Fanshil v Akman

[2020] NSWDC 393

District Court

New South Wales

Medium Neutral Citation:

Fanshil v Akman [2020] NSWDC 393

Hearing dates:

7, 8 and 15-17 July 2020

Date of orders:

7 August 2020

Decision date:

07 August 2020

Jurisdiction:

Civil

Before:

Smith SC, DCJ

Decision:

1. Judgment for the plaintiff in the amount of $673,617.87 including interest.

2. Costs as agreed or assessed.

Catchwords:

MERCANTILE Law – Other – unrepaid loan for property development – undocumented loan or “investment” between extended family members – defended on falsehoods – credibility of witnesses

Cases Cited:

Fox v Percy (2003) 214 CLR 118

Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181

Pacific Carriers v BNP Paribas (2004) 218 CLR 451

Watson v Foxman (1995) 49 NSWLR 315

Category:

Principal judgment

Parties:

Anatoly Fanshil (Plaintiff)
Alaxander Akam (also known as Alexander Akam) (Defendant)

Representation:

Counsel:
Mr D Krochmalik (Plaintiff)
Mr A Gruzman (Defendant)

Solicitors:
StevensVuaran Lawyers (Plaintiff)
Comino Prassas Lawyers (Defendant)

File Number(s):

2019/347262

Publication restriction:

Nil

Judgment

1. It is well known that it is imprudent to lend money to friends and family. The risk is that the lender will lose both money and friend or family. [1] Of course, even if that risk is ignored, ordinary prudence would at least drive most people to record the fact, and terms, of the loan. In his case, the plaintiff says that he was imprudent on both counts: he lent roughly $378,000 to his step-son’s father-in-law and made no record of it. He is now before the Court because, as accepted wisdom might have warned him, the loan was not repaid and the family has fallen out.

   1. Hamlet, Act I, Scene III, lines 75-77.

2. The defendant says there was no loan from the plaintiff: he was given money to pay for the son’s-in-law share of a property he wanted to develop. Apart from the usual registration of that interest, the dealing by which that is said to have occurred was not recorded in writing.

3. The issues are, put bluntly, whether the plaintiff was merely imprudent and has been cheated by the defendant, or whether the plaintiff is a liar. For the reasons that follow, I have concluded that the plaintiff may have been foolish, but he is no liar. The defendant owes the plaintiff the amount loaned, interest and other amounts he promised to pay the plaintiff on certain contingencies occurring.

Background

4. It is well to start with an outline of the family relations. The plaintiff, born in the Ukraine, has been in Australia since 1991. He is in a long term de-facto relationship with Olena Rozenfeld, also from the Ukraine. Without any disrespect, I will refer to her as Olena to avoid confusion. Olena has a son to a previous relationship: Alex Rozenfeld. I will refer to him as Alex.

5. The defendant was born in Russia and came to Australia in 1975. He is married to Nina Akman. They have two children: a son, Andrew, and a daughter, whose name is Jennifer.

6. In February 2009, Alex and Jennifer were married. They have two children, giving common grandchildren to the plaintiff and defendant. Alex and Jennifer lived with Jennifer’s parents from their marriage until 2018 when they separated and Alex left the house.

7. The plaintiff is retired and the defendant is a property developer.

The plaintiff’s evidence

8. The plaintiff says that in March or April 2015 he and Olena met the defendant at the defendant’s house. Alex was also there. He says that the defendant told him he wanted to develop a property in Ocean Street, Bondi for his family but did not have enough money at the time because his money was tied up in another development in Hunter Street. [2] He asked the plaintiff if he could lend him $500,000. The plaintiff says that there was a second meeting with the defendant where the following conversation [3] took place:

   2. The reference to Hunter Street concerned a property development at Hunter Street, Dover Heights.

   3. Affidavit of Anatoly Fanshil affirmed 16 February 2020 at [16]; tab 8, p 36 of the Court book.

“Me:   I can only lend you $380,000 for this project. What will I get for lending you the money?

Akman:   I will give you 5% interest per annum and $150,000 after Ocean Street is finished, I’m desperate for money.

Me:   What happens if it is delayed?

Akman:   Normally I do projects very fast. I have very good connection with Council. I’m building Hunter Street right now and it will finish very soon. You will get your money after Hunter Street is sold at the latest.

Me:   Yes. I’d like to ask you again, what will be the conditions if Hunter Street becomes ready very soon?

Akman:   I will keep my word, I am desperate for money. You will get exactly 5% and $150,000.

Me:   If something goes wrong, like bad weather, I still need my money by a year and a half.

Akman:   I will give your money back within 18 months, and if you want it back earlier then I will give it back to you as long as I have sold the Hunter Street properties. And if there are any delays, I will give you $60,000 for the delay plus $60,000 every 18 months, it’s better than interest and not a lot of money. You don’t need to worry because Hunter Street is doing ok. I will never let you down.

Me:   Ok, I accept that.”

9. On about 5 May 2015 the plaintiff was asked by the defendant to transfer $100,000 “as a part of the loan”. This payment was made by a transfer from Olena’s account to an account controlled by the defendant. Of that money, $50,000 had been transferred from Alex to Olena.

10. However, the Ocean Street development did not proceed and the defendant transferred the $100,000 back to Olena’s account.

11. In July 2015 the plaintiff and Olena went to the Akmans’ house. There the plaintiff and defendant had the following conversation. Alex and Olena were also present:

“Defendant:   I found a different property, it’s at 146 Old South Head Road. It is better than the Ocean Street property. Can you still lend me the $380,000?

Plaintiff:   Yes, will it be the same conditions?

Defendant:   Exactly the same as before. I will never put you in trouble.

Plaintiff:   Ok.

Defendant:   I won’t need all the money at once. I will let you know when and how much to send to save interest. The payments need to be made on time.”

12. The pair then shook hands and the plaintiff and Olena left the house.

13. On about 18 August 2015, Alex called the plaintiff, said that the defendant wanted to talk to him and put the defendant on the telephone. The defendant told the plaintiff that he needed him “to transfer $100,000 now”.

14. Olena then transferred $100,000 to an account in the name of the defendant and his wife Nina.

15. On about 13 October 2015 Alex again called the plaintiff and said that the defendant wanted to talk to him and then put the defendant on the telephone. The defendant told the plaintiff that he needed $154,000 from him. The plaintiff then obtained a bank cheque in that amount made out to the defendant and his wife Nina, and delivered it to the defendant’s house.

16. On about 16 October 2015 Alex called the plaintiff again, told him that the defendant wanted to talk to him and put the defendant on the telephone. The defendant told the plaintiff that he needed $174,825 from him. That amount was then transferred to the defendant from Olena’s bank account.

17. The total amount transferred to the defendant, not including the $50,000 that came from Alex, was $378,825.00.

18. By March 2017 the plaintiff began to be concerned that he had not received any interest payments from the defendant. He raised this with the defendant and was told that, if he was worried, he could have his money, otherwise, he would be paid when the Hunter Street properties were sold.

19. On 28 March 2017 the first of the two properties on Hunter Street was sold for $4,115,000.

20. The defendant then asked the plaintiff to place a seller’s bid for him at the auction of the second Hunter Street property. The plaintiff asked if he would get his money immediately if the property sold and the defendant replied that it would “normally be after 6 weeks”.

21. The property did not sell at auction but was sold on 27 June 2017 for $4,150,000. After learning of that sale, the plaintiff asked the defendant to pay him his money. The defendant replied:

“I am sick and tired of taking your calls. You are putting too much pressure on me. I am involved in another big project and when I get the DA for that, you will get your money.”

22. The defendant did not pay the plaintiff any money and still has not done so.

23. In about September 2018, because the defendant had not repaid the plaintiff his loan or made any other payments under their agreement, the plaintiff decided that he would need to sell two properties owned by him. He spoke to Ricardo Serrao, a real estate agent, in connection with this. Against the advice of the agent, the properties were sold: one on 1 November 2018 for $1,218,000 and the other, on 26 November 2018 for $722,500.

24. Mr Serrao gave evidence that during his conversation with the plaintiff, the plaintiff said words to the following effect:

“Ric, I need to sell my apartments in Bondi because I lent some money to Alex Akman, he is an extended family member, to do some property development. Things have not gone to plan and now I am having some financial difficulties.”

25. Both Alex and Olena also gave evidence of the conversations between the plaintiff and defendant during which the loans were agreed. Although their recollection as to the precise words used was different, they both corroborated the essential elements as given in the plaintiff’s evidence.

26. In his evidence, Alex said that after the defendant had spoken to the plaintiff and Olena in early May he had a conversation with the defendant[4] :

“Akman:   I still need another $120,000.

Alex:   Jennifer and I can lend you $120,000; what will we get?

Akman:   You and Jennifer can have 5% interest every year and you two will own half of the property.

Alex:   Ok.

Akman:   How much money is available in your account right now?

Alex:   I have $50,000 ready to go.

Akman:   Ok, I will take $50,000 from you when I need it.”

4. Affidavit of Alex Rozenfeld dated 16 February 2020 at [16].

27. Alex said that this agreement was confirmed by the defendant when he became interested in the Old South Head Road property rather than the Ocean Street property.

Defendant’s evidence [5]

5. See Court book, tab 12.

28. The defendant denied the conversations that the plaintiff said had taken place at his home or on the telephone. He says that the Old South Head Road property was to be owned by his son as to 50%, Jennifer 25% and Alex 25%.

29. In respect of the $100,000 transferred by Olena, he says that Jennifer told him that she was giving him $50,000 and Alex was giving him $50,000. When he transferred the money back to Olena’s account, he did so at Alex’s direction.

30. The defendant said that Alex had told him that he was interested in investing in whatever project the defendant might have on. He says that he had the following conversation with Alex shortly before the settlement of the acquisition of 146 Old South Head Road:

“Akman:   I will be completing the purchase of the property at Old South Head Road shortly. You said you wanted to be involved in the project with my daughter so arrangements will need to be made for you to get a loan so that your names can go on the Title of the property for a share in that property.

Alex:   I have already put in place arrangements to get a loan. It will be my responsibility.”

31. Earlier in May or June 2015, the defendant says that he had the following conversation with Alex:

“Alex:   I want to buy into a project, any project with Jennifer, and will fund an investment into the project through a borrowing from the Bank.

Akman:   Where are you obtaining the money from?

Alex:   I will try to refinance from the Bank (NAB). I have good wages and the Bank said I can borrow the money.

Akman:   I don’t know. You do not have the deposit and the Banks require a deposit before they will consider giving you a loan.”

32. In July 2015, there was the following conversation:

“Alex:   The money is a loan that I am obtaining and I have found the money from somewhere else.

Akman:   Is this from Fanshil?

Alex:   The money is not from Fanshil. I have other sources.”

33. The defendant says that it was Alex, not the plaintiff, who was asking for news on the development. In one conversation in the second half of 2017, Alex said to the defendant, the following:

“Fanshil has been talking to me. He wants his money back. I am under great pressure from Fanshil who keeps asking me what is happening with the development and when is he going to get his money back. When will things happen with the development. When will I be able to pay Fanshil back?”

34. However, he also says that the plaintiff was pressuring him to repay him money. He deposes to the following conversation with the plaintiff sometime between July 2018 and September 2018:

“Fanshil:   I am arranging refinance so that I can try and get some extra cash because I need money to pay the mortgages if they are converted by my Bank to principal and interest. I want you to pay back the money that I lent you otherwise I will be forced to sell some of my properties.

Akman:   I have told you before and hundreds of times, I have never had a loan from you, I have never sought a loan from you, and I don’t owe you any money, so stop asking for money that I do not owe you. Any arrangements for a loan with you are with Alex Rozenfeld and not with me.”

35. Jennifer Rozenfeld also gave evidence. In her affidavit she said that, in around April-May 2015 she had a number of conversations with Alex concerning his interest in becoming involved in a property project with the defendant.

36. She also said that she spoke to her father in that period about this and he asked her to find out how much she and Alex could raise as a contribution. She denied that Alex had mentioned the plaintiff’s interest in being involved in her father’s development.

37. In June 2015, after a conversation with Alex about finances, Mrs Rozenfeld says that she had a conversation with her father in the following terms:

“Jennifer:   Alex and I have been talking and he thinks he can get the rest of the money elsewhere.

Defendant:   Alex told me he can get the $380,000 from someone else. I said to Alex that if he is getting the from [sic] Anatoly Fanshil (Fanshil), I do not want any part of it. Alex told me it was not from Anatoly.”

38. In October 2015 Mrs Rozenfeld says that she had a conversation with her father about a deposit of $154,000 into his bank account. Her father said to her:

“I received $154,000 on my Bank statement. I saw Anatoly’s name on the Bank statement. Whats [sic] going on?”

39. That evidence is somewhat surprising and I will consider it in further detail later in these reasons.

40. Mrs Rozenfeld then deposes to the following conversation between her father and Alex:

“Defendant:   Two payments had gone into my Bank account, one for $154,000.00 and another for $174,825.00. Anatoly Fanshil’s name is on one of the Bank statements. Are you borrowing money from Anatoly Fanshil?

Alex:   Don’t worry about the arrangements as this is my own arrangement with Anatoly and I will deal with him directly. It is my own deal between myself and Anatoly.”

41. Mrs Rozenfeld explained that the proposal for the property on Old South Head Road was for two homes to be built: one for her brother to live in and the other for her and Alex to live in. Her evidence was that there was no formal contract “as we were all one family”.

42. Alex denied any conversation or agreement to this effect. He said that the homes were always going to be sold. The proceeds of sale were to be divided 50% to Jennifer’s brother and 50% to Alex and Jennifer. The defendant was to charge fees for the construction costs to compensate him for his contribution to the project.

Consideration

43. The issues for decision are largely factual. The parties’ versions of events are almost completely at odds and there is very little by way of written contemporaneous records of those events. For those reasons, the issues mostly fall to be determined by reference to the credit of the witnesses. That credit must be assessed against all of the evidence including any objectively identifiable information.

44. The demeanour of the witnesses may play some role in assessing their credit, and advantages may also be gained by seeing the evidence as it unfolds. That said, it is important to have particular regard to the objective material and an assessment of the overall probabilities and the approaches generally considered in the authorities such as Fox v Percy (2003) 214 CLR 118, 128-129 (Gleeson CJ, Gummow and Kirby JJ). As the central issue turns on conversations that took place some time ago, I have also had regard to the well-known passage in the judgment of McLelland CJ in Eq. in Watson v Foxman (1995) 49 NSWLR 315 at 318-319.

Plaintiff’s witnesses

Plaintiff

45. My general impression of the plaintiff as he gave evidence was that he was making an honest attempt to give truthful answers to the questions he was asked. He did give long answers on occasion which were not warranted by the question and were, to that extent, unresponsive. However, these answers were not attempts to avoid a question, but rather, out of a desire to give a background to the direct answers that he did give.

46. The defendant relied on a number of matters to argue that the plaintiff should not be accepted as a truthful or reliable witness.

47. First, although the plaintiff accepted that he was a good friend of a very experienced solicitor [6] and was regularly in contact with him, both by telephone and in person, he never sought his advice about the loan given to the defendant. Similarly, it was not until 2018 that the plaintiff sought legal advice concerning the repayment of the loan.

    6. Claudius Bilinsky.

48. Secondly, he had documented loans made to Alex and to Olena but there was no record of the loan to the defendant.

49. Thirdly, even though he was owed money by the defendant, he transferred $500,000 to the defendant for an investment by Olena in a property development undertaken by the defendant on a property on New South Head Road in 2017.

50. Fourthly, the plaintiff claimed in his affidavit that he received a certain amount of cash flow from two rental properties, but claimed a loss in respect of those properties in his income tax returns for the same period.

51. None of these issues, alone or taken together, causes me to doubt the credibility of the plaintiff.

52. I accept the plaintiff’s evidence that he did not seek legal advice from his friend about the loan, or document it because it was a family matter. The defendant himself espoused the same approach in his evidence. The fact that other loans within the family (with Alex and Olena) were documented is not inconsistent with that. The loan to Alex had been made over a period from 2004 but only documented much later, prior to, and because of Alex’s marriage to Jennifer Rozenfeld. Olena confirmed this, and also said that they were trying to be fair to the plaintiff’s own son. Against the background of a family with two children, one to each partner, it makes sense to document a loan made to one child, particularly where there is a pending marriage and the risk that the benefit of the loan will be subsumed into the marital property and divided in case of a divorce.

53. Contrary to the defendant’s submission, the plaintiff did ask the defendant for payment under the loan. Accepting his own evidence for present purposes, he spoke to him regularly by telephone to ask for payment. Given that it was common ground that the two did not have a close relationship, there is no other reasonable explanation for the number of telephone calls made by the plaintiff to the defendant. Further, a number of those calls coincided with dates on which payments were expected: the day after the Old South Head Road property was pulled from auction; and the following day exactly 18 months from the date of the last instalment of the loan was paid.

45. The documentation of the loan to Olena, made after the loan to the defendant, also makes sense in the particular circumstances of the family. Neither is necessarily inconsistent with the failure to document a loan to a joint grandparent where no direct benefit is derived by one or the other of the sons of the plaintiff and Olena.

46. The transfer of $500,000 to the defendant occurred towards the end of 2016. The loan was not yet repayable on the understanding that it had to be repaid within 18 months of the final instalment amount. That was on 17 October 2015. Eighteen months after that was 18 April 2017.

47. One other matter may be noted about that transfer: there was no contemporaneous record of it, or the terms on which it was made. It was only several months later that the payment was acknowledged in a deed entered into by the joint owners of the proposed new development at New South Head Road. The fact that there was a deed in respect of that development and not the development at Old South Head Road is explicable by the fact that there were parties to it who were not family members: the Litvaks.

48. Finally, the plaintiff explained that he sought, and trusted, accounting advice in relation to the amounts to claim as taxable income or deductible expenses or capital outgoings in his tax returns. That does not mean that he is not responsible for any inaccuracies in it, but it does explain to some extent his inability to readily explain how a positive rental cash flow from an investment unit could be reported as a loss. The difficulty with the defendant’s submission in this respect, however, is that there was nothing to explain, beyond the returns themselves, what the bases of the reported losses were. In any event, income or profit (or loss) shown in an income tax return is not the same thing as cash flow.

Olena Rozenfeld

58. Olena was also an impressive witness. Her command of English was perhaps not as good as she thought, however, she gave direct and responsive answers, was not argumentative and readily accepted propositions regardless of their impact on the plaintiff’s case.

59. Her recollection of the meetings at the Akmans’ house was clear and she did not deviate from it under cross-examination. To some extent, her recollection of the conversations was different to the plaintiff’s and Alex’s; however, I see that as a mark of her honesty rather than as evidence of a joint fabrication.

Alex Rozenfeld

60. Alex also impressed me as an honest witness. He gave direct answers to questions and made appropriate concessions.

61. One important part of his evidence was a photograph of what he said were the calculations made by the defendant on the back of an envelope when explaining the financial viability of the Old South Head Road development at the meeting on 12 April 2015. The metadata attached to the photograph showed that it was taken on 12 April 2015, thus corroborating his evidence, and that of the plaintiff and Olena that there was such a meeting.

62. The defendant addressed this evidence in two ways: first, in his evidence, the defendant said that he often wrote quick calculations on the back of an envelope and that this photograph could have related to any number of developments. Secondly, it was suggested to Alex in cross-examination that the metadata can be easily changed. To his credit, Alex readily accepted that proposition, but he denied that he had done it.

63. The defendant had available to him a number of means of properly testing the photograph and its metadata. He took none of those means. Further, the suggestion that the metadata was manipulated begs an important question: why did Alex take a photograph of the calculations at all? Clearly enough, given he left the Akmans’ house in September 2018, he had no access to such documents after that time. The proceedings did not commence until over a year later. Thus, even if the metadata was manipulated, there is still evidence of an envelope said by Alex to have been taken at the meeting in April 2015.

64. In the circumstances, I am not satisfied that there was any manipulation of the metadata but, rather, it shows that the photograph was taken on 12 April 2015. As such, this corroborates Alex’s evidence that he took the photograph at a meeting on that day. Given that the defendant otherwise denies any such meeting, his explanation that this could have related to any prospective development carries little weight.

Ricardo Serrao

65. Mr Serrao was cross-examined on his affidavit. He impressed me as an honest witness with a clear recollection of the conversation with the plaintiff in September 2018. While he was asked questions about any notes that he kept about that conversation, and the first time he was asked to recall it, it was never put to him, either that his recollection may have been mistaken or that it was not his honest recollection. I accept his evidence and find that the plaintiff had a meeting with Mr Serrao in September 2018 in which he told him that he had to sell his properties because he had lent money to the defendant.

66. That finding is important. First, it corroborates the plaintiff’s evidence of that conversation and goes some way, on that basis alone, to establishing his credibility generally. Secondly, it is consistent with the plaintiff’s evidence as a whole. There was no apparent motive for the plaintiff to lie to Mr Serrao about the reason why he needed to sell his properties. On that basis, I accept that he was telling the truth when he talked to Mr Serrao. There are only two logical inferences to be drawn from that: first, that the plaintiff was using loose language to describe a loan to Alex which was, in turn, given to the defendant; and secondly, that he had in fact loaned money to the defendant. The first of these was never put to the plaintiff in cross-examination.

67. In any event, the second is more probable. Not only is it more consistent with the actual words used, but more consistent with the other evidence: Alex was to have a 25% interest in the property at Old South Head Road. There was no evidence, or suggestion in cross-examination, that he was to receive any funds from this by any particular time, let alone by September 2018. Unlike other loans actually made by the plaintiff to Alex, there was no reference to this amount in writing anywhere.

The defendant’s witnesses

Alexander Akman

68. The defendant was not an impressive witness. There were many occasions in cross-examination when he was simply evasive. At other times he gave non-responsive answers that appeared to be designed to explain a difficulty with the evidence he had given. In other instances he gave evidence that did not correspond with the objective evidence. An important example of this was his evidence about when he learned that $154,000 had been deposited into his account.

69. The relevant deposit was recorded in the statement of the account held by the defendant and his wife Nina Akman. [7] At [27] of his affidavit, the defendant said, without elaboration, that there was a transfer of $154,000 on 13 October 2015 but the relevant bank statement was not annexed. That statement showed the transfer in that amount on that date but included the reference “Anatoly Fanshil”. That reference is particularly important. It is the only written record in evidence that associates the plaintiff with money being transferred to the defendant for the purposes of the purchase of the property at Old South Head Road.

    7. Ex 16, p 18.

70. Seen alone, the reference does not prove that there was a loan. However, it had the potential to support the existence of a loan. For that reason, it is important to analyse it, and the evidence about it, in some detail.

71. In cross-examination the defendant said he did not know that the amount of $154,000 had been deposited at that time and only found out when he got the bank statement. The bank statement was for the period starting 3 October 2015 and ending 4 April 2016. That means, on the defendant’s evidence, that he was unaware of the transactions on his account until six months after they had occurred. Importantly, this was the account from which the balance of the purchase price for Old South Head Road was to be paid. The purchase price being $3,250,000, the deposit was $162,500 (5% of the purchase price) and the bank loan $2,600,000.

72. Together with legal costs and stamp duty, the amount that the defendant was required to provide at settlement was $659,391.24. [8] It would have been important for the defendant to know that he would be able to pay that by the date of settlement, namely 19 October 2015.

    8. Ex 21, p 26.

73. This was an account to which the defendant had ready access to on the internet: there are numerous transactions on the statements showing that various sums were transferred via internet transactions that bore the reference “construction”. Being a developer (and given that his wife was not), it is most likely that those transactions were effected by the defendant.

74. It is unlikely in those circumstances that the defendant did not check the account balance at that time to ensure that settlement could occur.

75. In argument the defendant accepted that that was likely but argued that it was possible to check the account balance without seeing the transactions on the account. I accept that that is possible. However, I do not accept that that is what occurred.

76. The bank records suggest that the defendant did check the transactions that had taken place on this account on 13 October 2015. The record shows:

“13 Oct 2015   Internet Banking Transaction History”

From the date of the deposit and the looming settlement, I infer that the defendant checked the bank account online to ensure that the funds of $154,000 had been deposited. That inference is supported by the following part of the same record:

“15 Oct 2015   Internet Banking Transaction History

Cash Deposit ………………………………….. $71,500.00

16 Oct 2015   Internet Banking Transaction History

Internet Banking Transaction History

Internet Banking Transaction History

Cash Deposit ………………………………….. $174,825.00”

77. This shows that on both 15 and 16 October, days before settlement, the defendant checked his account online just before, or perhaps after, large deposits were made to the account.

78. This establishes to my satisfaction that the defendant lied under oath about when he first saw the record of the transactions. He saw it on the day it occurred, or at least by 15 October 2015. That means that he also saw the reference “Anatoly Fanshil” next to the deposit.

79. This was not some mistaken evidence given under the harsh lights of cross-examination. When the plaintiff’s lawyers had sought particulars of paragraph 13(c) of the defence (which included an admission that the defendant received a bank cheque for $154,000), the defendant instructed his solicitors in December 2019 to reply that he only saw the entry referring to the plaintiff in July 2016 when he received the statement for the bank account. This reveals that this was a calculated fabrication. I find that the defendant was fully aware of the importance of this reference and did his best to distance himself from it.

80. In cross-examination the defendant says he did not know the payment was by bank cheque and that he only asked Alex to deposit the money. If that were true, there would be no reason for the plaintiff’s name to be given as a reference. This means that he knew the money came from the plaintiff, not from Alex. This critically undermines the defendant’s credibility.

81. In her affidavit, Jennifer Rozenfeld said, at [40], that her father expressed surprise to her about the deposit of $154,000 with Anatoly’s name. Although it is unclear, the suggestion was that this was shortly after 13 October 2015. That is inconsistent with the evidence of her father. For the reasons I have given, I do not believe that the defendant was surprised that the plaintiff’s name appeared as the reference to the $154,000 deposit. For that reason, I do not believe Mrs Rozenfeld’s evidence about the conversations and find that she fabricated it to assist her father’s case. It also has a significant impact on her general credit.

82. A few examples of non-responsive answers given by the defendant in cross-examination are as follows:

1. when it was suggested he needed money to be able to buy the property at Ocean Street, he said “not really, no … I didn’t proceed with that because there was conversation prior to that, with Alex Rozenfeld;

2. when asked about the repayment of the first $100,000 paid by Olena (Ex 16, p 9), it was suggested that he wrote the reference “Olena Rozenfeld Alex Rozenfeld”. His reply was “No, how could I … my reference was Alex … maybe I did. I was returning where - to the same account…”;

3. he was taken to the statements for the loan account for the Old South Head Road property that was addressed to him. Before being asked a question, he said the correspondence went to everyone, “usually it’s - bank do that”. Not only was that not responsive to any question but it was clearly said to overcome what he perceived as evidence contrary to his interests. Further, in her evidence, Jennifer Rozenfeld, one of the borrowers initially said that she did not even know about that loan. That suggests that she never received a transaction statement;

4. when he was asked about the Old South Head Road loan, the defendant insisted that he was only a guarantor. When he was shown his signature as a borrower and asked whether he signed it, he did not answer that question, instead answering what he thought was important: “Maybe bank don’t have ‘Guarantor’ box”. That answer was true, but only because, as all of the relevant documents show, he was a borrower, not a guarantor.

83. Another significant issue with the defendant’s evidence is that concerning the source of the money he says came from Alex.

84. In his affidavit he said, at [51], that Alex had told him he was able to fund the rest of the $500,000 for the property investment. The defendant then says the following was said:

“Defendant:   Is this from Fanshil?

Alex:   The money is not from Fanshil. I have other sources.”

85. There are two problems with this. First, there is no explanation as to why the defendant would be concerned that the money came from the plaintiff. There was, at that time, no animosity between the two. They saw each other at family functions including Christmas and the birthdays of the grandchildren. The only apparent purpose of the question is to distance himself from any financial connection with the plaintiff.

86. Secondly, the availability of this money was imperative to the defendant’s ability to purchase another property for development. In those circumstances, it is odd that he would not even enquire as to the source of the funds Alex said that he now had access to. He knew it was not a bank, because Alex had already tried that source and told the defendant he was unsuccessful. It is unlikely that the defendant would have proceeded to acquire a property on the strength of that conversation, given he knew that Alex had no funds of his own. I find that the conversation did not happen.

87. There are so many issues with the defendant’s evidence that I cannot accept any of it as truthful unless it is either corroborated by other evidence (other than his daughter’s) or is contrary to his interests.

Mrs Rozenfeld

88. Mrs Rozenfeld was also a particularly unimpressive witness. She was evasive and knowingly untruthful. Like her father’s evidence, I do not accept that anything she said was credible unless it was corroborated by other evidence (other than her father’s) or was contrary to her father’s interests.

89. In her affidavit Mrs Rozenfeld said, at [37], that Alex told her that the bank would only lend $120,000 more against her unit. The transactions for the loan account are not consistent with that conversation. They show that there was a transfer from that account on 5 May 2015 in the amount of $50,000. The balance after that was $529,000. The available redraw was $1,000. That suggests that there was only $51,000 available at that time. However, in October 2015, the limit of the account is shown to have increased to $600,000. This enabled a further draw down of $71,000. That amount was drawn down on 6 October 2015, deposited into another account in Mrs Rozenfeld’s name and transferred from there on 15 October 2015 to the account of the defendant and his wife. The redraw on Mrs Rozenfeld’s loan after that was $0.

90. Mrs Rozenfeld gave evidence about Alex’s ability to obtain $380,000 in order to fund the purchase of the Old South Head Road property. In short, she said that, while she asked him where he was going to get the money from, she did not press him to find out the source of the money. I do not accept that evidence. Her evidence was otherwise that she considered that she and Alex formed a financial unit. I accept that on the basis that they were married and had two children together, he was working and she was not. It is very unlikely on that basis that she would accept that Alex could simply come up with $380,000 without identifying the source of those funds.

91. Mrs Rozenfeld first gave evidence in the afternoon of 16 July 2020. On that day, she was asked about the $2,600,000 loan from the National Australia Bank (NAB) for the purchase of the property at Old South Head Road. That was hardly controversial: the loan was signed by her and, according to her father’s evidence, each borrower was sent a copy of the bank statement relating to it. She denied any knowledge of that loan [9] :

“Q:   Now, you also know that your father arranged for a loan of $2.6 million to be obtained from the National Australia Bank, correct?

A:   I’m not aware of that.

Q:   Okay. You don’t know then, do you, how the Old South Head Road property purchase was ultimately funded. Is that what you’re saying that you’re not really involved, and you didn’t know about that?

A:   We put money down for the deposit, and my father paid the rest of the amounts that was needed to be paid.

Q:   When you say your father paid, he didn’t have the money himself just available for him in the form of cash, did he, to your knowledge?

A:   I’m not sure.”

9. Tcpt, 16 July 2020, p 374 (47).

92. The next day, however, her evidence changed. When reminded of the topic of the previous day’s question, she said [10] :

“A:   I know we had arrangements with the bank for a loan for the property, yes.”

10. Tcpt, 17 July 2020, p 383 (40).

93. She also said that she was involved in obtaining the loan [11] and that it was “about 2.6 … 2.5”. [12] She denied having talked to anyone about her evidence overnight and, when pressed on her previous evidence, she tried to explain that there was no inconsistency [13] :

“Q:   I asked you yesterday this question, “You also know that your father arranged for a loan of 2.6 million to be obtained from the National Australia Bank. Correct?” And your answer was, “I’m not aware of that.”

A:   I’m not aware that – if he took a loan.

…

A:   That he obtained, I wasn’t aware of that.”

11. Tcpt, 17 July 2020, p 383 (43).

12. Tcpt, 17 July 2020, p 384 (11).

13. Tcpt, 17 July 2020, p 384 (29).

94. Her explanation, then, was that she had said that she did not know that her father had “obtained” a loan, not that she was not aware that he had “arranged a loan”. That is nonsensical. Her answers show that, on the second day of her evidence, she knew full well that her father had arranged a loan and that the loan had been taken out. She had clearly talked to somebody about her evidence even though I had specifically reminded her of her obligation not to. [14] Whether she spoke to her father or her brother (who had been in court during the defendant’s evidence) it does not matter. It showed her as willing to do and say anything to advance her father’s case regardless of the affirmation she took to tell the truth.

    14. Tcpt, 16 July 2020, p 377 (45).

Conclusion

95. It follows from my findings of credit that I accept that the defendant asked the plaintiff to lend him $500,000 so that he could purchase a property in Ocean Street for development. After some consideration, the parties met again and the plaintiff told the defendant that he could lend him $380,000. They then discussed terms. The offer was accepted, and a payment was made in respect of Ocean Street. However, that development did not proceed and that money was returned. The offer was next repeated on the same terms in respect of the property at Old South Head Road and accepted by the plaintiff. The amount of $378,825 was paid by the plaintiff to the defendant by way of loan and there is no issue that the defendant has paid nothing back to the plaintiff.

96. The only real issue in those circumstances is what amount was promised by the defendant. In particular, whether the amount of $150,000 referred to was to be by way of part repayment of the capital or an additional payment.

97. There were five components to the terms that were offered by the defendant, and accepted by the plaintiff:

1. a loan in the amount of $380,000;

2. interest of 5% per annum;

3. a payment of $150,000 (after the first of the Hunter Street or Ocean Street properties was developed and sold);

4. repayment of the loan within 18 months;

5. if the loan was not repaid within 18 months, $60,000 for each period of 18 months in which the loan was not repaid (being three periods in total).

98. The plaintiff understood that the payment of $150,000 was to be in addition to the repayment of the loan amount, and claimed that amount as part of the moneys outstanding in these proceedings. However, in order to ascertain the terms of the agreement, it is necessary to determine the meaning of the words said by the parties which they would “convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at [11]. This task normally requires consideration of the purpose and objects of the transaction: Pacific Carriers v BNP Paribas (2004) 218 CLR 451 at [22].

99. An important part of the context is that the defendant was a property developer. He made money by the purchase, development and sale of property, particularly in the eastern suburbs of Sydney. Although there was some issue about this in the defendant’s evidence, I find that the properties at Ocean Street and Old South Head Road were to be developed and sold in the usual course of the defendant’s business. In those circumstances, profit is an important context consideration in understanding the offer made.

100. Although the back of the envelope calculations were very rough, they show a profit of $350,000 after deduction of acquisition costs, interest and stamp duty. I infer that this was a sufficient margin to warrant further investigation of the property for development.

101. Given that both parties were aware of those calculations, it would appear surprising at first glance that the defendant would offer $150,000 as a payment in addition to interest and a generous late payment fee of $60,000. That amount is roughly 40% of the loan amount. Assuming, on the basis of what the defendant told the plaintiff, that the project would be complete within 18 months but that Hunter Street would be finished sooner, that would mean the cost of the loan over 18 months was close to 50% of the loan amount [15] and half of the profit shown in the calculations.

     15. Interest (1.5 x 378,825 x 5%) + 150,000 = $178,411. $178,411/378,825 = 0.47.

102. Although the defendant told the plaintiff that he was desperate for money, the evidence does not show that he was so desperate or that the Ocean Street property held the promise of such great profit, that he would offer such overwhelmingly generous terms. I conclude that, although there was some ambiguity in the words used by the defendant, the offer to pay $150,000 meant objectively that he would repay that amount of the loan at a particular time and the balance within 18 months.

103. For those reasons, there will be judgment for the plaintiff in the amount of $558,825 together with interest as set out below and costs.

104. Judgment is calculated as follows:

1. $378,825 (principal loan);

2. $91,231.53 being interest at the rate of 5% per annum on the principal loan from 16 October 2015 to 7 August 2020;

3. $180,000 (three lots of $60,000); and

4. pre-judgment interest at the rates prescribed by the rules as follows:

1. on $60,000 from 16 April 2017 to 7 August 2020 in the amount of $14,543.33;

2. on $60,000 from 16 October 2018 to 7 August 2020 in the amount of $7,787.68;

3. on $60,000 from 16 April 2020 to 7 August 2020 in the amount of $1,230.33.

105. The defendant sought costs of an amendment to the statement of claim made by the plaintiff at the commencement of the hearing. Those costs were reserved. The amendment was to abandon a claim for damages as an alternative to a claim in debt. I have found that the entire proceedings were defended on a false basis. There should be no order for costs of the amendment.

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Endnotes

Decision last updated: 07 August 2020