any ultimate determination by an expert under the Deed of Separation.
These reasons address the following matters.
First, whether, under the El Rihani G&I Deeds, Mr El Rihani is liable to indemnify Mr Hotait for liabilities which he incurs under the Deed of Separation with respect to Skyworks NSW’s liability for GST and income tax related to the El Rihani Projects.
Second, residual issues for determination raised by the ASOC and the defence to it. Primarily, this relates to ASOC at [25(a)] which seeks an order that, on condition that Mr El Rihani pays an equal amount into the Trust Account, Mr Hotait pays an amount to be determined by the Court into the Trust Account.
In revised submissions dated 24 August 2022, Mr El Rihani contended that Mr Hotait is liable to contribute $2,245,772.38 to the Trust Account, being 50% of:
(a)$3,353,067.54, being the amounts claimed to be unpaid debts of Skyworks NSW other than any liability to the ATO; plus
(b)$1,138,477.22, being the sum of the ATO’s revised assessments.
The residual issues arising from Mr Hotait’s defence were as follows:
27.Further or in the alternative, the defendant denies that all of the works or services allegedly completed and forming the subject of the various claims are or were for the benefit of [Skyworks NSW], or that they are claimable on behalf of [Skyworks NSW] or are otherwise validly made pursuant to the Deed [of Separation]. Further, the defendant denies the reasonableness of the claims as made.
28.Further or in the alternative, the defendant denies liability to pay demands for invoices in circumstances where further information regarding those invoices has been requested from the plaintiff and the plaintiff has failed to respond to requests for information in relation to same.
While Mr Hotait was legally represented at the hearings held on 13 October 2021 and 25 February 2022 and at case management hearings up to 12 May 2022, he was not represented at subsequent case management hearings or at the final day of hearing on 25 August 2022.
I note that there are frequent references in the evidence to:
(a)Decode Sydney Pty Ltd. Mr El Rihani is the sole director, secretary and shareholder of Decode;
(b)Roc Build Pty Ltd, which is a company associated with Mr Hotait;
(c)Management for Management Pty Ltd (MFM), which I understand to have provided accounting services to Decode and Skyworks NSW; and
(d)2 Build Group Pty Ltd and Platform One Holdings Pty Ltd, both companies associated with Mr Soliman.
EVIDENCE
At the hearing on 13 October 2021:
(a)Mr Hotait relied on his affidavit sworn on 3 June 2021 and exhibit BH-2 and on an affidavit affirmed by Jonathan Ackerman of Kelly + Partners Tax Consulting on 21 July 2021 and exhibit JA-1; and
(b)Mr El Rihani filed no evidence and did not require either of Mr Hotait or Mr Ackerman for cross-examination. He objected to the admission of Mr Ackerman’s evidence on the basis that the report was not within a recognised exception for expertise.
In his report, Mr Ackerman said that he was requested to identify and quantify the extent to which the ATO’s GST assessments for the period 1 April 2015 to 30 June 2016 relate to supplies made by Skyworks NSW to Parramatta Project, Belair, Beauchamp Developments and other people. Having regard to Mr Ackerman’s evidence and the curriculum vitae (which is attachment 3 to exhibit JA-1) I was satisfied that, by reason of his specialised knowledge based on his training, study and experience, Mr Ackerman was qualified to give the opinions that he gave relating to the GST Debt. I note that Mr Ackerman recommended another expert be instructed with respect to the prospects of challenging the Income Tax Debt and he did not make any allocation in relation to Income Tax Debt.
Mr Ackerman reported in relation to the GST Debt on two bases, one in which input tax credits were taken into account and one in which they were not. Mr Hotait relied on the first alternative as follows:
Customer Allocation of increased GST liability Allocation of penalty Allocation of General Interest Charges Total Belair
$730,961.11 $632,376.12 $237,240.08 $1,600,577.31 Parramatta Project $81,283.78 $73,155.40 $26,381.39 $180,820.58 All other customers $103,672.11 $77,754.08 $33,647.72 $215,073.91 $915,917.00 $783,285.60 $297,269.20 $1,996,471.80 Mr Ackerman noted that the ATO did not identify any sales to Beauchamp Developments.
On that basis, Mr Hotait claimed that, under the El Rihani G&I Deeds, Mr El Rihani was required to indemnify Mr Hotait against all liability arising under the Deed of Separation for $1,781,397.89 in aggregate in relation to Skyworks NSW’s GST Debt, while Mr El Rihani and Mr Hotait would each bear responsibility for one half of $215,073.91 under the Deed of Separation.
Mr Hotait relied on data for the value of sales to customers for the financial year ended 30 June 2015 as set out in on the Account Transactions [Accrual] Reports for Skyworks NSW in exhibit BH-2 in order to “allocate responsibility” relating to the income tax debt to the ATO for TY2015. The income tax debt for that year was $1,601,153.40. Of the total sales to customers of $33,879,027.14, Belair accounted for $9,330,145.52 (or 27.54%). Mr Hotait says that Mr El Rihani was liable to indemnify him for $440,951.10, being 27.53% of the income tax debt for TY2015 and the balance should be allocated to Mr El Rihani and Mr Hotait equally.
In respect of TY2016, Mr Hotait relied on the total value of sales to customers having the “BAS Label” of “GI (Supplies)” set out in Mr Ackerman’s report at [8.3]. The aggregate value of these sales was $7,065,511, of which $6,171,390.65 related to the Belair/Hornsby Project and the balance of $894,121 related to the PP/Ryde Project. Mr Hotait contended that Mr El Rihani should indemnify him in relation to all of these amounts.
Although it was initially envisaged that Mr Hotait would, in light of the revised assessments referred to at [18] above, obtain an updated report from Mr Ackerman, none was ultimately produced. During the course of many case management hearings, the Court was advised that the parties were nearing agreement on an apportionment of the assessments but none was agreed before the hearing on 25 August 2022 or after it.
At the hearing on 25 August 2022:
(a)Mr Hotait relied on his affidavits sworn on 3 June 2021 (June 2021 affidavit) and 18 March 2022 (March 2022 affidavit) and exhibits BH-2, BH-3 and BH-4. Mr El Rihani raised some objections to Mr Hotait’s evidence and I have noted those objections where relevant. In TAB 2 of exhibit BH-3 (BH-3 Table), Mr Hotait largely replicates Annexures A to C of the ASOC and MFI-1; and
(b)Mr El Rihani relied on the affidavit of Deepa Luharuka affirmed on 14 July 2022 (Luharuka affidavit). Mr Hotait raised no objections to this evidence. Ms Luharuka is employed by MFM and, as part of her role, she is the financial controller for all companies in the Decode group of companies. She started her role with Decode in February 2017. As part of that role, she has been asked to do work in relation to the accounts of Skyworks NSW and has access to its MYOB database. Based on Skyworks NSW’s records submitted to the ATO, Ms Luharuka deposed that:
(i)In relation to the Belair/Hornsby Project, GST input tax credits for purchases exceeded the GST payable in relation to taxable supplies such that Skyworks NSW received a credit of $217,542.95; and
(ii)In relation to the PP/Ryde Project, Skyworks NSW incurred a net GST liability of $72.95.
I note that Ms Luharuka gave no evidence as to a possible allocation of revised Income Tax Debt; and
(c)Mr El Rihani also relied on the affidavit of Xin (Henry) Fan affirmed on 23 June 2022 (Fan affidavit). Mr Fan is also employed by MFM and performed work for Skyworks NSW since May 2013 and Decode since March 2015. Since mid-2016, he has been responsible for processing accounts payable, accounts receivable, bank reconciliations and bookkeeping for Skyworks NSW. He acts as a senior management accountant at Decode. In that role, he has access to the files and business records of both companies. Mr Hotait raised some objections to Mr Fan’s evidence which I have noted where relevant.
None of the deponents was required for cross-examination.
BACKGROUND
Deed 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.Agreement
2.1Hotait 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.
Clause 9 of the Deed of Separation generally contains the same provisions as cl 8 (with the obligations of Mr Hotait and Mr El Rihani being reversed) with respect to the sale of shares in Beauchamp Developments, with slight differences (which are not presently relevant) with respect to the termination of the building contract between Beauchamp Developments and Skyworks NSW (that is, the BD Construction Contract).
The Deed of Separation provides for the way a number of companies which were not parties to the Deed were to be dealt with. Clause 3 deals with Equipment for Hire Pty Ltd. Upon execution of the Deed of Separation, Mr El Rihani was required to pay to Mr Hotait an “Equipment Fee” of $30,000 as set out in Annexure A to the Deed of Separation, and the assets of Equipment for Hire were to be transferred to Mr El Rihani or his nominee: cl 3.1(a) and (b). Once those steps were complete, the parties were required to attend to the steps necessary to effect deregistration of Equipment for Hire: cl 3.2.
The steps required are set out in cll 3.3-3.5 of the Deed of Separation as follows:
(a)Pass all necessary shareholder resolutions for deregistration;
(b)Ensure that the company ceases business immediately;
(c)Ensure the company’s assets are reduced to less than $1,000;
(d)Distribute profits to shareholders equally;
(e)Pay all of the company’s outstanding liabilities;
(f)Cause the conclusion of all legal proceedings involving the company;
(g)Pay all fees and penalties to ASIC;
(h)After the preceding matters have been completed, lodge a Form 6010 with ASIC and the filing fee must be borne by the parties equally; and
(i)Mr Hotait and Mr El Rihani must contribute equally to the company’s tax liabilities.
Clauses 4, 6 and 7 provided for the deregistration of Skyworks Group Pty Ltd, Hornsby Projects Pty Ltd and Skye Form Pty Ltd respectively in the same way as Equipment for Hire.
Clauses 5.1-5.3 deal with Skyworks NSW differently. Those clauses provide as follows:
5 Skyworks NSW
5.1The parties agree and acknowledge that Skyworks NSW:
(a)is presently the contracted builder for the development project undertaken by Parramatta Project;
(b)is presently the contracted builder for the development project undertaken by Beauchamp Developments;
(c)is presently the contracted builder for other projects in the state of New South Wales;
(d)will receive payments in respect of goods and services provided by Skyworks NSW as a contracting builder for projects in the state of New South Wales;
(e)will have its construction contracts with Parramatta Project and Beauchamp Developments terminated by mutual agreement in accordance with clauses 8.16 and 9.16
5.2The parties must cause for the following to be transferred to the Trust Account to be dealt with in accordance with clause 10:
(a)upon execution of this Deed, all current funds held in the financial accounts of Skyworks NSW;
(b)all future payments to be made to Skyworks NSW of any nature.
5.3Upon satisfaction of an event contemplated by clause 10.14 and the distribution of all funds held in the Trust Account (if any), the parties must cause Skyworks NSW to be deregistered unless the parties unanimously agree to sell Skyworks NSW.
It is common ground that no payments met the description in cl 5.2 so that the only moneys paid to the Trust Account were those contributed as follows:
(a)$200,000.00 contributed by Mr El Rihani on 21 December 2016;
(b)$200,000.00 contributed by Mr Hotait on 23 December 2016; and
(c)On each of 16 and 28 March 2017, a further $100,000 was paid into the Trust Account, the circumstances of which do not fall for determination in these reasons,
such that an aggregate amount of $600,000 was contributed to the Trust Account.
Clause 10 of the Deed provides as follows (as written):
10. Trust Account
10.1The parties acknowledge and agree that moneys shall be held in the Trust Account on behalf of Skyworks NSW.
10.2The parties agree that these funds shall be held in the Trust Account on account of future liabilities of Skyworks NSW, including, but not limited to, potential building defect liabilities arising from construction works undertaken by Skyworks NSW in the state of New South Wales.
10.3The parties acting reasonably and in good faith, agree to direct Madison Marcus Law Firm Pty Ltd to pay the liabilities of Skyworks NSW from the Trust Account.
10.4Upon execution of this Deed, El Rihani and Hotait agree to each pay $200,000.00 into the Trust Account.
10.5In the event that any liability exceeds the amount held in the Trust Account at any given time, Hotait and El Rihani each agree to contribute equally to the amount exceeding the amount held up to a maximum of an additional $100,000.00 each on each occasion. If:
(a)Hotait cannot advance the additional funds required, El Rihani may advance the shortfall and such advance shall be a debt due and payable and accrue interest of 5% per annum payable by Hotait until such time that the advance plus all interest is repaid. To the extent that any monies remain outstanding from Hotait to El Rihani, that indebtedness shall constitute a charge over any real property held by Beauchamp Developments and/or Hotait and such charge may be registered by El Rihani as a charge and constitutes in El Rihani a caveatable interest. Hotait and Beauchamp Developments shall neither raise complaint nor require the lapsing of a caveat or a charge, as the case may be, where El Rihani registered such interest pursuant to this Deed. This chargeable interest accrues and is applicable under the Real Property Act 1900 (NSW) and applicable interstate land registration acts and under the common law; or
(b)El Rihani cannot advance the additional funds required, Hotait may advance the shortfall and such advance shall be a debt due and payable and accrue interest of 5% per annum payable by El Rihani until such time that the advance plus all interest is repaid. To the extent that any monies remain outstanding from El Rihani to Hotait, that indebtedness shall constitute a charge over any real property held by Parramatta Project and/or El Rihani and such charge may be registered by Hotait as a charge and constitutes in Hotait a caveatable interest. El Rihani and Parramatta Project shall neither raise complaint nor require the lapsing of a caveat or a charge, as the case may be, where Hotait registered such interest pursuant to this Deed. This chargeable interest accrues and is applicable under the Real Property Act 1900 (NSW) and applicable interstate land registration acts and under the common law.
10.6If Hotait or El Rihani form the view that the funds held in the Trust Account ought to be used to pay an liability on behalf of Skyworks NSW, then that party shall notify the other party in writing of:
(a) the nature of the liability; and
(b) the amount of the liability.
10.7The party receiving notice under clause 10.7 [scil 10.6], shall have three (3) business days from the date of receipt to respond in liability [sic] to the party issuing the notice, specifying whether:
(a) the expense is agreed; or
(b) the liability is disputed and the reasons for the dispute.
10.8If the party receiving notice under clause 10.7 fails to respond within three (3) business days from the date of receipt, then that party is deemed to have agreed to the liability claimed.
10.9If a liability claim is agreed by operation of clause 10.8(a) [scil 10.7(a)] or clause 10.9 [scil 10.8], then the party issuing the notice under clause 10.7 shall be authorised to complete and execute a document in substantially the same form as Annexure B and deliver same to the addressee which shall have the effect of authorising Madison Marcus Law Firm Pty Ltd to deal with the funds in the Trust Account in accordance with same.
10.10If a liability claim is not agreed by operation of clause 10.7(b), then the parties shall meet within three (3) Business Days after the disagreement arose, acting reasonably and in good faith with a view to resolving the dispute and reaching an agreement. If an agreement is reached at the meeting, the parties shall both complete and execute a document in substantially the same form as Annexure B and deliver same to the addressee which shall have the effect of authorising Madison Marcus Law Firm Pty Ltd to deal with the funds in the Trust Account in accordance with same.
10.11If the parties cannot agree to direct Madison Marcus Law Firm Pty Ltd to pay a liability of Skyworks NSW from the Trust Account and the steps in clauses 10.6 to 10.10 have been adhered to, then the parties agree that a President of the Law Society of New South Wales shall appoint a suitably qualified expert to determine (after considering submissions made by each party):
(a)the amount of the liability to be paid;
(b)when the liability is to be paid;
(c)any steps to be taken by the parties to reduce the liability; and
(d)whether proceedings, negotiations or a dispute resolution mechanism ought to be instituted to object to the whole or part of the liability.
10.12The parties agree to be unconditionally bound by the decision of the appointed expert and irrevocably authorise Madison Marcus Law Firm Pty Ltd to apply the funds held in the Trust Account in accordance with the appointed expert's decision.
10.13The costs associated with the appointment of the expert and the expert’s costs shall be borne by the parties equally.
10.14 Upon either of the following events occurring:
(a)the expiry of all building defect warranty periods which Skyworks NSW must comply by contract, statue or common law (excluding tort) and receipt of all funds payable to Skyworks NSW; or
(b)agreement between the parties in writing, the following shall occur:
(i)the funds held in the Trust Account shall be distributed to the parties equally (if there are funds available for distribution). For this purpose, the parties agree to provide written authority to Madison Marcus Law Firm Pty Ltd to deal with the funds held in the Trust Account in accordance with this clause; and
(ii)Skyworks NSW is to be deregistered in accordance with clause 5.3.
Clause 11 of the Deed of Separation provides for notification of defects and authorisation of Madison Marcus to apply funds held in the Trust Account in relation to them.
Clause 12 of the Deed of Separation requires Mr Hotait and Mr El Rihani respectively to maintain net assets of $1 million in each of Beauchamp Developments and Parramatta Project respectively until the expiry of all building warranty defect periods which they must comply with under contract, statute or common law (excluding tort), or until written agreement by Mr Hotait and Mr El Rihani.
Clauses 13, 14, 15 of the Deed of Separation contain provisions dealing with confidentiality, non-disparagement and further assurance and indemnity. Clause 15 is as follows:
15. Further Assurances and Indemnity
15.1Each party shall take all steps, execute all documents and do everything reasonably required by any other party to give effect to any of the transactions contemplated by this document.
15.2 Hotait shall:
(a)cause the Hotait Entities to take all steps, execute all documents and do everything reasonably required to give effect to any of the transactions contemplated by this document;
(b)indemnify El Rihani in relation to any Claims arising from Hotait failing to procure the Hotait Entities to do any matter or thing which is required to be done by this document.
15.3 El Rihani shall:
(a)cause the El Rihani Entities to take all steps, execute all documents and do everything reasonably required to give effect to any of the transactions contemplated by this document;
(b)indemnify Hotait in relation to any Claims arising from El Rihani failing to procure the El Rihani Entities to do any matter or thing which is required to be done by this document.
Clause 16 provides as follows:
16. Schedule of Calculations
16.1The parties agree and acknowledge that the payments to be made under this document have been calculated with reference to the financial position and calculations detailed in Annexure A.
16.2The parties have read, inspected and understood Annexure A and agree with the contents and calculations set out therein.
16.3 Each party waives any right it has to object to:
(a)the contents of Annexure A;
(b)the amounts which are payable by the parties under this Deed.
Clause 17 contains familiar “boiler-plate” provisions including those dealing with counterparts, independent legal advice (that is, independent of Madison Marcus), costs, governing law, amendments, severability, the status of pre-contractual negotiations and entire agreement, and the reasonableness of the document. Clause 17.7 is as follows:
17.7 Pre-contractual negotiation
This document:
(a)expresses and incorporates the entire agreement between the parties in relation to its subject-matter, and all the terms of the agreements; and
(b)supersedes and excludes any prior or collateral negotiation, understanding, communication or agreement by or between the parties in relation to that subject-matter or any term of that agreement.
There is no “force majeure” clause in the Deed of Separation.
Annexure A to the Deed of Separation is headed “Schedule of Calculations” and provides as follows (as written):
Item Agreed Value
Inc GstA Development - Hillsdale/Top Ryde $1,369,625.70 B BOND $495,985.12 B.01 Hillsdale-Build a Security Deposit ($189,400) B.02 Ryde - Sydney Water Bond ($300,000.00) B.03 Ryde-Hovik Bond ($502,570.23) C OUTSTANDING RETENTION $543,125.00 C.01 Botany C.02 Wahroonga D Formwork for Belair project $300,000 E Drawing Adjustment against Personal Loan S $137,908.06 F Equipment for Hire - Crane & Car $30,000.00 G Liability From Sydney To NSW $45,000.00 H Sub- total Income to Bill (A+B+C+D+E+F+G) $2,921,643.88 I Less the below adjustment _ NSW $147,509.56 I.01 Less Frank I.02 Less - Matraville etc J Less Overhead adjustment paid by El Rihani $43,659.30 K Agent fees - Kingsford $99,534.71 L Less payment by Sam $842,488.00 M Total Paid to Date from Sam to Bill (I+J+K+L) $1,133,191.57 N Total Payout to Bill after Amount already paid (H-M) $1,788,452.32 O less Bond (TO BE OWNED BY HOTAIT) (O.01+ O.02) $691,970.23 O.01 Hillsdale bond $189,400.00 O.02 Bond Hovik $502,570.23 P TOTAL (N-O) $1,096,482.09 *Notwithstanding any other provision of this Deed to the contrary, El Rihani shall have until 15 February 2017 to replace the Hovik Bond. For this purpose, the payment in this Annexure A that relates to the Hovik Bond shall be disregarded when the BD Payments are paid on exchange of this Deed and completely disregarded if El Rihani successfully replaces the Hovik Bond. If El Rihani is unable to replace the Hovik bond by 15 February 2017, then the payment in this Annexure A that relates to the Hovik Bond shall be payable by El Rihani to Hotait within 14 days of a written demand from Hotait
Deeds of Guarantee and Indemnity
The Deeds of Guarantee and Indemnity are generally in the same form. Clause 2 provides as follows (words in square brackets in cl 2.2 appear only in the PP G&I Deed).
2 Guarantee and Indemnity
2.1 Guarantee
The Guarantor, unconditionally and irrevocably guarantees to the Principal the due and punctual performance of all the obligations undertakings and provisions by the Contractor contained in or implied by or matters subsequently arising out of the Construction Contract.
2.2 Indemnity
The Guarantor unconditionally and irrevocably indemnifies the Principal and the Beneficiary against any and all demands, claims, suits, actions, damages, liabilities, losses, costs, expenses and taxes of any nature whatsoever which may be made or brought against or suffered or incurred by the Principal or the Beneficiary in connection with or arising out of the Construction Contract [or the works that are being undertaken at the direction of the Principal that may be subject to an alternate contract], including, but not limited to:
(a)the performance of the Construction Contract by the Contractor including any breach of any of the terms, covenants and conditions contained or implied in or by the Construction Contract;
(b)disputes with subcontractors and payments owed to subcontractors;
(c)disputes with suppliers and payments owed to suppliers;
(d)personal injury and damage to property;
(e)delays in construction;
(f)defects, non-compliance and non-conforming construction;
(g)disputes with purchasers for the sale of lots in the development;
(h)any breaches of statutory warranties;
(i)changes in laws, regulations or legislation;
(j)insurance claims.
2.3 Payment on Demand
Guarantor must pay to the Principal and the Beneficiary immediately on demand any amounts due to the Principal and the Beneficiary under clause 2.2.
The Principal and the Beneficiary may make such a demand on the Guarantor from time to time, whether or not demand has been made by the Principal or the Beneficiary on the Contractor.
Clause 9.1 provides as follows:
9. Administrative Provisions
9.1 Costs and Expenses
The Guarantor will upon demand by the Principal and the Beneficiary pay all costs (including legal costs as between solicitor and client) expenses and other amounts incurred or paid by the Principal or the Beneficiary in respect of this Deed and the Construction Contract (including those arising in consequence or on account of the exercise or purported or attempted exercise of any of the Principal’s or the Beneficiary’s rights or powers or for the preservation of or in any manner in reference to this Deed and\or the Construction Contract) and any stamp duty loan duty or other duty including duties and taxes on receipts or payments arising directly or indirectly in respect of this Deed and\or the Construction Contract.
WHAT MONEYS SHOULD BE CONTRIBUTED TO THE TRUST ACCOUNT?
This issue turns on the interpretation of cl 10 of the Deed of Separation which is set out at [48] above.
As noted at [23] above, in his revised submission, Mr El Rihani contended that Mr Hotait is liable to contribute $2,245,772.38 to the Trust Account, being 50% of:
(a)$3,353,067.54, being the amounts claimed to be unpaid debts of Skyworks NSW other than any liability to the ATO; plus
(b)$1,138,477.22, being the sum of the ATO’s revised assessments.
In his March 2022 affidavit, Mr Hotait indicated that he agreed that some moneys should be contributed to the Trust Account in relation to some of those claims, but he raised objections to a large number of them. Mr El Rihani summarised Mr Hotait’s objections as falling into six categories, being:
(a)Invoices from Piper Alderman (set out in Annexure B to the ASOC) which Mr Hotait says have been paid by the liquidator;
(b)Invoices which Mr Hotait says have been issued to an entity other than Skyworks NSW;
(c)Services which Mr Hotait says were carried out for the sole benefit of Mr El Rihani;
(d)Services which Mr Hotait says were unsupported by invoices;
(e)Debts in respect of which Mr Hotait says the liability for which has been released; and
(f)Debts that Mr Hotait says are contrary to the Deed of Separation.
Mr El Rihani submitted that the matters raised in Mr Hotait’s defence at D[27]-[28] (see [24] above) must fail. He contended that all of the issues raised by Mr El Rihani are matters for expert determination under cll 10.6 to 10.13 of the Deed of Separation, not the Court, in the absence of a pleading that any of the claims were made by Mr El Rihani in bad faith. He says that is because, in advance of any dispute, Messrs Hotait and El Rihani had contracted for any such dispute to be settled by expert determination.
He submitted as follows (footnotes incorporated into text, Court Book references omitted):
4.2 The scheme in cl 10 begins with
(1) money held in the Trust Account, and
(2) a proposal by one or other of Messrs Hotait and El Rihani that that money be used for a payment of a liability of Skyworks NSW.
cl 10.6 4.3 The circumstance that a cl 10.6 proposal for the payment of a liability of Skyworks NSW is one
“… that the funds held in the Trust Account ought be [so] used”,
makes clear that a notice under that provision can be given
(1) only in respect of funds so held, but
(2) in respect of such funds, can be given at any time.
4.4 The proposal for such a payment may be agreed or disputed. Written notice is not an express requirement for either course but in respect of a dispute about a proposed payment is probably an implicit requirement. cl 10.7 4.5 Agreement or deemed agreement authorises disbursement from the Trust Account cll 10.7 & 10.9 4.6 Dispute requires
(1) a meeting of the parties within 3 business days of receipt of the “response” provided for in cl.10.7(b), and
(2) in the event of continuing disagreement, that the dispute be submitted for expert determination.
cll 10.10 & 10.11 4.7 The subject matter of the expert determination process is that which arose from the operation of cll 10.6 and 10.7(b) that
“… the liability is disputed and the reason for that dispute…”
ie. whether there is a liability of Skyworks NSW to make a payment.
4.8 It is plainly within the competence of
(1) one or other of Messrs Hotait and El Rihani to dispute a proposed use of money in the Trust Account on the basis that that proposed payment is for something other than
“… an (sic) liability of Skyworks NSW”, and
(2) the expert engaged to determine that dispute. The Expert’s doing so would be an aspect of determining
“the amount of the liability to be paid;”.
cl 10.11(a) 4.9 It is convenient to note that in respect of a liability of Skyworks NSW the expert may determine that steps be taken to
(1) defer the payment of that liability,
(2) mitigate its quantum, or
(3) challenge the claim for that liability. [This course may not now be open to Messrs Hotait and El Rihani; control of Skyworks NSW has passed to its liquidator.]
cl 10.11(b)-(d) 4.10 Plainly cl 10.11(a) permits a determination that in respect of a proposed payment the amount to be paid is $nil. That is a construction confirmed by its context; cl 10.11(b) to (d).
As Mr Hotait is currently unrepresented, I note that written submissions dated 22 December 2021 were made by his then counsel as follows:
(a)The terms of cl 25(a) of the ASOC are as follows (emphasis in the submission):
An order that, on condition that Mr El Rihani pays an equal amount into the Trust Account, thereafter Mr Hotait pays an amount to be determined by the Court, at all times into the Trust Account
(b)In his defence, Mr Hotait, in effect, admitted that demands for contribution to the Trust Account were made on behalf of Mr El Rihani on 28 March 2017 (for the amounts claimed in Annexure A to the ASOC), on 20 September 2017 (for the amounts claimed in Annexure B to the ASOC) and on 23 October 2017 (for the amounts claimed in Annexure C of the ASOC). However, Mr Hotait (at D[25]) denied that Mr El Rihani was entitled to the relief claimed in ASOC [25] and denied (at D[27]) that the demands “are claimable on behalf of Skyworks or are otherwise validly made” and (at D[28]) Mr Hotait “denies liability to pay”.
(c)In paragraph 2.10 of El Rihani’s written submissions filed on 10 November 2021, Mr El Rihani submitted as follows:
2.10The implication of the expert determination feature of the scheme in cl.10 is that the obligation in cl.10.5 to contribute towards
“... any [future] liability [that] exceeds the amount held in the Trust Account ...”
is an obligation to contribute in respect of any liability that either party bona fide “asserts” is a liability of Skyworks NSW.
(d)Counsel for Mr Hotait submitted that, while Mr Hotait’s defence does not use the words “bona fide”, it is clear from the terms of D[27] that he contends that Mr El Rihani’s claims are not bona fide claims (or “bona fide assertions” of liability). Counsel submitted that this is clear on the pleadings, and it was also confirmed in Mr Hotait’s written submissions filed on 2 December 2021.
I accept Mr El Rihani’s submission that the implication of cll 10.6 to 10.13 of Deed of Separation is that the obligation to contribute to the Trust Account under cl 10.5 is in respect of a putative liability of Skyworks NSW which either Mr Hotait or Mr El Rihani asserts bona fide to be a liability of Skyworks NSW. I agree that cll 10.6 to 10.10 confer on the parties in the first instance and thereafter cll 10.11-10.12 confer on an expert determination of the steps to be taken in relation to the resolution of that putative liability. It emerges from the plain language of cl 10 that the intention is that moneys be contributed to the Trust Account to meet a putative liability which is asserted bona fide by either of the parties if there are not, at that time, enough funds in the Trust Account to meet the liability. That occurs before the amount to be paid from the Trust Account to a creditor of Skyworks is determined. This mechanism allows instructions to be given to the law firm holding the Trust Account to pay Skyworks NSW’s creditor immediately following the determination being made. I also accept the submission made by Mr Hotait’s counsel that it is clear from the pleadings that he contends that some of Mr El Rihani’s claims were not made bona fide. I say “some” because Mr Hotait now admits (in his March 2022 affidavit) that some of the claims are payable to the Trust Account even though he reserves to himself the right to dispute such claims before the expert appointed under the Deed of Separation.
Accordingly, if the Court is not sufficiently satisfied on the evidence before it that a claim was made bona fide, it is open to the Court to determine that it should not make an order for contribution with respect to that claim. Further, where the evidence reveals that a claim has, in fact, been satisfied, I do not consider it appropriate to make an order for contribution to the Trust Account even if, as asserted by Mr El Rihani in his revised submissions at [4.10], it would be open to the expert to determine that the amount that should be paid to a creditor of a claimed liability is nil. It is therefore necessary to consider the claims made by Mr El Rihani on the basis of the evidence before the Court.
Annexure A to the ASOC
Annexure A to the ASOC contains 14 Items in respect of which I note that:
(a)In his March 2022 affidavit at [15]-[16], Mr Hotait asserted that the Items in Annexure A of the ASOC have been resolved because he made, and acted on, a commercial decision to pay $136,781.30 to Mr El Rihani. At [17] he says that, accordingly, he and Mr El Rihani have resolved the claims in Annexure A and he understands that not to be contentious. Mr El Rihani objected to the admission of [17] into evidence on the basis that it was an opinion. In the BH-3 Table, Mr Hotait listed only Items 1-12, not all 14 Items and his comment in relation to them was simply “Settled”;
(b)Mr El Rihani relied on Ms Luharuka’s affidavit at [28]-[29]. There, Ms Luharuka relied on email correspondence between the parties’ lawyers conducted between 8 and 11 October 2021 to assert that the payment of $136,781.30 related to the settlement of the issues raised by ASOC[25(b) to (e) and (g)] (see [15] above), that is, not the claims in the 14 Items in Annexure A of the ASOC.
(c)Mr El Rihani also relied on Mr Fan’s affidavit at [26], in which Mr Fan deposed that since the preparation of Annexures A to C of the ASOC and the table in TAB 17, Mr Fan located invoices that Mr Hotait (in his March 2022 affidavit) said had not been provided.
In relation to Annexure A, the table in TAB 17 contained the information set out in the first four columns of the table below which differs from Annexure A of the ASOC in the ways identified in the table below.
Item
Liability Relevant period Amount $ Judge’s comment 1 Crane Mortgage 15/08/2016 – 08/11/2016 15,700.92 In the BH-3 Table, Mr Hotait comments that Item 22 of MFI-1 is a duplicate of Item 1 of Annexure A which is correct. 2 Legal and business management – Sammy Soliman 16/03/2016 – 30/01/2017 40,872.11 In the BH-3 Table, Mr Hotait comments that Item 48 of MFI-1 is a duplicate of Item 2 in Annexure A which is correct. 3 Management - Divya Mehta 01/07/2016 – 31/01/2017
ASOC: 16/07/2016 – 31/01/201714,052.50 In the BH-3 Table, Mr Hotait comments that Item 39 of MFI-1 is a duplicate of Item 3 in Annexure A which is correct. 4 Accounts team – Lin Chia Yan, Song Xi and Fan Xin 11/07/2016 – 31/01/2017
ASOC: 16/03/2016 – 30/01/2017TAB17
19,801.25
ASOC: 18,885.07Having regard to the chart in TAB 17, Item 4 predates the period to which Item 24 of MFI-1 relates: see [142]-[150] below in relation to Item 24 of MFI-1. 5 Supervision of onging defects and maintenance – Sebastian 01/07/2016 – 31/01/2017
ASOC:
01/10/2016 – 30/01/2017TAB17
16,449.98
ASOC: 16,343.56Item 5 is a duplicate of the claim in Item 57 of MFI-1: see [151]-[152] and [156]-[159] below. 6 Supervision of ongoing defects and maintenance – Hamze 06/10/2016 – 08/02/2017
TAB17
1,051.20
ASOC: 29,333.01Item 55 of MFI-1 is a duplicate of Item 6 of Annexure A in TAB 17. In the BH-3 Table, Mr Hotait comments that there is no invoice supporting Item 55: see [163]-[164] below. 7 Supervision of ongoing defects and maintenance – Labour 06/10/2016 –08/02/2017
ASOC:
05/02/2016 – 25/05/2016TAB17
38,033.23
ASOC:
8,370.00The table in TAB 17 indicates that Decode is the entity responsible for the payment of $38,033.23. Item 7 of the table in TAB 17 is a duplicate of Item 56 of MFI-1. In the BH-3 Table, Mr Hotait commented that there was no invoice supporting Item 56 of MFI-1: see [155] and [160]-[161] below. 8 AB-11 Group Pty Ltd 22/09/2015 875.33 The table in TAB 17 indicates that Mr El Rihani is the person responsible for the credit or payment of this amount. In the BH-3 Table, Mr Hotait comments that Item 8 of MFI-1 is a duplicate of Item 8 of Annexure A. 9 Bunnings Group Limited 03/03/2016 – 31/03/2016 3,562.90 The table in TAB 17 indicates that Mr El Rihani is the person responsible for credit or payment of this amount. 10 Bingo Waste Services Pty Ltd 12/12/2015 – 12/03/2016 8,932.00 The table in TAB 17 indicates that Mr El Rihani is the person responsible for the credit or payment as to $5,368 and Decode is the entity responsible for the balance. Mr Hotait’s only comment in the BH-3 Table is that Items 11 and 12 of MFI-1 (for amounts of $3,564 and $5,368 respectively) duplicate Item 10 of Annexure A. 11 Boral Construction Materials Group Limited 03/12/2015 – 16/12/2015 8,604.42
The table in TAB 17 indicates that Mr El Rihani is the person responsible for credit or payment as to $3,201.70 and Decode is entity responsible for balance. In the BH-3 Table, Mr Hotait says that Items 13 (for $5,582.72) and 14 (for $3,021.70) of MFI-1 are duplicates of Item 11 of Annexure A. 12 Coates Hire Operations Pty Ltd 31/10/2016 40.99
The table in TAB 17 indicates that Mr El Rihani is the person responsible for the credit or payment of $40.99. In MFI-1 at Item 1, Mr Hotait agrees that this amount is payable to the Trust Account. In the BH-3 Table, he only says Item 12 of Annexure A and Item 1 of MFI-1 are duplicates which is correct. 13 Royal Tiles Pty Ltd 24/05/2016 115.50 This Item is not acknowledged in the BH-3 Table in relation to Annexure A, but Item 47 of MFI-1 (which duplicates Item 13 of Annexure A) is addressed: see [137] below. 14 Street Furniture Australia Pty Ltd 27/06/2016 577.50 The table in TAB 17 indicates that Decode is the entity responsible for credit or payment of this amount. This Item is not acknowledged in the BH-3 Table in relation to Annexure A, but Item 54 of MFI-1 (which addresses the same subject matter) is addressed at [138] below.
Mr Hotait’s evidence that the Items in Annexure A of the ASOC have been resolved because he had made, and acted on, a commercial decision to pay $136,781.30 to Mr El Rihani should be treated as a submission. That submission is not well founded. I prefer Ms Luharuka’s evidence, having regard to the parties’ lawyers’ correspondence which related to the settlement of the issues raised by ASOC [25(b) to (e) and (g)] for the amount of $136,781.30 and the orders sought by the parties on 11 October 2021 in relation to that settlement.
I am also persuaded to that view because:
(a)In support of his position, Mr Hotait relied on the BH-3 Table which contains a copy of only the first 12 Items “extracted from Annexure A” of the ASOC for an aggregate amount of $165,572.81. Without explanation, it omits Items 13 and 14 of Annexure A of the ASOC for a further aggregate amount of $693. If Mr Hotait made a commercial decision to pay all of the Items in Annexure A of the ASOC, the aggregate amount would have been $166,265.81. If he had agreed to pay the amount claimed in Annexure A of TAB 17, the aggregate amount would have been $168,669.83. There is no documentary evidence that Mr El Rihani agreed that a smaller amount of $136,781.30 would satisfy those claims; and
(b)There is no reason why payment would have been made to Mr El Rihani directly for all Items, even though the table in TAB17 would suggest that Mr El Rihani or Decode paid for some Items and the work to which some Items were said to relate was undertaken by employees of MFM. Rather, for Items identified in the Annexures to the ASOC or the table in TAB 17, payment should be made into the Trust Account in light of the fact that Mr Hotait reserved to himself the right to dispute Items in the expert determination process prescribed by the Deed of Separation.
I am therefore unable to conclude that claims made in relation to Annexure A of either the ASOC or the table in TAB 17 were not made bona fide. For reasons mentioned later in these reasons, to the extent that Mr El Rihani or Decode can demonstrate that they have paid creditors with legitimate claims against Skyworks NSW, he and Decode will be entitled to the subrogated to the claims of the relevant creditor.
Items 5 to 7 and Items 13 and 14 of the chart in TAB 17 are addressed below as indicated in my comments in the table at [67] above. I have accordingly not included those Items in the amount to be paid to the Trust Account with reference to Items in Annexure A of the table in TAB 17. The amount of $112,442.42 relating to Items 1 to 4 and 8 to 12 should be included in the calculation of the amount payable to the Trust Account.
Annexure B to the ASOC
Annexure B to the ASOC contains 10 Items relating to invoices issued by Piper Alderman:
Item
Invoice ref Invoice date Amount 1 381079 30.9.2016 $25,264.10 2 382718 28.10.2016 $5,469.99 3 384590 29.11.2016 $15,342.62 4 387707 27.01.2017 $17,797.80 5 389785 28.02.2017 $46,159.44 6 391601 30.03.2017 $30,287.05 7 393262 28.04.2017 $22,437.01 8 394346 26.05.2017 $34,887.60 9 398257 31.07.2017 $19,384.70 10 399921 31.08.2017 $18,268.98 I note that:
(a)In relation to Item 4, invoice 387707 was for an aggregate amount of $27,868.80 of which $16,893.80 comprised Piper Alderman’s fees (GST inclusive);
(b)In relation to Item 5, invoice 389785 was for an aggregate amount of $65,234.25 of which $44,242 comprised Piper Alderman’s fees (GST inclusive); and
(c)In relation to Item 6, invoice 391601 was for an aggregate amount of $75,086.75 which comprised disbursements of $2,286.55 (GST inclusive) and payments paid or payable on Skyworks NSW’s behalf of $72,800.20 (GST inclusive).
In his March 2022 affidavit:
(a)At [18], Mr Hotait deposed that he has made a commercial decision that Items 1 and 2 of Annexure B should be paid to the Trust Account but says that Items 3 to 10 were paid by Skyworks NSW’s liquidator. He relies on an email dated 14 March 2022 from the liquidator’s solicitors to his solicitors which attaches invoices identified in Items 3 to 10 of the table at [72] above and states “We attach copies of those invoices and disbursements in our client’s possession that have been paid to Piper Alderman”;
(b)In the same affidavit at [25]-[26], Mr Hotait notes that Items 5 to 10 of Annexure B (replicated at [72] above) appear to be duplicated in Items 79-84 of Annexure C of the ASOC. That appears to be correct. I note, however, that the amount specified for invoice 389785 in Item 79 of Annexure C is $44,631.96 in relation to which Mr Fan comments in the table in TAB17 that $44,631.96 was “Potentially paid for by Drummoyne litigation”. The parties now appear to accept that this Item was paid by the liquidator.
Mr El Rihani submitted that Decode, not the liquidator, paid an amount of $59,932 to Piper Alderman on Skyworks NSW’s behalf on 3 November 2017 but otherwise concedes that the Piper Alderman invoices were paid by the liquidator. He relies on Mr Fan’s affidavit at [8] and related annexures as follows:
(a)Decode’s CBA bank statement for the period 16 October to 15 November 2017 which has an entry as follows: “3 Nov Direct Credit 301500 SKYWORKS SYDNEY Co Piper/Alderman $59,932.00”
(b)An email dated 25 May 2022 from Sarah Crawley (described as a “Credit Controller” for Piper Alderman) to Mr Fan at Decode setting out the manner in which Piper Alderman allocated the $59,932 payment (see exhibit XF-1 at p 19) as follows:
Bill Number Bill date Amount $ Payment Allocation $ 381079 30.09.2016 38,762.90 -25,264.10 382718 28.10.2016 38,394.40 -5,469.99 384590 29.11.2016 15,342.62 -9,265.91 391601 30.03.2017 75,086.75 -11,715.00 394346 26.05.2017 34,887.60 -4,158.00 398257 31.07.2017 19,384.70 -4,059.00 -59,932.00
Mr Hotait concedes that Items 1 and 2 of Annexure B should be paid to the Trust Account. Having regard to Mr Fan’s unchallenged evidence, an aggregate amount of $59,932 should be included in the calculation of the amounts to be paid to the Trust Account as there is a bona fide dispute as to whether up to that amount should be paid to Decode on the basis that it is subrogated to the claims of Piper Alderman. The repeated claims in Items 79-84 of Annexure C should be disregarded.
Annexure C to the ASOC
Annexure C of the ASOC comprises 136 items to an aggregate value of $2,570,820.96.
Hotait agreed amounts
In his March 2022 affidavit at [18] (on the basis set out at [19]), Mr Hotait agreed that the following amounts should be paid to the Trust Account in relation to the Items set out in Annexure C of the ASOC on the basis that he had made a commercial decision that those payments should be made:
Annexure C Item Claimed creditor Aggregate $ amount according to March 2022 affidavit at [18] and BH-3 Table Aggregate $ amount outstanding per ASOC and TAB 17 if different to March 2022 affidavit at [18] 1-15 Aus Inventive Design Pty Ltd 187,895.87 16-18 Building Durability Pty Ltd 107,562.53 19 Burwood Accounting Services 55,000.00 21-26 Compact Mechanical Group Pty Ltd 135,292.57 79,305.57 27 Deloitte Legal 2,585.00 28 , 29, 31 Eclipse SFS Pty Ltd 11,803.00 33-39 Gavel & Page Lawyers Pty Ltd 8,023.63 8,024.63 47-51 Go Glass NSW 147,112.25 16,867.95 52 Helcon Contracting Australia Pty Ltd 3,301.43 54-57, 65, 66, 68, 70, 71 On Time Plumbing Australia Pty Ltd 431,646.10 85, 86 Ponds on Pipeline 4,525.18 87-98 Site Pacific Group Pty Ltd 130,842.43 105 Staff Seal Pty Ltd 1,185.00 107-111 Sunrise Pools Australia Pty Ltd 2,918.40 113 Tracey Brunstrom & Hammond Pty Ltd 16,665.00 114-112 United Trades Pty Ltd 21,982.80 123-132 Wall 2 Wall Painting & Decorating 66,014.19 133 Walmay Architectural Products 838.42 Aggregate 1,335,193.80 1,148,963.50
I note that:
(a)There appears to have been a minor typographical error in the March 2022 affidavit at [18] and the BH-3 Table in relation to Item 33 of Annexure C (Gavel & Page) which produced the slightly different outcome for the aggregate of Items 33-39 as between that affidavit and TAB17 and the ASOC;
(b)In relation to Items 21 and 22 of Annexure C for which Compact Mechanical Group is the named creditor, it appears that, in the March 2022 affidavit at [18] and the BH-3 Table, Mr Hotait adopted the amounts said to have been already credited or paid ($13,000 and $64,263 respectively) in the equivalent Items of the ASOC and TAB 17, rather than the amounts said to be outstanding for those Items in TAB 17 and the ASOC ($12,000 and $9,277 respectively). This error led to an aggregate amount different to the “outstanding amount” in Annexure C of the ASOC and TAB17 for Items 21-26. I note that, in the BH-3 Table in relation to Item 21 of MFI-1 for an amount of $79,305.57 (which relates to Compact Mechanical Group), Mr Hotait comments that this Item is a “Duplicate of Annexure C Items 21-26”; and
(c)In relation to Items 48 to 51 of Annexure C relating to Go Glass NSW, it appears that in the March 2022 affidavit at [18] and the BH-3 Table, Mr Hotait adopted the amounts said to be already credited or paid ($12,772.27, $70,712.23, $2,354 and $59,512.75), rather than the amounts said to be outstanding ($2,354.93, $8,366.77, $1,254 and $3,132.25 respectively) leading to error as to the amount said to be outstanding.
Accordingly, I understand Mr Hotait to have agreed to the outstanding amounts for the identified Items set out in the table above relating to TAB 17 and the ASOC.
I note that, in his March 2022 affidavit at [38], Mr Hotait objected to Items 85-86 (Ponds on Pipeline) in an aggregate amount of $4,525.18 being included in the calculation of amounts payable to the Trust Account on the basis that they were just bald claims, unsupported by tax invoices or other documentation. However, in the same affidavit at [18] and in the BH-3 Table, Mr Hotait indicated that he agreed that that amount should be paid to the Trust Account. Having regard to this conflict in Mr Hotait’s evidence, I will accept the evidence in the March 2022 affidavit at [18] and the BH-3 Table. This view is reinforced by Mr Fan’s unchallenged evidence that he has located relevant invoices as follows:
(a)An invoice dated 23 October 2015 in an amount of $27,850. I note that Annexure C to the ASOC indicates that $25,064.82 has already been credited or paid leaving a balance of $2,785.18; and
(b)An invoice dated 30 June 2016 for an amount of $1,740.
These invoices relate to the Drummoyne Project in respect of which there is an engagement letter dated 16 March 2015: see exhibit XF-1 at pp 706-708.
Accordingly, in relation to Annexure C of the ASOC, I understand that Mr Hotait agrees that an aggregate amount of $1,148,963.50 should be included in the calculation of the amounts to be paid to the Trust Account, not the sum of $1,335,193.80.
Summary of amounts not agreed and Mr Hotait’s reasons for not agreeing
The amounts derived from Annexure C to the ASOC which Mr Hotait does not agree should be contributed to the Trust Account as listed in his March 2022 affidavit and/or the BH-3 Table are as follows:
Item Claimed creditor Aggregate amount $ Hotait reason for not agreeing 20 Casavega Pty Ltd 20,940.38 Invoice addressed to “Skyworks Group Pty Ltd” not Skyworks NSW 30, 32 Eclipse SFS Pty Ltd 63,482.62 Invoices 1418, 1529 addressed to “Skyworks Group” not Skyworks NSW 40-46 Gavel & Page 3,522.75 Mr Hotait objects to Gavel & Page Invoices B3205, B3290, B3334, B3462, B3515, B3621, B3713 on the basis that they were services for Mr El Rihani’s benefit in respect of the dispute with Mr Hotait 53 HMES Electrical
Services14,728.73 There is no evidence that $14,728.73 is outstanding. The only evidence is a deed of release that shows an amount was outstanding at a point in time. 58-64, 67, 69, 72-74 On Time Plumbing 175,501.31 Invoices addressed to “Skyworks Group” not Skyworks NSW 75-78 Permatec Waterproofing 11,639.37 Invoices addressed to “Skyworks P/L” not “Skyworks NSW Pty Ltd” 79-84 Piper Alderman 169,897.30 Invoices 389785, 391601,393262, 394346, 398257, 399921 have been paid by the liquidator 85-86 Ponds on Pipeline 4,525.18 Mr El Rihani has not provided a copy of a tax invoice (or other document) to justify the claim 99-102 Smart Engineering Consultants Pty Ltd 704,446.51 Items 99-104 were already adjusted for in the Deed of Separation at Line J of Annexure A (see [55] above) – see email dated 13 October 2016 from Mr El Rihani to Mr Shamieh of Madison Marcus attaching an excel spreadsheet called “Agreed Split Figure” as explained in Mr Hotait’s March 2022 affidavit at [46]-[71] 103-104 Smart Engineering Solutions Pty Ltd 200,000 Contrary to Deed of Separation, no evidence of loan. See Mr Hotait’s comments in relation to Items 99-102 106 Strata Plan 90492 6,061.00 Invoice addressed to “Skyworks Pty Ltd” not Skyworks NSW Pty Ltd 112 Tomark Goup 10,636.75 No invoice or other document evidencing that the amount is outstanding. The only evidence is a deed of release that shows an amount was outstanding at a point in time 134 Western Sydney Lights Pty Ltd 2,454.10 Invoice addressed to “Skyworks P/L” not Skyworks NSW Pty Ltd 135 Equipment for Hire – loan to Skyworks NSW account #1710 753.25 Contrary to Deed of Separation. No evidence of loan 136 Hornsby Projects loan to Skyworks NSW account #1710 43,763.39 Contrary to Deed of Separation. No evidence of loan Name invoices objection - Items 20, 30, 32, 58-64, 67, 69, 72-74, 75-78, 106 and 134 of Annexure C
In relation to the invoices to which Mr Hotait objects on the basis that they were issued to “Skyworks P/L”, “Skyworks Pty Ltd” or “Skyworks Group Pty Ltd” (the name invoices), Mr El Rihani submitted that the objections raise a factual issue of whether the invoices misname the entity or whether services were in fact provided to an entity other than Skyworks NSW. He submitted that all of the invoices in this category were for work done for Skyworks NSW as the builder of the relevant Project (see [83] below). He contended that the work could only have been done for Skyworks NSW or one of its subcontractors because it alone was contracted to carry out the work, it had control of the sites and had authority to subcontract, and it was subject to warranties for the work done (including sub-contracted work) under the Home Building Act 1989 (NSW).
Mr El Rihani relies on Mr Fan’s evidence. Mr Fan deposed (at [10]-[13]) that each of the name invoices relates to one of the construction contracts entered into by Skyworks NSW for developments at:
(a)21-23 Myrtle Street, Botany dated 31 March 2012 (Botany Project);
(b)31-33 Millewa Avenue and 24 Neringah Avenue, Wahroonga dated 22 January 2014 (Wahroonga Project);
(c)13-15 Anglo Road, Campsie dated 20 December 2013 (Campsie Project);
(d)30-32 St Georges Crescent, Drummoyne (Drummoyne Project);
(e)The Belair/Hornsby Project;
(f)The PP/Ryde Project; and
(g)51 Willis Street, Kingsford dated 26 March 2014 (Kingsford Project).
Each may also be referred to as a “Project” and collectively as “Projects”.
Mr Fan deposed (at [14]-[17]) that, in relation to invoices with the name Skyworks Group or Skyworks Group Pty Ltd on them:
(a)The invoice issued by Casavega Pty Ltd (Item 20) records Skyworks NSW’s ABN (ABN 99 149 297 423). It does not record the ABN of Skyworks Group (ABN 65 123 400 279). It provides the address of the Drummoyne Project as the invoice reference: see exhibit BH-3 at p 131;
(b)Invoice 1418 issued by Eclipse SFS (t/a Elecity) (Item 30) refers to a project in Campsie and the letter of engagement dated 11 September 2014 between Skyworks NSW and Eclipse SFS relates to the Campsie Project: see exhibit XF-1 at p 608 and exhibit BH-3 at p 132;
(c)Invoice 1529 issued by Eclipse SFS (Item 32) refers to the “Waronga” Project and on 22 March 2017, it was posted as its debt in Skyworks NSW’s ledger in its accounting system as demonstrated in a screenshot taken by Mr Fan on 7 June 2022. I note that this invoice was, in fact, issued to Skyworks NSW: see exhibit XF-1 at pp 609-610;
(d)The invoices issued by On Time Plumbing Australia (Items 58, 60, 61, 64 and 73) record the same address as the Wahroonga Project. The letter of engagement dated 10 June 2014 between On Time Plumbing Australia and Skyworks NSW indicates that On Time Plumbing Australia was retained to work on the Wahroonga Project. I note that the letter of engagement bears Skyworks NSW’s ABN, it has a logo “Skyworks” and an email address of [email protected]. I also note that most of the invoices are stamped with an “invoice approval” stamp with the name “Skyworks Group” on it (as are invoices relating to On Time Plumbing Australia referred to below): see exhibit XF-1 at p 611 and exhibit BH-3 at pp 134, 146, 137, 140 and 144;
(e)The invoices issued by On Time Plumbing Australia (Items 59, 62, 63, 67, 69 and 72) record the same address as the Campsie Project: see exhibit BH-3 at pp 135, 138, 139, 141, 142 and 143; and
(f)The invoice issued by On Time Plumbing (Item 74) records the same address as the PP/Ryde Project: see exhibit BH-3 at p 145.
He further deposed (at [18], [19] and [21]) that, in relation to the invoices with the name Skyworks Pty Ltd on them:
(a)ASIC’s records indicate that there has never been a company registered in Australia named Skyworks Pty Ltd. I note that there are a “Skywork” and “Skyworks” registered business names in South Australia and Western Australia: see exhibit XF-1 at pp 612-613;
(b)The invoices from Permatec Waterproofing (Items 75-78) record the job address/reference as being the Drummoyne Project or the Wahroonga Project. I note that the aggregate of the amounts said to be outstanding in Annexure C is $5,039.37, not the amount of $11,639.37 listed in the BH-3 Table and Mr Hotait’s March 2022 affidavit at [30]: see exhibit BH-3 at pp 147-150; and
(c)The invoice from Western Sydney Lights (Item 134) includes a handwritten notation “Drummoyne” and on or about 18 August 2015, the invoice was posted in Skyworks NSW’s ledger as a debt of Skyworks NSW in its accounting system as demonstrated by a screenshot taken by Mr Fan on 7 June 2022: see exhibit BH-3 at p 152 and exhibit XF-1 at p 615.
Mr Fan’s evidence did not address Item 106 of Annexure C. However, I note that one of the Projects was at 51 Willis Street, Kingsford. The invoice dated 24 May 2016 for $6,061.00 which appears in exhibit BH-3 at p 151 was issued by Strata Plan 90492 for “Reimbursement of agreed fire safety works re AFT Fire Protection Inv # 0034804” and it is addressed to Skyworks Pty Ltd at Level 1, 1401-1403 Botany Road, Botany.
In written submissions based on Mr Fan’s evidence, Mr El Rihani submitted that:
(a)The name invoices either record the ABN of Skyworks NSW, relate to a contract for a Project on which Skyworks NSW was the builder, or identify the address or suburb of the relevant Project. He says they are liabilities of Skyworks NSW for its own projects. They are not liabilities of some other entity merely because a contractor addressed the invoice to the wrong person; and
(b)This is particularly so for invoices that refer to Skyworks Pty Ltd because no such entity ever existed. Where given, the address of the invoice recipient was a business address of Skyworks NSW either at Level 1, 1401 Botany Road, Botany (the address Skyworks NSW used in correspondence with the ATO) or Level 5, 619 Pacific Highway, St Leonards (its registered address between 31 January 2017 and 28 February 2021) (St Leonards address).
Accordingly, the evidence on which Ms Luharuka relied for this purpose did not support the claim that 30% of Mr Soliman’s work was for Skyworks NSW’s benefit.
In the revised submissions, Mr El Rihani relied on an email dated 5 September 2017 from Mr Soliman to Mr Hotait and Mr Taouk of Gavel & Page with the subject line “Skyworks NSW” included in exhibit LF-1 at p 407 in which he said (among other things):
In addition to the above, Skyworks NSW P/L has pending insurance claims for the projects at Botany and Campsie which will relieve Skyworks NSW of funding all the costs of these rectifications. I have requested the insurer to keep you informed of all these insurance matters, which confirmation has been received that you are aware of all insurance related matters, but we have not heard from you or your contribution to pay any excesses.
The litigation against Drummoyne 32 P/L is coming to a conclusion with a good possibility that Skyworks NSW will succeed in this litigation and receive monies in the vicinity over $2 million dollars. We are aware you have been in regular contact with Piper Alderman and have been briefed fully of the current status of the case and yet no monies have been forthcoming from your side. This has placed this case in jeopardy and if dropped by Piper Alderman, all chances of success in this case are nullified by your non action and adherence to your obligations and indemnities given under the Deed.
This email provides support for Mr El Rihani’s submission set out at [167], but it provides no guidance as to the amount that Decode might be entitled to by way of subrogation to a quantum meruit claim of Platform One Holdings or 2 Build Group. Nonetheless, it is sufficient to demonstrate that the claim is not without some foundation, and Mr Hotait has not demonstrated that it is made in bad faith. Accordingly, I will order that the amount of $107,714.23 be included in the calculation of the amount to be paid to the Trust Account. It will be for the expert to determine whether the evidence put before him (or her) establishes a claim in that amount.
Tax
The parties do not dispute that the revised ATO Debt in an aggregate amount of $1,138,477.22 is a liability of Skyworks NSW. Their dispute is as to whether Mr El Rihani is liable to indemnify Mr Hotait for his liability to pay half of that amount under the Deed of Separation by reason of the indemnity given to him under cll 2.2 and 9.1 of the El Rihani G&I Deeds.
The issue relating to the revised GST Debt has been rendered nugatory as Mr Hotait has not challenged Ms Luharuka’s evidence set out at [34(b)] above. Skyworks NSW received a substantial tax credit in relation to the Belair/Hornsby Project. The amount of $72.95 of net GST liability relating to the PP/Ryde Project is too de minimis to warrant consideration. In my view, the amount of the revised GST Debt in an aggregate amount of $582,112.18 ($284,843.84 plus interest of $297,268.34) should be included in the calculation of the amount payable by both Mr El Rihani and Mr Hotait to the Trust Account pursuant to cl 10.5.
There is no expert opinion about the extent to which the revised Income Tax Debt ($442,947.60 plus interest of $113,417.44 for TY2015 and no tax for TY2016) was attributable to the El Rihani Construction Contracts. The methodology which Mr Hotait proposed to employ in relation to TY2015 (see [31] above) has some superficial attraction were Mr Hotait otherwise to succeed in the argument that liability imposed on him under cl 10.5 of the Deed of Separation is a liability for a “tax” which is “in connection with or arising out of” the El Rihani Construction Contracts under cl 2.2 or as “taxes on receipts or payments arising directly or indirectly in respect of this Deed and\or the Construction Contract” in cl 9.1 of the El Rihani G&I Deeds (see [56] and [57] above). However, first, I note that there is no revised Income Tax Debt payable in relation to TY2016. Second, I do not accept that it is an appropriate basis for determining an allocation in relation to TY2015 because:
(a)As submitted by Mr El Rihani that methodology is inconsistent with the regime for the imposition of income tax. Income tax is payable upon “taxable income”, broadly the nett result of (assessable) income less (allowable) expenses, not sales. No evidence was led as to the source of assessable income other than sales or any allowable expenses for TY2015;
(b)As Mr El Rihani pointed out, sales normally attract GST. In my view, the argument of a relevant nexus between Skyworks NSW’s GST Debt and the El Rihani Construction Contracts for the purposes of cll 2.2 and 9.1 of the El Rihani G&I Deeds was stronger than it is in relation to Skyworks NSW’s income tax liability since the obligation to return GST is imposed by reference to products and services supplied in the performance of Skyworks NSW’s obligations under the El Rihani Construction Contracts;
(c)Neither party has led any evidence which would allow me to understand the basis on which Skyworks NSW’s primary income tax liability for TY2015 has been reduced from $914,945 to $442,947.60 (plus interest) or whether the sales figures on which Mr Hotait previously relied remain relevant;
(d)In my view, any interest payable relating to TY2015 tax relates to Skyworks NSW’s obligation to conduct its tax affairs in a timely way for which Mr Hotait must be held at least equally responsible, not any asserted connection to the El Rihani Construction Contracts for the purposes of cl 2.2 or cl 9.1 of the El Rihani Construction Contracts;
(e)Even though it may be accepted that the Four Deeds are a suite of documents which must be read harmoniously, it is improbable that it would be contemplated commercially that Mr El Rihani would be solely liable for Skyworks NSW’s income tax liability “in connection with or arising out of” the El Rihani Construction Contracts based solely on the attribution of sales because:
(i)Such taxes are imposed on profits which Mr Hotait and Mr El Rihani would have the benefit of as shareholders of Skyworks NSW. It is improbable that any indemnity was intended to have the effect of allowing Mr Hotait to take the benefit of gross sales and imposing the burden of all tax relating to those sales on Mr El Rihani; and
(ii)The Deed of Separation (at cl 5.6) provides that Messrs Hotait and El Rihani must contribute equally to Skyworks NSW’s tax liabilities. That is an express provision which is inconsistent with the general obligations imposed under cll 2.2 and 9.1 of the El Rihani G&I Deeds.
Although counsel for the parties provided useful and detailed submissions on the interpretation of the words “in connection with or arising out of” which appear in cl 2.2 of the El Rihani G&I Deeds and I accept that they are words of wide import, in light of the dearth of evidence establishing that nexus with the revised Income Tax Debt it is not necessary to address those arguments here.
In my view, an amount equal to the revised Income Tax Debt ($556,365.04) should be included in the calculation of the amount payable to the Trust Account on the basis that each of Mr Hotait and Mr El Rihani must contribute equally.
Aggregate amount payable to the Trust Account
The aggregate amount with respect to claimed liabilities of Skyworks NSW which should be paid to the Trust Account is $4,152,236.67 as summarised in the charts below:
Annexure A Items as set out in TAB 17 $ Amount $Aggregate Amount 1 15,700.92 2 40,872.11 3 14,052.50 4 19,801.25 5 Nil – see MFI Item 57 6 Nil – see MFI Item 55 7 Nil – see MFI Item 56 8 875.33 9 3,562.90 10 8,932.00 11 8,604.42 12 40.99 13 Nil – see MFI Item 47 14 Nil – see MFI Item 54 Subtotal 112,442.42
Annexure B Items as set out in TAB 17 $ Amount $Aggregate Amount Disputed 59,932 Subtotal 59,932
Annexure C Items as set out in TAB 17 $ Amount $Aggregate Amount Hotait agreed amounts 1-15, 16-18, 19, 21-26, 27, 28, 29, 31, 33-39, 47-51 (adjusted), 52, 54-57, 65, 66, 68, 70, 71, 85-86, 87-98, 105, 107-111, 113, 114-112, 123-132, 133 1,148,963.50
Hotait not agreed amounts 20 20,940.38 30, 32 63,482.62 40-46 7,045.50 53 14,728.73 58-64, 67, 69, 72-74 175,501.31 75-78 5,039.37 79-84 Duplicate Items for claims in Annexure B 85-86 Already included in agreed amounts 99-102 704,446.51 103-104 Item not allowed 106 6,061.00 112 10,636.75 134 2,454.10 135 Item not allowed 136 Item not allowed Sub-total of not agreed amounts 1,010,336.27 Sub-total of Annexure C amounts 2,159,299.77
MFI-1 not otherwise accounted for $ Amount $Aggregate Amount Hotait agreed amounts Item 20 (in part), 28, 30, 31, 45, 58 114,404.12 Hotait not agreed amounts 17 3,118.23 20 (in part) 283,468.80 23 15,380.00 24 64,484.73 25 32,062.44 26 254.00 47 115.50 50 107,714.23 54 Not allowed 55 1,051.20 56 38,033.23 57 16,449.98 64 1,138,477.22 65 Withdrawn 66 Withdrawn Sub-total of not agreed amounts in MFI-1 1,700,609.56 Total of MFI Items 1,815,013.68
$ Amount Annexure A Items 112,442.42 Annexure B Items 59,932.00 Annexure C Items 2,159,299.77 MFI Items 1,815,013.68 Aggregate payable to Trust Account 4,146,687.87 OTHER ISSUES
The following issues arise:
First issue: in light of the terms of cl 10.5 (see [48] above), should the Court order that consecutive payments of $100,000 be made by each party at regular intervals or should each party be directed to contribute half of $4,146,687.87 ($2,073,343.93) within a time frame?
Second issue: who will be the keeper of the Trust Account?
Third issue: who is the expert in relation to liabilities which are not agreed?
Fourth issue: who should pay costs and in what amount?
Fifth issue: what happens to $100,000 currently held by the Court contributed as to $50,000 by each of Mr Hotait and Mr El Rihani?
The first issue
In the revised submissions, Mr El Rihani submitted as follows (with some formatting changes and changes to reflect terms defined in these reasons, Court Book references omitted):
5.1 Cl 10.5 operates by reference to funds “… held on account of future liabilities of Skyworks NSW”. 5.2 It is apparent from the regime for the determination of whether such funds should be paid in respect of any such future liabilities that the reference to
(1) “future liabilities” in cl.10.2, and
(2) “liabilities” in cl.10.3 and 10.4,
is a reference to any liability that either of Messrs Hotait and El Rihani supposes to be one “… of Skyworks NSW”.
5.3 This is so because any such “future liabilities” or ‘liabilities’ cannot be paid from the Trust Account except upon:
(1) Messrs Hotait and El Rihani agreeing, or in default of such agreement,
(2) the appointed expert determining
that that liability is an actual liability of Skyworks NSW.
5.4 It follows that
(1) the initial contributions to the Trust Account of $200,000 “each” were, and
(2) the subsequent requirement for contributions of $100,000 each, are
to be made in respect of “future liabilities” and “liabilities” that might upon any proposal that they be paid be objected to, be determined as not being “Future liabilities” or “liabilities” of Skyworks NSW at all.
5.5 It is equally clear from the terms of cl 10.6 that the process for obtaining such a determination can be initiated only after funds have become “held” in the Trust Account. 5.6 Thus it is plain that a liability to contribute arises upon a request being made by one or other of Messrs Hotait and El Rihani of the other in respect of “liabilities” that the requestor supposes are liabilities of Skyworks NSW. 5.7 Except to the extent a requestor and requestee agree otherwise, the contribution that each must make is “… a maximum of … $100,000 on each occasion …”: cl 10.5 5.8 An occasion arises whenever, and for so long as, Messrs Hotait and El Rihani supposes there are liabilities of Skyworks NSW “… that exceeds the amount held in the Trust Account …”: cl 10.5. 5.9 Thus, as a matter of construction, cl.10.5 requires that each of Messrs Hotait and El Rihani each contribute $100,000 to the Trust Account on such number of occasions as is necessary to have the balance held in the Trust Account equal the sum of the liabilities that each supposes is a liability of Skyworks NSW. 5.10 Clause 10.5 specifies no time for the commencement of the making of contributions. Therefore, contributions are to commence within a reasonable time of a requestee being made aware that the funds held in the Trust Account are relevantly insufficient. 5.11 A reasonable time is to be determined having regard to the commercial purpose of the requirement to make contributions; it is to permit the initiation of the process whereby the liabilities of Skyworks NSW may be paid. In that circumstance, it would be within say a week of becoming aware of the relevant insufficiency of the trust funds, and to continue at say weekly intervals. 5.12 On 28.03.2017, 20.09.2017, and 23.10.2018 Mr El Rihani requested that Mr Hotait make contributions of 50% of the sum of Skyworks NSW’s supposed liabilities respectively in
(1) ASOC Annexure A; total liabilities $166,265.81
(2) ASOC Annexure B; total liabilities $235,299.29
(3) ASOC Annexure C, total liabilities $2,570,820.96
$2,842,092.78
5.13 On the bases in cll 5.10 and 5.11, contributions
(1) in respect of ASOC Annexure A, should have commenced on 06.04.2017 as to $100,000, followed by a further contribution of $66,265.81 on 13.04.2017;
(2) similarly in respect of ASOC Annexure B, should have commenced on 27.09.2017 followed by further weekly contributions for the balance; and
(3) similarly in respect of ASOC Annexure C, should have commenced on 30 October 2018 and continued in weekly instalments of $100,000 until Mr Hotait had contributed a total of $1,285,410.48;
Mr Hotait made none.
5.14 On 19.08.2020, Mr El Rihani requested Mr Hotait to commence to make contributions of 50% of the sum of Skyworks NSW’s supposed liabilities
(1) [TAB 17] Annexure A, total liabilities $168,669.83
(2) [TAB 17] Annexure B, total liabilities $ 235,299.29
(3) [TAB 17] Annexure C, total liabilities $2,613,490.95
(4) Rev Annexure D, total liabilities* $ 686,342.05
$3,703,801.62
* There is nothing marked Annexure D but I understand this to refer to the document at CB1953-1955 relating to payment said to have been made by Decode
5.16 Mr El Rihani has since revised his claim to:
(1) debts in [MFI-1] excluding the ATO Debt $3,653,700.17
(2) plus the revised ATO Debt $1,138,477.22
(3) less the amount paid by the liquidator
to Piper Alderman $ 300,632.63
$4,491,544.76
5.17 As at today’s date, there should be an order as sought in ASOC [25a], the amount of which is $2,245,772.38 ($4,491,544.76 ÷ 2).
With the exception of the amounts set out in the revised submissions at [5.16] and [5.17], and subject to what I have said at [64]-[65] above, I generally accept these revised submissions.
The obligation to pay money to the Trust Account appears to be conditioned on a party being able to make a required contribution. That is, to trigger the discretion of a party who contributes to make a contribution on behalf of the other party (as a loan bearing interest), the other party must be “unable” rather than simply be unwilling to pay: see cl 10.5(a) and (b) of the Deed of Separation. It is important to note that Mr Hotait has not sought to defend the claim in ASOC [25(a)] on the basis that he is unable to contribute to the Trust Account and he has not led any evidence in support of any such proposition. That is despite intimations during case management hearings that Mr El Rihani has concerns as to Mr Hotait’s capacity to pay (which were met indignantly by Mr Hotait’s counsel) and the fact that, at the hearing on 25 August 2022, Mr Hotait sought to know by when he would have to make any contribution the Court determined he should make so that he can be in a position to make necessary payments. Having regard to the time during which judgment has been reserved, Mr Hotait has had time to make arrangements for payment of amounts generally in the order claimed by Mr El Rihani and in the knowledge that he agreed that some amounts were payable.
I have found that the aggregate amount payable to the Trust Account is $4,146,687.87, which is less than the amount which Mr El Rihani claimed. I have found that there is insufficient evidence to establish Mr Hotait’s claim the El Rihani G&I Deeds impose an obligation on Mr El Rihani to indemnify Mr Hotait against any liability for the revised ATO Debt arising by reason of cl 10.5 of the Deed of Separation. I am satisfied that at least the periods of notice required by cl 10 have been given and neither Mr Hotait nor Mr El Rihani has made payments to the Trust Account in accordance with the Deed of Separation. I accept that this is due to Mr Hotait’s unwillingness to pay and therefore in breach of his obligations under the Deed of Separation. Mr Hotait did not admit Mr El Rihani’s pleading at ASOC [19] (that at the time of each request made by Mr El Rihani to Mr Hotait to contribute to the Trust Account, and at all times thereafter, Mr El Rihani has been willing to contribute to the Trust Account in accordance with his cll 5.2 and 10.5 obligations under the Deed of Separation) but there is no reason to doubt Mr El Rihani’s pleading. Accordingly, I consider that it would be open to me to order that, on condition that Mr El Rihani also contributes $2,073,343.93 to the Trust Account, Mr Hotait contributes $2,073,343.93 within a time set by the Court (say, 28 days).
However, Mr El Rihani’s revised submissions suggests that the order be made for payment of $100,000 at weekly intervals and Mr Hotait has not opposed that suggestion. Before I make any such order I consider that the parties should have two weeks from the date on which these reasons are delivered to discuss the exact terms of any order and it would be open to them to come to some other arrangement which is mutually satisfactory. If they do not reach agreement, they should each provide draft orders and brief submissions in support of the orders for which they contend.
The second issue
Although the Deed of Separation provided for Madison Marcus to operate the Trust Account in accordance with the Deed of Separation, Gavel & Page in fact operated the Trust Account into which Messrs Hotait and El Rihani have previously made contributions. As noted above, the evidence discloses that Gavel & Page sought to perform that task in accordance with the Deed of Separation and neutrally as between the parties. I see no reason why that firm should not continue to do so, if that firm is willing to do so. That should be established before orders are made in relation to the timing of payments into the Trust Account. That issue should also be addressed in draft orders provided to the Court. If the parties cannot agree, they should provide draft orders for which they contend and brief submissions.
The third issue
The appointment of the expert does not fall within the scope of the matters to be decided by the Court. However, it is a necessary step for the resolution of the purported liabilities having regard to cll 10.11 to 10.13 of the Deed of Separation. I note that the parties have previously agreed an expert for determination of issues outside the Deed of Separation: see [10] above.
The fourth issue
Mr El Rihani has enjoyed substantial success on the separate questions, the resolution of the issues raised by ASOC [25(b) to (e) and (g)], and in the resolution of the remaining issues addressed in this judgment. Ordinarily, costs would follow the event which would make appropriate an order that Mr Hotait should pay Mr El Rihani’s costs of the proceedings as agreed or taxed. If either party wishes to propose a different order, that issue should also be addressed in draft orders provided to the Court together with submissions.
The fifth issue
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.
I certify that the preceding one hundred and ninety (190) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Farrell. Associate:
Dated: 24 April 2023