HIGH COURT OF AUSTRALIA
GLEESON CJ
GUMMOW, CALLINAN, HEYDON AND CRENNAN JJFARAH CONSTRUCTIONS PTY LTD & ORS APPELLANTS
AND
SAY-DEE PTY LTD RESPONDENT
Farah Constructions Pty Ltd v Say-Dee Pty Ltd
[2007] HCA 22
24 May 2007
S347/2006 & S461/2006ORDER
1. Appeal allowed.
2. Set aside the orders of the Court of Appeal of the Supreme Court of New South Wales made on 21 December 2005 and varied on 28 November 2006 and in their place order that the appeal to that Court from the judgment and orders of the Supreme Court of New South Wales dated 19 August 2004 and 22 November 2004 be dismissed with costs.
3. Respondent to pay the appellants' costs of the proceedings in this Court.
On appeal from the Supreme Court of New South Wales
Representation
F M Douglas QC with V R W Gray and R J Hardcastle for the appellants (instructed by Strathfield Law)
A J Sullivan QC with J K Kirk and J S Emmett for the respondent (instructed by Esplins)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
Farah ConstructIons Pty Ltd v Say-Dee Pty Ltd
Equity – Fiduciary duties – Joint venture to redevelop property between first appellant and respondent – Second appellant learnt that redevelopment would gain Council approval only if the property was amalgamated with adjoining properties – Adjoining properties purchased by the second appellant, his wife and children and another company controlled by the second appellant – Whether first appellant had an obligation to disclose to the respondent opportunities to purchase adjoining properties and information concerning the Council's attitude to redevelopment – Whether first appellant fulfilled any such obligation of disclosure.
Equity – Recipient Liability – Whether property acquired through misuse of information by a fiduciary should be treated as trust property – Whether second appellant's wife and children were liable under the first limb of Barnes v Addy – Whether wife and children had notice of any breach of duty by the second appellant –Whether second appellant's knowledge could be imputed to wife and children – Whether second appellant was the agent of wife and children and, if so, whether information acquired outside scope of agency – Duty of principal to investigate conduct by agent.
Equity – Assistance-based liability – Whether second appellant's wife and children were liable under the second limb of Barnes v Addy – Whether second appellant's wife and children were liable as knowing participants in a dishonest and fraudulent design – Knowledge requirement in the second limb of Barnes v Addy.
Equity – Tracing – Whether property was the traceable proceeds of second appellant's breach of fiduciary duty – Whether wife and children of second appellant were volunteers.
Equity – Remedies – Account of profits – Whether wife and children of second appellant were liable to account for profits made through their acquisition of the properties.
Unjust enrichment – Restitutionary liability – Whether wife and children held their properties on constructive trust for the joint venture by reason of liability to make restitution based on unjust enrichment – Whether the notice test in the first
limb of Barnes v Addy should be abandoned – Application of concept of unjust enrichment to recipient liability for breach of trust or fiduciary duty – Whether unjust enrichment at the expense of the respondent.
Real Property – Indefeasibility – Second appellant's wife and children were registered proprietors – Whether their title was indefeasible pursuant to s 42 of the Real Property Act 1900 (NSW) – Whether registered title subject to an in personam claim – Whether registered title subject to a constructive trust – Whether title obtained by fraud within the meaning of s 42(1).
Courts – Evidence – Appellate intervention – Whether Court of Appeal erred in reversing findings of fact made at trial – Weight to be given to trial judge's assessment of witness credibility by an intermediate court of appeal.
Courts – Practice and procedure – Whether Court of Appeal erred in deciding the appeal on a ground not argued in that court – Whether Court of Appeal erred in deciding the appeal on a matter not pleaded by the respondent at trial.
Words and Phrases – "dishonest and fraudulent design", "fraud", "in personam", "knowing receipt", "knowledge", "stock-in-trade", "unjust enrichment".
Real Property Act 1900 (NSW), s 42.
GLEESON CJ, GUMMOW, CALLINAN, HEYDON AND CRENNAN JJ. These somewhat complex appeals concern fiduciary duties in relation to land development. The reasons for judgment are organised under the following headings:
The land [2]
The nature of the proceedings in outline [3]
The parties [4]
The primary events [9]
The principals of Farah and Say-Dee meet [9]
The agreement of the parties [11]
Performance of the agreement begins [12]
Difficulties with the Council [13]
Purchases by the Elias interests [16]
Mr Elias's concealed offer to buy No 11 [20]
Procedural history [21]
Issues before this Court [29]
The need to amalgamate: disclosure of the Council's view [30]
The Court of Appeal's conclusions [30]
The evidence [32]
Did the Notice of Determination convey enough? [39]
Disclosure to Say-Dee about the possible development of No 13, No 15 or No 20: preliminary points [43]
The problem for the courts below [43]
The trial judge's reasoning [45]
Disclosure to Say-Dee about the possible development of No 13, No 15 or No 20: errors by the Court of Appeal [48]
Demeanour-based findings [48]
Contradictions in the Say-Dee affidavits [50]
Acquisition of No 15 and No 20 [63]
Acquisition of No 13 [66]
Mr Elias's financial difficulties [69]
Say-Dee's financial difficulties [78]
The concealed offer [84]
The probability that Mr Elias would ask Say-Dee to join in acquiring No 13 and No 15 [89]
The Court of Appeal's reasoning considered [90]
Did Mrs Elias and her daughters have actual knowledge of Say-Dee's rights? [100]
Scope of Farah's fiduciary duty [101]
Did Farah fulfil its obligations of disclosure? [106]
Liability of Mrs Elias and her daughters under the first limb of Barnes v Addy [110]
The "rule in Barnes v Addy" stated [111]
The Court of Appeal's reasoning on the first limb [114]
Non-application of the first limb: no receipt of property to which a fiduciary obligation attached [116]
Non-application of the first limb: no agency and no notice [123]
Restitutionary liability [130]
The Court of Appeal's decision [130]
Injustice to the parties [132]
Resultant confusion [134]
The structure of the Court of Appeal's reasoning [136]
The Court of Appeal's reasoning: authorities in favour? [140]
The Court of Appeal's reasoning: authorities against [147]
The Court of Appeal's reasoning: principle [148]
Second limb of Barnes v Addy [159]
Tracing [187]
The duty of Mrs Elias and her daughters in equity to account for profits [189]
Indefeasibility [190]
The Court of Appeal's reasoning [190]
Pleading difficulty [191]
Fraud [192]
In personam exception [193]
Causation [199]
Remedies [200]
Orders [202]
The land
Burwood is an inner suburb of Sydney. The five plots of land with which these appeals are directly or indirectly concerned are situated near Burwood Railway Station, in a busy commercial area. Three are in Deane Street and two are in George Street. Standing in Deane Street looking north, the observer sees 11 Deane Street ("No 11"). To the west of it is 13 Deane Street ("No 13"). To the west of No 13 is 15 Deane Street ("No 15"), which is on the corner of Deane Street and Mary Street. On each of No 11, No 13 and No 15 is a block of four units. Behind No 11, No 13 and No 15 are two adjoining properties, 18 George Street ("No 18") and 20 George Street ("No 20"). The rear of No 20, which is on the corner of Mary Street and George Street, adjoins the rear of No 15, and the rear of No 18 adjoins the rear of No 11 and No 13. All these parcels comprise land under the provisions of the Real Property Act 1900 (NSW) ("the Real Property Act").
The nature of the proceedings in outline
These are appeals against orders of the New South Wales Court of Appeal (Mason P, Giles and Tobias JJA) setting aside orders of Palmer J in the Supreme Court of New South Wales. The contentious aspect of the proceedings before Palmer J was a cross-claim, which he dismissed. By that cross-claim Say-Dee Pty Ltd ("Say-Dee") claimed various forms of equitable relief in relation to No 11, No 13, No 15 and No 20 against Farah Constructions Pty Ltd ("Farah") and five other cross-defendants. In this Court Say-Dee is the respondent and the six cross-defendants are the appellants. Palmer J also made orders sought in a summons filed by Farah seeking an order for the sale of No 11 upon the statutory trusts for sale under the Conveyancing Act 1919 (NSW), Pt IV, Div 6[1]. The Court of Appeal substituted for the orders of the trial judge a declaration that there be constructive trusts over No 13 and No 15 in favour of a partnership between Farah and Say-Dee to develop No 11, and related relief[2]. The appeal to this Court against the orders of the New South Wales Court of Appeal should be allowed and the trial judge's orders restored for the reasons given below.
[2]For the reasons for this outcome, see Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309. Two judgments have also been delivered in relation to the orders of the New South Wales Court of Appeal: Say-Dee Pty Ltd v Farah Constructions Pty Ltd (No 2) [2005] NSWCA 469 and Say-Dee Pty Ltd v Farah Constructions Pty Ltd (No 3) [2006] NSWCA 329.
The parties
Farah, the first appellant, is controlled by Mr Farah Elias, who is the second appellant. He is also called "George". He gave his occupation as developer of real estate. Lesmint Pty Ltd ("Lesmint"), the third appellant, is another company controlled by Mr Elias. Mrs Margaret Elias, the fourth appellant, is married to Mr Elias. Sarah Elias, the fifth appellant, and Jade Elias, the sixth appellant, are the daughters of Mr and Mrs Elias.
Say-Dee is a company controlled by Dalida Dagher and Sadie Elias, and they are its directors. Although the trial judge found that they had no experience in real estate development, they had considerable business experience and ambitions.
At the time of the relevant events, Ms Dagher owned two properties in her own name. They were mortgaged. One was her residence. She was a 50 per cent shareholder in a company named Pacific Islands Express Pty Ltd which owned two valuable blocks of land worth over $5 million, and there was evidence that she was a director of that company. On one of them a pub was being built, funded by large borrowings, which she had guaranteed. A petrol station stood on the other block. She was also a director and a 50 per cent shareholder in another company, Teilwar Pty Ltd, which was carrying on the business of running two service stations involving franchises with Caltex. She claimed to have an "interest", although she was not a shareholder, in a third company, Dagher A Family Company Pty Ltd, which ran a service station, in which she had been involved for 18 years. She had seen many sets of business accounts over the years and understood what those accounts showed.
Ms Elias described herself as Operations General Manager of a multi-million dollar company called "Go Lo", being responsible for five area managers.
Say-Dee itself had purchased a house in Campsie with a view to buying the adjoining property for redevelopment. Say-Dee also conducted two coffee shops in Chatswood and Miranda.
The primary events
The principals of Farah and Say-Dee meet. In 1998, Ms Dagher and Ms Elias decided to become involved in real estate development. Through a mutual friend, Mr Elie Becherra, they contacted Mr Elias. He was the brother-in-law of Ms Elias's uncle and had known her socially since childhood, but he did not know Ms Dagher.
Mr Elias proposed that No 11, which comprised four rather run-down units, be bought using capital contributed by Say-Dee and borrowed monies; that No 11 be redeveloped for partly commercial and partly residential purposes; that while the development application was being prepared and approved by Burwood Council the units should be refurbished and rented out; that the rent be applied to pay the interest on the monies borrowed; and that on completion of the project No 11 be sold and the profits shared equally between Farah and Say-Dee. To this proposal Ms Dagher and Ms Elias agreed.
The agreement of the parties. The terms of the parties' agreement, or some of them, were recorded in a letter from Say-Dee's solicitors dated 20 April 1998 to Farah's solicitors headed in part "Property: DEANE STREET, BURWOOD" thus:
"1. Both parties are the purchasers in equal shares.
2.Say-Dee is to advance to the joint venture $225,000.00.
3.Balance of funds to be borrowed by the joint venture and secured by way of mortgage over the subject property.
4.Upon completion of the project the profits are to be allocated as follows:
a) 1st priority – repay Say-Dee $225,000.00.
b)2nd priority – pay all agents commission and legal expenses.
c)3rd priority – distribute balance 50/50 to joint ventures."
In addition, it was agreed that Farah would be responsible for managing the progress of the development application, constructing the development and selling the land.
Performance of the agreement begins. For a time matters proceeded smoothly. On 2 April 1998 contracts were exchanged for the purchase of No 11 by Farah and Say-Dee as tenants in common in equal shares for $630,000. On 17 September 1998 completion took place. Say-Dee provided $230,000 towards the purchase price and stamp duty. The balance of the purchase price came from a loan from the National Australia Bank. The units were refurbished and let. Farah prepared a development application for an eight storey building and on 5 January 2000 lodged it with Burwood Council. Although the applicant was described as "Deane Trust", and was so addressed in later correspondence, there was in fact no express trust of that name, but no party submitted that anything turns on that. On 26 April 2000 the Council's Building and Development Committee deferred consideration of the development application to enable consultation to take place. However, none did take place; instead Mr Elias submitted amended plans on 27 April 2000, reducing the height by one storey.
Difficulties with the Council. The Council's Group Manager, Environmental and Community Services, prepared a report on the development application dated 20 June 2000. A copy was given to Mr Elias before 26 June 2000 and it was discussed at the Council's Building and Development Committee meeting on that day in his presence. The Group Manager recommended against approving the development application. This report stated:
"The amendments proposed [on 27 April 2000] do not satisfy the Draft Town Centre Commercial LEP and DCP for a maximum of 4/5 storeys and a maximum FSR of 3:1. Even if the building did conform with such standards, it is considered that the site is too narrow to maximise its development potential.
...
The proposed development is considered an over-development of a narrow 11m wide site as evidenced by the inability to provide for car parking due to the lack of manoeuvring space available. The site should be amalgamated with the adjoining properties to achieve its maximum development potential and a more appropriate development permissible under the Draft Town Centre Commercial LEP No 46 and DCP No 10."
Mr Elias contended to the meeting that relaxation of the planning requirements might be made after discussion with the Department of Urban Affairs and Planning. The Committee resolved to defer consideration of the application to enable the issues to be discussed with the Department.
On 11 July 2000 Mr Elias met two Council officers (the Group Manager, Environmental and Community Services and the Manager of Building and Development). On 12 July 2000 he wrote to the Chairman of the Council's Building and Development Committee making further submissions advocating approval for the development application.
On 8 March 2001 the Department of Urban Affairs and Planning informed the Council that its Urban Design Advisory Service had prepared an urban design assessment. It suggested that No 11 was too small to achieve its full development potential, and that it needed to be amalgamated with other sites "to maximise its development potential". On 3 April 2001 the Council's Group Manager, Environmental and Community Services, provided a further report to the Council's Building and Development Committee. It referred to the urban design assessment and recommended refusing the application "as there is no scope for a redesign of the proposal". That Report was considered by the Committee on 3 April 2001, and Mr Elias addressed the meeting. However, the Committee unanimously adopted the Group Manager's recommendation, and this became the decision of the Council. Mr Elias was advised of that decision by a Notice of Determination dated 4 April 2001. The sixth of the stated reasons for refusal was:
"The subject site is considered too small to achieve its full development potential and return a positive urban design outcome."
Purchases by the Elias interests. On 30 June 2001 Mr Elias, Mrs Elias and their two daughters each entered a contract to buy one of the four units in the building on No 15, and one of the four units in the building on No 20. The total purchase price was $1,080,000 for No 15 and $980,000 for No 20. The trial judge found that this was after Say-Dee had declined an invitation by Mr Elias in May to participate in the acquisition of these properties, but that finding was reversed by the Court of Appeal. On 20 November 2001 those contracts were completed.
On 7 December 2001 Farah lodged a second development application for No 11. On 12 March 2002 a Council officer advised Mr Elias (amongst other things) that No 11 was too narrow to maximise its development potential without amalgamation with neighbouring sites.
On 15 August 2002 Lesmint entered into a contract to buy No 13 for $1,680,800, and that contract was completed on 6 November 2002. The trial judge found that this was after Say-Dee had declined an invitation by Mr Elias in August to participate in the development of No 13 with No 11, but that finding was reversed by the Court of Appeal.
On 27 August 2002 Mr Elias withdrew the second development application.
Mr Elias's concealed offer to buy No 11. The trial judge found that in late 2002 or early 2003 Mr Elias made an offer to Ms Dagher and Ms Elias to buy No 11. He falsely represented that he was a consultant to the offeror when in fact he solely controlled the offeror, and in that way he concealed his identity. This concealed offer weighed heavily in influencing the Court of Appeal to reverse the trial judge on a key question of what disclosures Mr Elias made to Say-Dee before the acquisitions of No 13, No 15 and No 20.
Procedural history
In late 2002 or early 2003 Say-Dee declined to sell its interest in No 11 to Farah. Thereafter relations deteriorated.
The proceedings began on 19 March 2003 when Farah filed a summons against Say-Dee seeking an order that a trustee be appointed over No 11 and that it be sold pursuant to the statutory trusts for sale for which provision is made in the Conveyancing Act 1919 (NSW), Pt IV, Div 6.
Say-Dee then filed a cross-claim, claiming that the present appellants held their interests in No 11, No 13, No 15 and No 20 on constructive trust for the partnership between Say-Dee and Farah. The claim in relation to No 20 was abandoned at the start of the trial. This may have been because Say-Dee, like the Court of Appeal, took the view that while "No 15 was an adjoining or adjacent property to No 11 for the purpose of site amalgamation as contemplated by the Council, No 20 ... was not."
After amendments to the cross-claim were made on 25 June 2004, the trial began on 16 August 2004 and continued until 18 August 2004. The trial judge delivered judgment on the following day. He gave judgment for the cross-defendants on the amended cross-claim. He ordered that two trustees be appointed to No 11 on the statutory trusts for sale.
The Court of Appeal heard an appeal by Say-Dee on 7 July 2005 and gave judgment on 15 September 2005 allowing the appeal. The Court of Appeal rejected the trial judge's finding that Mr Elias had invited Ms Dagher and Ms Elias to participate in the acquisition of No 13 and No 15. It found that Farah's fiduciary duties to Say-Dee were wider than the trial judge had found them to be. It found that Farah had breached its fiduciary duty by failing to tell Say-Dee that the Council regarded the acquisition of No 13 and No 15 and their amalgamation with No 11 as essential if No 11 were to be redeveloped to its maximum potential. It concluded that Mrs Elias and her daughters were liable in relation to their three units in No 15 under the so-called "first limb" of Barnes v Addy[3], and hence held them in constructive trust. It also concluded that Mrs Elias and her daughters held their three units in No 15 on constructive trust for Say-Dee on a restitutionary basis turning on unjust enrichment. The Court of Appeal further held that the outcome was not affected by the fact that Mrs Elias and her daughters had acquired a registered title to their units in accordance with the provisions of the Real Property Act. It concluded by indicating that it favoured the relief claimed by Say-Dee, which centred on declaring constructive trusts over No 13 and No 15 in favour of the partnership between Farah and Say-Dee to develop No 11, and appointing receivers to obtain a development consent and sell No 11, No 13 and No 15 in one line. The Court of Appeal directed the parties to bring in draft short minutes of order reflecting that expression of opinion within 14 days.
[3](1874) LR 9 Ch App 244 at 251-252.
On 21 December 2005 the Court of Appeal delivered a further judgment[4] resolving disputes between the parties about the orders.
On 28 November 2006, after this Court had granted special leave to the appellants to appeal on 19 September 2006, and a fortnight before that appeal was listed for hearing on 12 December 2006, the Court of Appeal delivered a third judgment[5]. That judgment was occasioned by an application brought by Say-Dee seeking orders conferring power on the receivers to delay sale, and to engage experts to advise on how to deal with the Council in relation to obtaining a rezoning before sale. The Court of Appeal made orders to that effect.
There are before this Court two appeals. One relates to the Court of Appeal's orders of 21 December 2005. The merits of the first appeal depend on the reasons for judgment given on that day and earlier on 15 September 2005. The other appeal is against the orders made on 28 November 2006. The respondent has filed a notice of contention in relation to the first appeal.
Issues before this Court
The appeals and the notice of contention raise the following issues for determination.
(a)Did Farah disclose to Say-Dee the Council's view of the need to amalgamate the development of No 11 with other properties if any development application was to succeed?
(b)Did the Court of Appeal err in reversing the trial judge's finding that Farah had disclosed to the directors of Say-Dee opportunities to buy No 15 and No 20 in 2001 and No 13 in 2002?
(c)Did Mrs Elias and her daughters have actual knowledge of Say-Dee's rights?
(d)Did the scope of the joint venture create a duty on Farah to disclose the Council's view of the need for amalgamation and to disclose the opportunities to buy No 15 and No 13, and to abstain from proceeding with those purchases in the absence of Say-Dee's informed consent?
(e)If so, did Farah comply with that duty?
(f)Did the Court of Appeal err in finding that Mrs Elias and her daughters were liable under the first limb in Barnes v Addy?
(g)Did the Court of Appeal err in finding that Mrs Elias and her daughters were liable as recipients of trust property on the basis of unjust enrichment?
(h)Were Mrs Elias and her daughters liable under the second limb of Barnes v Addy?
(i)Did Say-Dee have a tracing remedy against Mrs Elias and her daughters?
(j)Did Mrs Elias and her daughters have a duty in equity to account for profits?
(k)Was there an adequate causal link between any breach of duty by Farah and harm to Say-Dee?
(l)Did the Court of Appeal err in failing to find that the second to sixth appellants had acquired an indefeasible title to the respective properties in their names pursuant to s 42 of the Real Property Act?
(m)Were the remedies ordered by the Court of Appeal satisfactory?
The need to amalgamate: disclosure of the Council's view
The Court of Appeal's conclusions. The trial judge found that Mr Elias had not "in terms" conveyed to Say-Dee the view of the Council that No 11 was too narrow to maximise its development potential and that it should be amalgamated with the adjoining properties. Below this will be referred to as "the Council's view of the need for amalgamation". The Court of Appeal agreed with this finding, and went further. It held that not only had that information not been conveyed "in terms", it had not been conveyed "in effect or in substance". The Court of Appeal found two relevant deficiencies in Mr Elias's conduct.
The first deficiency was that Farah had not sent to Say-Dee, or alerted it to the contents of, a copy of the Notice of Determination in which the Council said: "The subject site is considered too small to achieve its full development potential and return a positive urban design outcome." The second deficiency was that even if Say-Dee had been aware of those words, and even if a commonsense inference from the Council's view that the site was too small was that a larger site should be acquired, there had been no communication of an "additional dimension" – "a particular piece of information with respect to the Council's future attitude to any proposed development if No 11 was amalgamated with the adjoining properties, namely, that subject to achieving a positive urban design outcome, it would most likely be approved or, at least, recommended for approval."
The evidence. The trial judge did not make a positive finding accepting Mr Elias's evidence, advanced specifically only in cross-examination, that he told Say-Dee about the Council's view of the need for amalgamation. Nor did he make a positive finding that Mr Elias always left a copy of the Council's reports with Ms Dagher and Ms Elias. His finding that the Council's view of the need for amalgamation was not "in terms" conveyed to Say-Dee suggests a reluctance – perhaps a refusal – to make these positive findings. It is therefore necessary to leave out of account Mr Elias's evidence of disclosure save where Say-Dee did not put it in issue or it is otherwise confirmed. The following matters of evidence are relevant.
First, Say-Dee admitted and the trial judge found that Mr Elias told Ms Dagher and Ms Elias that the Council had rejected the first development application because it had too many units for No 11.
Secondly, there is positive evidence that by October 2002 Say-Dee understood that one way of overcoming the Council problem was to develop No 11 with adjoining land. In her first affidavit, Ms Dagher deposed that in a meeting in late October 2002, discussed more fully below[6], she said to Mr Elias in the presence of Ms Elias: "Why don't we do a development that is a bit smaller so the Council won't reject the development application?" She deposed that he replied: "It's not worth it." She deposed that she then said: "Then why don't we do a development with the building next door which you own?" – that is, with No 13. In her first affidavit, Ms Elias, apparently giving evidence about the same meeting, attributed to Ms Dagher the words: "Why don't we get together and do a big development with your other properties?" While in later affidavits each deponent retreated from parts of their evidence about this conversation, Ms Dagher continued to offer a version of the conversation consistent with an understanding that the development of adjoining properties with No 11 was a possibility. It should be inferred that Say-Dee knew of at least the real possibility that the Council would approve a development of No 11 in conjunction with No 13 and No 15. How could Say-Dee have got this knowledge unless Farah had made it available? Say-Dee offered no answer to that question.
[6]At [50]-[62].
Thirdly, Farah tendered a letter of 16 July 2001 which Mr Elias sent on its behalf to Say-Dee. The letter said:
"Over the past year or so we have regularly kept you informed of the current status of [No 11] ...
The management of the trust has now requiring [sic] critical attention due to the culmination of the following events:
•After several months of submissions to the Burwood Council and the State government the council has refused the current development application and we enclose copies of that correspondence. This process incurred a great deal of time and expense on our part with no foreseeable returns.
...
The situation is now more than urgent and we must come to some decision and arrangement in relation to the trust and the property without any further delays." (emphasis added)
There is no evidence of any contemporary protest by Say-Dee that it was untrue for Mr Elias to have said that for the past year he had regularly kept it informed. In his main affidavit Mr Elias gave evidence that at a meeting at his office in late August 2001 the following took place:
"I used the letter as an agenda for the meeting and ticked off each item as we discussed it ... We discussed the refusal of the Application from Council and agreed to resubmit a new plan with more commercial component."
There is a tick against the item in the 16 July 2001 letter referring to the enclosure of copies of correspondence with the Council. Had the full correspondence been enclosed, one of the enclosures would have been the Notice of Determination of 4 April 2001, for that was the operative document rejecting the first development application. It referred explicitly in par 6 to the Council's view of the need for amalgamation in the words "[t]he subject site is considered too small to achieve its full development potential".
Counsel for Say-Dee in this Court accepted that the Notice of Determination would have been an obvious thing to enclose. The enclosures referred to were not tendered and were not identified in evidence. Say-Dee did not object to the tender of the letter of 16 July 2001 on the ground that the enclosures were incomplete. Say-Dee did not cross-examine Mr Elias to suggest that he had failed to include the enclosures when he sent the letter. Neither Ms Dagher nor Ms Elias gave evidence to the effect that they protested about the correspondence not being enclosed, either after Say-Dee received the 16 July 2001 letter or at the meeting in late August 2001. Ms Dagher made a general denial of having received any indication before March 2003 that the Council had recommended that No 11 be amalgamated with adjoining properties for redevelopment. Ms Elias made a general denial of having received any indication before March 2003 that the Council had recommended that No 11 be amalgamated with adjoining properties for achievement of its maximum development potential. But neither Ms Dagher nor Ms Elias in terms denied receipt of either the Notice of Determination or the 16 July 2001 letter. They did not deny Mr Elias's account of the late August 2001 meeting at which the 16 July 2001 letter was used as an agenda.
Leaving aside questions of onus – whether Say-Dee, endeavouring to prove a breach of fiduciary duty, had to prove non-receipt of the Notice of Determination, or whether Farah, endeavouring to prove a proper disclosure, had to prove receipt – it is to be inferred that the Notice of Determination was sent to Say-Dee. When the contents of par 6 of the Notice of Determination are taken with the first and second factors mentioned above, they support an inference that Say-Dee understood par 6 to be a statement that No 11 had to be amalgamated with adjoining properties if it were to achieve its full development potential. Counsel for Say-Dee in this Court rightly agreed that a statement that the site of No 11 was too small to achieve its full development potential meant that there were only five possibilities: first, reduction of the planned development; secondly, acquisition of more land; thirdly, termination of the joint venture as unprofitable; fourthly, variation of the joint venture so as to use No 11 for income-making purposes such as rental; and, fifthly, sale of the land. In short, if the development were to proceed unchanged (ie leaving aside possibilities 1 and 3-5), it was necessary to acquire more land. It follows that Say-Dee's contention that par 6 of the Notice of Determination did not disclose the Council's view of the need to amalgamate properties must be rejected, because to anyone of any business experience – and the principals of Say-Dee had plenty of business experience – par 6 must have suggested that the development could only proceed unchanged if more land were acquired.
Fourthly, from Mr Elias's uncontradicted evidence that he "discussed the refusal" of the first development application by the Council with Ms Dagher and Ms Elias it is to be inferred that Say-Dee was aware not only of the fact that the Council had refused it, but also of why. It is difficult to believe, unless it went without saying, that in late August 2001, after the project had been on foot for three and a half years, but stalled for much of that time, with the interest paid out exceeding the rent received, and Say-Dee's other activities in financial difficulties[7], the representatives of Say-Dee would not have discussed with Mr Elias why the Council had refused the first development application and how the Council's attitude could be changed. The absence of evidence about any explicit conversation to this effect at the late August 2001 meeting suggests that the nature of the Council's attitude to amalgamation did go without saying. It went without saying because it was already known to the three people present. This is a further reason for inferring that the appreciation of the Say-Dee directors in late October 2002 of the desirability of amalgamation derives from their receipt of the Notice of Determination with the letter of 16 July 2001.
[7]See below at [78]-[83].
Did the Notice of Determination convey enough? It is necessary now to turn to the Court of Appeal's second point – that even if Mr Elias had caused Say-Dee to become aware of the Notice of Determination, that disclosure was insufficient. The Court of Appeal considered that Mr Elias should have told Say-Dee that the senior officers of the Council "were conveying or telegraphing" what it called "valuable information" and "vital intelligence" – that if No 11 were amalgamated with adjoining properties a development application in relation to No 11 "would most likely be approved or, at least, recommended for approval", or "would likely bear fruit".
There are several difficulties in this conclusion. The language of the Court of Appeal's judgment in many places relies on assumptions about planning law and dealings with Councils, of varying degrees of validity, if any. Mr Elias was certainly a property developer, but it is far from clear that he made, or indeed would have even thought of making, the assumptions which the Court of Appeal considered itself entitled to make and to attribute to him. Those assumptions, no doubt because they were mere assumptions on the part of the Court of Appeal, were little explored in cross-examination. The Court of Appeal said that the means by which the Council officers "were conveying or telegraphing" the "valuable information" and "vital intelligence" was the Council reports. But those documents, far from telegraphing that amalgamation would "most likely" bring success, were calculated only to create pessimism in the reader, for the Council officers conveyed a range of criticisms they had of the first development application. Further, what they were saying was imprecise. What did "maximise" mean? What did "development potential" mean? These deficiencies might have been overcome if Mr Elias had made some relevant admissions. But there was no evidence that Mr Elias perceived that Council officers "were conveying or telegraphing" any message of "most likely" success. The fact that no answer in cross-examination indicating that perception was given is not surprising, for the point on which the Court of Appeal relied was a point taken for the first time by that Court. It attributed the idea to the trial judge, but his was a different point, namely that the Council saw an amalgamation of sites as necessary for a development of the proposal – not sufficient. In any event, the trial judge only raised the point in two interventions during counsel for Farah's final address, by which time the evidence had closed.
It follows that Council officers were not communicating to Mr Elias any information about what conditions had to be satisfied to make success likely. All the Council officers were communicating was that one reason why the first development application had to be rejected was that No 11 was too narrow to maximise its development potential and that it should be amalgamated with the adjoining properties if that reason were to be nullified.
Even if Mr Elias did not convey that information "in terms", he did convey it "in substance and in effect" by enclosing the Notice of Determination with the letter of 16 July 2001 from Farah to Say-Dee.
Disclosure to Say-Dee about the possible development of No 13, No 15 or No 20: preliminary points
The problem for the courts below. It must be acknowledged that the mode in which the parties presented their evidentiary cases, both testimonial and documentary, created considerable difficulties for both the trial judge and the Court of Appeal. This was so on the last issue. It was particularly so on this one. These difficulties were compounded by the fact that it was in various respects probable that there would be disputes between the parties – once partners, now bitter opponents – about their oral dealings. The difficulties were compounded further by the fact that in some respects all three key witnesses were of questionable veracity and of questionable reliability. A reading of the evidence leaves an impression that the full story has not been told. For example, Say-Dee had put about $230,000 into the joint venture in 1998, generating opportunity costs but not income, the rents received from No 11 were not even matching mortgage interest repayments owing to the bank, and that $230,000 had uses elsewhere to assist those of Say-Dee's businesses which were not doing well[8], yet the evidence does not suggest any protests on the part of Say-Dee about the slow pace at which No 11 was being developed.
[8]See below at [78]-[83].
The Court of Appeal correctly reminded itself that it was not sufficient for it to conclude that had it been conducting the trial it would have come to a different conclusion from that to which the trial judge came. The Court of Appeal differed from the trial judge because it said it found his findings glaringly improbable and contrary to compelling inferences. The parties did not contend before this Court that that test was wrong. Hence there is no need to examine whether it is incorrect. The appellants' invitation to this Court to correct errors by the Court of Appeal thus calls for an examination of whether the findings were in truth glaringly improbable and contrary to compelling inferences. That in turn calls for an understanding of how the trial judge arrived at them.
The trial judge's reasoning. The trial judge accepted Mr Elias's evidence about his offers to Ms Dagher and Ms Elias. In outline, that evidence was that in May 2001 he met Ms Dagher, he told her he had been negotiating with the owners of No 15 and No 20, he asked whether she and Ms Elias were interested in those properties, and she said they were not. Further, Mr Elias's evidence was that in August 2002 he told Ms Dagher that No 13 was on the market and that No 13 was a good proposition for redevelopment with No 11, but that Ms Dagher declined participation on behalf of herself and Ms Elias. Consistently with his acceptance of Mr Elias's evidence, the trial judge made positive findings that Mr Elias had disclosed to Say-Dee the proposed acquisitions of No 13 and No 15, that he had invited Say-Dee to participate, and that his invitation was declined.
The trial judge's reasons for his findings were that he considered the evidence of Ms Dagher and Ms Elias about how and when they learned of the acquisitions of No 13 and No 15 to be unsatisfactory; that Mr Elias found great difficulty in raising money to acquire No 13 and No 15; that it was inherently probable that he would seek funds from Say-Dee for that purpose; that it was inherently probable that Say-Dee would have declined because of financial inability to participate; and that despite Mr Elias's offer to Say-Dee to buy No 11 on the false representation that he was a consultant to a would-be purchaser of No 11 when in fact he controlled that would-be purchaser, which was "certainly not excusable", he was "an essentially truthful witness".
The Court of Appeal accepted that, had Say-Dee been asked to participate, it would have declined because of financial incapacity. It also accepted that the evidence of Ms Dagher and Ms Elias was unsatisfactory, although the Court of Appeal gave this much less significance than the trial judge had. However, the Court of Appeal rejected or discounted every other aspect of the trial judge's reasoning. It is convenient to proceed by setting out various errors in the Court of Appeal's approach and then examining what force its reasoning has when those errors are taken into account.
Disclosure to Say-Dee about the possible development of No 13, No 15 or No 20: errors by the Court of Appeal
Demeanour-based findings. The trial judge gave several reasons for describing Mr Elias as "an essentially truthful witness". One of the reasons was the "impression" gained by the trial judge that under cross-examination Mr Elias "was making an honest endeavour to give his answers truthfully and carefully". Another was that he "remained unshaken in the essentials of his evidence although he was not very assertive in manner". Another was that some apparent contradictions were to be explained by "ambiguity and confusion" in Mr Elias's answers, arising from the fact that English is not his first language "and he sometimes expresses himself in a way that is not idiomatic, particularly in his use of tenses and moods". Decisions as to credibility are often based upon matters of impression[9], and in this case rightly so. The impressions which the trial judge formed and the judgments he made about Mr Elias's manner are matters in respect of which the trial judge was in a position of distinct advantage over the Court of Appeal. The same is true to some extent of the trial judge's assessments of Mr Elias's English skills, although his abilities in that regard can be detected up to a point from the transcript. These impressions, judgments and assessments were recorded in a judgment delivered one working day after the trial judge had seen and heard Mr Elias in the witness box for nearly a day. They must be accorded due weight. This the Court of Appeal did not do. It uttered the truism that its reversal of the trial judge's finding was "not demeanour based", but failed to grapple with the fact that, in contrast, his finding was demeanour based.
[9]Re Refugee Review Tribunal; Ex parte Aala (2000) 204 CLR 82 at 88-89 [4] per Gleeson CJ.
The Court of Appeal to some extent, and the respondent to a greater extent, relied on inconsistencies in Mr Elias's evidence. The trial judge said that counsel for the respondent had pointed to apparent contradictions in Mr Elias's evidence, and these were no doubt the same as those relied on in the Court of Appeal and this Court. The trial judge said he had not overlooked the submission. There is thus no reason to suppose that the trial judge was not aware of the contradictions or that he did not take them into account in reaching his generally favourable conclusion about Mr Elias's credibility. To the extent that they exist they do not justify a reversal of that generally favourable conclusion. Furthermore, the matters earlier referred to in this judgment, the parties' business experience, the opportunity and likelihood of the respondent making its own informed inquiries and judgment about the possibilities and economies of the proposed and other possible developments, give objective support to Mr Elias's evidence.
Contradictions in the Say-Dee affidavits. In the amended cross-claim, Say-Dee alleged that No 13 and No 15 were transferred on the dates on which they were transferred, but did not allege that Say-Dee was ignorant of those transfers. In the defence to cross-claim, Farah admitted these transfers, but did not allege that Say-Dee had been made aware of those transfers before they were made. The first affidavit to be filed after the cross-claim had been filed was Ms Dagher's first affidavit, dated 18 June 2003. In par 26 of that affidavit she admitted that in mid-to late 2002, Mr Elias said to Ms Elias and to her: "I'm buying some other property in the area"; however, she also said: "Mr Elias never told me or [Ms Elias] in my presence which properties he was purchasing or any details of the purchase. He never offered myself [sic] to become involved in the purchase." Ms Dagher's evidence that Mr Elias never told her what properties he purchased was contradicted by her evidence in the same affidavit, pars 30-33, that in late October 2002 the following conversation took place. Mr Elias said: "What we have been waiting for has finally come through. I've been approached by a group of people wanting to buy the Property." Ms Dagher said: "Why would we want to sell the Property rather than develop it ourselves?" Mr Elias responded: "We have already submitted two development applications to the Council and they have both been rejected." Ms Dagher said: "Why don't we do a development that is a bit smaller so the Council won't reject the development application?" Mr Elias said: "It's not worth it." Ms Dagher said: "Then why don't we do a development with the building next door which you own?"
The attribution by Ms Dagher to herself of the last statement involves an assertion of knowledge by Ms Dagher in late October 2002 that Mr Elias by then owned No 13 – the only relevant building next door to No 11, since No 9 was a large and modern building not for sale, and Mr Elias did not own No 18. There is no evidentiary basis on which it can be inferred that Ms Dagher obtained the knowledge that Mr Elias owned No 13 from any source other than Mr Elias. The proposition deposed to by Ms Dagher in this affidavit that Mr Elias had never told her what properties he was purchasing is thus inconsistent with what she deposed to later in the affidavit – that she had reminded Mr Elias that he owned No 13. As the trial judge said, "there is no suggestion in this affidavit that it was at this meeting that Mr Elias had disclosed for the first time that his interests had acquired No 13".
In an affidavit dated 19 February 2004, Mr Elias denied parts of these paragraphs of Ms Dagher's affidavit, but not the statement implying that he owned No 13. Mr Elias deposed to the fact that he told Ms Dagher of his impending purchase of No 15 in 2001 and No 13 in 2002 and that he offered Say-Dee participation, but Ms Dagher refused.
In her affidavit of 17 June 2004, Ms Dagher gave another version of what appears to be the same conversation as the late October 2002 conversation set out above. On this version, Mr Elias said: "There is a buyer for Deane Street." Ms Dagher said: "Why are we selling, I thought the plan was to develop the site?" Mr Elias said: "No, I want to sell out. I'm going to sell all my other properties in the area as well." Ms Elias said to Mr Elias: "What other properties do you own in the area?" Mr Elias said: "Next door to 11 and next door to that." Ms Elias said: "Well, why aren't we building together?" Mr Elias replied: "It's to [sic] big even for me, I'm also selling all my properties." Ms Elias said: "If you are a developer and you own them all why don't you develop?" Mr Elias replied: "It's to [sic] big and I don't want to build."
The trial judge said[10]:
"It will be seen that in the first version of this conversation Ms Dagher suggests a joint development with Nos 11 and 13 and Mr Elias counters with the statement that he is selling his properties. In the second version, Mr Elias says that he is selling his properties and Ms Elias asks what those properties are, to be told that they are Nos 13 and 15.
The inconsistency is a significant one. If the first version is correct, Ms Dagher knew of the acquisition of Nos 13 and 15 before October 2002 and found out about the acquisition in circumstances which she did not explain in her first affidavit, which would leave unchallenged the evidence of Mr Elias in his affidavit that he had told her before the proposed acquisitions were made. In Ms Dagher's second version of the conversation, she seeks to explain that she found out about the acquisition of the properties after they had already been acquired by Mr Elias' interests, by an enquiry made during the course of the October conversation."
[10]Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2004] NSWSC 800 at [41]-[42].
The contradiction in Ms Dagher's first affidavit, and her change of evidence in the second affidavit, created potential difficulties in the path of accepting her evidence so far as it was adverse to Farah, unless the contradiction and the change were explained. It is possible to imagine various ways in which the problem might have been explained, but no attempt to do so was ever made by the witness. In the Court of Appeal counsel for Say-Dee attempted an explanation by contending that the account of the conversation in Ms Dagher's first affidavit was expanded in her second affidavit, but the Court of Appeal rightly rejected that explanation as lacking any basis.
The difficulties were increased by the course which Ms Elias's affidavit evidence took. In her first affidavit, dated 19 June 2003, the day after the date of Ms Dagher's first affidavit, she said in par 29, in words closely corresponding with those in par 26 of Ms Dagher's first affidavit, that Mr Elias said to her and Ms Dagher: "I'm buying some other property in the area." She then deposed: "Mr Elias never told me or Dagher in my presence which properties he was purchasing or any details of the purchase. He never offered Dagher or myself to become involved in the purchase." In par 30 she contradicted this in the version she gave of the conversation dealt with in par 33 of Ms Dagher's first affidavit. After describing how Mr Elias rejected an offer to buy No 11 for $1.5 million, the affidavit continued as follows: Ms Dagher said: "We have told you several times that we want to develop the property rather than sell it." Mr Elias said: "I've tried to get the development application through the council but we can't get anywhere and I think we are wasting our time." Ms Dagher said: "Maybe you are aiming to [sic] high and we need to cut down on the number of units on the property." Mr Elias said: "I think we are wasting our time and I am going to sell my other properties as well." Ms Dagher said: "We don't want to sell, we really want to develop this property and think it would be a really great site. Why don't we get together and do a big development with your other properties?"
The words attributed by Ms Elias to Ms Dagher: "do a big development with your other properties" can only be a reference to No 13, No 15 and perhaps No 20. They were the only properties "owned" by Mr Elias which were capable of forming part of a "big development" with No 11. As the trial judge said, Ms Elias's affidavit does not suggest that she heard at the meeting for the first time that Mr Elias had acquired No 13 and No 15. Ms Elias did not record herself as denying any prior knowledge of Mr Elias's ownership of No 13 and No 15. Indeed she recorded the conclusion of the conversation as follows. Mr Elias said: "That sort of development would be out of my league. I think the best option is just to sell up." Ms Elias said: "We really want to develop this. We didn't buy the property and wait around for so many years just to sell it again, we are really keen to do this development."
Ms Elias returned to the subject of this conversation in her third affidavit dated 16 August 2004. Her version was as follows. Mr Elias said: "I have a buyer for 11 Deane St. I've got a great price of $1.5 million." Ms Elias said: "We don't want to sell out, I thought we were supposed to be developing the site." Mr Elias said: "I'm selling out all my properties too, the development in the area is too big for me to handle on my own." Ms Elias said: "What other properties do you mean? What else do you own?" Mr Elias said: "13 and 15 Deane Street."
The position thus is that in Ms Elias's first affidavit, as in Ms Dagher's, there is a contradiction; as between Ms Elias's first and third affidavits, as with Ms Dagher's first and second affidavits, there is a similar contradiction; and Ms Elias did not explain these contradictions any more than Ms Dagher did. As counsel for the appellant said: "[T]hey seemed to be somewhat consistent in their inconsistencies." The problems having emerged on the face of the affidavits, it was for the witnesses to take the initiative in explaining them. There was no duty on Farah to elicit explanations in cross-examination, and it did not seek to do so.
The Court of Appeal pointed out – and it seems to have thought the error to be important since it referred to it twice – that the trial judge erred in suggesting that in Ms Dagher's first version of the relevant conversation she revealed knowledge that Mr Elias had bought No 15, and that in truth she only revealed knowledge that he had bought No 13. This is an unimportant error, since Ms Elias's first version of the conversation attributes to Ms Dagher knowledge that Mr Elias had bought both No 15 and No 13 and implicitly accepts that she possessed that knowledge herself. The Court of Appeal said of Ms Elias's evidence[11]:
"His Honour's conclusion ... was that by October 2002, [Ms Elias] already knew that Mr Elias and his interests owned Nos 13 and 15. But even if that finding applied to both [Ms Elias] and [Ms Dagher], it did not warrant a finding that, on or prior to 30 June 2001 and, in particular, in May 2001, they had been made aware by Mr Elias that he was negotiating to purchase No 15."
It is plain from the terms of Ms Elias's evidence that her knowledge that Mr Elias's interests owned both No 13 and No 15 was shared by Ms Dagher. And while the evidence standing alone might not warrant the trial judge's conclusion that Say-Dee was aware of the purchase of No 15 in May 2001, it tends to support that conclusion – for Say-Dee never suggested any means by which its principals learned of the purchase of No 15 other than by being told by Mr Elias, and they never suggested any time at which they learned it other than May 2001.
A related error of the Court of Appeal is that while it accepted that Ms Dagher's versions of the October 2002 conversation were "inconsistent in a relevant respect", they thought this only left her evidence in an unsatisfactory state. This overlooks the equivalent inconsistency in Ms Elias's evidence. It overlooks the fact that the first versions in each case were advanced at the same time, and that the second versions in each case were advanced only about two months apart. It overlooks the fact that the inconsistencies support Mr Elias's claim that he told the Say-Dee principals about his acquisition of No 13 and No 15 at some time before the October 2002 conversation, and the fact that Say-Dee never excluded May 2001 for No 15 and August 2002 for No 13 as the times when he told them.
For Ms Dagher to contradict herself in an unexplained way is a circumstance to which suspicion could attach. For Ms Elias to have done so in evidence which is the same in substance as that of Ms Dagher, though varying in details, is highly suspicious. The trial judge was entitled to give preference to the admissions they made in their affidavits over the self-serving statements in them. The Court of Appeal never explained why it could be said that the trial judge had erred in this process. It failed to integrate into its reasoning an explanation for the damaging statements in Ms Dagher's and Ms Elias's first affidavits. Whether convincingly or not, it narrowed the inconsistency by excluding No 15 from its ambit, but it never dealt with the continuing inconsistency in relation to No 13.
Acquisition of No 15 and No 20. The Court of Appeal also made numerous suggestions that there was something sinister about the acquisition of No 15 "in one line or as a package" with No 20, instead of by itself.
Thus the Court of Appeal asserted that No 15 was an "adjoining or adjacent property to No 11 for the purpose of site amalgamation as contemplated by the Council", but that No 20 was not. Both limbs of this proposition must be rejected. For so long a time as No 13 was not in the hands of anyone connected with the joint venture, it was in no sense "adjoining or adjacent": the only properties answering that description were No 9 or No 18. And if No 15 was adjoining or adjacent to No 11, No 20 was as well, because it adjoined No 15.
Then the Court of Appeal appeared to question whether No 20 had to be bought with No 15. It also criticised Mr Elias's failure to suggest to Say-Dee that it consider "joining in the acquisition of No 15 alone, there being no suggestion by Mr Elias that there was any necessity for them also to be involved in the purchase of No 20". This was coupled with criticisms of Mr Elias for failing to explain why the acquisition of No 15 was desirable, namely Council's requirement for an amalgamated development. As to the last point, once it is accepted that Say-Dee was informed of the Council's attitude by receipt of the Notice of Determination, it was unnecessary for Mr Elias to repeat that information. As to the other points, the acquisition of No 15 by interests associated with Mr Elias owes its origin to an approach by Mr Elias in early 2001 to a real estate agent who controlled the company owning it. Number 15 was not then listed for sale. It was only available for purchase as a package, the owners being companies in common control. To criticise Mr Elias for not explaining the possibility of making an offer on No 15 alone is thus to criticise him for failing to suggest a futility.
Acquisition of No 13. The Court of Appeal criticised Mr Elias for failing to tell Say-Dee that the real reason for why No 13 was, as on his evidence he said it was, "a good proposition for redevelopment in conjunction with" No 11 was the Council's requirement that No 11 be amalgamated with No 13 or No 13 and No 15 together. But the Notice of Determination had already conveyed that information to Say-Dee. A curious feature of the Court of Appeal's reasoning emerges at this point: while it later overturned the trial judge's finding that Mr Elias had offered No 13 to Say-Dee, in this part of the reasoning it treats it as correct, saying rather that Mr Elias chose the words just quoted "carefully".
Another illustration of this approach to the trial judge's findings – seemingly accepting them at one point to reach a conclusion adverse to Mr Elias but rejecting them at another point to reach a different conclusion adverse to Mr Elias – exists. The Court of Appeal said: "[I]t is difficult to accept that Mr Elias acquired Nos 13 and 15 otherwise than for the purpose of their ultimate amalgamation with No 11 in order to maximise the development potential of the latter...". It then said that the trial judge made an implicit finding to this effect[12]:
"[I]nherent in his Honour's acceptance that Mr Elias disclosed to [Ms Dagher] and [Ms Elias] his proposed acquisition of Nos 13 and 15 and invited their participation in the acquisition of those properties, and his finding ... that the properties were obviously suitable for an amalgamated development with No 11 so that it was inherently probable that Mr Elias would have asked [Ms Dagher] and [Ms Elias] if they were interested in acquiring them, is an implicit finding that No 15, and later No 13, were in fact acquired by Mr Elias to facilitate the redevelopment of No 11."
The starting point in this reasoning is a finding by the trial judge, evidently accepted by the Court of Appeal, that Mr Elias disclosed his proposed acquisitions; that is a finding elsewhere overturned by the Court of Appeal.
Apart from these criticisms, the Court of Appeal also relied on what it saw as inconsistencies in Mr Elias's cross-examination. However, the Court of Appeal overlooked the significance of the following facts. In 1998-1999 Mr Elias made several approaches to the owner of No 13 to sell. The response was: "Don't contact me. When I'm ready to sell I will sell." Nothing more happened until August 2002, when Mr Becherra, who was a real estate agent, told Mr Elias that No 13 had been offered for sale. There is no evidence that at the time Mr Elias approached the owner of No 15 he was aware of any possibility of acquiring No 13 either then or in the future, whatever he hoped.
Mr Elias's financial difficulties. Another group of criticisms made by the Court of Appeal relates to the following finding of the trial judge[13]:
"I find it inherently probable that Mr Elias would have asked Ms Dagher and Ms Elias if they were interested in acquiring Nos 13 and 15. His unchallenged evidence was that he found great difficulty in raising the money for these acquisitions."
In relation to the acquisition of No 13 in 2002, the Court of Appeal dealt with that finding principally by contending that "in neither his affidavit nor oral evidence is there a reference to any suggestion that he was seeking [Say-Dee's] interest in [No 15 and No 20] because he was finding difficulty in raising the purchase price." The Court of Appeal contended that the trial judge's proposition about Mr Elias's financial difficulties was based on only one piece of evidence; that that piece of evidence did not in fact support the proposition, because the trial judge misunderstood it; and hence that there was no evidence to support the trial judge's finding. In this there are three difficulties. One difficulty is that it is not the trial judge who misunderstood the evidence to which the Court of Appeal referred. The second difficulty is that the trial judge did not base his proposition only on that piece of evidence. The third difficulty is that the Court of Appeal overlooked two other pieces of evidence.
The evidence which the Court of Appeal said the trial judge misunderstood consists of the following part of one of Mr Elias's affidavits, which appears after he described how Ms Dagher told him, on his inviting Say-Dee's participation in buying No 13, that it could not do so because of the financial difficulties she and Ms Elias were experiencing. Mr Elias deposed that he said: "Dalida, it will be difficult for me to do it on my own. We should do it together. We must ...". Ms Dagher replied: "We can't do anything now George." Mr Elias said: "That's OK. I'll have to make other arrangements on my own then."
The Court of Appeal said that the trial judge's proposition about Mr Elias's financial difficulties was based, and only based, on the words he used to Ms Dagher in 2002 in relation to buying No 13: "[I]t will be difficult for me to do it on my own." The Court of Appeal then said that the words "It will be difficult for me to do it on my own" did not refer to Mr Elias's financial difficulties but to the difficulties of developing No 13 otherwise than in conjunction with No 11. They said[14]:
"This follows from the immediately preceding statement ... of his affidavit where he attributed to [Ms Dagher's] lack of interest in more investment, a statement by her that Mr Elias should buy No 13 and that, if it was later developed with No 11, she and [Ms Elias] 'can take a space equivalent to our space in 11 Deane Street'." (emphasis in original judgment)
That "immediately preceding statement" appears in the middle of a detailed account by Ms Dagher of Say-Dee's financial difficulties. Farah submitted that: "It takes quite a feat ... of mental gymnastics to get oneself into a situation of disagreeing with the trial judge on that particular aspect of the evidence." It is not necessary to go so far. It is sufficient to say that the Court of Appeal's reading of the evidence is not the better reading, and that the passage does in truth support the trial judge's proposition.
The Court of Appeal also erred in saying that the trial judge's proposition about Mr Elias's financial difficulties was only based on the words "It will be difficult for me to do it on my own." The trial judge did not say that that was his only source, and there are two other categories of evidence that support it. One relates to the acquisition of No 15 and No 20. In cross-examination it was put to Mr Elias that the children made no contribution to the purchase price of their units. He said:
"As the little contribution they've made from their little savings they've got but the most emphasis was on that, that was my wife's decision. When we purchased these properties we had to mortgage the house, withdraw every single cent possible on the house in my wife's name. We had to save – get all the saving from our accounts, from my wife's account. We had to borrow money from my brother. We had to borrow any dollar we could possibly get to really secure these properties and my wife had – I had a discussion with her and she made it quite clear if you ever want to use this sort of money, my house, I want to make sure it would be for the benefit of my daughters and I had a lot of discussion with her. Most time I try to convince her and that was the discussion I had, me and her."
That is, the sources of the funds with which No 15 and No 20 were acquired were his children's savings, his wife's savings, a bank mortgage and a loan from his brother. Say-Dee accepted that the evidence showed that Mr Elias gave a mortgage on the family home which was either in Mrs Elias's name or joint names. Say-Dee said that the evidence was objectionable because it gave secondary evidence of documents and was not responsive to the question. The fact is that it was not objected to, it was received as evidence, and it invalidates the Court of Appeal's statement that there was no evidence of Mr Elias's financial difficulties. Mr Elias was not cross-examined on that evidence, and at a later stage the cross-examiner referred him to it as though it was not controversial. Although the Court of Appeal overlooked this evidence on the present point, it dealt with it on another issue, and although it found the evidence vague, it did not reject it[15]. Indeed the Court of Appeal held that it was reasonable to assume that Mrs Elias gave a personal guarantee for the repayment of the sum loaned by the bank in relation to No 15. Say-Dee accepted in this Court that the mortgage would have contained a personal covenant by Mrs Elias to repay the debt.
Say-Dee submitted that it was implicit in the evidence that the financial contribution of the daughters was de minimis, and that there was no positive evidence that it was any more. There is no reason to suppose that it was de minimis.
At a very late stage in the course of oral argument, Say-Dee challenged the evidence of Mr Elias set out above by reference to evidence which had only been tendered in late 2006, in connection with the variation of orders made by the Court of Appeal on 28 November 2006. The challenge made in oral argument turned on inconsequential points, such as which bank was the lender, and whether the loan was to Mr Elias's group of companies or not. However, a much more detailed challenge was made by Say-Dee in written submissions filed on 22 December 2006. Say-Dee contended that the material filed in relation to the variation of orders "raises real doubt about the reliability of the evidence given by Mr Elias ... It further fortifies the correctness of the [Court of Appeal's] decision to overturn relevant factual findings of the trial judge." Say-Dee contended that while Mrs Elias contributed to the acquisition of No 15, the children did not, and the Elias family home was not mortgaged. The appellants have had no opportunity to deal with Say-Dee's submissions about this evidentiary material. It is accordingly difficult to accept them without question. In particular, it cannot be concluded that the sum of $241,794, which came from a joint account in the names of Mr and Mrs Elias and was used to pay some of the purchase price, did not include contributions from the daughters. What is more, because this evidentiary material was only tendered in order to obtain the amendments to the orders made on 28 November 2006, it was not before the Court of Appeal at the time of its first judgment on 15 September 2005. The position thus remains that the Court of Appeal's account of the evidence before it on the question of whether Mr Elias was in financial difficulty is incorrect. In addition, the new evidence was not before the trial judge. No more can be expected of factual findings by a trial judge than that they conform to the evidence tendered before that judge, as distinct from other evidence never tendered before him.
There is a further difficulty with the new evidence. In oral argument, when counsel for the respondent indicated reluctance to rely on the new material unless counsel for the appellants did not object, there was no objection. However, the respondent's written submissions of 22 December 2006 were of a different kind from the oral submissions. It cannot be inferred from the appellants' failure to object to the use of the new evidence to support inconsequential oral submissions that the appellants have waived objection to its use to support much more detailed and radical written submissions. The leave which this Court granted to the respondent to file the written submissions of 22 December 2006 related to the second appeal heard by this Court (which is against the orders of 28 November 2006). It did not relate to the first appeal (which is against the orders resulting from the reasoning in the Court of Appeal's first judgment). The leave granted was leave to file and exchange submissions on "the merits of that most recent order [that of 28 November 2006] as distinct from the consequences for that order of any success [the appellants] might enjoy in the [first] appeal." The smaller part of the respondent's submissions of 22 December 2006 is directed to the second appeal. The larger part of them is directed to the first appeal and, in particular, to the question of how the acquisition of No 15 was funded. So far as the written submissions of 22 December 2006 dealt with the question of how the purchase of No 15 was funded in relation to the correctness of the Court of Appeal's first judgment, they go beyond the leave granted.
In these circumstances the respondent's submissions of 22 December 2006 on how the purchase of No 15 was funded will not be considered further, for four reasons. They depart radically from the conduct of the case at trial. They go far beyond what was canvassed in oral argument. No leave to file them was granted. The appellants have not had any opportunity to deal with them either by objection or rebuttal, since their submissions filed pursuant to leave by this Court were filed on 21 December 2006, one day before those of the respondent.
The other category of evidence supporting the trial judge's proposition that Mr Elias had difficulty in funding the acquisitions on his own relates to No 13. The price for No 13 was $1,680,800. As the respondent accepted, Mr Elias borrowed the money from St George Bank, giving personal and company guarantees. The need to have resort to these borrowings reveals Mr Elias's incapacity to fund the purchase by himself. Indeed if he had difficulties in funding the purchase of No 15 in 2001, there is no reason to suppose that they would not have existed in relation to No 13 in 2002.
Say-Dee's financial difficulties. A further criticism by the Court of Appeal relates to the trial judge's opinion that Say-Dee's financial difficulties made it probable that had Ms Dagher and Ms Elias been invited to participate in the acquisitions of No 13 and No 15 they would have declined. It was put thus by Tobias JA[16]:
"I can accept [the trial judge's] conclusion that if [Ms Dagher] and/or [Ms Elias] had been asked to participate in those acquisitions, they would have declined for financial reasons. But it does not necessarily follow that his Honour was correct in finding that they were so asked: their financial difficulties may have been imparted by them to Mr Elias at different times and in different contexts. After all, it was common ground that they met up for coffee at Burwood on numerous occasions during the relevant period."
The relevant affidavit of Mr Elias deposed that his invitation to participate in the acquisition of No 13 was extended in a meeting in August 2002, and that it was declined by Ms Dagher in the following words:
"George, we are not in a position to purchase any thing at this time. We currently have financial difficulties. We are having problems with Westfield our business landlord at the Miranda centre. It looks as though we could loose [sic] $350,000.00. Our business is in a lot of trouble. I am not interested in more investment. You buy it and if we can later develop it with 11 Deane Street, we can take a space equivalent to our space in 11 Deane Street. Otherwise if we get a good price for our property we will consider selling it. It is too much pressure on us at this point of time."
Miss Dagher responded to this part of Mr Elias's affidavit thus:
"I ... say that the meeting referred to by Mr Elias ... never took place. I further say that the reason that Sadie Elias and I gave up our business in Miranda was that the lease on the premises had expired and we did not wish to renew it."
In cross-examination Ms Dagher made concessions which the trial judge said, very mildly, revealed her affidavit to have been "less than frank and forthcoming". He summarised them as follows[17]:
"Say-Dee had purchased a café business at Miranda in April 1999 for $285,000, $245,000 of which was apportioned to goodwill. The rent for the premises was $193,500 and the lease was to expire on 2 August 2000.
Ms Dagher conceded that the Miranda café business proved very uneconomic and that it would have been very difficult to make the business profitable if the lease had been renewed. She conceded that Say-Dee was not able to sell the goodwill of the business and that by August 2002 it had lost its investment of $285,000 in the business."
In cross-examination she said the rent was to increase "dramatically"; in re-examination she said it was close to a 10 per cent increase. The trial judge added the following further findings[18]:
"Further, in March 2000 Ms Dagher had sold her interest in a restaurant business called 'Italian Flavour'. Ms Dagher conceded that that business had not been doing well. As at the date of sale, there were arrears of rent and interest amounting to just over $31,000.
The income tax returns of Ms Dagher and Ms Elias for the years ended 30 June 2000, 2001 and 2002 disclose that neither received a substantial income in those years."
The trial judge said that the evidence on which these findings were based was consistent with Mr Elias's account of the August 2002 conversation.
[17]Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2004] NSWSC 800 at [49]-[50].
[18]Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2004] NSWSC 800 at [51]-[52].
During the hearing of the appeal to this Court, counsel for Say-Dee handed up a large schedule of evidence about the supposed financial ability of Say-Dee to have acquired No 13 and No 15 had Mr Elias offered them, and its willingness to do so. That "ability" depended on the employment of the personal assets of Ms Dagher, which included two blocks of land, a 50 per cent shareholding in Pacific Islands Express Pty Ltd, a 50 per cent shareholding in Teilwar Pty Ltd and an undefined non-shareholding interest in Dagher A Family Company Pty Ltd. The purchase price of No 15 and No 20 was $2,060,000 and the purchase price of No 13 was $1,680,800. Half of that total of $3,740,800 is $1,870,400. Half the purchase price of No 13 ($1,680,800) and No 15 ($1,080,000) is $1,380,400. Ms Dagher gave evidence that she "would ... have put forward [her] own personal assets in order to fund the purchase of half the equity in" No 13 and No 15. One of the blocks of land Ms Dagher owned was valued at $485,000 in 2001 and the other one was valued at $500,000 in 2003. In November 2001 the amount owing on the loans secured by mortgage on those properties was about $172,000. There was thus some equity to support further borrowings although Ms Dagher's capacity to service them was not clear. Ms Dagher also said in evidence that so far as she was a director of companies she would have voted to utilise their resources to assist in purchasing No 13 and No 15. Mr Dagher, who was Ms Dagher's business partner and former husband, said:
"At all times since 1998 to the present I have been prepared to exercise my rights as a director of and shareholder in each of the Companies to assist Dalida Dagher and Say-Dee Pty Limited in purchasing 50% of each of [No 13 and No 15] and would have exercised my rights to have the Companies assist in the purchase of the Properties had they been offered to Ms Dagher or Say-Dee Pty Limited."
This is a rather contrived piece of evidence, since No 15 was not for sale in the period 1998 to early 2001, and No 13 was not for sale in the period 1998 to mid 2002. The "Companies" to which he referred are the three just mentioned. There was conflicting evidence about whether Ms Dagher was a director of Pacific Islands Express Pty Ltd[19], but in 2002 it had a net worth of $52,767, while in 2001 it had a net deficiency of assets of $155,774. Mr Dagher explained this by saying that the assets were recorded at book value, not market value. But the assets were certainly heavily encumbered. While in 2002 it made $208,541 after income tax, in 2001 it lost $79,327. Ms Dagher was a director of Teilwar Pty Ltd. It had substantial assets. In 2001 it made a post tax profit of $19,363 and in 2002 $264,652. Ms Dagher was not a director of Dagher A Family Company Pty Ltd. In 2001 it had assets of $10,881 and in 2002 assets of $43,758. In 2001 its post tax profit was $25,221 and in 2002 $32,877.
[19]See below at [85].
The submission by Say-Dee as to the reformulation of the second limb of Barnes v Addy having been rejected, Mrs Elias and her daughters are not liable under the second limb of Barnes v Addy. This is for the following reasons.
First, even if, contrary to the conclusion stated above, the disclosures found to have been made by Mr Elias did not constitute full disclosure sufficient to make the consent by Say-Dee to the acquisitions of Nos 13 and 15 informed consents, that dereliction of duty is insufficient to merit the description "dishonest and fraudulent". That is so particularly because a man like Mr Elias might not necessarily appreciate the difference between saying that No 13 "is a good proposition for redevelopment in conjunction with" No 11 and saying that the view of the Council was that the only way No 11 could be redeveloped so to as to achieve its full development potential was to redevelop it with No 13. There is a difference, but the failure to appreciate it is not necessarily "dishonest and fraudulent". Secondly, even if Mr Elias's conduct amounted to a dishonest and fraudulent design, there is no evidence that Mrs Elias and her daughters had any sufficient notice or knowledge of it.
Tracing
Another ground on which, according to Say-Dee, the Court of Appeal ought to have found in its favour depended on tracing. It submitted that the units in No 15 represented profits from a breach of fiduciary duty, and belonged in equity to Say-Dee. It submitted that Mrs Elias and her daughters were volunteers. It submitted that if they received the units knowing of the breach of duty, their consciences were affected from the moment of receipt of the units. Otherwise, their consciences were affected when they learned that the property belonged in equity to Say-Dee.
This argument founders on the fact that Mrs Elias and her daughters were not volunteers. It is unnecessary to consider whether there are any other difficulties with it. Mrs Elias and her daughters were not volunteers because on the evidence before the trial judge and the Court of Appeal at the time of its judgment dated 15 September 2005, Mrs Elias and her daughters were purchasers of their units in the sense that Mrs Elias provided money, the children provided money, property belonging to Mrs Elias was mortgaged and Mrs Elias entered a personal covenant to repay the debt. For reasons given earlier, that evidence should be accepted[170]. The Court of Appeal, however, in a different context, said[171]: "[T]he mere acceptance of personal covenants to repay a mortgage advance in the present circumstances is not to be treated as a provision by Mr and Mrs Elias of their own monies". For that three cases were cited[172]. Those cases deal with matters quite distinct from the bona fide purchaser doctrine, and are distinguishable. In the first, Paul A Davies (Australia) Pty Ltd (in liq) v Davies[173], the question was whether property acquired partly by a company's money and partly by money borrowed by its directors from a bank should be held on constructive trust entirely for the company or treated as a mixed fund. The former conclusion was adopted, but the issue here is quite different: no money and no other property of the joint venture was used to acquire No 15; rather the acquisition was funded, apart from whatever Mr Elias provided, partly by cash from Mrs Elias and the children and partly by bank loans secured over distinct property not owned by the joint venture. The second, Hagan v Waterhouse[174], concerned the question of whether, where property in which trustees had a two-thirds interest and beneficiaries a one-third interest had been mortgaged to benefit a profitable bookmaking business, the whole profit could be retained by the business. Kearney J held that it could not, but, again, here the property over which the mortgage was given by Mrs Elias was not property of the joint venture. The third case, Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd[175], held only that the fact that a person who had obtained a lease of a shop in breach of fiduciary duty had operated the business alone for some time did not deprive the plaintiff of any remedy, it merely merited an order for just allowances. In any event, even if Mrs Elias's personal covenant to repay a mortgage advance is not to be treated as a provision of her own monies, the uncontradicted evidence before the trial judge was that, like her daughters, she provided monies of her own.
[170]See above at [72]-[75].
[172]Paul A Davies (Australia) Pty Ltd (in liq) v Davies [1983] 1 NSWLR 440 at 455; Hagan v Waterhouse (1991) 34 NSWLR 308 at 355; Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1998] 2 Qd R 1 at 12.
[173][1983] 1 NSWLR 440.
[174](1991) 34 NSWLR 308.
[175][1988] 2 Qd R 1.
The duty of Mrs Elias and her daughters in equity to account for profits
A further basis on which Say-Dee contended that the Court of Appeal's conclusions could be supported lies in the submission that Mrs Elias and her daughters were liable to account for profits made as a result of their acquisition of the units. Leaving aside extreme doubts about the existence of any profits, the argument must fail, since Mrs Elias and her daughters were not mere volunteers, but provided consideration for the acquisition of their units and had no notice of any breach of fiduciary duty[176].
Indefeasibility[177]
[176]See above at [100] and [123]-[129].
[177]This was evidently not relied on in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373, for although it is likely that the land involved was Torrens land, nothing is said about indefeasibility.
The Court of Appeal's reasoning. The four units in the names of Mr Elias and his family in No 15 are land held under the Real Property Act. So is No 13, in the name of Lesmint. Subject to irrelevant exceptions, s 42(1) of that Act provides:
"Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded ...".
According to the Court of Appeal, it was contended that s 42(1) enabled Mrs Elias and her daughters to take upon registration an estate free of any claim by Say-Dee to their units, and that the fraud exception did not apply. Beyond recording a submission by Say-Dee that this point had not been the subject of any pleading or submission to the trial judge, the Court of Appeal did not deal with the fraud point. The Court of Appeal went on[178]:
"However, the principle of immediate indefeasibility from registration is subject to any personal obligation by which the registered proprietor might be forced in personam to deal with the registered title in some particular manner."
The Court of Appeal quoted Frazer v Walker[179]:
"[T]his principle in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam founded in law or in equity, for such relief as a court acting in personam may grant."
The Court of Appeal then said[180]:
"A further fallacy in Farah's argument is that if it applies to Mrs Elias and the two daughters, then it must also apply to Mr Elias and Lesmint, each of whom became registered for an estate in fee simple in a unit in No 15 and the whole of No 13 respectively. It is not suggested by Farah that indefeasibility of title prevents a declaration that Mr Elias and Lesmint hold their interests in No 13 and 15 on constructive trust. If this be so, then the same principle applies to Mrs Elias and the two daughters where they have benefited from and are in receipt of an interest in the property the acquisition of which constituted a breach by their husband and/or father of his fiduciary duties. Accordingly, in my opinion, Mrs Elias and her daughters as well as Mr Elias and Lesmint hold their respective interests in Nos 13 and 15 on a constructive trust."
[179][1967] 1 AC 569 at 585.
Pleading difficulty. Can the relevant appellants rely on s 42(1) in this Court in view of the state of the pleadings? Say-Dee itself pleaded one matter necessary to support the contentions which the appellants wished to advance in relation to s 42(1), namely that Lesmint, Mr Elias, Mrs Elias and the two daughters are registered proprietors respectively of No 13 and the units in No 15. The more difficult problem stems from the appellants' wish to negate the existence of fraud in the s 42(1) sense and personal equities in the Frazer v Walker sense. Fraud has been made a relevant issue in relation to Say-Dee's desire that this Court consider the second limb of Barnes v Addy. Further, as noted above[181], although Say-Dee did not plead that the conduct of Farah was a dishonest and fraudulent design, a question appears to have arisen before the trial judge and the Court of Appeal as to whether Mrs Elias and her daughters were dishonest, and both the trial judge and the Court of Appeal recorded that one issue was whether the cross defendants were knowing participants in Farah's breach of fiduciary duty. Say-Dee has been permitted to deploy arguments in relation to those areas in this Court. Say-Dee's whole case in all courts has rested on claimed personal equities. In these circumstances there can be no unfairness in permitting Mrs Elias and her daughters in this Court, as they did in the Court of Appeal, to rely on s 42(1) and to seek to negate fraud and personal equities, which for other purposes Say-Dee relies on. For the same reason there can be no unfairness in permitting Mr Elias and Lesmint to do the same, despite their having abstained from doing so in the Court of Appeal and at the trial.
[181]See above at [159]-[169].
Fraud. "Fraud" in s 42(1) means "actual fraud, moral turpitude"[182]. The findings above negate actual fraud or moral turpitude not only on the part of Mrs Elias and her daughters, but also on the part of Mr Elias; and Lesmint is in the same position as Mr Elias. Even if the Court of Appeal's factual findings about disclosure were not reversed, Mr Elias's non-disclosures cannot be described as amounting to "actual fraud", and the other parties are in no worse position.
[182]Butler v Fairclough (1917) 23 CLR 78 at 97 per Isaacs J. See also Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 614 per Mason CJ and Dawson J, citing Assets Co Ltd v Mere Roihi [1905] AC 176 at 210 per Lord Lindley; Bank of South Australia Ltd v Ferguson (1998) 192 CLR 248 at 255 per Brennan CJ, Gaudron, McHugh and Gummow JJ.
In personam exception. An exception operating outside the language of s 42(1) can exist in relation to certain legal or equitable causes of action against the registered proprietor. So far as Say-Dee was relying on Barnes v Addy, it was certainly alleging a recognised equitable cause of action. In Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd[183] Tadgell JA (Winneke P concurring, Ashley AJA dissenting) held that a claim under Barnes v Addy was not a personal equity which defeated the equivalent of s 42(1) in Victoria, namely the Transfer of Land Act 1958, s 42(1). Tadgell JA said[184]:
"[H]ere it is not possible to escape the circumstance that, if there was a 'knowing receipt' by the appellant, it was a receipt by virtue of registration under the Transfer of Land Act."
He continued[185]:
"The argument for the respondent appears to assume that the acquisition by a mortgagee, in that capacity, of a proprietary interest following registration of a forged instrument of mortgage in respect of property that is subject to a trust amounts to a receipt by the mortgagee of trust property. If it were so, it might be possible to treat the holder of the registered proprietary interest as a constructive trustee arising from 'knowing receipt' of trust property. As it seems to me, however, there is neither room nor the need, in the Torrens system of title, to do so. If registration of the mortgagee's interest is achieved dishonestly then the registration, and with it the interest, are liable to be set aside not because, on registration, the registered holder became a constructive trustee but because s 42(1) recognises that fraud renders the interest defeasible. If, on the other hand, the registration is not achieved by fraud the Act provides, subject to its terms, for an indefeasible interest. Those terms allow, it is true, a claim in personam founded in equity against the holder of a registered interest to be invoked to defeat the interest; and a claim in personam founded in equity may no doubt include a claim to enforce what is called a constructive trust ... [T]o recognise a claim in personam against the holder of a mortgage registered under the Transfer of Land Act, dubbing the holder a constructive trustee by application of a doctrine akin to 'knowing receipt' when registration of the mortgage was honestly achieved, would introduce by the back door a means of undermining the doctrine of indefeasibility which the Torrens system establishes. It is to be distinctly understood that, until a forged instrument of mortgage is registered, the mortgagee receives nothing: before registration the instrument is a nullity. As Street J pointed out in Mayer v Coe[186] ... the proprietary rights of a registered mortgagee of Torrens title land derive 'from the fact of registration and not from an event antecedent thereto'. In truth, I think it is not possible, consistently with the received principle of indefeasibility as it has been understood since Frazer v Walker[187] and Breskvar v Wall[188], to treat the holder of a registered mortgage over property that is subject to a trust, registration having been honestly obtained, as having received trust property. The argument that the appellant is liable as a constructive trustee because it had 'knowingly received' trust property should in my opinion fail."
[183][1998] 3 VR 133 at 156-157.
[184][1998] 3 VR 133 at 156.
[185][1998] 3 VR 133 at 156-157.
[186][1968] 2 NSWR 747 at 754.
[187][1967] 1 AC 569.
[188](1971) 126 CLR 376.
That reasoning, with which four judges in the Full Court of the Supreme Court of Western Australia agreed in LHK Nominees Pty Ltd v Kenworthy[189], and with which Davies JA agreed in Tara Shire Council v Garner[190], applies here. In that latter case, however, Atkinson J (McMurdo P concurring), in deciding whether a claim was arguable on the pleadings, disagreed with Davies JA and with the majority in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd. Atkinson J and McMurdo P preferred the dissenting judgment of Ashley AJA in that case, the dicta of Hansen J in Koorootang Nominees Pty Ltd v Australia and New Zealand Banking Group Ltd[191], where the indefeasibility point was not argued[192], and where in any event there was dishonesty; and the dicta of de Jersey J in Doneley v Doneley[193], where indefeasibility was not argued either[194].
[189](2002) 26 WAR 517 at 549 [186] per Murray J, 555 [210] per Anderson and Steytler JJ, 568-572 [273]-[299] per Pullin J. See also White v Tomasel [2004] 2 Qd R 438 at 455 [72] per McMurdo J.
[190][2003] 1 Qd R 566 at 568 [34].
[191][1998] 3 VR 16 at 105.
[192][1998] 3 VR 16 at 75.
[193][1998] 1 Qd R 602.
[194]Tara Shire Council v Garner [2003] 1 Qd R 566 at 568-569 [36] and 584 [88] n 94.
The essential point on which Ashley AJA differed from the majority in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd was put thus[195]:
"The proposition that an equity may be recognised and enforced so long as it involves no conflict with the indefeasability [sic] provisions has not prevented the High Court from imposing constructive trusts so as to recognise equities in cases where the transfer of real property was effected at different stages in the course of events giving rise to the equities".
He referred to Bahr v Nicolay (No 2)[196], Muschinski v Dodds[197] and Baumgartner v Baumgartner[198]. Earlier, Ashley AJA had said[199] that the "necessary balance" between personal equities and indefeasibility was "disclosed by the judgment of Wilson and Toohey JJ in Bahr v Nicolay (No 2)"[200]. However, as Pullin J pointed out in LHK Nominees Pty Ltd v Kenworthy[201], in those cases "the defendant was the primary wrongdoer, attempting to ignore an obligation to share or convey the land with or to the plaintiff. In none of those cases was the defendant a party who merely had notice of an earlier interest or notice of third party fraud." There is no analogy between the constructive trusts involved in those cases and that which can arise from application of the first limb of Barnes v Addy.
[195][1998] 3 VR 133 at 166.
[196](1988) 164 CLR 604.
[197](1985) 160 CLR 583.
[198](1987) 164 CLR 137.
[199][1998] 3 VR 133 at 162.
[200](1988) 164 CLR 604 at 637-638. He also referred to Mason CJ and Dawson J at 613 and Brennan J at 653-655, to Baumgartner v Baumgartner (1987) 164 CLR 137 at 147-149 per Mason CJ, Wilson and Deane JJ and 151-153 per Toohey J, and to Muschinski v Dodds (1985) 160 CLR 583.
[201](2002) 26 WAR 517 at 571 [289].
Although the Court of Appeal referred to Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd on another point, it did not refer to that case or LHK Nominees Pty Ltd v Kenworthy in relation to indefeasibility. It ought to have followed those cases.
The Court of Appeal's suggestion that if Mrs Elias and her daughters obtained indefeasible title, Mr Elias and Lesmint would also do so, and that that is absurd, is erroneous. There is no absurdity unless fraud is established against Mr Elias and Lesmint, and this was not done. Had it been done, s 42 would not have assisted them.
Hence the registered proprietors prevail over Say-Dee even if they are volunteers.
Causation
The Court of Appeal rejected an argument advanced by the appellants that since Say-Dee had financial difficulties which could have prevented it taking up the opportunities to buy No 13 and No 15, it could not be said that any breach of fiduciary duty was causative of loss. It is not necessary to examine the detail of the Court of Appeal's reasoning or the appellants' criticisms of it. Since the primary case against the second to sixth appellants rests on their supposed receipt of property, causal questions do not arise. Where a defendant has received trust property, or property in relation to which fiduciary duties existed, with notice, the cause of action is complete without having to examine causation questions.
Remedies
In view of the conclusions above in relation to Farah's disclosures, the relief granted to Say-Dee by the Court of Appeal cannot stand, and both appeals must be allowed. No general point of principle arises from the orders. However, they have a curious aspect. Ordinarily relief by way of constructive trust is imposed only if some other remedy is not suitable[202]. In the present circumstances, what other remedy applied would depend on an election by Say-Dee between equitable compensation (which Say-Dee requested in the amended cross-claim) or an account of profits (which it did not). Say-Dee has not discharged the onus of proving that there was a loss, in the sense that it has not been shown that if Say-Dee had paid half the price of No 15 and No 13 when they were acquired it would not now be worse off. Although on 7 August 2006 Say-Dee undertook to pay the receivers sufficient sums to pay off arrears under mortgages over No 13 and No 15 and maintain payments, Say-Dee did not offer to pay half the price with interest since the time when the units were acquired as a term of the relief sought, and the Court of Appeal did not impose that term.
[202]Giumelli v Giumelli (1999) 196 CLR 101 at 113-114 [10], 125 [49]-[50].
The orders contemplate that the sale of No 11, No 13 and No 15, no part of which has been developed, is to be postponed for an uncertain time. If there were to be a sale, the appellants preferred an order for an immediate sale. Instead the parties, discordant as they are, are yoked together indefinitely. The premises are bringing in no rental income because they were vacated with a view to sale in mid 2006; and that sale was forestalled by an injunction obtained by Say-Dee. The properties, which cost $3.4 million in the years 1998 to 2002, are now, valued as separate sites, worth only $2.7 million. Other costs have been incurred – stamp duty, the difference between interest and rent – and yet others will have to be incurred in future. There is evidence that if the properties are sold with development consent, which can be obtained no earlier than November 2007, on various assumptions they will be worth $7.43 million. Both sides appear to be under financial pressure. Since the quantity of the appellants' capital tied up in No 13 and No 15 is much greater than the quantity of Say-Dee's capital tied up in No 11, there is force in the appellants' allegation that the practical effect of the orders is unjustly to permit Say-Dee to search for an elusive profit without bearing half the financial burdens incurred to this point, while compelling the appellants to share in any loss. All monetary accounting is postponed until eventual sale. On sale, the second to sixth appellants are to be reimbursed their costs of acquisition, retention, maintenance and improvement of No 13 and No 15. In the event of a loss, half of it is to be paid by Say-Dee, but it is not clear that Say-Dee could do so. In all the circumstances the orders made in this case furnish no satisfactory precedent.
Orders
The appeal by Farah and related parties should be allowed. There should be an order setting aside the orders of the Court of Appeal of the Supreme Court of New South Wales made on 21 December 2005 and varied on 28 November 2006. There should also be an order that the appeal by Say-Dee to the Court of Appeal from the judgment and orders of the Supreme Court of New South Wales dated 19 August 2004 and 22 November 2004 be dismissed, and an order that Say-Dee pay the appellants' costs of the proceedings in this Court and in the Court of Appeal.
- AGLC
- Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22
- Case
- [2007] HCA 22
- Decision Date
CaseChat Overview and Summary
The legal issues before the High Court included whether Mr. Elias, as a fiduciary, breached his duty to Farah Constructions and, by extension, to the joint venture with Say-Dee, by failing to disclose information about the adjoining properties and the council's stance on redevelopment. Further, the Court had to determine if the properties acquired by Mr. Elias's wife and children, who were registered proprietors, were subject to a constructive trust, either through knowing receipt under the first limb of *Barnes v Addy* or as knowing participants in a dishonest and fraudulent design under the second limb. The Court also considered whether the doctrine of unjust enrichment applied to impose restitutionary liability and whether the indefeasibility provisions of the *Real Property Act 1900* (NSW) protected the registered title of Mr. Elias's wife and children against these claims.
The High Court allowed the appeal, setting aside the orders of the Court of Appeal. The Court reasoned that the trial judge's findings of fact, particularly regarding the knowledge and intentions of Mr. Elias's wife and children, were not demonstrably wrong and should not have been overturned by the Court of Appeal. The Court found that the evidence did not establish that the wife and children had the requisite knowledge to be liable under the principles of *Barnes v Addy* or that their registered title was subject to an *in personam* claim for constructive trust. The Court also held that the Court of Appeal had erred in deciding the appeal on grounds not argued before it and on matters not pleaded at trial. Consequently, the appeal to the Court of Appeal was dismissed, and the respondent was ordered to pay the appellants' costs.
Orders
Orders of the court
1. Appeal allowed.
2. Set aside the orders of the Court of Appeal of the Supreme Court of New South Wales made on 21 December 2005 and varied on 28 November 2006 and in their place order that the appeal to that Court from the judgment and orders of the Supreme Court of New South Wales dated 19 August 2004 and 22 November 2004 be dismissed with costs.
3. Respondent to pay the appellants' costs of the proceedings in this Court.
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
Established by: GLEESON CJ, CJ, GUMMOW, CALLINAN, HEYDON AND CRENNAN JJ
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