In the matter of Reserve Hotels Pty Limited

[2021] NSWSC 376

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Reserve Hotels Pty Limited [2021] NSWSC 376

Hearing dates:

3, 4, 5, 10, 11 and 12 March 2021

Decision date:

14 April 2021

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Deed of Assignment set aside under the Contracts Review Act 1980 (NSW). Plaintiffs’ claim for removal of the trustee or appointment of a new trustee dismissed. Second Defendant entitled to judgment against the Plaintiffs for the amounts specified with interest.

Catchwords:

CONTRACTS — Unjust contracts — Contracts Review Act 1980 (NSW) — Cross-claim to set aside Deed of Assignment

CONTRACTS — Undue influence — Actual undue influence – Whether influence amounts to undue influence in the relevant sense – Overlapping application at equity and under Contracts Review Act 1980 (NSW)

CONTRACTS — Unconscionable conduct — Special disadvantage — Whether Deed of Assignment procured by undue influence – Whether embarrassment amounted to special disadvantage

EQUITY — Trusts and trustees — Court’s supervision of — Appointment and removal of trustees — Whether exercise of powers of appointment and removal of trustee was improper — Whether expedient to appoint new trustee in the circumstances — Whether unpaid beneficiary entitlements amount to an interest in the trust property

EQUITY — Equitable remedies — Restitution — Scope of company director’s authority — Whether unauthorised transactions support equitable claim for restitution — Whether amounts paid to solicitors recoverable

Legislation Cited:

- Corporations Act 2001 (Cth), ss 249B, 588FP

- Contracts Review Act 1980 (NSW), ss 7, 9

- Conveyancing Act 1919 (NSW), s 37A

- Family Law Act 1975 (Cth), s 106B

- Trustee Act 1925 (NSW), ss 6, 70, 92

Cases Cited:

- Agip (Africa) Ltd v Jackson [1990] Ch 265; [1992] 4 All ER 385; [1989] 3 WLR 1367

- Australasian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd [2015] VSCA 9

- Australian Conservation Services Pty Ltd v Liladel Holdings Pty Ltd (2017) 12 ACTLR 124; (2017) 319 FLR 401; [2017] ACTSC 162

- Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560; (2014) 307 ALR 512; (2014) 88 ALJR 552; (2014) 98 ACSR 489; [2014] HCA 14

- Australian Securities and Investments Commission (ASIC) v Kobelt (2019) 267 CLR 1; (2019) 368 ALR 1; [2019] HCA 18

- Baba v Sheehan [2019] NSWSC 1281

- Black v S Freedman & Co (1910) 12 CLR 105; (1910) 17 ALR 541; [1910] HCA 58

- Blomley v Ryan (1956) 99 CLR 362; [1956] HCA 81

- Break Fast Investments Pty Ltd v Giannopoulos (No 5) [2011] NSWSC 1508

- Campbell v Campbell [2015] NSWSC 784

- Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; (1983) 46 ALR 402; (1983) 57 ALJR 358; [1983] HCA 14

- Crane Distribution Ltd v Yang [2016] NSWSC 620

Crowle Foundation v New South Wales Trustee and Guardian [2010] NSWSC 647

- El Sayed v El Hawach (2015) 88 NSWLR 214; (2015) 317 ALR 771; (2015) 15 ASTLR 446; [2015] NSWCA 26

- Fay v Moramba Services Pty Ltd [2009] NSWSC 1428

- Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; (2016) 18 BPR 35,799; [2016] NSWCA 81

- Hancock v Rinehart (2015) 13 ASTLR 1; (2015) 106 ACSR 207; [2015] NSWSC 646

- Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; (2009) 258 ALR 727; [2009] NSWCA 252

- Johnson v Buttress (1936) 56 CLR 113; [1936] ALR 390; (1936) 10 ALJR 203

- Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; (2008) 252 ALR 55; (2008) 229 FLR 4; (2008) 14 BPR 26,565; [2008] NSWCA 343

- Left Bank Investments Pty Ltd v Ngunya Jarjum Aboriginal Corp [2020] NSWCA 144

- Letterstedt v Broers (1884) 9 App Cas 371

- Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; [1991] 3 WLR 10; [1992] 4 All ER 512

- Mercanti v Mercanti (2016) 50 WAR 495; (2016) 340 ALR 290; (2016) 117 ACSR 222; [2016] WASCA 206

- Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391

- Miller v Cameron (1936) 54 CLR 572; [1936] ALR 301; (1936) 10 ALJR 35a; [1936] HCA 13

- Montevento Holdings Pty Ltd v Scaffidi (2012) 246 CLR 325; (2012) 292 ALR 633; (2012) 87 ALJR 15; (2012) 6 ASTLR 480; [2012] HCA 48

- Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36

- Raupach v MacDonald [2010] NSWSC 1326

- Re Cooper Street Property Trust [2016] VSC 756; BC201610590

- ReElsmore Resources Ltd (2016) 114 ACSR 297; [2016] NSWSC 856

- Re Kit Digital Australia Pty Ltd (in Liq) [2014] NSWSC 1547

- Rheem Australia Pty Ltd v McInnes [2020] NSWSC 1313

- Riverwood Legion & Community Club Ltd v Repaja & Co Pty Ltd [2015] NSWSC 383

- Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146

- Spellson v George (1987) 11 NSWLR 300

- Spina v Permanent Custodians Ltd [2009] NSWCA 206

- Thorne v Kennedy (2017) 263 CLR 85; (2017) 350 ALR 1; (2017) 91 ALJR 1260; (2017) 56 Fam LR 559; [2017] HCA 49

- Turner v O'Bryan-Turner [2021] NSWSC 5

- Turner v Windever [2003] NSWSC 1147

- Vanguard Financial Planners Pty Ltd v Ale (2018) 354 ALR 711; (2018) 125 ACSR 1; [2018] NSWSC 314

- Wambo Coal Pty Ltd v Ariff & Anor (2007) 63 ACSR 429; (2007) 25 ACLC 809; [2007] NSWSC 589

- Watson v Foxman (1995) 49 NSWLR 315

- West v AGC (Advances) Ltd (1986) 5 NSWLR 610

- White v Wills [2014] NSWSC 1160

- Williams v Commonwealth Bank of Australia [2013] NSWSC 335

- Ying Mui Pty Ltd v Hoh (No 6) [2017] VSC 730

Texts Cited:

- JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 8th ed, 2016)

Category:

Principal judgment

Parties:

Mary Balagiannis (First Plaintiff/First Cross-Defendant)
Angeliki Balagiannis (also known as Angelique Balagiannis) (Second Plaintiff/Second Cross-Defendant)
Nicolas Balagiannis (First Defendant/First Cross-Claimant)
Reserve Hotels Pty Limited (Second Defendant/Second Cross-Claimant)
Sydney Hotel Management Pty Limited (Third Defendant/Third Cross-Claimant)
Dimitri Kentrotis (Third Cross-Defendant)

Representation:

Counsel:
C D Wood SC/J I Parrish (Plaintiffs/Cross-Defendants)
I Jackman SC/D Birch (Defendants/Cross-Claimants)
A Russoniello (Third Cross-Defendant)

Solicitors:
Marsdens (Plaintiffs/Cross-Defendants)
McCabe Curwood (Defendants/Cross-Claimants)
MDW Law (Third Cross-Defendant)

File Number(s):

2020/244105

Judgment

Background

1. The Plaintiffs in these proceedings, Ms Mary Balagiannis (“MB”) and her sister, Ms Angeliki Balagiannis (“AB”) are the daughters of the First Defendant, Mr Nicolas Balagiannis (“NB”) and Mrs Susan Balagiannis (“SB”). The Second Defendant, Reserve Hotels Pty Ltd (“RHPL”) is the former trustee of a trust established by NB, the NBF Trust, and the Third Defendant, Sydney Hotel Management Pty Limited (“SHM”) is the current trustee of that trust.

2. By their Further Amended Originating Process filed on 12 March 2021, MB and AB seek an order that RHPL render accounts of a loan which was the subject of a Deed of Assignment dated 9 July 2018 (“DoA”) between MB and AB on the one hand and NB on the other. They also seek an order that RHPL pay them, out of the assets of the NBF Trust, the amount due to them on the taking of the account. They also seek an order removing the trustee of the NBF Trust and appointing a new trustee to that trust. The orders sought by MB and AB are partly premised upon the effect of the DoA.

3. By their Amended Points of Defence and by an Amended Interlocutory Process filed on 11 March 2021, by way of cross-claim, NB, RHPL and SHM raise issues as to undue influence, unconscionable conduct and the application of the Contracts Review Act 1980 (NSW) in respect of the entry into the DoA. NB, RHPL and SHM seek a declaration that the DoA was procured by MB and AB by the exercise of undue influence over MB or by unconscionable conduct and ought to be set aside; an order that the DoA be set aside; and an order under s 7 of the Contracts Review Act that the DoA is void. By the Amended Interlocutory Process, RHPL also brings a cross-claim against MB, AB and MB’s husband, and NB’s son-in-law, Mr Dimitri Kentrotis (“DK”), and seeks orders that DK pay the amount of $510,000 to RHPL and that each of DK, MB and AB hold certain amounts received by them on trust for RHPL. The amount claimed against DK has since been reduced, as I will note below. Mr Jackman, with whom Mr Birch appears for NB, RHPL and SHM clarified, in opening, that the only relief sought against DK is for unauthorised payments, and no relief is sought against him in respect of the application to set aside the DoA because he is not party to the DoA, although he was implicated in the events which brought it about and was to be called by the Plaintiffs as a witness in respect of those events. SB was previously also a Cross-Defendant to that cross-claim, but the claim against her is not pursued.

4. It is convenient first to set out the affidavit evidence and cross-examination and reach findings of credit as necessary. I then set out a chronology of the relevant events, some of which are contentious, and reach findings as to those events as necessary. I then deal with the matters raised by the Amended Points of Defence and Amended Points of Cross-Claim, since the issues arising in MB’s and AB’s claims will be largely displaced if the DoA is set aside. I then return to MB’s and AB’s claim to remove the trustee of the NBF Trust, before dealing with the remaining issues in respect of NB’s Cross-Claim for unauthorised transactions brought against MB, AB and DK.

Affidavit evidence

5. Before turning to the affidavits on which the parties rely, I should address the principles to which the Court should have regard in assessing the affidavit and oral evidence. I have regard to the fallibility of human memory, particularly when disputes intervene, in determining these proceedings. In an often quoted observation in Watson v Foxman (1995) 49 NSWLR 315 at 319, McLelland CJ in Eq observed that:

“… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.”

6. I summarised the applicable principles in Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 at [7], as follows:

“It is important in this context to have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319 per McLelland CJ in Eq; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41] per Rares J; Varma v Varma [2010] NSWSC 786 at [424]-[425] per Ward J. To the extent that credit issues need to be determined in respect of particular conversations, I have also had regard to the fact that objective evidence is likely to be the most reliable basis for determining them. I summarised the relevant principles in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 at [10], where I noted that the credibility of a witness and his or her veracity may be tested by reference to the objective facts proved independently of the testimony given, in particular by reference to the documents in the case, by paying particular regard to the witness’s motives and the overall probabilities: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39 at [34]; Craig v Silverbrook [2013] NSWSC 1687 at [141]; State of New South Wales v Hunt [2014] NSWCA 47 at [56].”

7. The Plaintiffs rely on MB’s affidavit dated 21 August 2020 which referred to the terms of the NBF Trust and its assets and to the assignment of a debt owed by the NBF Trust to NB (“Trust Debt”) from NB to AB and MB and addressed matters relating to a proposed sale of the Mr B’s hotel owned by the NBF Trust and to the dispute between NB and other members of the family. MB also referred to subsequent communications with NB which foreshadowed that she would get no more from him than any amount that she retained from the Trust Debt, and other communications which indicated at least a degree of anger on NB’s part. The Plaintiffs also rely on MB’s affidavit dated 29 October 2020, significant parts of which were not relevant and were not read. MB there partly shared a mistake also made in NB’s initial affidavit evidence as to which family members were present in Greece in July 2018 when the DoA was executed, and incorrectly referred to having spent a great deal of time in providing comfort and support to SB in relation to an affair involving NB (which I address below) at that time; in fact, SB was not present in Greece at that time. MB corrected her evidence in that respect in a subsequent affidavit. The Plaintiffs also rely on MB’s affidavit dated 3 February 2021 which also responded to NB’s affidavit dated 17 December 2020 and affidavits of Mr Balayannis dated 24 December 2020 and Mr Wong dated 18 December 2020. That affidavit indicated MB’s disagreement with NB’s evidence as to a number of matters, most of which are not material to the substantive matters in issue in the proceedings and do not significantly affect either NB’s or MB’s credit in respect of their affidavits or cross-examination. I will refer to other aspects of these affidavits in reaching findings as to the chronology of events below.

8. MB accepted in cross-examination that she knew of NB’s February 2018 will and of her parents’ joint memorandum of wishes and she did not intend by the DoA to deprive NB of the ability to give her mother, SB, $6 million of the loan, and that it would have been unjust for her to try to do so (T46-47). The DoA in fact had that result, by bringing about the ademption of a gift of that amount to SB. MB also accepted in cross-examination that she did not consult NB about the instructions given to Ms Kavadas to prepare the DoA (to which I refer below) and did not tell NB about the DoA until 9 July 2018 (T48). MB also accepted in cross-examination that, at the time DK emailed Ms Kavadas on 17 June 2018 to request documentation for the assignment of the loan to MB, or to MB and AB, NB had not requested that the Trust Debt be assigned to her and DK’s claim that NB had made such a request was false (T48-49).

9. Mr Wood, with whom Mr Parrish appeared for the Plaintiffs, submitted that MB made appropriate concessions, consistent with someone who was trying to give honest and accurate evidence. It seemed to me that MB was honest in some aspects of her evidence, and less so in others. There were difficulties in MB’s evidence in cross-examination, for example, when she denied aspects of her own evidence-in-chief including her affidavit evidence as to her confidence that NB would sign the DoA when she requested him to do so (T51-52). While MB characterised her evidence in cross-examination as a “mistake” (T52), it seems to me to reflect the unreliability of her recollection of events and the extent to which her affidavit evidence was shaped by her perception of what could assist her case. She properly accepted in cross-examination that she understood that the assignment she sought in the DoA related to the Trust Debt, not the hotel assets owned by the NBF Trust, and she did not explain that matter to NB when he said that he was happy to sign the DoA because the hotel assets were (or, more precisely, were to be) hers anyway (T52-53). MB explained the inconsistency between her knowledge of the gift to SB in NB’s will and the fact that the assignment of the loan to her and AB would defeat that gift by reference to NB’s assets in Greece (T54), but that is no answer to the fact that the DoA would have defeated that gift. MB was also cross-examined as to the preparation of a power of attorney which would have allowed her and AB to transfer NB’s interest in the family home to them (T56); NB was ultimately not asked to sign that power of attorney, when it emerged it would not be valid when executed in Greece, unless executed before an official from the Australian Consulate.

10. MB retreated, in cross-examination, from her affidavit evidence as to the extent of strain on the family relationship when she was in Greece (T59-60). She sought to explain the change in position by reference to her feelings at that time, but that did not provide an adequate explanation of the inconsistencies and she again retreated to the suggestion that the reference in her affidavit to the family relationship in mid-2018 being “tense” was simply “a mistake”. She also resiled from her earlier affidavit evidence that the period of the trip to Greece in mid-2008 was a stressful time (T61). Her explanation of the fact that she deferred showing the DoA to NB until the last day of the trip, that she “didn’t feel the need to show it earlier” (T62) did not provide any real explanation of that approach, and I find that the delay created, and was likely intended to create, an appearance of urgency in the decision whether to execute the DoA. MB fairly accepted in cross-examination that, notwithstanding the suggested purpose of the assignment was to protect the family business, it would not do so unless MB and AB decided not to call on the loan (T67). MB also fairly accepted that the approach taken to the assignment would have conveyed to NB, contrary to what ultimately occurred, that MB and AB would not call on the loan if it was assigned to them, although she then retreated from that concession with the response “not necessarily” (T67-68). MB denied in cross-examination that she was seeking to take advantage of NB’s emotional distress or his desire to show that he still loved MB and AB, or of his tendency to make decisions quickly in family matters and in business matters when seeking to have the DoA executed (T70).

11. The Plaintiffs also rely on AB’s affidavit dated 29 October 2020, which refers to her having been made an alternate director of RHPL from 25 January 1999; to a suggestion made by NB that AB could authorise cheques and payments when he was overseas; to her appointment as company secretary of RHPL on 23 November 2020; to the circumstances in which she became aware of NB’s affair, to which I will refer below; and to her execution of the DoA. AB’s evidence is that she did not forgive NB for the emotional stress he had caused the family until November 2019 (AB 29.10.20 [49]) and she also addresses events from mid-June 2020 onwards. The Plaintiffs also rely on AB’s further affidavit dated 29 January 2021, which responded to NB’s affidavit dated 17 December 2020 and affidavits of Mr Balayannis dated 24 December 2020 and Mr Wong dated 18 December 2020.

12. AB was cross-examined at some length, although she was not present when the DoA was executed. She accepted in cross-examination that the family dynamic had remained tense during her visit to Greece, which took place after the DoA had been executed (T99). She also accepted, in cross-examination, that MB was representing her in putting the DoA together (T101). Her evidence in cross-examination was that she had not seen NB’s will or the joint memorandum of wishes signed by NB and SB, and it follows that the inconsistency between them and the DoA would not have been apparent to her. She also did not recall any discussion of the position in respect of the gift of $6 million to SB under the will in the context of the DoA (T103).

13. The Plaintiffs also rely on SB’s affidavit dated 15 February 2021, which refers to her practice of tolerating NB’s affairs for the family’s sake and her different response to the position in respect NB’s affair with a woman to whom I will refer as “I”, because it involved a suggestion that he had fathered a child to whom I will refer as “B” (although it now appears that was not the case). SB also refers to the manner in which the family accessed funds from the NBF Trust and the events surrounding the execution of the DoA in 2018. There are disputes in respect of aspects of that evidence, but it is not necessary to resolve them in order to determine these proceedings. SB was also cross-examined although she also did not arrive in Greece until the end of July 2018, after the DoA was signed. There were difficulties with aspects of SB’s evidence, so far as she had set out conversations in her affidavit, including as to the assignment of the Trust Debt, which she did not recall in cross-examination (T119). I do not accept her explanation that she had not understood the relevant question which was simple and where she had no difficulty with other questions of a similar character.

7. The Plaintiffs also rely on DK’s affidavit dated 15 February 2021. DK’s evidence is that he had NB’s authority to have documents including an assignment of the loan prepared. I do not accept that evidence. DK also addresses the circumstances in which the DoA was signed on 9 July 2018 and the circumstances in which the engagement of an accounting firm, William Buck, was terminated (DK 15.2.21 [73]) and subsequent discussions concerning the proposal that the Trust Debt be reassigned to NB. I address other aspects of DK’s evidence in dealing with the chronology of events and the claim against him in respect of several payments he authorised from RHPL below.

8. Mr Jackman submits that:

“As a general proposition, the Court should not accept [DK] as a witness of truth. Any evidence of [DK] cannot be accepted unless contrary to his interests or corroborated by a contemporaneous document authored by some other person. [DK’s] principal affidavit was, on various occasions, objectively incorrect. He was generally unwilling to accept this in cross-examination even where that was plainly demonstrated. In cross-examination he was rarely prepared to focus on the particular questions asked and sought to use his answers to develop a point that he wished to make, which frequently involved attempting to shift blame, and cast insult, onto various others. His answers in cross-examination were on occasion utterly implausible. He would not give evidence in cross-examination about his recollection of events without first asking to see the document which he anticipated he would be shown. Finally, [DK] made three affidavits in these proceedings, including two on the morning of his cross-examination. Yet in cross-examination [DK] advanced for the first time accounts of various events which he had every reason to include in one of his affidavits if they had in fact taken place. The Court would readily conclude that Dimitri did not include any evidence about those events in his affidavits because those events did not occur.”

16. In my view, DK was an unsatisfactory witness who was reluctant to direct his attention to the questions asked or answer them, and anxious to add gratuitous observations adverse to NB, even after the Court had drawn his attention to the desirability of focussing on the questions he was asked and seeking to answer them (T155). In cross-examination, DK maintained his claim that NB had told him that NB needed to “get rid of everything in [NB’s] name urgently” and that DK should get NB’s solicitors to prepare “all of the documents urgently to get rid of everything in [NB’s] name”, and he claimed that the email he subsequently sent (Ex P13, 2029) in relation to making MB and AB the appointors of the NBF Trust was “basically saying prepare documents to get rid of everything in [NB’s] name” (T167). I do not accept DK’s evidence that NB had given that instruction, which would have been disproportionate to the risk which existed in relation to potential claims by I or B and to the approach which NB took when others later informed him of the proposed transfer of assets out of the NBF Trust. DK was also cross-examined at some length as to the circumstances of transfer of funds out of RHPL on 17 June 2020, and I will address the question as to his authority to undertake that transaction and other aspects of his cross-examination below.

17. By his further affidavit dated 5 March 2021, DK refers to a practice by which family members requested payments of funds from the trust; DK then requested that an internal accountant with RHPL, Mr Wong, enter the transfer through the RHPL’s bank’s portal, and the then general manager of RHPL, Mr Balayannis, or DK approved the transaction. DK’s evidence, which I do not accept, is also that he had been told by NB that there was “no limit to what you can spend in the family” but that he was to be conscious of business cashflow and make sure there was enough money for the Greek business. By a further affidavit dated 5 March 2021, DK gave evidence that the notice of assignment of the Trust Debt was signed by NB on 10 July 2018 (although it is dated 9 July 2018) and delivered by NB to Athens Airport. It is not necessary to determine whether that was the case in order to resolve the proceedings.

18. The Plaintiffs also rely on an affidavit dated 3 February 2021 of Ms Tjhai, a former hotel manager at one of the hotels owned by RHPL which referred to work done by MB and DK at that hotel. The extent of MB or DK’s involvement in the business is ultimately not material to the matters in issue in the proceedings. The Plaintiffs also rely on the affidavit dated 4 February 2021 of Ms Maria Kentrotis (“MK”), DK’s sister, which indicated her impression of the dynamic between NB and the rest of the family while they were in Greece in July 2018 and referred to the circumstances in which the DoA was signed. MK also refers to her recollection that NB agreed to sign the DoA but declined to sign a power of attorney. That evidence is inconsistent with NB’s and MB’s evidence and, on balance, I consider that she was mistaken and do not accept that evidence.

19. NB, RHPL and SHM rely on NB’s affidavit dated 17 December 2020 which responded to the earlier affidavits of MB and AB. Significant parts of that affidavit, including a detailed history of the family business and a detailed account of NB’s relationship with I, were of limited relevance and were not read. NB’s evidence was that he had not had a conversation with DK in relation to the preparation of legal documents including the DoA or authorised the preparation of those documents or other steps referred to in DK’s email dated 17 June 2018 to Ms Kavadas (which I address below) and he also denies having authorised DK to send other correspondence to Ms Kavadas and to NB’s solicitors, McCabe Curwood. I accept NB’s evidence in that respect and reject DK’s evidence to the contrary. I will refer to other aspects of NB’s evidence in dealing with the chronology of events below.

20. NB was cross-examined at some length. He was plainly an intelligent witness, who had an understandable pride in his business achievements, but also frankly acknowledged areas in which investments in Greece had been less successful. NB readily acknowledged in cross-examination that he had substantial experience in making business judgments, especially in relation to the sale and purchase of hotels (T197ff), although it does not seem to me that that evidence assists the Plaintiffs so far as the assignment of the Trust Debt took place in a family context and was far from an ordinary course business transaction. NB was cross-examined at some length as to steps which he been taken in respect of estate planning, including obtaining advice from William Buck. I am comfortably satisfied that NB was an honest witness, doing his best to assist the Court in cross-examination, and his evidence reflected his mixed motivations in entering the DoA; the difficulties which subsequently emerged in respect of the effects of the assignment of the Trust Debt to MB and AB; and the ambiguities which have now arisen in his attitude to family members as a result of these events, including his perception that the family or DK “blew up” the business by applying for the appointment of receivers to assets of the NBF Trust and prompting RHPL’s bank to appoint receivers to those assets (T262). NB also referred to the advice subsequently given by his advisers that the execution of the DoA was “wrong, and against … my business” (T285).

21. NB was also cross-examined as to monies sent from the NBF Trust to his bank account in Greece, which were used for the business in Greece, and could not be transferred directly to Greece from RHPL’s bank account by reason of Greek banking procedures (T281). That evidence was corroborated by Mr Wong’s evidence which I address below. It appears those payments were not formally approved by the other directors of RHPL, but NB’s evidence, which I accept, is that those directors knew why the money was being sent to Greece and that amounts paid to the Aegean Casino business in Greece over that period were also discussed with directors who had not disagreed with the payments (T282).

22. NB, RHPL and SHM also rely on the affidavit dated 17 December 2020 of Mr Wong, the internal accountant for Reserve Hotels. Mr Wong addressed the treatment of the Trust Debt in the financial records of the NBF Trust and his evidence was that he had never been informed that the Trust Debt owed to NB had been or should be transferred or “assigned” to MB and AB, or instructed to change anything in RHPL’s books in relation to that Trust Debt. He also referred to the practice by which family members emailed him and indicated when they required funds, typically for personal expenses, which were charged against the Trust Debt. Mr Wong also referred to the practice by which monies were transferred to NB’s personal account in Greece in order to be transferred from that account to the companies conducting business in Greece, as required by Greek banking practice. Mr Wong was a precise, careful and credible witness and I accept his evidence.

23. NB, RHPL and SHM also rely on an affidavit dated 24 December 2020 of Mr Arthur Balayannis, who is NB’s nephew and had worked for RHPL for a long period, including as general manager from June 1999 until about November 2009 and again from March 2012 until January 2019 (T329). By Mr Balayannis’ further affidavit dated 25 February 2021, he responds to DK’s and SK’s affidavits dated 15 February 2021. Although there are disputes as to aspects of their evidence, it is not necessary to resolve those disputes in order to determine this matter. I refer to other aspects of his evidence in the chronology of events below.

24. Mr Balayannis’ evidence in cross-examination was that DK did not have a role in dealing with accountants and lawyers regarding RHPL in 2018, and I understand that evidence to be directed to whether DK was authorised to take such steps, as distinct from whether he did so (T331). Mr Balayannis’ own role in dealing with accountants and lawyers in relation to NB’s personal affairs in 2018 was limited to providing information and he provided information to a law firm to which I will refer as “CJP” in June 2018 at DK’s request, without seeking NB’s direct authority or approval to do so (T331-332). He understood DK was then arranging preparation of a power of attorney which would allow approval for NB’s daughters to exercise some sort of control or power over companies that NB had an interest in, but did not have NB’s authority in that regard; he viewed that matter as a “family matter” and understood that DK had authority to deal with it from what he was told by other members of the Balagiannis family, and he had discussions with MB about the matter in June 2018 (T333). Mr Balayannis’ evidence was that the DoA raised concerns in relation to RHPL’s relationship with its lender, National Australia Bank (“NAB”), he then raised those concerns with NB about December 2018 and NB responded he would deal with the matter. He did not have a conversation with NB about whether NB had a complaint about the way in which DK or his daughters went about obtaining the execution of the DoA (T339). His evidence was that DK had informed him about May 2018 of the suggestion that NB had a son in Greece, and he had advised DK that first, the child’s paternity should be confirmed and, second, the family should seek legal advice (T339). Mr Balayannis was also generally a precise and credible witness and I generally accept his evidence.

25. NB, RHPL and SHM also rely on the affidavit dated 12 February 2021 of Mr Hatzistergos, who is the managing director of William Buck. Mr Hatzistergos refers to the scope of William Buck’s engagement to provide services to the Balagiannis Group, in about July 2017, and to subsequent events to which I refer in the chronology of events set out below. Mr Hatzistergos gives evidence as to the advice that he would have given NB as to the DoA, had NB approached him for advice before he signed the DoA. His advice is that he would have advised NB not to sign the DoA, where the Trust Debt was the primary asset in NB’s name, apart from his half interest in his matrimonial home, and his only liquid asset; that signing the DoA would give away control over his only liquid asset, including control over when the Trust Debt would be called on; that, if MB and AB called on the Trust Debt, the NBF Trust would not have the liquidity to pay them without selling an asset and that would likely put RHPL in breach of its financial covenants with NAB; and the effect of the DoA would be that NB would be unable to discharge his obligations to SB under his February 2018 will. Mr Hatzistergos also gives evidence as to the advice which he would have given, subject to obtaining legal advice, as to other steps which NB could take in respect of any claim against his assets. There is no reason to doubt Mr Hatzistergos’ evidence in this respect, which was not significantly undermined by his cross-examination. In any event, I am comfortably satisfied that any competent legal or accounting adviser would have given advice of that character, had MB and AB recognised that a transaction of this kind should not go forward without recommending or requiring that NB first obtained independent legal or accounting advice.

26. By his further affidavit dated 12 February 2021, NB indicates that, if Mr Hatzistergos had given the advice referred to in his affidavit dated 12 February 2020, he would have followed that advice. I am conscious that a degree of hindsight inevitably intrudes in evidence of that kind; however, it seems to me that the probability is that NB would in fact have followed such advice, and at least would have adopted an alternative course to executing the DoA, given the significant risks to his control of the NBF Trust and the business and to RHPL’s banking relationship with NAB which arose from the DoA. By a further affidavit dated 25 February 2021, NB responds to AB’s affidavit dated 29 January 2021, MB’s affidavit dated 3 February 2021 and DK’s and SB’s affidavits dated 15 February 2021, and takes issue with significant aspects of DK’s evidence. I prefer NB’s evidence to DK’s evidence where there is a conflict between them, given the findings which I have reached as to DK’s credit. By a further affidavit dated 1 March 2021, NB responds to MK’s affidavit dated 4 February 2021.

Factual findings

27. By way of background, RHPL was incorporated in February 1997. NB has been a director of RHPL at all relevant times; AB was appointed an alternate director of RHPL in January 1999; MB and AB were appointed secretaries of RHPL in November 1999; MB and her husband, DK, were later appointed as directors of RHPL, although there is a dispute whether both were appointed in September 2018 or they were appointed at different times; and SB was appointed as a director of RHPL in November 2018.

28. The NBF Trust was established in June 1997. At about that time, NB and a business associate sold an earlier business for a substantial price and he used part of his proceeds of that sale to fund RHPL and the NBF Trust by providing funds to RHPL by way of the loan now reflected in the Trust Debt. The amount of the Trust Debt as at 30 June 2017 was $21,057,557.41 and the amount of the Trust Debt as at 30 June 2018 was $18,556,080. Payments to NB and his family members are generally made out of the Trust’s funds but are recorded as credits against the Trust Debt rather than as distributions from the Trust (NB 17.12.20 [45]). Mr Jackman submits, and I accept, that those payments are in substance made from NB’s funds, so far as they reduce the debt owed to him rather than reducing the Trust’s net assets. The principal assets of the NBF Trust are now land and buildings in Pitt Street Sydney from which a valuable hotel trades under the name “Mr B’s” and the business of that hotel, the land and buildings from which another hotel trades under the name “Chamberlain Hotel” and the business of that hotel, and the business of two other hotels which operated from leased premises.

29. By cl 3 of the Trust Deed for the NBF Trust, the Trust Fund and income of it is held for all or such one or more of the Eligible Beneficiaries as the trustee shall appoint. The class of Eligible Beneficiaries is defined in cl 1.1 to include, relevantly, NB, SB, their children (including illegitimate children) and NB’s future spouse or spouses. The trustee also has a discretion to appoint trust assets before the vesting date under that clause and, under cl 4, it has an absolute discretion to pay or apply the whole or such part of the income of the Trust Fund to one or more of the individual Eligible Beneficiaries (as defined) for their advancement, maintenance, education or benefit in each Accounting Period (as defined) and, in default of an appointment under cl 4 or a distribution under cl 4.1 or a decision to accumulate, the Eligible Beneficiaries are entitled to the trust income for each Accounting Period in equal shares. Clause 5 in turn provides that, in default of appointments under cl 3 or distributions under cl 4 or cl 7, on the vesting day, the Trust Fund is held for NB’s children in equal shares and their children take their share if they pass away. The Trustee also has an absolute discretion to pay or apply the whole or part of the Trust Fund to one or more of the individual Eligible Beneficiaries for their advancement, maintenance, education or benefit under cl 7. Under cl 19, NB as “Principal” of the Trust has power to appoint or remove a Trustee, but may not appoint himself or an Eligible Beneficiary as a trustee.

30. Since about 1997, NB has regularly travelled to Greece each year. In mid-2008, he commenced an extra-marital affair with l and, in March 2009, I gave birth to a son, B. For a significant period, NB believed that it was likely that B was his son and a paternity test conducted in 2011 appeared to support that belief. A later paternity test indicates that that is likely not the case, although that question need not be resolved in these proceedings.

31. In 2017, NB was diagnosed with idiopathic pulmonary fibrosis. There is a degree of uncertainty in the evidence as to his prognosis and his understanding is that his condition has not deteriorated and to some extent has improved since 2017 (NB 17.12.20 [91]).

32. In July 2017, NB retained William Buck to undertake accounting and estate planning work and emphasised “his wish to maintain the assets (rather than sell them)” (Ex P7). By his will dated 23 February 2018, drafted as a result of that estate planning, NB appointed MB and AB as his executors, which would also confer the power of appointor under the NBF Trust on them after his death (cl 7.1); he left his interest in the family home to SB or life and then to MB and AB (cl 14); he declared a trust for SB of his rights, entitlements and interests in any loans up to the value of $6 million which remained owing directly and personally to him by the NBF Trust (cl 16.2, 17.1); and he declared a trust for MB and AB in respect of the residue of his estate (cl 16.2, 17.2). A Memorandum of Wishes executed by each of NB and SB recorded their intent to enter a binding financial agreement under the Family Law Act 1975 (Cth) and noted that SB’s lifestyle and any foreseen circumstances would be adequately provided by the assignment of $6m of the Trust Debt (cl 12). That provision emphasises the significance of that gift, which would be defeated by the DoA as I note below.

33. In early 2018, NB disclosed to DK in confidence that he was having an extra-marital affair with I; that I claimed that he had fathered a child with her; that he undertaken paternity tests in Greece that indicated that he was the child’s father; that he was planning to divorce SB to sort it out; and he then requested DK not to tell SB, MB or AB and that NB would tell them when he was ready, and that DK agreed. (As I have noted above, it now appears likely that B is not NB’s child, by reason of a subsequent paternity test). NB’s evidence (admitted with a limiting order under s 136 of the Evidence Act as evidence of his understanding) is also that he had disclosed those matters to DK in confidence (NB 17.12.20 [95]). As will emerge below, DK promptly and comprehensively betrayed that confidence, by conveying that information to SB, MB and AB and their advisers, and using that information to advance at least his own and possibly also MB’s interests.

27. NB travelled to Athens in about February or March 2018, as he had done in previous years. By a text message dated 3 June 2018 (Ex DK1, 2040), NB’s long-term accountant advised DK that I was “highly likely to cause trouble to the family” and recommended the family obtain a “good Greek lawyer and may need to make a settlement, subject to DNA Test”. She also referred to NB’s personal guarantee for debts of the Aegean casino in Greece which was owned by an associated entity and the potential liability of his estate in respect of that guarantee, and to a possible strategy to transfer Greek, Macedonian and other overseas assets and liabilities so that any challenge to his will in Greece was minimised, and to “expect various claims from various characters against his estate in Greece”.

28. DK subsequently disclosed the information he had been told in confidence about NB’s relationship with I and the possibility that B was NB’s son to several family members and advisers. On 7 June 2018, DK disclosed that information to NB’s solicitor, Mr McCabe, who recorded what he had been told in a contemporaneous email to a solicitor in his firm (Ex D12) as follows:

“I had a confidential telephone call from [NB’s] son-in-law [DK] yesterday evening.

He informed me that:

1.   [NB] has told him that he has an ex-nuptial child in Greece aged 10.

2.   No-one in family is yet aware of this.

3.   [DK] does not believe [NB’s] marriage will survive after he informs his wife [SB] of the position when she travels to Greece in a few weeks’ time.

4.   [DK] wants to get an understanding of how a BFA [binding financial agreement] works. He does not want anything emailed to him as his wife not yet aware of position.

I said we would prepare a hard copy outline of BFAs and would let him know when that was ready.”

I find that DK was then initiating steps to protect his or his and MB’s financial position which were not prompted by any then wish by NB to take such steps. DK accelerated those steps as events continued.

36. DK then told MB, again in breach of NB’s confidence, in mid-June 2018 that “your dad had an affair with a woman in Greece and he has a son with her. The mother of the child had a DNA test done in Greece” (MB 29.10.20 [60]). MB refers (at [64]) to her concern that I would make a claim on NB’s assets, and to her consideration as to “how to protect the family business assets”. Her evidence at [65] is that:

“… in around June 2018, together with [DK], I organised the preparation of the [DoA], whereby my father would transfer a loan of $25,057,557.44 owed to him by RHPL to myself and [AB] in equal shares. This was organised in advance of a planned family holiday to Greece.”

37. Her evidence is that she did not know whether NB would agree to sign the DoA when it was prepared. Inconsistently with DK’s evidence, MB does not suggest that NB had any advance knowledge of the DoA or any involvement in its preparation and her claimed uncertainty as to whether he would sign it would tend strongly against any suggestion that NB had requested its preparation. MB also refers to her confidence in asking NB to sign the DoA as “he had always said that the pubs are for [MB] and [AB]”; however, the DoA did not relate to the pub assets owned by the NBF Trust, but instead to the Trust Debt owed by the Trust to NB.

38. DK also disclosed NB’s affair to AB, again in breach of NB’s request for confidentiality, in June 2018 and AB gives evidence of its impact on her in strong terms, that her “world came crashing down” with the news that NB had another child from the affair (AB 29.10.20 [27]). (As I have noted above, it now appears likely that B is not NB’s child.) AB also refers to several conversations between AB, MB, SB and DK in which they “echoed each other’s concerns” as to aspects of the matter and to a conversation with MB, although she does not date it, in which MB said “we are getting something in place to protect our assets, because if a claim is made against [NB], we could lose the family business” and to her agreement that there was a “need to protect the family assets” (AB 29.10.20 [30]-[31]).

39. DK also informed Mr Bayalannis, in June 2018, that he had spoken to NB about “the child with the other woman in Greece” and that NB had told him not to say anything to anyone about it; requested Mr Balayannis to discuss the matter with NB; and Mr Balayannis sensibly responded that he would not have that conversation with NB, who should have a paternity test (Balayannis 24.12.20 [45]). Mr Balayannis’ evidence is that he then recognised that, if NB wished to tell him anything about that personal matter, then NB would do so himself. Shortly after that occurred, Mr Balayannis became aware that MB also knew what NB had told DK, and DK said to him in MB’s presence that:

“We are concerned about this person in Greece maybe coming to Australia and making claims against the family’s assets.” (Balayannis 24.12.20 [47]).

Mr Balayannis then, again sensibly, suggested that the family should take legal advice.

40. In a subsequent conversation with Mr Balayannis in June 2018, DK referred to putting the pubs owned by RHPL on the market “to deal with any claims against the family’s estate”, without informing NB of that matter until agreement with a buyer was reached. Mr Balayannis suggested, and DK rejected, obtaining professional advice including accounting advice in that respect (Balayannis 24.12.20 [48]).

41. By an email dated 16 June 2018 to Mr McCabe, DK advised as follows:

“Please keep this email private and confidential.

Can your firm prepare paper work that will give [NB] the option to make the girls appointors of the Trust from when [NB] signs it rather than only having the it [sic] only occur after his passing.

Also can you prepare paper work for [NB] giving a power of attorney for everything to do with Australia that could also start from when [NB] signs it.

The reason I am asking for the paper work is that [MB] is hopefully going to Greece in the next 10 days to see her father and we believe [NB] will discuss it with [SB] as soon as she arrives to Greece and we as a family want to be prepared with paper work so he isn’t pressured later not to give items.

It is our opinion and from what people overseas are relaying to us that [NB] is basically a victim of entrapment and now being pressured by people overseas to get married immediately and also not to take lifesaving medication for his lung disease as the new doctor they recommended says he has nothing …”

In discussions with my father-in-law he has indicated to me that he will most likely give everything according to his Will now rather than later even if it means paying capital gains tax and we can then sort out anything from then on.

Is it possible to have something for me and my wife by this Tuesday please. If your too busy let me know as we understanding it’s all last minute so we can make other arrangements.”

NB denies that he had such a discussion with DK (NB 17.12.20 [105]) and I accept NB’s evidence as to that matter. NB’s evidence, which I also accept, is that the references to entrapment, pressure from people overseas and lifesaving medication were all false.

42. Mr McCabe responded, on 18 June 2018, that his firm could prepare those documents but he also prudently observed that:

“As you will probably understand we have ethical rules which means that we can only prepare these documents if we receive clear unambiguous direct instructions from [NB] and we can satisfy ourselves that he has full understanding and capacity in relation to the proposed documents.

Would it be possible to arrange a teleconference with [NB] so that we can have a discussion with him on these matters.”

43. Mr McCabe’s requirement that he confirm his instructions directly with NB appears to have brought DK’s engagement of his firm to prepare those documents to an immediate halt and to have prompted DK then to engage Ms Kavadas, a solicitor with CJP, to do so. By an email dated 17 June 2018 (Ex D8, 1026), DK advised Ms Kavadas that:

“I spoke to [NB] last night and he would like me to proceed with arranging certain items to help the family out here in Australia.

Can you please make sure that your colleague contacts Risika [an accountant] first thing in the morning to arrange the paperwork for my father-in-law to sign over the remaining amount of his personal loan I think it’s approximately $25 million he has left with [RHPL] according to Arthur [Balayannis] last week to be gifted to my wife [MB] out of live [sic] and affection from now so we don’t have any future issues with it.”

By a subsequent email also dated 17 June 2018, DK advised Ms Kavadas that AB should also be included in the transaction, and that MB and AB “will each have each [sic] of the loan”. NB’s evidence, which I accept, is that he was not aware of those emails at the time and he denies giving such instructions to DK (NB 17.12.20 [106]-[107]). It appears that Ms Kavadas did not seek to confirm the instructions conveyed by DK in these two emails directly with NB.

44. In cross-examination, DK maintained that the change of solicitor from Mr McCabe to Ms Kavadas was made at NB’s request, on the basis that Mr McCabe was “too expensive” and NB wanted the work done quickly and instructed DK to contact Ms Kavadas to have it done. I do not accept that evidence, and I find that the change of solicitor reflected DK’s wish to avoid Mr McCabe’s seeking to confirm the instructions he had given directly with NB and his hope that Ms Kavadas would not think to do so, as was the case. DK also maintained, in cross-examination, that NB had requested him to ask Ms Kavadas to prepare documents for an assignment of the Trust Debt; denied that he took that course without asking NB, contrary to MB’s evidence in that regard; and maintained that NB was “making that request daily” and “it was urgent that he move assets out of his name” (T174) and that NB was calling DK daily and “pressuring me to get assets out of his name” (T174). Again, I do not accept that evidence.

45. NB pleads (APOD [17C]) and I am comfortably satisfied that DK falsely represented to Ms Kavadas that he had acted with NB’s knowledge and authority in this respect. NB also pleads that DK acted with MB’s and AB’s knowledge in this respect (APOC [17D]), and MB’s evidence in cross-examination establishes that at least she knew that DK did not have MB’s authority to approach Ms Kavadas and CJP in this manner. I am also comfortably satisfied that the statement in DK’s email dated 17 June 2018 that he had spoken to NB about that transaction was false.

46. By email dated 22 June 2018 (Ex D8, 195), a solicitor at CJP emailed an amended DoA and notice of assignment of the Trust Debt to be given to RHPL, as discussed with Ms Kavadas, to MB with a copy to DK.

47. NB’s evidence was originally that, in late June 2018, SB, MB, AB, DK and MK arrived in Athens and stayed with NB in his house (or, more precisely, in an apartment in a building in which he owned several apartments) before returning to Sydney on 10 July 2018 (NB 17.12.20 [113]). NB now accepts that he was mistaken in that respect and that SB and AB did not arrive in Greece until after the execution of the DoA and after MB and DK had returned to Sydney. The Plaintiffs sought to make much of this error to impugn NC’s credit, but I am satisfied that it was no more than an error of recollection, which had some impact on the way in which he described events in his affidavit evidence, but not on his evidence in cross-examination. NB’s evidence is that he was then “very embarrassed and uncomfortable”; was stressed about what he had done in his affair with I, and then realised, as was the fact, that DK had betrayed his confidence by telling his family what he had previously disclosed to DK (NB 17.12.20 [119]). NB also referred (in evidence admitted with a limiting order under s 136 of the Evidence Act) to his understanding that MB was very upset with him and to tension between him and his family. It seems to me that that position is consistent with the probabilities, and indeed with MB’s affidavit evidence. NB’s evidence was that he then believed that B and I would have significant claims upon him and that he had “potentially exposed my family and my life’s work in building my wealth” (NB 17.12.20 [122]). NB expressed a somewhat different position in cross-examination, to the effect that his family members were more concerned than he was about such claims. I treat NB’s evidence as to that matter with a degree of caution, and take it into account in assessing his credit.

48. DK’s evidence is that, when NB and he arrived in Greece in late June 2018, he handed versions of the DoA and several powers of attorney to NB who indicated he would talk about them when he was ready (DK 15.2.21 [54]). I do not accept that evidence given the view that I have formed as to DK’s credit.

49. NB pleads (APOD [17E]) that, in late June 2018, he had a conversation with MB, DK and MK in which MB and DK “confronted” him about his affair; they requested that he undertake a further paternity test to determine whether he was B’s father; and NB said that he would undertake that test. He pleads (APOD [17F]) that, in late June 2018 or early July 2018, he undertook a further paternity test that purported to confirm that he was not B’s father, but MB and DK indicated they wanted him to have a further paternity test conducted in Australia.

50. Turning now to the events in respect of the execution of the DoA, NB pleads (APOD [17G]-[17I]) that:

“17G.   On 9 July 2018 [MB, DK and MK] attended on [NB] in the dining room of a unit he owned in Athens, Greece, for approximately 5 minutes, without prior notice to NB about the purpose of the meeting (9 July 2018 Meeting).”

17H.   During the 9 July 2018 Meeting, [MB and DK]:

(a)   presented [NB] with the [DoA] which was already turned to the execution page;

(b)   represented to [NB] that the assets of NBF Trust were at risk to a claim by [B] or his mother (on the basis that [B’s] mother might alleged that she was the de facto partner of [NB];

(c)   verbally purported to explain of the effect [sic] of the [DoA];

(d)   did not give [NB] an opportunity to read the [DoA];

(e)   demanded that [NB] execute the [DoA] during the meeting;

(f)   did not give [NB] the opportunity to obtain legal advice in relation to the [DoA];

(g)   did not give [NB] any time to consider or any opportunity to negotiate in relation to the terms of the [DoA];

(h)   did not propose any consideration in favour of [NB] for the assignment.

17I.   [NB] and [MB] executed the [DoA] during the 9 July 2018 meeting.

17J.   The [DoA] had the purported affect [sic] of transferring the Trust Debt of approximately $18,556,080 owed to [NB] by the NBF Trust from [NB] to [MB] and [AB] for no consideration.

17K.   As at 9 July 2018, the Trust Debt represented approximately 60% of [NB’s] assets.”

51. On 9 July 2018, NB executed the DoA which was in relatively straightforward terms and, by cl 1, provided that NB assigned to AB and MB in equal shares all his right, title and interest in the Trust Debt, then in excess of $18.5 million. NB was mistaken in his original recollection that AB executed the DoA at that meeting, reflecting his error in believing that AB was then in Greece, and she had in fact previously signed the DoA in New York and forwarded it by courier to MB in Greece. NB has not established that the Trust Debt represented approximately 60% of his assets, since it is apparent that he and entities associated with him have significant assets in Australia and Greece, and the evidence as to his and controlled entities’ assets and liabilities does not allow any assessment of his personal net asset position or his and controlled entities’ net asset position. It is, however, clear that the Trust Debt represented a substantial liquid asset; that he and his family had previously paid ordinary living expenses by causing RHPL to make repayments against the Trust Debt as needed; that he would no longer have access to that debt for that purpose after it was assigned to MB and AB; and that other assets were largely in the nature of less liquid hotel properties, hotel businesses or real property.

52. NB’s affidavit evidence as to the execution of the DoA (NB 17.12.20 [126]-[127], part of which was admitted with a limiting order under s 136 of the Evidence Act as evidence of his understanding) is that, on 9 July 2018, he came into the dining room in the Athens apartment, saw everyone was standing around the dining room table and NB could feel the tension. His evidence is that he noticed that there was a document sitting on the dining room table which was open on a page and a conversation took place as follows:

MK/DK:    "You have no assets in your name in Australia except the debt that the Trust owes you. We are concerned that [B's] mum will make a claim against your assets. To protect your money from any claim, we want you to sign this document immediately to sign the debt over to Angeliki and me (Mary). Transfer it to Angeliki and me (Mary) in 50/50 shares so that [B's] mum cannot make any claim to it."

NB:    "ok I will sign it."

53. That evidence is not very different from MB’s evidence of the conversation, to which I refer below, including as to the brevity of the conversation, and the lack of any recognition of the legal or commercial effect of the DoA; NB’s evidence is that he was feeling “very stressed” and “very embarrassed” and did not read the document. There is a contest as to that matter, which I need not resolve given the other findings which I reach below. NB’s evidence, which I accept and which was plainly consistent with the probabilities, was also that he did not understand the significance of the document to his legal rights and that he “always believed that [he] controlled the NBF Trust completely and as managing director had control of all financial decisions” (NB 17.12.20 [130], admitted with a limiting order under s 136 of the Evidence Act as evidence of NB’s understanding). His evidence was also that he “believed at the time that [he] had to show his daughters and his family that [he] loved them”; it seems to me that that was likely part of the motivation for signing the document, even if asset protection also had some part. That motivation is ultimately not material to the findings which I reach below.

54. In cross-examination, NB’s evidence was also that he did not read the DoA when he signed it and he referred to what MB had said before he did so. He was asked what she had said and his evidence was that:

“[MB] said please sign here. … Loans that the company owes to give the money that loans to you, goes to [MB] and [AB]. So, nobody can touch it, and myself at the time, I thought fair enough, I do this the least you can do, pass this over to the kids, because it was internal, an internal loan affair. I never thought that it will damage my business by doing that. I never thought that I will leave out my wife by doing that. When I come back to Australia and I’ve been warned what I did was terribly wrong, then I tried to, I tried to fix the problem. I was, have a conversation with my kids. They say no. …” (T249)

NB accepted in cross-examination that he then understood there would be a transfer of the Trust Debt to MB’s and AB’s name and that it was his thinking that “by doing this it would mean that nobody else can touch it and that his daughters were safe hands” to look after the Trust Debt (T250).

55. MB also gave evidence (MB 29.10.20 [75]) of the circumstances in which the DoA was signed and set out the conversation before that occurred, as follows:

“[MB]:   Dad, I’m concerned that [B’s] mum is going to try to take our pubs in Australia. We prepared a document for you to sign that will transfer the money you are owed by the business, to me and [AB] and protect our family business.”

[MB handed NB the DoA]

[NB]:   Absolutely, the pubs are yours anyway, of course I will sign.”

56. In her evidence in response to NB’s affidavit (MB 3.2.21 [26]), MB says she does not recall saying words to the effect that “You have no assets in your name in Australia except debt that the trust owes you”. She does not there deny NB’s evidence that there was reference in that conversation to signing the document immediately.

“On [DK’s] version spending from the [RHPL] accounts by [NB], [SB], [MB], [AB] and [DK] was a completely informal process; family members contacted the internal accountant or [DK] for money, the internal accountant input the spend through the NAB portal, and [DK] approved the spend. There was no expectation of family members (who were all directors) that before [DK] did so, the family member or [DK] personally would check with [NB].”

165. He accepts that:

“On [DK’s] version, some element of judgment or expression must have been involved in the exercise of his authority: although funds in the [RHPL] accounts were no doubt large in amount, they were not infinite’ cashflow for the pubs businesses and the Group’s debt commitments to NAB which were in the order of $40m plus and must have posted some practical restraint. However the position at which the discretion or judgment might miscarry is a deeply factual and specific inquiry. If [DK’s] version of authority is accepted, there is insufficient evidence for the Court to find that his discretion or judgment miscarried in relation to the $510,000 payments.”

166. Mr Russoniello submits, and I will assume, that it was open to the directors under cl 18 of RHPL’s Articles of Association to confer upon DK the power to distribute monies from RHPL’s account to Balagiannis family members without transactional limits as they were trust monies in which Balagiannis family members had an interest and the powers of appointment were extremely broad. He submits that it was also open to RHPL’s directors to agree under cl 27 of the Articles of Association that DK and MB were to manage and transact the affairs of RHPL in Australia. There is no suggestion that the directors of RHPL passed a resolution to the former effect; I have addressed above the scope of DK’s authority arising from the conduct of the parties; and I am not satisfied that the directors ever agreed that DK and MB were to manage and transact the affairs of RHPL in Australia, although they were allowed some administrative and limited managerial powers in that respect. Mr Russoniello refers at length to NB’s evidence, Mr Wong’s evidence and DK’s evidence. I have referred to key aspects of that evidence above; I have had regard to all of the evidence to which Mr Russoniello refers; and I do not accept DK’s evidence, other than where it is against interest or, rarely, corroborated by documents, given the view that I have formed as to his credit. I find that the transfer of the relevant funds was unauthorised, because the nature of the transactions were well outside the scope of the authority conferred on DK by the practices of RHPL, were not authorised by RHPL’s board and were not the subject of any shareholders’ consent by NB as RHPL’s sole shareholder.

167. The next question is whether, where I have found that DK transferred the relevant funds without authority, that gives rise to a restitutionary or equitable claim against DK for the entire amount of those funds and against MB and AB for the amounts they received. Mr Russoniello addressed the scope of a claim for monies had and received by reference to authority, including Heperu Pty Ltd v Bell (2009) 76 NSWLR 230; [2009] NSWCA 252 and Australian Financial Services and Leasing (2014) 307 ALR 512 at [67]ff. A claim for monies had and received may be established in respect of monies paid over without authority, which remain the property of the payer, unless a third party has received the money in good faith and for valuable consideration: Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 572; Heperu Pty Ltd v Bell above; Break Fast Investments Pty Ltd v Giannopoulos [2011] NSWSC 1508 at [33]-[34]. In Riverwood Legion and Community Club Ltd v Repaja & Co Pty Ltd [2015] NSWSC 383 Stevenson J held that the volunteer recipient of funds paid out without authority, and in fraud upon the payer, came under a personal liability to restore the relevant funds.

168. Mr Wood also fairly recognised in submissions that he understood RHPL to claim a constructive trust over the amounts paid to DK, MB and AB relying at least on the principles in Black v S Freedman & Co (1910) 12 CLR 105; [1910] HCA 58. The High Court there held that money given by a thief to a third party who received that money as a volunteer could be recovered by the victim of the theft although the third party had not participated in the theft. In Wambo Coal Pty Ltd v Ariff & Anor (2007) 63 ACSR 429; [2007] NSWSC 589 at [40]-[41], White J summarised the relevant principles as follows:

“Where property is stolen, the property is trust property in the hands of the thief and can be traced into the hands of a third party who receives the property otherwise than as a bona fide purchaser of the legal estate for value without notice. The property is trust property in the hands of the thief because the thief is bound in conscience to hold the property on behalf of its true owner. Whether the trust is characterised as a resulting trust (Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75; [2004] NSWCA 82 at [1-3]–[117]), or as a constructive trust (Westdeutsche Landesbank v Islington London Borough Council per Lord Browne-Wilkinson at 716), the trust is of an institutional rather than a remedial character. It arises because the conscience of the thief is bound.

In the same way, where property is acquired by fraud and there is a complete failure of consideration, the trust arises immediately on the receipt of the property: Orix Australia Corporation Ltd v Moody Kiddell & Partners Pty Ltd [2005] NSWSC 1209 at [155]–[156] and cases cited. So, in Neste Oy v Lloyds Bank plc [1983] 2 Lloyd’s Rep 658, referred to with apparent approval in Re Goldcorp Exchange Ltd [1995] 1 AC 74 at 104; [1994] 3 NZLR 385 at 404, where the payee received payment from its principal of moneys which were not impressed with an express trust, but which were to be used in performance of a contract which the payee knew could not take place, the payee held the payment on trust for the payer from the time of its receipt. The circumstances which created the trust in Neste Oy were that the payee knew (as was the fact) that there could be no performance under its contract, so that there was a total failure of consideration for the payment, and the payment could not in conscience be retained. The trust was an institutional trust which attached to the moneys from the time of receipt.”

169. In Heperu Pty Ltd v Belle above at [92], Allsop P summarised the effect of the principle as that:

“a person entirely innocent of a fraud who comes to know that he or she has received and still retains the proceeds of, or taken advantage of, a fraud to which he or she was not party, cannot knowingly seek to retain those proceeds or that advantage, without, in effect, becoming a party to that fraud and liable accordingly…”

170. I also recognise that, in Agip (Africa) Ltd v Jackson [1990] Ch 265 at 284 (“Agip”) (upheld by the Court of Appeal at [1991] Ch 547), Millett J referred (at 291) to a category of knowing receipt liability where:

“the person, usually an agent of the trustees, who receives the trust property lawfully and not for his own benefit but who then either misappropriates it or otherwise deals with it in a manner which is inconsistent with the trust. He is liable to account as a constructive trustee if he received the property knowing it to be such, though he will not necessarily be required in all circumstances to have known the exact terms of the trust.”

171. Mr Jackman also relies on that case for Millett J’s observation that:

“Where an agent has paid away his principal’s money in circumstances which give rise to a right of recovery, either principal or agent can sue, while, if the money has been paid without authority, the principal has alternative remedies: to sue the agent or the person to whom he paid the money. By suing one he does not in any sense waive the claim against the other. He must of course elect between the alternative remedies but there is no final election until a judgment is obtained and satisfied: United Australia Ltd v Barclays Bank Ltd [1940] 4 All ER 20, [1941] AC 1.”

172. In Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc[1990] 1 QB 391 (“Metall und Rohstoff”) at 474, the Court of Appeal in turn referred to a category of constructive trust where a party received trust property, other than as a purchaser for value without notice of the trust, and acquired notice of the trust and dealt with it in a manner inconsistent with the trust, which it described as a “wrongful dealing constructive trust”. In Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81 at [45], Leeming JA (with whom Bathurst CJ and Sackville AJA agreed), referred to Agip and Metall und Rohstoff above and observed that:

“A person who receives trust property, otherwise than as a bona fide purchaser for value without notice, but innocently, and thereafter acquires notice of the trust and deals with it in a manner inconsistent with the trust, will also be liable as a constructive trustee. Although this is similar to first limb Barnes v Addy liability, it is conceptually distinct, because it is the subsequent dealing, rather than the receipt of property, that founds liability, as Professors Dietrich and Ridge have observed: J Dietrich and P Ridge, Accessories in Private Law, (2015, Cambridge University Press) at 203. This class of liability was identified by Millett J in Agip (Africa) Ltd v Jackson[1990] Ch 265 at 291 and by the Court of Appeal in Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc[1990] 1 QB 391 at 474; see also L Tucker et al, Lewin on Trusts (19th ed 2015, Sweet & Maxwell) at 2103–9. The distinction drawn by Millett J in Agip was cited with evident approval in Sze Tu at [143].”

173. In Rheem Australia Pty Ltd v McInnes [2020] NSWSC 1313 at [127], Parker J found that a company whose funds had been paid out by an employee in fraud upon it was entitled to judgment against that employee for that sum, where the transaction was fraudulent and no proper consideration was provided for the payment, by way of a common law entitlement by way of restitution for monies had and received, as well as by a claim under Black v S Freedman & Co above, giving rise to an equitable personal remedy in parallel to the common law remedy by way of restitution, the entitlement in each case being to recoup the amount misappropriated. His Honour also held that claim extended, under Black v S Freedman & Co above, to a volunteer who innocently received the relevant funds, once the volunteer was made aware of the true owner’s interest, in respect of whatever monies were left or the traceable product of those monies.

174. Here, the monies that are the subject of this claim were trust funds; they were paid out by DK without authority; and each of MB and AB received the funds as volunteers. A claim for monies had under the principles recognised in Black v S Freedman & Co, Agip and Fistar v Riverwood Legion and Community Club Ltd is established against DK for the amount paid out without authority and against MB and AB them for the monies they received as volunteers.

175. A further issue arises as to whether amounts paid to Shanahan Tudhope Lawyers are recoverable, which depends on whether that firm was then acting for RHPL, so the funds paid to it were held on RHPL’s behalf. It seems to me that, when monies were transferred to Shanahan Tudhope, that firm was not acting for RHPL, but for DK, MB and interests associated with them. On 10 June 2020, the firm had advised DK and MB that:

“For us to act for [RHPL] there would need to be a directors’ meeting and resolution, which would necessarily mean notifying [NB]. [NB] might also allege a conflict of interest for us as we have acted for him in relation to the Mitris matter.”

MB also initially accepted in cross-examination that, at the time payments were made to Shanahan Tudhope, that firm was engaged to advise her as to her rights as a beneficiary of the NBF Trust and as to the possibility of litigation against her father, and was advising her and AB in that respect (T74). She also fairly accepted that, in June 2020, Shanahan Tudhope were not acting for RHPL, although she resiled from that evidence in cross-examination by Mr Russoniello, after being shown the email dated 10 June 2020 from that firm which did not in fact support the contrary view (T79). I have referred above to later correspondence from that firm which is consistent with its acting for DK and MB and possibly SB and AB rather than for RHPL.

176. I recognise that there is some evidence that Shanahan Tudhope has, at least at times, taken the contrary position. By an email dated 19 June 2020 to NAB (Ex DK7), Shanahan Tudhope appears to have reversed its position of nine days earlier so as to contend that it had received funds into trust from RHPL and claim that those funds were held on trust for that entity. On 1 July 2020, Shanahan Tudhope again advised that it was retained as solicitor for RHPL and was unable to act for one group of directors against another (Ex DK6). Recently, Shanahan Tudhope declined to provide information to DK’s solicitors as to the extent of any monies still held on trust on the basis that that information was confidential information of their client, RHPL (Ex DK1, DK5).

177. Mr Russoniello contends that the claim against DK fails as regards the funds paid to Shanahan Tudhope because they were paid into a trust account for the benefit of RHPL and may still be there or may have been disbursed on the authority of NB or SHM. I do not accept the premise of that submission that the amounts were initially paid into a trust account for the benefit of RHPL, as distinct from for the benefit of DK, MB and possibly SB and AB for whom Shanahan Tudhope were then acting. However, the position is now more complicated because (as I noted above) Shanahan Tudhope now takes the position that it is acting for RHPL and holds the funds, or what remains of them, on account of RHPL. A consequential issue now arises as to the quantum of the claim against DK in respect of the amount paid to Shanahan Tudhope

178. By email dated 22 March 2021, apparently in response to the issue raised by DK at the hearing as to whether monies were still held by CJP and Shanahan Tudhope and were recoverable by RHPL or SHM and a question I had then raised as to the extent of the claim that could properly be put by RHPL and its legal representatives, the solicitors acting for NB, RHPL and SHM advised that they no longer pressed any claim for relief with respect to the $50,000 paid to CJP and only pressed a claim for relief in the amount of $43,872.40 with respect to the $110,000 paid to Shanahan Tudhope. The amount of the judgment that RHPL seeks against DK is therefore reduced to $393,872.40 or alternatively $150,000 (being the amount he personally received) plus interest; and the amount of the judgment it seeks against each of MB and AB is $100,000 plus interest. By an email dated 26 March 2021, sent without leave, DK’s solicitors in turn advised my Associate that the Cross-Claimants’ “apportionment” (or, more precisely, reduction) of their claim in respect of the amount paid to Shanahan Tudhope “should not be understood to be either assented to or acquiesced to” by DK. DK’s solicitors contended that the basis of that reduction had not been made intelligible to DK and that that should be a relevant matter for the Court in addressing any relief in respect of the $43,872.40 claim”.

179. It may have been arguable that RHPL was entitled to maintain the full amount of the claim against DK, so far as that was the amount paid out of RHPL and the NBF Trust without authority and that amount had not been restored to the trust, provided that it did not then recover more than the amount that was paid away. However, RHPL has implicitly proceeded on the basis that it should allow credit to DK for the amount that Shanahan Tudhope now claims to hold on RHPL’s behalf, and it did not sufficiently address the evidentiary or legal complexities of quantification of this claim, where it has not led evidence of those amounts or how they are derived. I should not seek to formulate the way in which those complexities might have been addressed, where RHPL has not sufficiently done so, and DK would not have procedural fairness in respect of any alternate formulation of the claim. For that reason, RHPL’s claim in respect of the amount of $43,872.40 referable to the payment to Shanahan Tudhope must fail.

180. Mr Russoniello also relies on the scope of RHPL’s pleaded case to submit that RHPL should not be permitted to recover the funds paid to DK, MB and AB on the basis of any alternative claim that they were lent to them, notwithstanding that DK had subsequently asserted that that was the nature of the transaction in the correspondence to which I referred above. Mr Russoniello also submits that RHPL should not be permitted to contend that there was a declaration of express trust over the funds, although DK had also advanced that proposition in correspondence with NAB to which I also referred above. It is not necessary to determine whether those claims would be open to RHPL, where I have found that the pleaded claims for monies had and received and as recipients of trust property are established.

181. Finally, Mr Russoniello refers to accounting records of the NBF Trust which indicate “unpaid beneficiary entitlements” owing to each of SB, MB, AB and DK of $80,000 in the 2018 year, carried over in the 2019 year, and contends that an “unpaid present entitlement” concerns an amount that the beneficiary has a present legal right to demand immediately. He submits that, if RHPL is to obtain equitable compensation to make up its loss of trust property, it should be on condition that SB, MB, AB and DK retain their “unpaid present entitlements”. I do not see any necessity to impose such a condition, either to preserve or extinguish such entitlements, where there is no claim to either recover or extinguish them in these proceedings. Mr Russoniello also refers to a later reference to the monies distributed to MB, AB and DK in the Trust’s account as a loan. It does not seem to me that that assists the Cross-Defendants, where any such loan was payable on demand, and a demand for payment has been made both in correspondence and in these proceedings. RHPL rightly recognises that it cannot establish more than the amount paid out, and so it will only be entitled to recover compensation to the extent that the amounts are not paid to it by repayment of the relevant loans.

182. For these reasons, and consistent with the approach in Agip to which I referred above, RHPL is entitled to judgment against DK in the amount of $350,000 plus interest being the total amount paid out to him, MB and AB outside the scope of his authority, and also to judgment against each of MB and AB of $100,000 plus interest, although it cannot recover more than $350,000 plus interest in enforcing those judgments.

Summary and orders

183. Accordingly, the Plaintiffs’ case fails; NB, RHPL and SHM are entitled to the declarations and orders they seek to set aside the DoA; and RHPL is entitled to judgment against DK, NB and AB for the amounts specified above and interest. In the ordinary course, costs will follow the event. I direct the parties to bring in agreed short minutes of order to give effect to this judgment within 14 days or, if there is no agreement between them, their respective draft short minutes and short submissions as to the differences between them.

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Decision last updated: 16 April 2021