Esspee Sales Pty Ltd v Malhotra
[2004] VSC 518
•17 December 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 5404 of 2001
| ESSPEE SALES PTY LTD (ACN 079 276 369) | Plaintiff |
| V | |
| NARESH MALHOTRA | Defendant |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17, 18, 22, 23 and 24 November 2004 | |
DATE OF JUDGMENT: | 17 December 2004 | |
CASE MAY BE CITED AS: | Esspee Sales Pty Ltd v Malhotra | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 518 | |
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Land – whether sum advanced by defendant – whether advance for purchase of land created equitable interest in land
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APPEARANCES: | Counsel | Solicitors | |
| For the Plaintiff | Mr M Black | Mahons with Yuncken & Yuncken | |
| The Defendant appeared in person | |||
HIS HONOUR:
This is a claim by the plaintiff, Esspee Sales Pty Ltd (“the Company”), for declarations that it is entitled to 17.5% interest in a residential property situate at and known as Unit 1, 380 Inkerman Street, St Kilda. The property was purchased in the name of the Company by contract of sale dated 5 January 1998 for $171,000. The claim is based upon the fact that the Company contributed $30,000 (17.5%) towards the purchase and that it did so in circumstances which give rise to the conclusion that it thereby acquired a beneficial interest in 17.5% of the property. The present value of the property is not known to me.
Three fundamental issues are raised in this case. It is convenient to identify them at the outset so that they can be returned to when considering the various subsidiary matters:
·Did the Company contribute $30,000 of its own funds to the purchase?
·If it did, was its contribution made in terms of a loan or an equity partner in the venture?
·Was the transfer of the property from the Company to the defendant ineffective for want of due execution or should it be set aside for the fraud of the defendant?
So stated, the case is a fairly straightforward one and, given the amount in dispute, one which ought not long detain the attention of this Court. But my brief statement, although it identifies the major issues in contention, does no justice to the Byzantine complexities of the issues raised at trial.
Before I turn to the detail of the case, it is necessary to underline two features of the trial. First, is that the defendant was unrepresented. Although he presented as a very able and determined advocate, he laboured under the disadvantages of being too close to the peripheral detail which, tended to distract him from the central issues, of not understanding the procedural and evidentiary aspects of the trial and of not being able to address legal issues of substance. There were many absent witnesses. In applying the rule in O’Donnell v Reichard, I have had regard to the disadvantage of the defendant. Furthermore, he continually made mention of and urged me to adopt passages from the judgment of her Honour Judge Jenkins in an earlier trial between the same parties in the County Court. As I reminded him, on more than one occasion, the findings which her Honour made on matters other than those central to her litigation do not bind the parties and were in fact not admissible before me.
The second preliminary observation is that the events with which I am concerned occurred in late 1997 and early 1998. The passage of time and the evident antipathy existing between the principal witnesses causes me to be cautious in approaching their evidence. This is particularly the case since there is virtually no contemporaneous memoranda of the matters of which they spoke. Moreover, as will appear, many, if not most, of the suggested contemporaneous documents offered by each of them were suggested by the other to be forged, recently created or fraudulently altered.
The Background
The contending parties are Carol Ajith Perera Samarasekera, a director of the Company and Naresh Malhotra. These men, as serving officers in the Australian Defence Forces, became friends, perhaps in the 1980s and their friendship continued until mid-1998. At the time of the events with which I am concerned they held the rank of Lieutenant Colonel and Colonel respectively although, Colonel Malhotra has since resigned from the army.
On 5 January 1995, the two men registered a business name, Esspee Sales Australia, with a view to carrying on the business of import and export trading, presumably in partnership. The business name search shows that Colonel Malhotra ceased to be the owner of the business name on 30 June 1997 and that the name became deregistered on 5 January 1999. The search also shows that, notwithstanding his withdrawal, the business address, from 24 January 1996 remained at the then home of Colonel Malhotra in Westbury Street, St Kilda. According to Colonel Samarasekera, the business in its early years was concerned with setting up local agents in Sri Lanka where it was hoped to export goods from Australia. Colonel Malhotra’s version was that the original intention was to import tea and clothes from Sri Lanka into Australia.
On 9 July 1997 the company became registered. Its directors were and remain Colonel Samarasekera and his wife Joan Marie Samarasekera. He was and is also its sole secretary. Colonel and Mrs Samarasekera also each held and holds one two dollar ordinary share and their holding represents the whole of the paid up capital of the Company. Colonel Malhotra was not an officer of and held no interest in the Company. It was never fully explained by Colonel Samarasekera how the assets and liabilities (if there were any) of the firm were transferred to the newly established company or on what basis Colonel Malhotra withdrew from the business. Colonel Malhotra said that he withdrew because the commercial activities that his friend was pursuing in Sri Lanka were the exporting from Australia of army equipment for sale to Sri Lankan defence forces and that this was contrary to Australian army regulations. His evidence as to these activities is corroborated by the production of business records showing that the firm, and later the Company, were taking steps to pursue these projects. I move forward to the end of 1997 and the beginning of 1998 when the property was purchased. Among the wilderness of assertions and denials that comprised the evidence at trial, a number of facts were established.
On 5 January 1998, a contract of sale to purchase the property was entered into. The price was $171,000 completing a deposit of $17,100 payable on the following day and the balance of $150,000 payable by 5 March 1998. The purchaser is shown as the Company and the document is signed on behalf of the Company by Colonel Malhotra. It will be recalled that Colonel Malhotra at that time had no interest in the Company. Colonel Malhotra produced a limited power of attorney given by Colonel Samarasekera dated 5 January 1998 authorising him to sign the contract of sale for the purchase of the property on his behalf as director. This power of attorney was said to be forged.
I interrupt myself to make some observations about this document notwithstanding that it is in fact a non-issue in the case. It is a non-issue because the Company has never disavowed the contract of sale. Colonel Malhotra said that the power was executed on the date that it bears in Melbourne and in the presence of the selling agent, Colonel Samarasekera, himself and also one David Forster. On its face it bears the seal of the Company which is said to have been affixed in the presence of Colonel Samarasekera whose signature attests this. His signature appears to be witnessed by Mr Forster. Colonel Samarasekera said, and Colonel Malhotra denied, that he had left this, the first company seal, together with some business papers with his friend and that Colonel Malhotra did not return them. Four copies of the power were executed according to Colonel Malhotra and one was given to each of those present. One copy was produced as Exhibit 12. This bears the original signature of Mr Forster but it is not clear whether that purporting to be the signature of Colonel Samarasekera is an original or a photocopy. No other original was produced. Colonel Samarasekera said that the signature was not his and this was corroborated by the opinion of Garry Lindsay Storey, a forensic document examiner, to the effect that the signature on Exhibit 12 was a photocopy which had been cut from another document and pasted electronically or by photocopy onto the power of attorney. The document which he identified as the source was a letter from the Company dated 4 September 1997 regarding another matter, or an original from which that document came. When I raised with Mr Storey that the doubtful signature had a different lateral dimension to the standard, he explained that these linear distortions may be introduced by a copier. He expressed himself as having a very strong degree of satisfaction of his conclusion that the signature was forged. The witness to this signature, Mr Forster, described by Colonel Malhotra as a mutual friend of Colonel Samarasekera and himself has disappeared and cannot be found. The other person said to be present, the estate agent, was not identified and gave no evidence. Apart from the forensic handwriting evidence, the authenticity of this non-issue document depends upon the credit of the two protagonists to which I shall later return.
The second undisputed fact is that Colonel Malhotra provided all but $30,000 towards the purchase of the property.
The third undisputed fact concerns the balance of $30,000. It was common ground that this was provided by a firm, Kangaroo (Export-Import) International, which was the business of a Mr M Bari in Canberra, ACT. A Kangaroo International cheque for $30,000 was, on 12 January 1998, deposited in the Commonwealth Bank in the account of the Company, Account No. 1015 2331. The money was withdrawn from that account on 21 January 1998 by cheque number 16 signed by Colonel Samarasekera but filled out by Colonel Malhotra in favour of the selling agent, Wilson Pride. The receipt from Wilson Pride dated 21 January 1998 describes the payment as “further deposit”. This may not be correct because the Wilson Pride account sale dated 24 February 1998 shows that two earlier payments had been made on 6 January 1998 and 31 December 1997 respectively, totalling the agreed deposit of $17,100. The issue as to this payment from Kangaroo International was not its source but as to whose money it was.
The fourth undisputed fact was that the property was, upon settlement, transferred into the name of the Company and that Certificates of Title Volume 9267 Folios 080 and 095 issued on 3 June 1998 to the conveyancer acting for the purchaser, Cheapest Conveyancing Company of 84 Chapel Street, St Kilda. On 11 September 1998, Michael Louis Oliver, a solicitor and partner of Fogarty Bullard & Oliver, wrote to Colonel Malhotra informing him that that firm of solicitors had acquired the business of Cheapest Conveyancing Company. Colonel Malhotra was permitted to and did collect the titles from Cheapest Conveyancing Company on 29 September 1998.
On 16 February 1999, Trivett Keating, the solicitors for the Company and its directors, wrote to Cheapest Conveyancing Company seeking the titles. On the same day they wrote to Colonel Malhotra to the same effect warning that a caveat may be lodged to protect the interests of their clients. The tenor of these letters was that the Company had bought the property on its own behalf.
On or about 3 March 1999, Trivett Keating, this time acting for Rohana Lincoln Samarasekera, the brother of Colonel Samarasekera, lodged a caveat in his name over the titles. The interest claimed was that of mortgagee. The mortgage in evidence shows that on 9 March 1999 the Company mortgaged the property to Mr R Samarasekera to secure a loan of $10,000 repayable on 31 December 2000 with interest of 7.5%. The execution of the mortgage was made by the affixation of the Company seal, but not the same Company seal which appeared on the power of attorney, and in the presence of two directors. I shall refer to this seal as “the second seal”. Given that, at best, its interest was that of trustee of the property holding it as to 82.5% for Colonel Malhotra, it is not clear how the Company gave this security.
An explanation for this may be that Trivett Keating, at least, were unaware of the interest of Colonel Malhotra in the property. Indeed, it was not until 24 May 1999 or thereabouts that their ignorance of the matter was affected by the disclosure by Mr Oliver, on behalf of Colonel Malhotra, that the Company held the property on trust and, further, that there was a deed of trust in writing dated 27 February 1998 to record this. Mr Oliver forwarded a copy of the deed to Trivett Keating on 29 July 1999.
The reaction of Colonel Samarasekera to the production of the deed of trust was to allege that it was forged. The original deed was tendered as Exhibit 2. It provides that the Company acknowledges that it has entered into the contract of sale for Colonel Malhotra as purchaser and that it will at all times hold it as directed by him and will transfer it to him when directed, “along with any liabilities associated with this property”. It is signed by Colonel Malhotra and bears the seal, the first seal, of the Company beside which appears the signature of Colonel Samarasekera. There is a signature of a witness, C Caspen, who was said to be a clerk in the Defence Department. Apart from the fact that the document ignores the 17.5% interest of the Company, it might not be thought to be controversial. Its authenticity was, however, challenged as a forgery.
The deed of trust was the subject of analysis by forensic document examiner, Neil William Holland, called by Colonel Malhotra. Mr Holland accepted as authentic the signature specimens on a CBA credit document, a transfer of land and the disputed power of attorney. He concluded from a comparison of these signatures with that on the deed of trust, that the hand that signed the specimens also signed the trust deed. Mr Storey, Colonel Samarasekera’s document examiner, was not asked to express any opinion as to the authenticity of the signature on the trust deed.
The evidence of Colonel Samarasekera himself before me, was much less confident. His starting position, as expressed in a Trivett Keating letter of 8 September 1999 was to deny his execution and to accuse his former friend of forgery. In the reply filed on 18 November 2004, Day 2 of the trial, the Company denied that he executed the document, alternatively he alleged that it was not binding on him as he was not given an opportunity of reading it, alternatively the document did not reflect the agreement reached between the parties as to the manner of the holding of the property by the Company[1].
[1]Reply, filed 18 November 2004, para 3
In evidence-in-chief, Colonel Samarasekera denied that there was a deed of trust executed by the parties. He said that he first heard of the document only in May 1999 when its existence was mentioned to Trivett Keating. When asked directly about the signature on the deed he said that he could not recall placing his signature there but he acknowledged that the signature looked like his. Later, he said that he did not recall if he signed it. Colonel Malhotra said that the document was executed by Colonel Samarasekera in his presence at Victoria Barracks and witnessed by, Ms Caspen, a public servant who worked in his office. He castigated Colonel Samarasekera’s denial of the signature as a blatant lie. The witness, Caspen, was not called by either party.
An examination of the document shows that it was in existence on 11 March 1998 for it was on that day stamped by the Stamp Duties Office. This was at a time when there was no hostility between the two men and therefore no reason for either to fabricate a document to support his position. It was also well before the document was first brandished between the contending solicitors in mid-1999. This, together with the opinion of Mr Storey, leads me to the conclusion that the deed of trust is genuine in the sense that it was in fact executed and sealed by Colonel Samarasekera.
The document, as I have said, is of no great significance in the context of this litigation. It is of greater importance in demonstrating the readiness of Colonel Samarasekera to make a serious allegation of forgery, which allegation I reject.
At meetings in Melbourne between Mr R Samarasekera and Colonel Malhotra and between him and his brother, a compromise between the two former friends was discussed. There is dispute as to when these meetings occurred, whether agreement was achieved or as to what were the terms of any agreement. One matter, however, which was discussed was that Mr R Samarasekera would remove his caveat and that the property would be transferred into the name of Colonel Malhotra.
Mr R Samarasekera told me that the meetings took place in October 1999. It might, however, have been earlier, as early as July 1999, for this date is mentioned in a contemporaneous letter. He met separately with the contending parties in an attempt to broker a deal. He said that agreement in principle was reached upon five matters: Colonel Malhotra would refrain from sending hostile letters concerning Colonel Samarasekera; Colonel Malhotra would repay $30,000 which the Company had contributed to the purchase of the property, without interest; Colonel Malhotra would return the first Company seal; Colonel Malhotra would acknowledge in writing that $24,000 lent by him to the Company had been repaid; and the Company would transfer the property to Colonel Malhotra. Unfortunately, this agreement was never recorded even in the most primitive form. Colonel Malhotra denied reaching agreement on these matters.
The evidence of Mr R Samarasekera as to the second matter was relied upon by counsel for the Company as an admission by Colonel Malhotra that the Company had contributed $30,000 from its own funds towards the purchase of the property. Colonel Malhotra denied that this was mentioned in the discussions. He, too, might have relied upon the agreement by an admission by the Company that it had had no entitlement to a share in the property or to interest. To my mind, in the context of an attempt to resolve the dispute, I should not place weight on any of these admissions. The interest, for my purposes, is on the events that followed, perhaps pursuant to an agreement then reached.
I know nothing of any cessation of correspondence. The $30,000 was not repaid. A letter of acknowledgement of repayment of $25,000 dated 9 December 1999 was in fact sent. Colonel Malhotra said, however, that this letter related to some other money and not to the $24,000 discussed at the meeting. Most significantly, Mr R Samarasekera signed a withdrawal of his caveat and Colonel Malhotra had Mr Oliver prepare a transfer of the property from the Company into his name. This he signed as transferee and had sent it to Trivett Keating on 24 August 1999. In this document the attestation clause for the Company misspells its name as “Espee” and this was marked in pencil, presumably for the amendment to be initialled by the attesting Company. The document provided for the seal of the Company to be affixed in the presence of a director and a secretary.
The response of Trivett Keating in their letter of 8 September 1999 was to deny the authenticity of the trust deed and to refuse to withdraw the caveat or to execute the transfer. Notwithstanding this, their clients appear to have been more accommodating. Colonel Samarasekera did in fact affix the Company seal, the second seal, to the transfer and he signed it as attesting secretary of the Company. He was, however, unable to persuade his wife to counter-sign as director. The transfer document he sent, in this partially executed form, to his brother in Queensland. On a date which may have been a couple of weeks after the meeting, Mr R Samarasekera executed a withdrawal of caveat; receipt of this was acknowledged by Mr Oliver on 15 October 1999. Why he sent this withdrawal of caveat, at a time when the trust was denied and the request for the withdrawal of the caveat was being refused by his solicitors, is unclear. Furthermore, the brother also sent to Colonel Malhotra the imperfectly executed transfer of land. Why he did so at a time when the two men were at loggerheads and when Colonel Malhotra had not repaid the agreed $30,000 or sent the letter of acknowledgement or returned the Company seal, is obscure. By way of explanation Mr R Samarasekera said simply that it was because Colonel Malhotra asked for it. He said that he told Colonel Malhotra that the document was of no value since it was not executed by Mrs Samarasekera but that Colonel Malhotra asked for it nevertheless. And he complied. I must say that I find this an altogether remarkable account. The witness is by occupation a senior constable of police in Queensland and may be supposed to appreciate the need for records and the dangers of handing to a hostile party a document which might be used to his or his brother’s detriment.
Colonel Malhotra disputed the evidence of Mr R Samarasekera as to the circumstances of the delivery of the transfer. But, on his account, it is not clear why, how or when the transfer came into his hands, as it undoubtedly did. I am content in this case to act upon the evidence of Mr Oliver, supported as it is by his contemporary notes. Mr Oliver said that, as at 22 October there was no certainty that the Company would execute the proffered transfer. It may be that, by 25 November 1999, the partially executed document had been received by him and that the absence of the second signature was appreciated, for on that date Colonel Malhotra instructed him to prepare a fresh transfer showing in the attestation clause that the Company was a sole director company. According to the solicitor’s note, the client would then have it executed and sealed. A fresh transfer in these terms was prepared and given to the client. Colonel Malhotra denied this. The new transfer was not seen again, although a copy was produced in evidence from Mr Oliver’s file. The earlier transfer, however, Mr Oliver did receive but he did not recall when and from whom. He then amended this transfer by inserting the correct spelling of the name Esspee in the attestation clause and by inserting a reference to the Company being a sole director company with Colonel Samarasekera’s signature being that of the sole director. Mr Oliver said that he had no recollection but that he would not have done this without instructions from his client. Colonel Malhotra said that he recalled giving no such instruction and, indeed, he had no knowledge of any legal requirements as to who might be required to witness the affixation of the Company seal. Mr Oliver said he was comfortable, making these amendments on the instructions of his client. He made no enquiry as to whether the Company was in fact a sole director Company and, indeed, had he done so, he would have found that it was not and that two attesting signatures were required. I express no view as to the propriety of his action in amending the Company’s attestation clause without the authority of the Company. I would not, however, wish my silence to be taken as an endorsement of his acts.
I find that Mr Oliver’s account of his conversation with Colonel Malhotra on 25 November 1999 is accurate. At that time it was known that Colonel Samarasekera alone had signed the transfer and that this would not suffice unless the Company were a sole director company. I do not make any finding that Colonel Malhotra knew that the Company was not such a company. He instructed Mr Oliver to prepare the second transfer and, for some reason, did not approach Colonel Samarasekera for re-execution. He suggested to the solicitor that he amend the existing transfer and the solicitor did so. The transfer was then ready for lodging together with the withdrawal of caveat in November 1999. There was, however, some delay with the assessment of duty, which difficulty was not resolved until 18 January 2000. The transfer was then lodged and registered so that the property became registered in the name of Colonel Malhotra alone.
This, however, is not the end of the story. Sometime later the Company lodged a caveat over one only of the titles – Certificate of Title Volume 9267 Folio 080 – asserting an unspecified entitlement in equity. The grounds of the claim were amended on 8 February 2001 to assert “the current proprietor holds the property as trustee for the caveator pursuant to an implied or constructive trust” and the caveat was on 16 February 2001 accepted and registered in dealing W931482D. This caveat is the subject matter of the counterclaim in this proceeding.
This proceeding was then commenced on 18 April 2001 by the Company asserting its interest in the property as beneficiary or as a party entitled to an equitable lien or charge over the property to secure repayment of the sum of $30,000 and interest. Consequential orders including orders for sale are also sought. The writ was not served for nearly 12 months so that the case has been passing through its interlocutory stages for some two and a half years. Most of this time appears to have been occupied with the defendant’s efforts to obtain discovery and production of the plaintiff’s documents. The plaintiff has been very reluctant to make discovery of documents which are essential to its case and this has fed the suspicions of Colonel Malhotra as to the genuineness of the documents which were produced late in the day.
The Principal Witnesses
It is convenient that at this stage I set out my assessment of creditworthiness of the two men who were the contending parties and principal witnesses. Each of them, Colonel Samarasekera and Colonel Malhotra, is an intelligent and articulate man. Each is hostile to the other and is very ready to accuse the other of dishonourable, even criminal, conduct performed to achieve his own purposes. Transactions which each asserts are said by the other to be fictitious. The story which each would have me accept does not reflect any credit on either of them. In these circumstances I have had regard not only to their demeanour in the witness box and to the way their cases have been conducted and to the inherent probability of their evidence and to the degree to which the evidence is supported by reliable outside evidence, but also to the evidence of other dishonourable conduct which may reflect upon their reliability and veracity as witnesses.
Colonel Malhotra was at the time a colonel in the Australian army. On his own account he was the sole owner of the property but it was registered in the name of the Company. His explanation for this was that he wished to avoid difficulties he was then experiencing with child support arrangements which were the source of on-going annoyance to him in the Family Court. He told me that he and his wife were divorced in 1995 and that a financial settlement between them had been achieved in 1997 but that child support problems were on-going. Produced in evidence were two financial statements dated respectively 12 April 1999 and 15 May 2000. In each case, Colonel Malhotra swore falsely to the Family Court that he neither owned nor had an interest in the real estate in question. His explanation for making these false statements provided little comfort to me in accepting him as a witness of truth.
His second explanation for placing the property in the name of the Company was that his friend told him that the Company might derive tax advantages from this. He was not able to explain this further and no evidence was given to clarify the position. In a statutory declaration made by Colonel Malhotra on 21 December 1999 in support of his application that no stamp duty be payable on the transfer from the Company to himself, he stated “that the property was held by the trustee [the Company] on the advice of the Accountants to effectively minimise tax”. It was suggested that the Company, being the apparent owner of an income earning asset, might claim depreciation and running and maintenance expenses as tax deductions. But it does not appear that this was ever done. An alternative explanation proposed by Colonel Malhotra in his final address was that, what he had in mind was to obtain the benefit of a rental allowance paid by the army to officers who live in rented accommodation. Assuming that he did lease the property from the Company[2] and, further, that he actually paid rental to the Company[3], it would be surprising that this rental allowance would be payable if he were the effective beneficial owner of the rented premises.
[2]The lease, which was not in evidence, was said by Colonel Samarasekera to be forged.
[3]Rental was shown as a family expense in his Family Court statements but does not appear as income in the Company accounts.
Because of his readiness to make false statements on oath to the Family Court and because of the lapse of time I conclude that Colonel Malhotra is not a witness in whom I should have confidence unless his evidence be corroborated in a significant respect.
The evidence of Colonel Samarasekera suffered from similar infirmities due to lapse of time, and his evident antipathy towards his former friend. An attack on his credit was mounted on the basis of his engaging in trading in army materials to the Sri Lankan army. This was said to be inconsistent with his position as a serving army officer, if not illegal. His response was that it is neither of these things provided it is done with the knowledge and consent of his commanding officer. He said that each of these conditions was satisfied but no document of disclosure or consent was produced. With some misgiving I accept this explanation. A further attack on his credit was put on the basis that he was the subject of an army administrative investigation on some matter. He denied this and the matter was not taken further.
A further attack on him was based upon his failure, until the last minute, to produce an important invoice dated 28 December 1997 which had been called for since late 2002. The solicitors for the Company stated that their client did not have a copy of this invoice. It appears that this was not correct. A copy was with its accountant for it was produced under subpoena by the federal police which had seized the document from the accountant. The accountant was not called. The effectiveness of this attack depends upon my findings about the circumstances giving rise to this invoice to which I shall shortly turn.
I conclude that I must also view the evidence of this witness with caution but not because of any finding of dishonesty.
The Source of the $30,000
This, as I have mentioned at the outset, is the first principal issue. The Company contended that the $30,000 paid out of its bank account to the estate agent on 12 January 1998 was its own money which Kangaroo International had paid to it in satisfaction of a trading debt owed by Kangaroo International to the Company. The contention of Colonel Malhotra was that Kangaroo International had lent the money to him and that it paid it to the Company bank account at his request. Each of the contending parties offered a trading scenario to support its position and asserted that the contrary scenario was fictitious.
Central to each scenario was Kangaroo International and its principal Mr Bari. Mr Bari was not called as a witness by either party. Notwithstanding, Mr Bari was called by Colonel Malhotra as his witness in a County Court proceeding, there was no evidence that he was in the camp of either party. Colonel Malhotra told me, from the bar table, that the witness was unable to make the journey from Canberra to Melbourne to give evidence due to ill health. This assertion was not accepted by counsel for the Company and I do not act upon it.
Colonel Malhotra sought to tender a letter to him from Mr Bari dated 4 September 2001 which confirmed the scenario he was contending for. I declined to accept this on the ground that it was hearsay. As I indicated at the time, I was likewise not prepared to receive it pursuant to s. 55 of the Evidence Act 1958. This was because the authenticity of the document was seriously under challenge and because the absence of Mr Bari was not explained by evidence upon which I may act.
The evidence of both parties and that of the Company bank statements shows that the Company received three relevant payments in 1997 and 1998:
16 July 1997 80,000 13 August 1997 40,000 12 January 1998 30,000 $150,000 It seemed to be accepted by them that these were received from Kangaroo International. From this point all is in controversy.
On behalf of the Company three invoices from it to Kangaroo International were produced:
1/1997 10 July 1997 80,000 2/1997 1 August 1997 40,000 2/1998 7 January 1998 30,000 $150,000 Colonel Malhotra, for his part, also produced three invoices from the Company to Kangaroo International:
10 July 1997 42,000 14 July 1997 84,000 14 April 1998 4,000 $130,000
Each contended that the invoices produced by the other were fabrications. Those produced by the Company were for fees for tendering for the supply of rubber inflatable crafts for the Sri Lankan navy, armoured fighting vehicles and spares for the Sri Lankan army and fire engines for a Sri Lankan provincial council. Colonel Samarasekera said that these were three of a number of projects that the firm, Esspee Sales, and later the Company were intending to enter into. It seems, however, that none of these went ahead. These projects involved the appointment of a local agent which, with respect to the armoured vehicles and the fire engine projects, at least, was a Sri Lankan company, Lanka Development Network (PVT) Ltd. Lanka Development would incur costs for which it invoiced the company. In fact these invoices were paid by members of the family of Colonel Samarasekera in Sri Lanka so that payment by the Company in response to the invoices was to be made by it to them to reimburse them for this expense. The funding in Australia for the project was provided by Mr Bari through Kangaroo International. The documentation, therefore, showed the Company invoicing Kangaroo International for the expenses which had been paid in Sri Lanka on its behalf by Colonel Samarasekera’s family interests. In due course, Colonel Samarasekera said, Kangaroo International paid these invoices but the cash was retained by the Company and applied against its running expenses. The amount paid by the Samarasekera family interests in Sri Lanka was then treated as a loan to the Company. The position was further complicated by the fact that, although Colonel Malhotra ceased to have any formal involvement in these projects when he withdrew from the business in 1997, he nevertheless was entitled to a one-third share of the profits, like the Company and Kangaroo International. He was to draw this in the event of profit as a consulting fee, Colonel Malhotra denied this.
According to Colonel Samarasekera The invoice of 7 January 1998 for $30,000 addressed to Kangaroo International was raised by the Company in pursuance of the fire engine project and the payment received was received in response to this invoice. It was therefore the money of the Company. This was supported by an invoice from Lanka Development for the rupee equivalent of $30,000 which invoice was dated 28 December 1997.
Colonel Malhotra said that these documents were fictitious and the whole fire engine documentation was fraudulent. He pointed out that the Lanka Development invoice had never been produced on discovery notwithstanding that it was, until it was seized by the federal police, in the possession of the Company accountant Rodney Eather of Rayther & Co. Mr Eather was not called to confirm or explain this. Colonel Malhotra relied on the fact that the expenses incurred by the Company for which it was invoiced by Lanka Development and for which it received payment from Kangaroo International did not, except for its own commission, appear in the profit and loss account of the Company. In fact, as the forensic accountant, Derek Maxwell Ryan, observed, the accounts of the Company were kept in an unusual form. The payments and expenses of the project were entered through the journal rather than the cash book and customary accounting steps were omitted. These accounts were prepared by Mr Eather after the end of the financial year 1997-8 and the entries in question were made after the closing entries for that year and at a time when the friendship between the two men had deteriorated. The transactions upon which the Company relied, other than the commission received, were not shown in the profit and loss account or the tax return which was signed off on 2 December 1999. I should add for completeness that I place no weight upon the self-serving statement of Mr Eather which is at page 140 of the court book and tendered in evidence.
Colonel Malhotra said that the Company in 1998 did not engage in the projects which Colonel Samarasekera described. He said that the only transactions which the Company had involving Kangaroo International were local transactions for which the Company provided consulting services. The invoices which he produced concerned a project for the recycling of magnesium batteries. Colonel Samarasekera said that he had no knowledge of these invoices being brought into existence by the Company. All documents bear the first seal of the Company.
Faced with a choice between these two irreconcilable versions of the Company’s trading, I have no hesitation accepting that of the Company and its witness, Colonel Samarasekera. I reach this conclusion for a number of reasons which I shall list briefly:
·Colonel Malhotra is not a credit-worthy witness for reasons which I have explained;
·Colonel Malhotra was not, and Colonel Samarasekera was, in control of the financial activities of the Company at the relevant time;
·notwithstanding Colonel Malhotra’s assertions to the contrary, it is clear that there was in fact a tender lodged for the supply of fire engines in Sri Lanka and Colonel Malhotra accepted that there was in 1997 mention made of the other projects;
·the apparent inconsistency with the Company accounts has been explained satisfactorily.
I have already noted the absence of Mr Bari. It is clear that he was a crucial witness on the issue which I am now dealing with. As I have mentioned I draw no inference adverse to either party from his absence from the witness box.
I conclude, therefore, that the $30,000 which found its way into the hands of the estate agent was in fact the money of the Company which was provided for the purchase of the property.
An Interest in the Property
The contention put on behalf of the Company was that the $30,000 was paid to the selling agent in circumstances creating an interest in the property. As pleaded this is put as a resulting trust or as an equitable lien or charge. In the pleading no particulars of this are provided and Colonel Malhotra’s request for particulars was rejected for the solicitors for the Company on 6 June 2002.
The evidence in support of the Company’s contention was sparse. I will set out in full the evidence of Colonel Samarasekera in examination in chief by counsel for the Company. He had explained that he and his former friend were, in December 1997, discussing the purchase of the property.
“Why was he discussing the matter with you?---He said that he was short about $40,000 and he asked me if I was prepared to join in on the purchase.
His Honour: What did he say?---That he was short about $40,000, your Honour.
And?---And he wanted me to come in on the purchase of that unit.
Mr Black: Was there any discussion as to what he meant by ‘come in on the purchase’?---Yes, there was, Mr Black.
What was that discussion?---He wanted me to contribute funds and have a proportionate share in the property.
Where did these discussions take place?---I can’t recall, Mr Black.
Were they face-to-face discussions?---Some of them could have been, Mr Black.
At around that time how often were you speaking with Mr Malhotra?---On a regular basis, Mr Black”.
The matter was not explored in cross-examination.
Colonel Malhotra’s evidence was that this conversation did not take place. This was, of course, consistent with his primary position that the Company did not provide the funds at all. He said that it was agreed that the purchase would be in the name of the Company and that there was discussion between them about the trust deed dated 27 March 1998 but he denied the conversation described by Colonel Samarasekera. Colonel Malhotra, in cross-examination, put in evidence the plaintiff’s answer to interrogatory 5 sworn on 26 September 2002. In this answer the Company admitted that its accounts did not show the property as part of its assets. It now seems that this was an incorrect answer. The property is shown in the journal as part of capital buildings at capital cost, but with a misleading narration.
It is necessary that I underline one unusual feature of this aspect of the case. It is that it is common ground that, when the Company entered into the contract of sale and later took the transfer of the title, it did not do so solely for its own benefit. There was a trust in existence and the Company was the trustee. The only issue was whether it was trustee solely for the benefit of Colonel Malhotra, as he contends, or in part for its own benefit.
In assessing the evidence which I have set out above, I bear in mind, too, Colonel Samarasekera explanation for the decision that the trustee be the Company rather than Colonel Malhotra. This was, he said, to secure his investment in the property. Given the close and trusting relationship then existing between the two men and the common expectation that the property was bought as a home for Colonel Malhotra and his sons, I find this unconvincing.
I do not accept the evidence of Colonel Samarasekera on this issue. The events are now over six years old. His account is not confirmed by any contemporaneous record. I do not treat the Company accounts as contemporaneous for this purpose. To my mind, the purchase was made in the name of the Company for the reasons given by Colonel Malhotra, notwithstanding that these reasons are not very honourable. I find that, as a friend, Colonel Samarasekera helped with the purchase by loan rather than by investment.
I conclude, therefore, that the purchase of the property by the Company was made by it on trust for Colonel Malhotra alone and that the $30,000 provided by the Company was and is a loan to him.
The Re-transfer
The evidence with respect to the re-transfer is fairly straightforward. I have already summarised it. It is clear that the transfer has been incorrectly executed by the Company, for its constitution by Article 29 requires a second signature by the secretary or a second director[4]. It is clear, too, that the amendment to the attestation clause made by Mr Oliver was not made with the authority of the Company whose attestation was affected by the amendment. The fact that this may have been done at the behest of or upon instructions from the client, Colonel Malhotra, is beside the point. It may be that this would entitle the Court to make orders to reverse the transaction upon application of a disadvantaged transferee. But it is not necessary that I venture into this arena because I have found that the transferor had no equitable interest in the property. It might therefore have been required to transfer the property to Colonel Malhotra on demand. No useful purpose would be served in reversing the transfer and then reversing it again.
[4]See also Corporations Act s 127(2)
Conclusions
It follows from the conclusions which I have reached that the declaratory relief sought by the Company must be refused. It is entitled to payment of the principal sum advanced, $30,000. I will hear the parties further as to interest, if any, and the amount of this. On the counterclaim, I will order that the caveat be removed. I will hear the parties further as to compensation, if any. I will hear the parties further as to costs.
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