Kimberley Developments Pty Ltd v Bale

[2024] NSWCA 131

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Kimberley Developments Pty Ltd v Bale [2024] NSWCA 131

Hearing dates:

8 March 2024

Date of orders:

30 May 2024

Decision date:

30 May 2024

Before:

Payne JA at [1];
White JA at [2];
Kirk JA at [17]

Decision:

(1) Amend order 2 made by Leeming JA on 18 August 2023 such that the figure of $317,458.62 is substituted for the identified figure of $301,560.99.

(2) The appeal is otherwise dismissed.

(3) The appellants’ application to adduce further evidence, filed on 16 February 2024, is dismissed.

(4) Appellants to pay 90% of the costs of the respondent in this Court.

Catchwords:

JUDGMENTS AND ORDERS – Proper construction of orders made by primary judge – Whether interest applied to amounts awarded under an order – Meaning of “the rate specified in the Suncorp mortgage” where two rates involved – Whether certain expenditures relating to rubbish removal and legal cost for dispute about land rating were properly referable to expenses reasonably incurred in the maintenance of property – Whether appellant entitled to allowance on GST paid with respect to maintenance expenses

Legislation Cited:

A New Tax System (Goods and Services Tax) Act 1999 (Cth), ss 23-5, 23-10

Civil Procedure Act 2005 (NSW), s 100

Supreme Court Act 1970 (NSW), s 75A(7)

Cases Cited:

Athens v Randwick City Council (2005) 64 NSWLR 58; [2005] NSWCA 317

Lim v Comcare (2019) 165 ALD 217; [2019] FCAFC 104

Ross v Lane Cove Council (2014) 86 NSWLR 34; [2014] NSWCA 50

Texts Cited:

P Herzfeld and T Prince, Interpretation (Lawbook, 2nd edition, 2020)

Category:

Principal judgment

Parties:

Kimberley Developments Pty Ltd (First Appellant)
Albert Darwiche (Second Appellant)
Francoise Bale (Respondent)

Representation:

Counsel:
J Knackstredt (Appellants)
DP O’Connor (Respondent)

Solicitors:
Weinberger Lawyers (Appellants)
SCB Legal (Respondent)

File Number(s):

2023/294430

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity Division

Citation:

Bale v Kimberley Developments Pty Ltd (No 3) [2023] NSWSC 973

Date of Decision:

18 August 2023

Before:

Leeming JA

File Number(s):

2018/237019

HEADNOTE

[This headnote is not to be read as part of the judgment]

There has been a series of proceedings between the respondent and (among others) the appellants, Kimberley Developments Pty Ltd and Mr Albert Darwiche, arising from a dispute about the transfer of a commercial property (the Property) to Kimberley Developments in 2011 at a gross undervalue.

The primary judge, Ward P, set aside the transfer having found the transaction unconscionable. Her Honour made orders that a process be undertaken in unwinding the transaction to account for benefits obtained by either side. Kimberley Developments appealed but was largely unsuccessful. The Court of Appeal made consequential orders for the remaining accounting issues to be determined by a single judge in the Equity Division (remitter judge).

Kimberley Developments appealed the decision of the remitter judge, alleging that in construing or applying the orders made by the primary judge the remitter judge erred by: (1) finding that interest does not apply to “amounts … properly referable to expenses reasonably incurred in the maintenance of the Forest Lodge Property”; (2) construing “the rate specified in the Suncorp mortgage” and thus applying the wrong interest rate to the sum payable by Ms Bale; (3) finding that certain expenditures relating to rubbish removal were not maintenance expenses properly claimed by the appellants; (4) a similar finding relating to a legal cost of $5,500 incurred concerning a proposed change by the local council of the rating of the land on which the Property is situated; and (5) finding that Kimberley Developments was not entitled to any allowance on account of GST paid with respect to the maintenance expenses.

The Court (per Kirk JA, Payne JA agreeing, White JA agreeing on issues (2)-(5) but dissenting on issue (1)) allowed the appeal in part and held:

Issue (1):

1. Per Kirk JA, Payne JA agreeing: The use of the word “amounts” rather than “expenses” in order 9 does little positively to suggest inclusion of interest payment, where that is a distinct type of claim, distinctly dealt with in other orders: at [28]. Whilst the sums involved under order 9 required determination, that was no impediment to the primary judge identifying what interest rate should apply if her Honour had meant interest to be claimable: at [29]. It is open to consider materials extrinsic to the orders for their construction and order 9 was reasonably open to different constructions, but neither the judgment nor the submissions throws any real light on the issue here: at [30]-[32]. While a case could be made for making allowance for interest under order 9, that does not establish it was one the primary judge accepted: at [34] and [36].

Ross v Lane Cove Council (2014) 86 NSWLR 34; [2014] NSWCA 50; Athens v Randwick City Council (2005) 64 NSWLR 58; [2005] NSWCA 317; Lim v Comcare (2019) 165 ALD 217; [2019] FCAFC 104, applied.

2. Per White JA (dissenting): The respondent’s construction of order 9 that the omission of reference to interest indicates that no interest should be allowed on the expenses gives no work for the words “properly referable”: at [10]-[12]. The purpose of orders 9 and 10 and the set-off provided for by order 11 is evidently to require the appellant to account for profit: at [13]. Order 10 requires the appellant to account for rents with interest and so a construction of order 9 that requires the respondent to account for reasonable maintenance expenses without interest goes well beyond requiring the appellant to account for its profit; it rather smacks of penalty: at [14]. The better construction of order 9 is that the amount properly referable to the maintenance expenses reasonably incurred from 2011 includes interest at the rates prescribed for the purposes of s 100 of the Civil Procedure Act 2005 (NSW) in the same way as interest at those rates is to be calculated on rents received: at [15].

Issues (2)-(5):

3. As to issue (2), the remitter judge’s reasoning is persuasive: at [42]-[43].

4. As to issue (3), the appellants’ claim for a $13,000 expenditure is attended by oddities which raise questions about the circumstances in which it was incurred: at [56]-[58]. In the circumstances it is not surprising that the remitter judge was not persuaded that the identified amounts were properly referable to expenses reasonably incurred in the maintenance of the Property: at [61].

5. As to issue (4), the argument presented by the appellants was not presented in the same terms to the remitter judge, but the respondent suffers no prejudice by a much clearer argument being put on appeal: at [67]. A challenge to the amount of council rates payable is one arising in connection with the landlord’s obligation to pay the correct rates. Since the rates themselves were accepted by the remitter judge the expenses incurred in a dispute about the amount payable can also be seen as “properly referable” to those reasonable maintenance expenses: at [66].

6. As to issue (5), Kimberley Developments is not required to be registered for GST given its only taxable income was from the Property, being below the relevant threshold: at [72]. GST was not recorded as being charged on the rental income: at [73]. If it had been registered for GST it would have been left worse off even if it claimed input credits: at [74]. In substance Ms Bale was seeking to have it both ways on the GST issue by asking the Court to assume both that Kimberley Developments could claim input credits on expenses she was to reimburse it and that no GST was payable on the rent Kimberley Developments was to account to her: at [75].

Judgment

1. PAYNE JA: I agree with Kirk JA.

2. WHITE JA: I have had the advantage of reading in draft the reasons for judgment of Kirk JA. These reasons assume a familiarity with the reasons of Kirk JA.

3. Kirk JA describes the five issues arising on the appeal. I agree with his Honour’s conclusions in respect of issues 2, 3, 4 and 5, and with his Honour’s reasons in respect of those issues.

4. I take a different view in relation to the first issue.

5. It is convenient to set out the relevant orders of the primary judge as amended by the Court of Appeal on 16 May 2023:

“3.    Subject to order (11), order the plaintiff, as executor of the estate of the late Michel Schein, following transfer of the title to the Forest Lodge Property, to pay the sum of $288,242.63 to the sixth defendant (Super Start Batteries Pty Ltd) or at the direction of its director, the fifth defendant (Mr Theofanis Trigas), being the sum paid to discharge the Suncorp mortgage, plus interest calculated at the rate specified in the Suncorp mortgage.

…

9.   Order the plaintiff, as executor of the estate of the late Michel Schein, to pay to the first defendant such amounts as are determined by the Court … to be properly referable to expenses reasonably incurred in the maintenance of the Forest Lodge Property since 2011.

10. Order the first defendant to account to the plaintiff, as executor of the estate of the late Michel Schein, for all amounts received by way of rent or other income in respect of the Forest Lodge Property since 21 February 2011 to date, and interest thereon pursuant to s 100 of the Civil Procedure Act 2005 (NSW).

11.    Order that the sums payable in orders (3), (9) and (10) be offset against each other with the sum remaining to be paid to the relevant party within 21 days of determination by the Court … of that amount.”

6. The remitter judge (Leeming JA) observed (at [6]) that no issue was raised regarding the fact that order 3 required a payment to Superstart Batteries Pty Ltd, whereas orders 9 and 10 require an accounting as between Ms Bale and Kimberley Developments, whereas order 11 requires all three sums to be set off against each other.

7. The rent was received month by month and the expenses were incurred periodically. The rent collected exceeded the expenses incurred. There was a net credit balance from time to time.

8. I accept that the set-off provided for in order 11 is not to be made periodically as rent was received and expenses were incurred so that interest would be payable on the net balance from time to time.

9. This is so partly because order 11 contemplates that the amounts payable under orders 3, 9 and 10 were to be offset against each other at the same time, not that there should be a running account. Further, interest is payable under order 11 on the income received, not on a net balance between income and expenses.

10. There is therefore some force in the respondent’s submission upheld by the remitter judge that the inclusion of interest in order 10 on the appellant’s obligation to account for rent received, and the omission of reference to interest in order 9 in relation to maintenance expenses reasonably incurred, indicates that no interest should be allowed on the expenses.

11. But the account does not require the respondent to pay the reasonable maintenance expenses incurred, but the amounts “properly referable” to those expenses.

12. The respondent’s construction gives no work for those words.

13. The words “properly referable” direct attention to the purpose of orders 9 and 10 and the set-off provided for by order 11. That purpose is evidently to require the appellant to account for the profit it derived from its renting the land which it held on constructive trust for the late Michel Schein.

14. Order 10 requires the appellant to account for rents received from 21 February 2011 with interest. A construction of order 9 that requires the respondent to account for reasonable maintenance expenses from 2011 without interest goes well beyond requiring the appellant to account for its profit. It rather smacks of penalty.

15. The words “properly referable to” in order 9 should be given work to do. Having regard to the evident purpose of the primary judge’s orders 9, 10 and 11, and the only legitimate purpose of those orders, the better construction of order 9 is that the amount properly referable to the maintenance expenses reasonably incurred from 2011 includes interest at the rates prescribed for the purposes of s 100 of the Civil Procedure Act 2005 (NSW) in the same way as interest at those rates is to be calculated on rents received.

16. I would uphold the appeal in relation to issue 1, and make a consequential order in respect of the accounting.

17. KIRK JA: This appeal is the latest of a series of proceedings arising from a dispute about the transfer of a commercial property at Forest Lodge in the inner west in Sydney (the Property) in 2011 by the late Mr Michel Schein to the first appellant, Kimberley Developments Pty Ltd, at a gross undervalue.

18. The respondent, Ms Francoise Bale, is the daughter of Mr Schein and sole executor of his estate. She brought proceedings in the Supreme Court against Kimberley Developments, Mr Darwiche (the sole director of Kimberley Developments at the time of the transfer) and others. The primary judge, Ward P, set aside the transfer having found the transaction unconscionable: Bale v Kimberley Developments Pty Ltd [2022] NSWSC 820 (PJ). Relevantly, Kimberley Developments was ordered to transfer the Property back to Ms Bale (order 2) and to account for income (including rent) received in respect of the Property (order 10). Ms Bale was to in turn reimburse Kimberley Developments for the sum paid to discharge a mortgage on the Property plus interest calculated at “the rate specified in the Suncorp mortgage” (order 3), along with “amounts … properly referable to expenses reasonably incurred in the maintenance of the Forest Lodge Property since 2011” (order 9). The amount of the maintenance expenses to be repaid was to be determined by a court appointed referee.

19. The defendants appealed. This Court dismissed the appeal, save for one ground relating to a particular monetary sum: Kimberley Developments Pty Ltd v Bale [2023] NSWCA 25 (the first appeal). The Court made consequential orders in Kimberley Developments Pty Ltd v Bale (No 2) [2023] NSWCA 95, pursuant to which orders 9, 12 and 17 made by the primary judge were varied so that the remaining disputes as to the amounts to be paid and offset were to be determined by a single judge in the Equity Division in lieu of a court appointed referee.

20. In the interests of efficiency, Leeming JA, who had been a member of the first appeal bench, sat to determine those remaining disputes on the remitter: Bale v Kimberley Developments Pty Ltd (No 3) [2023] NSWSC 973 (RJ). It is convenient to refer to his Honour as the “remitter judge” in order to distinguish him from the primary judge. His Honour made findings as to, relevantly, the amount of interest to be paid under order 3; whether certain expenses were reasonable maintenance expenses under order 9 and therefore recoverable by Kimberley Developments; and whether order 9 entitled Kimberley Developments to interest on the maintenance expenses.

21. Kimberley Developments and Mr Darwiche appealed, alleging that in making certain findings the remitter judge erred in various respects in construing or applying the orders made by the primary judge. At the commencement of the hearing of the appeal the Court granted leave, by consent, to file an amended notice of appeal in which some grounds were no longer pressed and one ground, ground 8, was added. The appellants also filed a motion seeking leave to adduce further evidence in support of that ground pursuant to s 75A(7) of the Supreme Court Act 1970 (NSW).

22. Five issues arise, being whether the remitter judge erred in:

1. finding that, under order 9, interest does not apply to “amounts … properly referable to expenses reasonably incurred in the maintenance of the Forest Lodge Property” (ground 1 of the amended notice of appeal);

2. construing “the rate specified in the Suncorp mortgage” in order 3 and thus applying the wrong interest rate to the sum payable by Ms Bale pursuant to that order (ground 3(b));

3. finding that certain expenditures relating to rubbish removal were not maintenance expenses properly claimed by the appellants pursuant to order 9 (grounds 4(a), (b) and (d));

4. a similar finding relating to a legal cost of $5,500 incurred concerning a proposed change by the local council of the rating of the land on which the Property is situated (ground 5); and

5. finding that Kimberley Developments was not entitled to any allowance on account of GST paid with respect to the maintenance expenses (ground 8).

23. I will address the issues in turn. The appellants succeed on issues 4 and 5 only, which make only a very minor difference to the orders of the remitter judge. It should be noted in that regard that there were more issues in dispute before the remitter judge than were raised here, and that the appellants’ submissions in this Court were presented by different counsel in significantly more detail than what was put to his Honour.

Issue 1: interest on expenses

24. Order 9 made by the primary judge was as follows:

Order the plaintiff, as executor of the estate of the late Michel Schein, to pay to [Kimberley Developments] such amounts as are determined by the Court appointed referee (to be appointed pursuant to order (12) below) to be properly referable to expenses reasonably incurred in the maintenance of the Forest Lodge Property since 2011.

25. As noted this order, along with orders 12 and 17, was subsequently varied by this Court such that the issue was to be determined by the Supreme Court on remitter. Order 9 made no reference to interest. The appellants argued unsuccessfully before the remitter judge that it was nevertheless open and proper for the Court to make an allowance for interest. The amount claimed below was said to be in excess of $60,000 (RJ [17(3)]). Part of the argument below related to whether any interest payable should be paid on a compound basis. That aspect of the claim was not pressed on appeal. As regards the claim for interest per se, his Honour rejected the argument for the following reasons:

[83] … Contrary to some of the submissions advanced, I am not exercising a discretion. The primary judge … exercised a discretion, and did so differentially in the orders made on 23 June 2022. No challenge was made on appeal, in an appeal where many grounds were advanced, to the absence of an entitlement to interest on expenses claimed by Kimberley Developments as a deduction from the rent for which it had to account. The parties are bound by the orders made at first instance. Nor was any application made to vary those orders (even assuming it was open to do so).

[84] Ms Bale submitted that Kimberley Developments was not entitled to interest when the orders did not provide for interest. I agree. This is not merely a consequence of what is apparent on the face of order 9 (which is silent as to interest) in contrast with orders 3 and 10 (which authorise interest). It is also a consequence of order 11, which proceeds on the basis that the amounts in orders 3, 9 and 10 will be determined and then offset. I reject Kimberley Developments’ claim that it is entitled to interest at any rate on the expenses which it claims as a deduction.

26. The parties agreed that the issue was a matter of construing the orders made by the primary judge. The focus of submissions was whether the appellants’ claim for interest fell within the notion of being “amounts … properly referable to expenses reasonably incurred in the maintenance of the Forest Lodge Property” (emphasis added). As for any legal communication, ascertaining the meaning of the orders involves consideration of their text, context and purpose.

27. Although reasonable arguments can be made either way, I consider that the remitter judge reached the correct conclusion. As a matter of text, there is no express provision for interest in order 9. As a matter of context, that stands in contrast to orders 3, 8 and 10, each of which mention interest, doing so in three different contexts, and in each case specifying what rate of interest is to apply. Further, those and the other orders manifest a degree of care and precision in drafting, which suggests that if an allowance for interest had been intended it would have been addressed. More broadly, as to context and purpose, there is no automatic entitlement to interest. If credit for it was sought then it is reasonable to expect that it be raised in terms before the primary judge, and a relevant source identified for the applicable rate of interest. If the appellants were discontented with the absence of provision for interest then they could have raised the issue in the first appeal. They did not do so.

26. In this appeal the appellants raised seven points, as enumerated in oral submissions, in support of their claim that the order should be construed in such a way as to permit an allowance for interest. First, the appellants submitted that the use of the word “amounts” rather than “expenses” in order 9 suggested that the order was intended to encompass monetary sums beyond payments. That word is a relatively generic term that could encompass an interest payment. But the use of such a generic term does little positively to suggest that interest payments were meant to be encompassed, where that is a distinct type of claim, distinctly dealt with in other orders.

27. The appellants sought to address that comparison in their second point. The appellants submitted that while the amounts under orders 3, 9 and 10 were all to be determined by the referee / remitter judge, the inquiry required by order 9 was different to that required by the other two. They said in the case of orders 3 and 10 the sums involved – being the sum paid to discharge the Suncorp mortgage and the amounts received by way of rent or other income in respect of the Property – were readily identifiable, and the interest rates were identified in the order. If anything this point weighs against the appellants’ argument. Whilst it is correct that the sums involved under order 9 required determination, that was no impediment to the primary judge identifying what interest rate should apply if her Honour had meant interest to be claimable. It is telling that the appellants were claiming interest at court rates pursuant to s 100 of the Civil Procedure Act 2005 (NSW), where her Honour had expressly identified that as the applicable source of rates in order 10.

28. The appellants’ third point was that in written submissions to the primary judge they did foreshadow seeking to adduce evidence to establish the amount in relation to the maintenance of the Property, but they said that in the judgment of the primary judge “[t]here was no rejection of any application for interest, there was no acceptance of such a claim, it just wasn’t dealt with, and so … that left the issue at large”. In making this submission the appellants were seeking to rely on both written submissions and her Honour’s reasons for judgment as aids to construe order 9. It is open to consider materials extrinsic to the orders which are capable of throwing light upon their meaning: note discussion in P Herzfeld and T Prince, Interpretation (Lawbook, 2nd edition, 2020), [36.90]-[36.100]. It is not necessary to decide here whether some separate standard of ambiguity must be met in order to do so, given that here order 9 was reasonably open to different constructions. The leading source in a case such as this is the reasons for judgment of the primary judge, that being the explanation of the author of the orders: see eg Ross v Lane Cove Council (2014) 86 NSWLR 34; [2014] NSWCA 50 at [30]. In some cases reference has been made to submissions as potentially aiding construction: see eg Athens v Randwick City Council (2005) 64 NSWLR 58; [2005] NSWCA 317 at [29]-[30]; Lim v Comcare (2019) 165 ALD 217; [2019] FCAFC 104 at [43]-[47].

29. Here, neither source throws any real light on the issue, thus the appellants’ third point does not advance matters. The primary judge did not explain order 9. The only place it is directly touched upon in the reasons is at PJ [570], where her Honour said the following when recording the submissions of the defendants (two of whom were the appellants):

In addition, it is submitted that the defendants should have credit for the costs met by Kimberley Developments since owning the Forest Lodge Property from February 2011, net of the rent received from Mr Moore, which it is said is substantial. The defendants seek leave to adduce such evidence if Ms Bale’s claim succeeds.

32. The submission recorded in this paragraph does not address the issue at hand. As for the submissions themselves, and as reflected in the portion of the judgment just quoted, the high point was a brief written submission to the primary judge on behalf of the appellants which raised the issue of them having credit for costs since owning the property, and sought that the issue be the subject of further evidence if needs be, but did not mention interest (all put in the alternative, if the respondent’s claim for relief succeeded).

33. The fourth point raised by the appellants relates to the economic underpinning of order 11, which provided the sums payable in orders 3, 9 and 10 were to be offset against each other. The appellants submitted that the purpose of this was to achieve practical justice between the parties by offsetting (1) the benefit derived from the unconscionable transaction by the appellants against (2) the benefit derived by Mr Schein’s estate. In this context the former benefit is the income earned on the Property. The latter benefit constituted the discharge of Mr Schein’s Suncorp mortgage and monies spent on maintenance of the Property. Where the former was to be offset against the latter, and where allowance of interest was made in relation to the former by order 10, it was said that there is no reason why as regards the latter allowance for interest should be only as regards part of the appellants’ payments (being the discharge of the Suncorp mortgage – as addressed by order 3).

34. At first blush there is some force in this point. It provides a reason why a case could be made for making allowance for interest under order 9. However, the point does not establish that that reason was one her Honour accepted. The point tends towards assuming what it seeks to prove. As noted, there is no automatic entitlement to interest. Her Honour would not necessarily have considered, as a matter of doing justice in all the circumstances, that allowance should be made for interest on expenses, payable at relatively generous court rates.

35. The appellants’ fifth point was that if the quantification exercise had gone to a referee, as the primary judge had ordered, then “the referee could have considered the issue of interest, and certainly, when proceedings were brought to adopt the report, the Court would have had a discretion under s 100 as to whether or not to award interest”. Yet if that had occurred the Court would then have had to consider the issue of whether awarding interest was consistent with order 9, which turns on its construction. The point did not advance debate.

36. The sixth and seventh points raised by the appellants amounted to saying that given interest is usually awarded as a matter of course, and absent countervailing factors against awarding interest or such express decision by the primary judge, as a matter of construction order 9 should be understood as contemplating a discretion of the remitter judge as to whether to allow interest. The argument is similar to the fourth point. It is not without force, but on balance is outweighed by the matters of text and context outlined above.

37. Ground 1 of the appeal is not made out.

Issue 2: the Suncorp mortgage interest rate

38. The relevant factual background is not disputed. Mr Schein obtained a loan from Suncorp-Metway Ltd in 2005. The loan plus interest were secured by a mortgage on the Property and another property owned by Mr Schein. When he transferred the Property to Kimberley Developments in 2011 part of the consideration he received was that a company associated with the appellants paid out the loan, enabling discharge of the mortgage on the Property.

39. Order 3 of the primary judge was as follows (emphasis added):

Subject to order (11), order [Ms Bale] following transfer of the title to the Forest Lodge Property, to pay the sum of $288,242.63 to the sixth defendant (Super Start Batteries Pty Ltd [being an associate of Kimberley Developments]) or at the direction of its director, the fifth defendant (Mr Theofanis Trigas), being the sum paid to discharge the Suncorp mortgage, plus interest calculated at the rate specified in the Suncorp mortgage.

40. Ms Bale has paid the principal sum as directed. However, there is a dispute as to what interest rate applies for the purposes of calculating the interest to be paid. The Suncorp loan specified two rates: a “Higher Rate” and a “Lower Rate”. The Lower Rate would apply if interest were paid within 7 days of the date for payment and there was no existing default, otherwise the Higher Rate would apply. Mr Schein had been in default for some time before the mortgage was discharged, making no repayments at all in the six months prior to selling the Property, hence interest had been accruing at the Higher Rate. Indeed Mr Schein sold the Property to Kimberley Developments so that he could pay his debts.

41. The obvious purpose of order 3 was to compensate the appellants for the time value of money in relation to the amount they (or their associate) had paid to discharge the Suncorp loan (noted RJ [44] and [46]). The remitter judge explained at RJ [32]-[33] that the appellants had made no submission to the primary judge on what interest rate should apply, and Ms Bale had submitted to her Honour that no interest should be ordered but, if any was, it should be at the Suncorp rate. The primary judge had recorded Ms Bale’s alternative submission as being that “the rate of interest should be no higher than the rate payable to the lender under the discharged mortgage”, which “would accord with the ‘cost’ the deceased would have paid had the property remained under the mortgage … and therefore corresponds to the benefit the deceased derived by having the mortgage discharged early” (PJ [537]). The primary judge obviously accepted Ms Bale’s alternative position. The remitter judge considered that nothing in her Honour’s reasons shed any light on the meaning of the order (RJ [28]).

42. The appellants submitted below, as in this Court, that as a matter of construction the “rate specified in the Suncorp mortgage” under order 3 meant the Higher Rate. The remitter judge held that it referred to the Lower Rate. His Honour’s core reasons were as follows:

[43] I have found it helpful to consider the position which would obtain if a position closer to the status quo had occurred. Suppose Kimberley Developments had wrongly obtained title, and used the land for its own purposes thereafter, but had otherwise preserved the status quo, making payments of interest but not principal on the mortgage debt. That is to say, rather than discharging the Suncorp loan and borrowing substantially greater funds against the property, suppose Kimberley Developments had instead merely continued to pay off interest as it accrued, without reducing the principal indebtedness (ie, leaving the land in the same condition as it had been, and not committing further breaches of trust). Then Kimberley Developments would be incurring and paying interest at the Lower Rate. There is no good reason to give to Kimberley Developments the benefit of interest calculated at the Higher Rate when in fact Kimberley Developments did not pay interest at the Higher Rate and indeed gained a greater benefit for which it is not liable to account by its further breach of trust in borrowing against the security of the trust property.

[44] For why, since Kimberley Developments chose to discharge the existing indebtedness to Suncorp and obtain (it may be presumed) a greater benefit from the land, should it also gain the benefit of interest calculated at the Higher Rate? I do not think it is to the point to say that, for the purposes of determining the legal meaning of the order, that Mr Schein had been paying interest at the higher, default rate. The order is premised upon there having been a wrongful transfer of title to Kimberley Developments. True it is that either Kimberley Developments or Super Start Batteries should be entitled to the benefit of having discharged Mr Schein’s indebtedness to Suncorp, and should also be entitled to compensation for the fact that it conferred that benefit upon Mr Schein in 2011. But it does not follow that the time value of that benefit should be calculated at the Higher Rate as if Kimberley Developments were in default. To proceed on that basis has the effect of causing Mr Schein’s estate to bear a default interest rate for a notional indebtedness as if the trustee breached the terms of the Suncorp facility. Instead the preferable approach is to presume, for the purposes of working out the order, that Kimberley Developments as trustee had complied with the obligations attaching to the Suncorp facility while it was the registered proprietor of the land.

[45] Another way of making this point is that the amount of the allowance to be made in favour of the defaulting trustee turns on whether for the entirety of a period when the trustee was (wrongly) the legal owner of the land, interest for a debt of the beneficiary which the trustee had discharged should be calculated on the basis that the borrower was or was not in default. I do not see why the trustee should gain the benefit, and why Mr Schein should bear the burden, of the trustee notionally being in default. That result accords with the so-called “wrongdoer principle” which in various contexts provides that a party is not permitted to take advantage of its own wrongdoing: see Talacko v Talacko (2021) 272 CLR 478; [2021] HCA 15 at [51], Gnych v Polish Club Ltd (2015) 255 CLR 414; [2015] HCA 23 at [45], Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215 at 228-230; [1997] HCA 17 and Gollan v Nugent (1988) 166 CLR 18 at 46; [1988] HCA 59.

43. This reasoning is persuasive.

44. The appellants’ main attack on the conclusion of the remitter judge was to argue that his Honour erred in concluding that nothing in the reasons of the primary judge assisted with construing order 3. They referred to parts of her Honour’s judgment manifesting her understanding that Mr Schein had been in default, that default notices had been issued by Suncorp, and that the bank was threatening not to extend the loan, all of which put pressure on Mr Schein (PJ [49], [115], [130], [651]). The primary judge had also noted that the rate which applied to the Suncorp mortgage was the Higher Rate (PJ [566]). Yet the paragraphs identified merely set out the context in which the transfer of the Property was made, being Mr Schein’s continued inability to service his indebtedness. To argue that the primary judge’s awareness of the previous application of the Higher Rate to Mr Schein meant her Honour intended to refer to that rate in order 3 is to assume what is sought to be proved.

45. The appellants challenged the counterfactual analysis of the remitter judge at RJ [43], namely considering a scenario where after wrongly obtaining title Kimberley Developments preserved the status quo of the Suncorp mortgage, making payments of interest but not principal on the mortgage debt. In that scenario Kimberley Developments would be incurring and paying interest at the Lower Rate. They submitted that such scenario “could never have arisen in fact, given that the Suncorp loan was to Mr Schein and had to be discharged upon Kimberley’s acquisition of the Forest Lodge Property”. The appellants referred to Ms Bale’s submission to the primary judge that interest should “return … the parties as close as possible to the status quo ante, while avoiding delivering up an ‘unwarranted benefit’ to the wrongdoer” (PJ [536]). They submitted that the status quo ante involved the application of the Higher Rate, being the rate that would have been payable by the late Mr Schein had the mortgage remained on foot, where there was no evidence suggesting that the default would have abated.

46. As Ms Bale submitted, order 3 does not speak to a particular point in time. It does not say “at the rate specified in the Suncorp mortgage which applied immediately before the transfer of the Property”. Where the mortgage was in fact discharged upon transfer of the property from Mr Schein, and thus neither of the two possible rates continued to apply, identifying the rate under order 3 is not a factual exercise but part of the endeavour to reach practical justice among the parties.

47. As noted, the obvious purpose of the order was to seek to achieve such justice by compensating for the time value of money. It is reasonable to infer that the primary judge’s acceptance of Ms Bale’s suggestion of the Suncorp loan rate as the appropriate measure was simply a means of selecting an ascertainable market rate which had some meaningful connection to the facts. In that context it was reasonable for the remitter judge to consider what would likely have occurred if the appellants (or their associate) had kept the Suncorp loan on foot, as a means of considering the justice of the situation. As his Honour observed, on that counterfactual there is no reason to think that the loan would have been maintained in default such that the Higher Rate would apply. Even if one was to consider the position if Mr Schein had continued in ownership, it is rather unreal to suggest that Suncorp would have allowed him to continue to be in default for the subsequent dozen or so years.

48. The appellants submitted that the remitter judge erred in stating (at [43]) that “Kimberley Developments did not pay interest at the Higher Rate”. It was said that Kimberley Developments (or its associate) had paid previously-accumulated unpaid interest calculated at the Higher Rate in discharging of the Suncorp loan. Yet his Honour’s reference was plainly addressed to the time period being considered, that is, from transfer of the Property (and discharge of the loan) onwards.

49. The appellants challenged the remitter judge’s invocation of the “wrongdoer principle” (at RJ [45]). They said that application of that principle “formed no proper part of the objective construction task required of the [remitter] judge”. However, it is hardly surprising that his Honour might refer to legal principle in considering what the primary judge was likely to have intended in seeking to do justice by making order 3. Moreover, his Honour merely observed his conclusion on point “accords with the so-called ‘wrongdoer principle’”; his analysis was not founded on the principle.

50. The appellants’ final point, raised briefly in oral submissions, was that Ms Bale should account for the benefit of the uplift in value in the land over the period in which it was held by Kimberley Developments. The argument was not developed in detail and it was not established why the Lower Rate is insufficient in accounting for this benefit.

51. Ground 3(b) is not made out.

Issue 3: rubbish removal expenses

52. Order 9 involved identification of “such amounts as are … properly referable to expenses reasonably incurred in the maintenance of the Forest Lodge Property since 2011”. Issues 3, 4 and 5 involve challenges to his Honour’s rejection of certain claims for such expenses.

53. Issue 3 relates to the rejection by the remitter judge of a claim by the appellants for certain expenses incurred in relation to the removal of rubbish/waste from the Property. The remitter judge accepted that the relevant expenses were incurred, but found that there was no evidence for the source of the rubbish (RJ [70]); that “the expenses for rubbish removal occurred throughout the period, which distinguishes the situation from the one-off costs a landlord may incur when a lease comes to an end or at the commencement of a new lease” (RJ [71]); and that the rubbish/waste removal expenses “have the character of operating a business, rather than administering a lease” (RJ [70]), noting that there was no suggestion that Kimberley Developments had recourse to a bond (RJ [71]). His Honour was not persuaded that the expenses fell within the category recoverable under order 9.

54. The appellants submitted that the remitter judge should have found three expenses – being a subset of those at issue below – to have fallen within order 9. It relied on entries in the “Ownership Ledger” maintained by the property manager of the Property, INTL Management Services Pty Ltd. The expenses were:

1. $13,000, described in an invoice issued by ABS Recycling Services Pty Ltd dated 10 February 2020 as “Truck loads and Machine Hire, Labour Hire, Removal of Timber, Removal of Debris” and entered in the Ownership Ledger on 2 March 2021;

2. $4,170 for the hire of skip bins, and for “forklift transport”, in the period 10 December 2019 and 7 January 2020; and

3. $1,000, described in an invoice issued by ABS Recycling Services Pty Ltd dated 24 August 2020 as “Forklift Hire – June and July” and entered in the Ownership Ledger on 27 August 2020.

55. The evidentiary context identified by the appellants was as follows:

1. It seems that the previous tenant of the property, Mr Shamus Moore, had been locked out of the site – implicitly for non-payment of rent – on around 27 September 2019.

2. Mr Andrew Perceval – who put on an affidavit and was not cross-examined – had sublet part of the Property in 2017 from Mr Moore. After Mr Moore was evicted, Mr Perceval agreed with the property manager that he would continue as a periodic tenant, implicitly for the same part of the property he had previously sublet.

3. On 19 November 2019 the local council issued an order to Kimberley Developments requiring it to cleanup the Property as it was considered a fire risk and provided “harbourage for vermin”. The order required compliance within 30 days, that is, by 19 December 2019.

4. Mr Perceval stated that he worked with Mr Darwiche (the second appellant) on the council-ordered rubbish removal “undertaken initially in June and July 2019”.

5. The property manager drafted an email on 25 November 2019 to go to the council which said that “[t]he previous tenant has also be[en] advised he has until the 2^nd of December 2019 to remove any items he deems valuable from the laneway, as Kimberley Developments has hired a contractor to clear the laneway at its own expense”. The email implies that the cleanup work was to be done imminently, in December 2019. That implication is consistent with complying with the order by the required date of 19 December 2019.

56. Starting with the appellants’ claim for the $13,000 expenditure, it is attended by oddities. The appellants claimed this amount was related to the council-ordered removal cleanup of waste materials left by the ex-tenant on the Property. According to Mr Perceval’s affidavit, the removal work commenced in June and July 2019, although there is no evidence the council was involved at that stage. In any event, the invoice for $13,000 was dated 10 February 2020, but it was recorded in the system of the property manager some 13 months later on 2 March 2021. When asked, counsel for the appellants was unable to provide any explanation for the delay in payment. Counsel did not oversell his clients’ case on issue 3, acknowledging, vis a vis the confusing evidence, “it’s a mess”.

57. Mr Rabie Chehade, from the property manager, gave unchallenged evidence that the $13,000 payment “related to work done by ABS for the removal of timber and debris at the Forest Lodge Property, which was necessary as a result of [the council order]”. However, it can readily be inferred that Mr Chehade was relying on what is recorded in the invoice as the basis for this evidence.

58. These timing disparities raise questions about the circumstances in which the $13,000 expenditure was incurred. Those questions have a particular piquancy when the entity which issued the invoice, ABS Recycling Pty Ltd, was at all relevant times operated by Mr Darwiche.

59. As for the $1,000 expenditure on forklift hire, this relates to an invoice received in August 2020 for hire in June and July. It is not apparent how that relates to the cleanup work done in December 2019.

60. One of the items included in the $4,170 amount was for “forklift transport”, and the remainder was for the hire of skip bins, entered in the Ownership Ledger in the period between December 2019 and January 2020. Taking these amounts by themselves, a reasonable case might be made to infer that they related to the council ordered cleanup. However, the waters are muddied by the claims for the other amounts, where there is reason to doubt that they related to compliance with that order. According to the appellants it should be inferred from the evidence that the rubbish in question came from the same source and it took multiple efforts over time to remove all of it. Such an inference is open to question given the lengthy period over which the various amounts are claimed. Further, there was no evidence that the former tenant was the only person who left rubbish on the premises. And Mr Perceval’s evidence suggests that he was only in partial occupation of the Property from the time that Mr Moore was evicted. What, if anything, happened on the remainder of the Property is not apparent.

61. In the circumstances it is not surprising that the remitter judge was not persuaded that the identified amounts were properly referable to expenses reasonably incurred in the maintenance of the Property. The appellants accepted that they bore the onus to make out their claims in relation to expenses. It has not been established that his Honour’s conclusion was in error. Grounds 4(a), (b) and (d) are not made out.

Issue 4: legal expenses

62. Issue 4, raised by ground 5, concerns an expense of $5,500 (including GST) paid by Kimberley Developments to the law firm Abbas Jacobs Lawyers. In an invoice from Abbas Jacobs Lawyers dated 2 May 2019 the relevant work done was described as including:

Preparation and Drafting Letter to Council advising of Timetable to attend site for inspection;

Review of Declaration of Category against the change of rating for [the Property]

Conference with client to advise on appeal against change in category of property;

Drafted and settling correspondence to other side …

63. The appellants did not adduce evidence of the content of the legal advice or its conclusion, nor of the outcome of the dispute (ie whether the rating was changed and the amounts payable reduced).

64. The remitter judge’s conclusion on this claim was as follows (RJ [73]):

It is entirely unclear whether the landlord derived any benefit from the dispute. Moreover, it is unclear whether the work related to the reasonable maintenance of the property. I accept that the registered proprietor, which is liable to pay rates, has an interest in any decision made by the local council as to the classification of the land. However, insufficient explanation has been given to explain how this expenditure falls within the landlord’s reasonable maintenance expenses of the land.

65. It will be recalled that order 9 refers to amounts properly referable to expenses reasonably incurred in the maintenance of the Property. A strict argument could have been made that this should be construed to refer to physical maintenance. But that was not put in issue below. Ms Bale did not dispute that council rates fell within the order, and his Honour accepted that they did (RJ [63]). That position is reasonable. The owner – be it Kimberley Developments (or its associate) or Mr Schein – was subject to a legal obligation to pay the correct rates. Failure to comply may have resulted in enforcement action affecting the Property.

66. A challenge to the amount of council rates payable, successful or not, is one arising in connection with the landlord’s obligation to pay the correct rates. If the rates themselves are to be accepted as reasonable maintenance expenses then in my view the expenses incurred in a dispute about the amount payable can also be seen as “properly referable” to those reasonable maintenance expenses. The amount involved is not especially large. There is nothing to suggest that the work was not reasonably incurred, or the appellants had any conflicting interest which might lead them to make overly generous payments to the law firm involved.

67. Ms Bale submitted that “[n]o case was ever advanced before Leeming JA that the legal work undertaken would affect future council rates”, and that the law firm’s invoice “says nothing about council rates at all”. The latter submission is not sustainable. The invoice refers to “Review of Declaration of Category against the change of rating”. The argument now presented by the appellants was not presented in the same terms to his Honour. That no doubt explains his Honour’s conclusion. The respondent suffers no prejudice by a much clearer argument being put on appeal.

68. I would uphold ground 5, relating to the sum of $5,500.

Issue 5: GST

69. Before the remitter judge it was submitted orally by Ms Bale that the expense allowances to which Kimberley Developments was entitled under order 9 should not include any GST component because Kimberley Developments would have been able to claim an input tax credit for any GST it paid and was therefore not out of pocket for any GST. The point had not been made in Ms Bale’s written submissions, and Ms Bale identified no evidence in support of the argument, the point having been raised after evidence had closed. The submission was not responded to by counsel then appearing for the appellants, apparently because of oversight.

70. The remitter judge accepted the argument:

[56] A question arises as to the impact of GST. There seems no reason to doubt that insofar as Kimberley Developments incurred an expense in its capacity as landlord, it was entitled to the benefit of an input tax credit for the GST it paid. That is to say, a premise of the regime for determining the allowances to which Kimberley Developments is entitled is that it was not the ultimate consumer and was thereby not out of pocket for any GST. Kimberley Developments is not entitled to obtain an allowance for GST it has paid. I did not understand any submission to be made to the contrary, in response to Ms Bale’s contention that it should not obtain an allowance for GST paid. The amounts mentioned below are all exclusive of GST, save that where the evidence is unclear as to whether an amount includes or excludes GST, I have not deducted an amount for GST.

71. Pursuant to ground 8, the appellants now claim that his Honour should not have excluded the GST component, whilst recognising that they did not make this argument below. They sought leave to rely on further evidence which established that Kimberley Developments was never registered for GST and thus could not have claimed GST payments as input credits. On the view I take of the matter it is not necessary to decide the application as the issue can be determined without taking account of that evidence (for completeness, the application should be dismissed). Ground 8 is made out.

72. First, Ms Bale’s argument asserts that the natural inference is that Kimberley Developments was or was required to be registered for GST. But it was not disputed that it was not required to be registered if its only taxable income was from the Property, because that amount was below the relevant threshold: note A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act), s 23-5. It was not suggested that Mr Schein was or should have been registered for GST when he owned the property. The fact that Kimberley Developments was incorporated did not of itself mean that it had to be registered for GST. There was an “Income and Expenditure Summary” in evidence, prepared by the property manager, which recorded that a total of $312,333.42 rental income was received over 9 years from 30 June 2014 to 26 June 2023. Thus Kimberley Developments would only have been required to be registered if it had other income earning activities. There was no evidence that it did. The company was incorporated shortly before it acquired the Property (see PJ [131]). Indeed, Ms Bale had submitted to the primary judge that Mr Darwiche incorporated Kimberley Developments as a vehicle for him unconscionably to procure the transfer of the Property (noted ibid and PJ [507]). It is true that Kimberley Developments could have registered for GST even though not required to do so: GST Act, s 23-10. However, that would not have been in the interests of either Kimberley Developments or Mr Schein/Ms Bale, as addressed below.

73. Secondly, the Income and Expenditure Summary had an entry under the heading “Property Income” which said “(GST Total: $0.00)”. Under the heading “Property Expenses”, expenditure on the Property is summarised in various categories, and for each summary there is an amount recorded for GST, and a GST total is recorded at the end of that section in the amount of $13,139.91. Underneath that there is an entry for “Property Balance”, which nets off the rental income against the expenditure. And immediately underneath that is an entry “(GST Balance: -$13,139.91)”. The implication of these entries is that no GST was recorded as being charged on the rental income. No doubt there could have been clearer evidence; nevertheless, this Summary provides evidence that GST was not charged on the rental, implying that Kimberley Developments was not registered for GST.

74. That leads to the third point. If Kimberley Developments was registered for GST over the period listed then Kimberley Developments would have been liable to pay tax of $28,393.95 in the period covered by the Income and Expenditure Summary (being an eleventh of the rental received). Kimberley Developments would have been able to claim input credits over that period of $13,139.91, but that would still leave it some $15,000 worse off. Acting rationally, thus, Kimberley Developments would not have registered for GST (assuming it was not otherwise required to do so). And nor would Mr Schein have done so if he had remained in ownership of the property (again, assuming no other commercial income).

75. And that leads in turn to the fourth point. In substance Ms Bale was seeking to have it both ways on the GST issue. She was asking the Court to assume that Kimberley Developments could and should have claimed input credits on the expenses that it was seeking to be brought to account on its behalf, whilst also assuming that no GST was payable on the rent which she was seeking be brought to account on her behalf pursuant to order 10, where the latter was a larger amount than the former. There is no suggestion that any deduction for GST should be made from the rent received by Kimberley Developments for the Property and payable to Ms Bale. The remitter judge noted that the “amount of (gross) rent received over the period is agreed to be $383,238.18” (at RJ [16], see also [93]).

76. As noted, none of these issues were raised by Kimberley Developments below and thus were not addressed by the remitter judge. Having belatedly raised these matters on appeal, in circumstances where there is no prejudice shown to Ms Bale, Kimberley Developments is entitled to succeed on ground 8.

77. Pursuant to orders made by this Court immediately following the hearing, the appellants filed a note itemising the expenses over which it claimed GST. The note included calculations of GST on expenses allowed by the remitter judge and those disallowed. As for those allowed by his Honour, it identified amounts which added up to $10,397.63. In a note in response Ms Bale accepted those calculations save that she disputed that an amount of $5,842.16 should be allowed for GST on land tax, on the basis that GST is not payable on land tax. However, that very point counts against Ms Bale, as the remitter judge made a subtraction for GST on land tax (RJ [64]-[67]). The result of that should now be reversed.

78. It follows that in total an allowance of $10,397.63 should be made for GST. This amount does not include the GST of $500 in relation to the legal fee, for which allowance has separately been made in relation to issue 4.

Conclusion and orders

79. The appellants succeed on issues 4 and 5, which means that amounts of $5,500 and $10,397.63 respectively – a total of $15,897.63 – should be brought to account in favour of the appellants.

80. Order 2 made by the remitter judge was “Ms Bale to pay Kimberley Developments the amount of $301,560.99 within 21 days of today”. The effect of the appellants’ limited success on appeal is that that amount should have been $317,458.62.

81. Ms Bale also sought a stay on any order for payment on the basis that she could not afford to make any significant payment until the Property is sold. It was to go to auction on 11 April 2024. The appellants did not oppose a stay, other than to say it should be for no more than the usual settlement period of six weeks, and that it should be stated as a stay on execution such that post-judgment interest continue to accrue. That was a reasonable response, save that it would have been appropriate to allow an extra week for contingencies on the stay, which takes the relevant date up to 30 May 2024. That is the date on which this judgment is being delivered. In that context, no stay will be ordered.

82. Shortly after the hearing of this appeal the appellants applied to the Court for a freezing order to protect their position in light of the foreshadowed sale of the Property by Ms Bale. That application was resolved consensually by Ms Bale undertaking to the Court to pay $400,000 from the sale into a nominated account. That represented an estimate of the maximum amount that the appellants might obtain if they succeeded in this appeal on all grounds. That undertaking will require variation to reflect the much lower amount now identified. The parties may apply to me in chambers to suggest an appropriate order in that regard.

83. In relation to costs of the appeal, the appellants have failed on the two issues of most monetary significance (issues 1 and 2 related to interest), failed on issue 3, and succeeded on two other issues of limited monetary significance. In the circumstances they should pay 90% of the respondent’s costs of the appeal.

84. As for costs below, his Honour made no order as to costs, and there is no reason to alter that position.

85. The orders of the Court should be as follows:

1. Amend order 2 made by Leeming JA on 18 August 2023 such that the figure of $317,458.62 is substituted for the identified figure of $301,560.99.

2. The appeal is otherwise dismissed.

3. The appellants’ application to adduce further evidence, filed on 16 February 2024, is dismissed.

4. Appellants to pay 90% of the costs of the respondent in this Court.

**********

Decision last updated: 30 May 2024