Fazche Pty Ltd v Mounzer & Anor, Fazche Pty Ltd v Internal Lynx Pty Ltd - [2019] SADC 194

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
FAZCHE PTY LTD v MOUNZER & ANOR, FAZCHE PTY LTD v INTERNAL LYNX PTY LTD
[2019] SADC 194
Reasons for Decision of His Honour Judge Chivell
18 December 2019
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS - AMENDMENT
EQUITY - TRUSTS AND TRUSTEES - IMPLIED TRUSTS - CONSTRUCTIVE TRUSTS - KNOWING RECEIPT
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - JOINDER OF CAUSES OF ACTION AND OF PARTIES - PARTIES
PROCEDURE - COSTS - SECURITY FOR COSTS
Plaintiff has sued defendants in two actions for building work done – alleges agent acted in breach of fiduciary duty, defendants knowingly received proceeds of breach, proceeds held in a constructive trust for plaintiff.
Interlocutory applications by all parties including applications by defendants to cancel caveats – application by plaintiff to amend one caveat – applications by plaintiff to join parties as defendants – applications by defendants for security for costs.
Held: applications to cancel caveats dismissed, permission to amend caveat granted – applications to join parties granted – applications for security for costs granted.
Real Property Act 1886 (SA) s 191(1); Corporations Act 2001 (Cth) s 1335, referred to.
Mathew (SA) Nominees Pty Ltd v Belconnen Automotive Pty Ltd [2019] SASC 39; Cini & Ors v Pets Paradise Franchising (SA) Pty Ltd & Ors [2008] SASC 287; Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; Barnes v Addy (1874) LR 9 Ch App 244; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; Ricegrowers Co-op Ltd v ABC Containerline NV (1936) 138 ALR 480; Concrete Mining Structures Pty Ltd v Cellcrete Australia Pty Ltd (No 2) [2016] FCA 360, considered.

FAZCHE PTY LTD v MOUNZER & ANOR, FAZCHE PTY LTD v INTERNAL LYNX PTY LTD
[2019] SADC 194

These are interlocutory applications. They were heard on Monday, 16 December 2019. In the interests of timeliness, and for the reasons outlined by Doyle J in Mathew (SA) Nominees Pty Ltd v Belconnen Automotive Pty Ltd,[1] the reasons given for my rulings in each application will be relatively brief, but, I hope, sufficiently detailed to inform the parties as to the reasoning I have adopted in each case.
[1] [2019] SASC 39 at [53]-[55].
Fazche Pty Ltd has sued for building work done in the construction of houses on land owned by the respective defendants.
In the first action (890 of 2019), the building work done was the construction of a house at Salisbury Downs. In Action 891 of 2019, it was the construction of two houses at Encounter Bay and Hillbank respectively.
Fazche alleges that at the time the building contracts were entered into, its agent, Mr Hayssam (Sam) Hamra, in breach of his fiduciary duty to Fazche, negotiated contracts for sums considerably lower than their true value because each of the defendants had a personal relationship with Mr Hamra and he had a conflict of interest.
The following interlocutory applications were taken by the parties in Action 980 of 2019:
·in relation to a caveat lodged by the plaintiff over the Salisbury Downs property – an application by Raid Mounzer and Leila Mounzer to cancel the caveat and to cancel the worker’s lien over the property; and for the ‘disjoinder’ of Raid Mounzer;
·in relation to the same caveat – an application by the plaintiff to amend the caveat; alternatively for permission to lodge a fresh one or, in the further alternative, for an injunction in similar terms;
·by the plaintiff for permission to join Mr Hamra, his company Satori Projects Pty Ltd, and Sami Mounzer as defendants to the action; to file a second Statement of Claim, and for presumptive service on Sami Mounzer;
·by the defendants that the plaintiff provide security for costs.
In Action 981 of 2019:
·by the defendant to have caveats on the titles of the Encounter Bay and Hillbank properties cancelled, and to have worker’s liens cancelled;
·by the plaintiff to amend the caveats; alternatively for permission to lodge fresh ones, or for an injunction in similar terms;[2]
·by the plaintiff to amend the terms of the worker’s liens over the properties, or for permission to file fresh ones;
·by the defendant for security for costs.
[2] This application was not pursued – the caveats in relation to this action already referred to constructive trusts, as I will presently discuss. Accordingly, this application is dismissed.
The Worker’s Liens
As to the worker’s liens, Mr Lazarevich, counsel for the plaintiff, told me that they would be voluntarily withdrawn by his client. Mr Floreani, counsel for the defendants, indicated that this was acceptable to his clients. By consent then, all applications in relation to worker’s liens, in both actions, are dismissed.
The Caveats
I accept that I have a discretion to amend a caveat that has already been registered. The power to do so is in s 191(1)(d) of the Real Property Act 1886 (SA). The subsection provides that I may ‘make such order as appears just in the circumstances’.[3]
[3] Cini & Ors v Pets Paradise Franchising (SA) Pty Ltd & Ors [2008] SASC 287 per Bleby J at [41].
As to the application to amend the Salisbury Downs caveat, and the defendants’ application to cancel all three caveats, I must treat the applications in a similar manner to an application for an interlocutory injunction to restrain dealings in land.[4] That means I must be satisfied that there is a serious question to be tried as to the caveator’s interest in the land, that the balance of convenience favours the maintenance of the caveat, and that there are no discretionary matters which might justify removal of the caveat.[5]
[4] Cini at [46].
[5] Cini at [46], quoting Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at 81-84.
Serious Question to be Tried
The amendment sought by the plaintiff is to assert that the caveator’s claim to be interested in the land ‘at law or in equity’[6] is based on its claim to be:
… beneficially entitled … by way of a constructive trust by reason of the Caveator contributing to the improvement of the land and/or in the alternative where the Caveatee knowingly received the benefit of such improvements at the expense of the Caveator in circumstances where the Caveatee was the knowing recipient of such benefits in circumstances that amounted to a breach of fiduciary duty.
[6] As required by s 191(1) of the Real Property Act.
The two claims to a constructive trust are expressed in the alternative. As to the first, this was not pressed by Mr Lazarevich. As to the second, the claim based on ‘knowing receipt’, this is the second limb of the principles enunciated in Barnes v Addy.[7] The first limb relates to knowing assistance in a breach of fiduciary duty. The second is that a recipient of property (in this case the benefit of building work) which has been transferred in breach of a fiduciary obligation is liable to account to the transferor as constructive trustee. The requirements for the creation of a constructive trust are:
·there has been a breach of trust or some other fiduciary duty (the breach need not be dishonest);
·there is a receipt of property either directly from the fiduciary or from someone else who has directly or indirectly received the property or its traceable proceeds from the fiduciary;
·the recipient has knowledge of the breach of the fiduciary duty.
[7] (1874) LR 9 Ch App 244.
As to knowledge, it has been held[8] that it is sufficient that the recipient had:
·actual knowledge;
·wilfully shut his/her eyes to the obvious;
·wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make; or
·knowledge of circumstances which would indicate the facts to an honest and reasonable person.
[8] Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89. In that case, the High Court did not accept that knowledge of circumstances which would put an honest and reasonable person on inquiry was sufficient.
Mr Lazarevich has pointed to the circumstantial affidavit evidence which he says establishes a serious question to be tried as to whether there was ‘knowing receipt’ by the defendants:[9]
82.1.Mounzer being the cousin of Hamra and a ‘good and trusted friend’.
82.2.Mounzer paying the contract sum, not to the plaintiff, but to Satori Projects, in a manner entirely inconsistent with the contract (and in circumstances that amount to an offence), that is by getting a ‘discount’ for paying up front to Hamra’s company rather than the plaintiff.
82.3.The price was one that for a reasonable man would be ‘too good to be true’ when combined with the other facts.
82.4. Nasser-Edine being a longstanding friend of Hamra.
82.5. Nasser-Edine working in the building industry and therefore likely to know full well what the costs of building are.
82.6. In respect of Encounter Bay the price of $70,000 for a 192 square meter house two stories in height on sloping and rocky ground that cost over $322,000 to build is more than just ‘too good to be true’ but blindingly obvious a rort, in circumstances where the price was paid ‘up front’ contrary to the terns of the contract.
82.7. In respect of Hillbank, Nasser-Edine was purportedly getting a 233 square meter house for only $101,500, again a price ‘too good to be true’ and where most of the money was paid at Hamra’s direction to Hamra’s company, and where, just before signing the contract, Nasser-Edine had also signed a costs estimate at $194,000. That is clear evidence of actual knowledge that the contract was signed at undervalue as opposed to even relying on the inferences a reasonable person would draw.
[9] Plaintiff’s Outline of Argument, [82.1]-[82.7].
Mr Floreani submitted that there can be no serious question to be tried because s 191 requires that the caveator must be able to claim that there is an existing equitable interest, and that no constructive trust can arise until the court declares one to exist or have existed.
I reject that submission. It is sufficient that there be a serious question as to whether the plaintiff has a claim to an equitable interest within the meaning of s 191(1). I am unable to see how it could be otherwise. To uphold Mr Floreani’s submission, a finding of a court that a constructive trust existed would be a precondition to any caveat seeking to protect such an interest. That is not how s 191 works.
Mr Floreani also submitted that the plaintiff has been dilatory in lodging the caveats 12 months or more after its director, Mr Nicola Fazzari, became aware of the ‘undervalue’ contracts. I also reject that argument. Mr Fazzari has explained that he was seeking information as to what happened, and dealing with the possible insolvency of the plaintiff during the relevant period.
Further, it was argued that if there had been a breach of fiduciary duty, it was by Mr Hamra, and he had no interest in the land. That is not the point. The principles in Barnes v Addy are directed at tracing the proceeds of breaches of fiduciary duty. I am not aware of any requirement that the person breaching have an interest in the land, or that he/she needs to be an officer of the company.
I conclude that there is a serious question to be tried.
Balance of Convenience
Mr Floreani did not make submissions on this point. In particular, no prejudice to the caveatees has been shown. I find that the balance of convenience is in favour of allowing the caveats to stay.
Discretion
The only issue concerning the discretion to grant or refuse the applications concerned the alleged dilatoriness of the caveator. For the reasons expressed above, I reject that submission.
As to the caveats, I make the following orders:
Action 980 of 2019:
That the plaintiff have permission to amend caveat 13148133 to claim
an interest ‘An estate in fee simple by way of a constructive trust
arising out of the owner of the land receiving the benefit of building
work done on the land at the expense of the plaintiff in circumstances
where the owner was the knowing recipient of a benefit obtained in
breach of fiduciary duty under or the recipient of a benefit in
circumstances where it would be unconscionable to deny the plaintiff an interest in the land’.
The defendants’ applications FDN 13 to have the plaintiff’s application to extend the caveat dismissed, to have the caveat cancelled, to have the worker’s lien cancelled and to ‘disjoin’ the first defendant, are dismissed.
Action 981 of 2019:
That the defendant’s application to dismiss the plaintiff’s application to extend the caveats, to have the caveats cancelled, and to have the liens cancelled, are dismissed.
Joinder/Disjoinder
The application by the defendants in Action 980 of 2019 (FDN 13) to ‘disjoin’ Raid Mounzer was not argued and is dismissed.
The application by the plaintiff in Action 980 of 2019 (FDN 13) to join Hayssam Hamra, Satori Projects Pty Ltd and Sami Mounzer as defendants was not opposed by Mr Floreani or Mr Grant, counsel for Hamra and Satori. There was no appearance by or on behalf of Mr Sami Mounzer. The application is granted. Order:
Action 980 of 2019:
That Sami Mounzer, Hayssam Hamra and Satori Projects Pty Ltd ACN 153 097 128 be joined as defendants.
Action 981 of 2019:
The application by the plaintiff to join Hayssam Hamra and Satori Projects Pty Ltd ACN 153 097 128 as defendants is granted.
Actions 980 and 981 of 2019:
In each action, the plaintiff is granted permission to file a second Statement of Claim.
Presumptive Service
The plaintiff applies in Action 980 of 2019 (FDN 14) for an order for presumptive service of the amended Summons and Statement of Claim by service on the solicitors for the defendants, 1878 Elix Lawyers.
Mr Sami Mounzer is the father of Raid Mounzer and the husband of Leila Mounzer. Sami Mounzer and Leila Mounzer were the signatories to the building contract, even though Raid Mounzer was the registered owner of the land. Mrs Mounzer was served personally in Australia. The defendants’ solicitors filed a Notice of Acting on her behalf. She has filed a Defence as well. She is an applicant for security for costs.
The plaintiff’s director, Mr Fazzari, deposes that he mistakenly thought that Sami Mounzer and Raid Mounzer were the same person. The plaintiff seeks to pursue a claim for breach of contract against Sami Mounzer.
Mr Raid Mounzer deposes[10] that Sami Mounzer and Leila Mounzer live together in Lebanon. Raid Mounzer visits them from time to time. It is submitted by the plaintiff that I should order that service on Raid Mounzer, or on the defendants’ solicitors, should be deemed sufficient. The solicitors apparently do not have instructions to accept service.
[10] Affidavit affirmed 1/10/19, [23].
Mr Lazarevich submitted that, ‘it would not be simple to serve the Court’s process in Lebanon’. More is required for the type of order sought by the plaintiff than that.
Rule 69 of the District Court Civil Rules 2016 is silent as to the circumstances in which the discretion should be exercised. It has been held that presumptive service should be ordered when it is impracticable to serve the party.[11] It is noted that:
Usually some attempt at personal service should be made to demonstrate its impracticability.[12]
[11] See the notes to Rule 69 in Civil Procedure South Australia vol 1 (Service 178) LexisNexis Butterworths.
[12] Referring to Ricegrowers Co-op Ltd v ABC Containerline NV (1936) 138 ALR 480.
There is insufficient material before me to justify making such an order. Of course, if the plaintiff is put to substantial cost in serving the documents on Mr Mounzer, Mr Mounzer will be at risk of being liable for those costs. It may be that Raid Mounzer can convince his father that presumptive service or instructing solicitors to accept service, is a better idea.
Action 980 of 2019:
The application is refused.
Security for Costs
The (present) defendants in both actions seek an order that the plaintiff provide security for the costs of the action.
The plaintiff accepts that the discretion to make such an order is enlivened. The appointment of an administrator suggests that the plaintiff is insolvent, or is likely to become insolvent at some future time. Administrators were appointed to the company on 16 August 2019. A Deed of Company Arrangement has been entered into. Section 1335 of the Corporations Act 2001 (Cth) gives a discretion to order security for costs in those circumstances.
Mr Floreani set out the factors to be considered in exercising the discretion as they were identified by Edelman J (as he then was) in Concrete Mining Structures Pty Ltd v Cellcrete Australia Pty Ltd (No 2):[13]
[13] [2016] FCA 360, [13] (as summarised by Collier J in Hii v Federal Commissioner of Taxation (No 3) [2016] FCA 58, [9] – [10]).
(1) the likelihood of the applicant being unable to pay the respondent’s costs;
(2)the characteristics of the applicant including whether it is a corporation or a natural person, the wealth of the applicant, whether the applicant is a foreign resident and, if so, the assets held by the applicant in Australia;
(3)whether any impecuniosity of the applicant was caused by the respondent’s conduct which is the subject of the claim, to the extent to which that can be assessed;
(4)whether the application for security is oppressive;
(5)whether the award of security would deny an impecunious applicant a right to litigate;
(6)whether there are persons standing behind the applicant who are likely to benefit from the litigation;
(7)whether the persons standing behind the applicant have offered any security or personal undertaking to be liable for the costs, and if so, the form of that security or undertaking;
(8)whether the proceedings are in substance defensive in the sense of directly resisting proceedings already brought or seeking to halt the respondent’s self-help procedures so that the applicant is, in substance, forced to litigate;
(9)whether the application for security had been brought promptly;
(10)whether the applicant has any rights which it can exercise against assets of the respondent to satisfy an order for costs in its favour;
(11)the strength and bona fides of the applicant’s case, although this will invariably only be determined in a provisional manner and in many cases will only be a broad brush impression of little weight; and
(12)any factors relating to the public interest.
Mr Lazarevich pointed to the following factors in the case before me:
·Mr Fazzari will provide a personal guarantee in favour of the defendants to indemnify them if the plaintiff is unable to;
·the administrators are performing a public duty in acting for the benefit of unsecured creditors of the plaintiff;
·the plaintiff’s case is that the behaviour of the defendants, and Mr Hamra, played a substantial part in the financial downfall of the company;
·Mr Fazzari has put substantial sums of money into the company pursuant to the Deed of Company Arrangement in an attempt to keep it going, and has incurred personal liability for ongoing litigation, all for the benefit of creditors.
Mr Floreani submitted that it is unreasonable that the defendants be put at risk of unfulfilled costs orders in order to benefit the plaintiff’s creditors while being at no risk. I reject that argument. I see no reason why the creditors should be put at risk in relation to their undisputed claims when the defendants are alleged to have engaged in serious impropriety causing substantial damage to the plaintiff’s solvency.

Mr Floreani submitted that the personal guarantee of Mr Fazzari is of doubtful value. Mr Fazzari has already deposed[14] that he is presently unable to pay a cash amount into court. He has provided no information about his personal financial position.
[14] Affidavit sworn 13/12/19, [28].
I gave Mr Fazzari a further opportunity to provide information about his personal financial position. I was informed by email on 17 December 2019 that Mr Fazzari did not propose to file a further affidavit. I was referred to his affidavit sworn on 13 December 2019.[15] That affidavit details some building work in progress, and details of some other businesses he owns, but no information about his personal assets and liabilities was given in that document. He simply states:[16]
I would not in the short term have the financial means to meet an order for security for costs by payment into Court. Nor does the plaintiff or any related entities.
[15] FDN 18.
[16] At [28].
I find this position unsatisfactory. It is not for Mr Fazzari to judge whether he has the financial means, it is a judgment for me. In those circumstances, I give no weight to the above statement. Mr Fazzari has refused to justify it with objective evidence.
In those circumstances, I grant the defendants’ application. I do not propose to order the full amount claimed, because I accept that there are public policy reasons in the plaintiff’s favour. Noting Mr Fazzari’s undertaking to provide personal guarantees for any unpaid costs, I order that both actions be stayed until the plaintiff pays into the Suitors’ Fund the sum of $25,000 in relation to each action by way of security for costs, provided that the stay will remain in force until the plaintiff has paid the total sum of $50,000 in relation to both actions.
Conclusion
I make the following orders:
In Action 980 of 2019, as to Applications FDN 13 (defendants, 30/9/19), FDN 14 (plaintiff, 5/11/19) and FDN 17 (defendants, 15/11/19):
1. That the plaintiff have permission to amend caveat 13148133 to claim
an interest ‘An estate in fee simple by way of a constructive trust
arising out of the owner of the land receiving the benefit of building
work done on the land at the expense of the plaintiff in circumstances
where the owner was the knowing recipient of a benefit obtained in
breach of fiduciary duty and or the recipient of a benefit in
circumstances where it would be unconscionable to deny the plaintiff an interest in the land’.
2.That the defendants’ applications to have the plaintiff’s application to extend the caveat dismissed, to have the caveat cancelled, to have the worker’s lien cancelled and to ‘disjoin’ the first defendant, are dismissed.
3.That Sami Mounzer, Hayssam (“Sam”) Hamra and Satori Projects Pty Ltd ACN 153 097 128 be joined as defendants.
4. That the plaintiff is granted permission to file a second Statement of Claim.
5.That the application for presumptive service on the defendant Sami Mounzer is refused.
6.Upon noting Mr Fazzari’s undertaking to provide personal guarantees for any unpaid costs, that the plaintiff pay into the Suitors’ Fund the sum of $25,000 by way of security for costs, and that both the within action and Action 981 of 2019 be stayed until such payment has been made.
In Action 981 of 2019, as to Applications FDN 10 (defendant 2/10/19), FDN 13 (plaintiff, 5/11/19) and FDN 16 (defendant 29/11/):
1.That the plaintiff’s application to amend the caveats; alternatively to lodge fresh ones, or for an injunction in similar terms, is dismissed.
2.That the defendants’ applications to have the plaintiff’s application to extend the caveat dismissed, to have the caveat cancelled, to have the worker’s lien cancelled and to ‘disjoin’ the first defendant, are dismissed.
3.That Hayssam (“Sam”) Hamra and Satori Projects Pty Ltd ACN 153 097 128 be joined as defendants.
4.That the plaintiff is granted permission to file a second Statement of Claim.
5.Upon noting Mr Fazzari’s undertaking to provide personal guarantees for any unpaid costs, that the plaintiff pay into the Suitors’ Fund the sum of $25,000 by way of security for costs, and that both the within action and Action 980 of 2019 be stayed until such payment has been made.
In both actions 980 and 981 of 2019, by consent, upon noting that the plaintiff agrees to withdraw registration of all worker’s liens, all applications in relation to worker’s liens are dismissed.
I will hear the parties as to any consequential orders.