Kossaifi v ACN 111 804 383 Pty Ltd - [2020] NSWSC 853

Supreme Court

New South Wales

Medium Neutral Citation: Kossaifi v ACN 111 804 383 Pty Ltd [2020] NSWSC 853
Hearing dates: 24–28 February 2020, 2–3 March 2020
Date of orders: 03 July 2020
Decision date: 03 July 2020
Jurisdiction: Common Law
Before: Cavanagh J
Decision:
(1) Judgment for the defendants.
(2) The plaintiffs to pay the defendants’ costs.
(3) Grant liberty to the parties to apply on three days’ notice should the parties seek any alternative costs order.

Catchwords:
NEGLIGENCE — professional negligence — claim against solicitors by former clients in tort and contract — relationship breakdown between company directors and shareholders — advice as to appropriate process to divide company assets between shareholders — external administration — scope of duty of care owed by solicitor to client in the circumstances — Civil Liability Act 2002 (NSW) s 5O not pleaded in defence — liability assessed under Civil Liability Act s 5B
NEGLIGENCE — causation — loss of opportunity to take alternative course resulting in different financial outcome — whether defendant's alleged breaches of duty caused plaintiff's loss — extent of plaintiff's reliance on defendant for advice — whether plaintiff would have accepted and acted upon further advice from defendant contrary to course adopted by plaintiff and other shareholders

Legislation Cited:
Civil Liability Act2002 (NSW), Pts 1A, 4, ss 5B, 5D, 5E, 5O
Corporations Act 2001 (Cth) Pts 5.3A, 5.5, ss 232, 233, 234, 435A, 435C, 436A, 436E, 437A, 438A, 439A, 443D, 444B, 446A, 447A, 449E, 461, 462, 463E, 513B, Sch 2
Professional Standards Act 1994 (NSW)

Cases Cited:
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54
Correa v Whittingham (2013) 278 FLR 310; [2013] NSWCA 263
David v David [2009] NSWCA 8
Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453; [2000] NSWSC 99
Fexuto Pty Limited v Bosnjak Holdings Pty Limited & Ors [2001] NSWCA 97; (2001) 37 ACSR 672
Fink v Fink (1946) 74 CLR 127; [1946] HCA 54
GEC Alsthom Australia Ltd v City of Sunshine (Federal Court of Australia, Ryan J, 20 February 1996, unrep)
Groom v Crocker [1939] 1 K.B. 194
Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145
Hawkins v Clayton (1988) 164 CLR 539; [1988] HCA 15
In the matter of Antqip Hire Pty Limited (subject to deed of company arrangement) (in liquidation) [2020] NSWSC 487
In the matter of Joe & Joe Developments Pty Ltd (subject to a Deed of Company Arrangement) [2014] NSWSC 1444
In the matter of Lime Gourmet Pizza Bar (Charlestown) Pty Ltd (formerly under administration) [2015] NSWSC 244
In the matter of Warwick Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd) [2015] NSWSC 937
Kazar v Duus (1998) 88 FCR 218; [1998] FCA 1378
Leary v Federal Commissioner of Taxation (1980) 47 FLR 414; [1980] FCA 112
Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384
Port Macquarie Hastings Council v Mooney [2014] NSWCA 156; (2014) 201 LGERA 314
Regional Power Corporation v Pacific Hydro Group Two Pty Ltd (No 2) (2013) 46 WAR 281; [2013] WASC 356
Sellars v Adelaide Petroleum NL; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 322; [1994] HCA 4
Sparks v Hobson; Gray v Hobson [2018] NSWCA 29; 361 ALR 115
Uniting Church in Australia Property Trust (NSW) v Miller; Miller v Lithgow City Council (2015) 91 NSWLR 752; [2015] NSWCA 320
Wagner v International Health Promotions Pty Ltd (1994) 15 ACSR 419
Wallace v Kam [2012] NSWCA 82; [2012] Aust Torts Reports 82-101

Category: Principal judgment
Parties: Joseph Kossaifi (First Plaintiff)
Dolly Kossaifi (Second Plaintiff)
ACN 111 804 383 Pty Ltd (First Defendant)
Farshad Amirbeaggi (Second Defendant)
Representation:
Counsel:
N J Adams SC (with J Horowitz) (First and Second Plaintiffs)
I R Pike SC (with F T Roughley) (First and Second Defendants)
Solicitors:
Sweeney Tiggemann (First and Second Plaintiffs)
YPOL Lawyers (First and Second Defendants)

File Number(s): 2015/38153
Publication restriction: None

Judgment

The plaintiffs’ claims
The defendants’ position
The hearing
The retainer
Principles to be applied
The scope of the duty
Section 5B of the CLA
Causation
Background facts
The plaintiff’s evidence
The processes of external administration
The first allegation of breach
The plaintiff’s version
The defendant’s version
Other evidence
Ms Cavill
Mr Cook

Determination

The second allegation of breach
The third allegation of breach
Other issues
Contributory negligence and proportionate liability
Damages
Consequential loss
Conclusion

Orders

Judgment

This is a professional negligence action by the plaintiffs against their former solicitors. The case involves a consideration of the obligations owed by a solicitor possessing expertise in the insolvency area.
In 2008, the defendants were retained to assist the plaintiffs in finalising/terminating their business relationship with other persons with whom they were involved in a property development at North Narrabeen in the years prior to 2009.
The conduct of the defendants of which the plaintiffs complain happened over a narrow timeframe, essentially in the first three months of 2009, albeit that the defendants acted for the plaintiffs over a longer period.
The plaintiffs, Joseph and Dolly Kossaifi, were shareholders in a development company, Joe & Joe Developments Pty Ltd (“the company”), which they established with members of the Elias family (“the Elias Interests”) in 2005.
Despite their earlier personal as well as business relationship, the plaintiffs and the Elias Interests had a falling out over a number of issues, such that their business arrangement became unworkable. The plaintiffs originally retained other solicitors, Eakin McCaffrey Cox (“EMC”), to advise and assist them in the dissolution of the business arrangement and the splitting of the assets remaining in the company.
Following their dissatisfaction with the services provided by EMC, the plaintiffs retained the defendants.
On 9 February 2009, administrators were appointed to the company and on 31 March 2009, the plaintiffs and the Elias Interests entered into a deed of company arrangement (“the DOCA”). The company administrators became the deed administrators.
The plaintiffs assert that, as a consequence of the company being placed into voluntary administration (“VA”), rather than a creditors’ voluntary liquidation (“CVL”), they lost a significant sum (a significant proportion of the value of their shares in the company and consequential losses).
They say that, during the process of administration (which must include the deed administration), the administrators charged the company professional fees in excess of $700,000, the administrators incurred legal fees of $700,000 and the plaintiffs were charged the amount of $299,020.25 by the defendants. The process went on for a number of years.
On one view, the plaintiffs’ grievance is understandable in the sense that, having sought the advice of solicitors and accountants at a time when there was an excess of assets over liabilities of $2 million in the company, they ended up in complex litigation and dispute, expending a considerable sum on the process which took years to complete.
They say that, if they had been properly advised by the defendants, the assets in the company would have been split between them and the Elias Interests through liquidation over a matter of months in 2009 with minimal expense.
For the purposes of their damages claim, they contrast the position they would have been in if the defendants had advised them before, on and after 9 February 2009, to proceed by way of a liquidation rather than voluntary administration.
In this judgment I will refer to the first plaintiff, Mr Kossaifi, as the plaintiff. I will only use the plural if it is necessary to do so for accuracy. The plaintiff said that Mrs Kossaifi played no role in providing instructions, although the defendants do not accept that.
I will refer to the second defendant, Mr Amirbeaggi, as the defendant unless it is necessary to refer separately to the first defendant incorporated legal practice.
Mr Adams SC appeared with Mr Horowitz for the plaintiffs. Mr Pike SC appeared with Ms Roughley for the defendants. Ms Roughley undertook the cross-examination of the plaintiff.

The plaintiffs’ claims

In his closing submissions, the plaintiff identified three stages at which the defendants breached their duty of care and/or the terms of the retainer as follows:

“There are three stages at which the conduct of the defendants breached their duty of care and/or the terms of the retainer;
(a)   Meeting on the morning of 9 February 2009: Fixed with the knowledge referred to in paragraph 3 above, the second defendant declined an invitation by Hall Chadwick to attend the meeting held at their offices, instead, advising the first plaintiff to attend alone. Further, the defendants failed to attend upon the first plaintiff and address his concerns when it was drawn to their attention that he had refused to sign the documents.
(b)   The afternoon/evening of 9 February 2009: Having been advised that the company was placed into voluntary administration (“VA”) and not into liquidation, the defendants failed to advise the plaintiffs of the option of taking steps to terminate the administration.
(c)   Between 9 February and 31 March 2009: Fixed with the knowledge referred to in paragraph 3 above, the defendants were a party to the preparation of an unnecessarily complex Deed of Company Arrangement (“DOCA”), various clauses of which were inconsistent with the Deed’s recital and with the objectives of the plaintiffs. The defendants were negligent in advising the plaintiffs to sign it.”

The plaintiff says that he did not understand legal concepts or processes and relied completely on the defendant to advise him as to what he should be doing and how he should be doing it and then taking the steps to achieve what he wanted to achieve, which was simply splitting the assets of the company in the cheapest and quickest way possible. He says that he just signed documents, without reading or understanding them, as advised to do so by the defendant.
He says that the scope of the duty owed by the defendants is informed by his vulnerability in the particular circumstances and complete reliance on the defendant.
The plaintiffs have amended their statement of claim on a number of occasions. I granted leave to file the final version during the hearing. The defendants filed their final version of the defence on the last day of the hearing.
The effect of the amended documents is to withdraw allegations rather than add new causes of action. The plaintiffs ultimately confined their case to the conduct of the defendant up to 31 March 2009. Mr Adams SC expressly disavowed any complaint about the defendants’ conduct post 31 March 2009.
An issue arose during cross-examination of the defendant as to whether the plaintiff was still pursuing any allegation of failures on the part of the defendants arising out of conduct in 2010. After some debate the plaintiffs confirmed that they were not alleging any negligence or misleading and deceptive conduct in respect of events that happened in 2010 or later years.
All that remains of the statement of claim (on liability) are paras 1–32, 53–55 and 60.

The defendants’ position

In their defence, the defendants admit that it was a term of the retainer that they would act with due care and skill expected of solicitors professing expertise in commercial litigation, insolvency and company law. They admit that they owed a duty to advise the plaintiffs about the meaning and significance of any documents presented to them for execution in the course of their attempts to resolve the corporate governance dispute with the Elias Interests. They do not admit any breach of duty of care or that their conduct caused the plaintiffs loss.
The defendant accepts that he owed a duty of care in conventional terms to the effect that he would give advice to his client as to the meaning and operation of the law and proffer professional assistance in furtherance of his client’s interests in accordance with the terms of the retainer. [1]
1. Leary v Federal Commissioner of Taxation (1980) 47 FLR 414 at 434; [1980] FCA 112.
The defendant further submits that:

he was not required to protect the plaintiff from all harm and the limits of his duty must be related to what he was instructed to do; [2]

he did not have an obligation to advise beyond the scope of his retainer;

the plaintiff was not a person of particular vulnerability or disadvantage, such that the defendant might have been required to take a much broader view of the scope of his retainer and of his duties having regard to the disadvantage of his client; and

he did not owe a duty of care which has been described as a “penumbral” duty, being a duty of care that extends beyond the scope of the solicitor’s contractual obligations to the client.
2. Hawkins v Clayton (1988) 164 CLR 539 at 544; [1988] HCA 15.

The defendants also rely on defences of contributory negligence, voluntary assumption of risk and proportionate liability within the meaning of Pt 4 of the Civil Liability Act2002 (NSW) (“the CLA”). They plead that HC, the plaintiff and Tony Elias were all concurrent wrongdoers.
In their amended defence, the defendants withdrew their reliance on s 5O of the CLA. They added a defence to the effect that the second defendant’s liability was limited to $1.5 million by the Solicitors Scheme approved under the Professional Standards Act 1994 (NSW) (it does not apply to the first defendant).
The defendants dispute a number of the factual assertions made by the plaintiffs. They deny conversations that the plaintiff asserts took place and say that they gave advice that the plaintiff denies receiving. They say that the decision to proceed by way of VA was made by the plaintiff and the Elias Interests in consultation with HC. They dispute reliance and causation.

The hearing

The plaintiff read three affidavits sworn 5 May 2017, 12 February 2019 and 28 November 2019. The plaintiff also relies on expert reports from:

Alex Linden dated 10 July 2018;

John Melluish dated 3 May 2019;

Philip Stern dated 23 July 2019; and

David Bird dated 6 December 2019 as well as his earlier residential valuation reports from 2012.

The defendants read affidavits from:

the defendant affirmed 6 January 2020;

Danielle Gleeson (née Cavill) affirmed 13 December 2019 (I will refer to Ms Gleeson as Ms Cavill for consistency with other evidence); and

Timothy Cook sworn 14 March 2014, which had been prepared for the purposes of the proceedings between Tony Elias and the administrators and which Mr Cook adopted as his evidence in this matter.

Only the plaintiff and Mr Linden were required for cross-examination.
Ms Cavill, Mr Cook and the defendant gave oral evidence.
The defendants do not rely on any independent expert evidence, either on the question of liability or damages. It is the defendants’ position that the plaintiff’s’ expert evidence is based on incorrect assumptions or assumptions that have not been established. The absence of any expert evidence from the defendants may explain why they withdrew reliance on s 5O of the CLA.
There is a significant factual issue between the parties as to the nature and extent of the instructions provided to the defendants, what was said between the defendant and the plaintiff and what advice was given by the defendant to the plaintiff.
The hearing of the matter was conducted according to the issues identified by the plaintiffs in their final version of the statement of claim and senior counsel’s opening. Although there remains a reference to misleading and deceptive conduct in the amended statement of claim, no submissions were advanced on this cause of action. Nor were any submissions directed to the terms of the retainer as providing a better or more advantageous cause of action than the claim in negligence. Indeed the plaintiffs’ closing submissions commence as follows:

“In order to be successful in an action for professional negligence, the plaintiffs must establish:
(a)   the defendants owed the plaintiffs a duty of care;
(b)   the defendants breached that duty, as a result of which;
(c)   the plaintiff suffered loss, or alternatively;
(d)   plaintiffs suffered loss as a result of the defendants’ breach of the retainer.”

The retainer

The plaintiffs plead that there were certain terms of the retainer, not many of which appear in the written document. [3]
3. Further Amended Statement of Claim paras 15–18.
The defendants rely on the written retainer dated 15 December 2008 and say also that:

they were instructed that there was a deadlock between the shareholders and directors as to the management of the company;

from about 10 December 2008 to 29 January 2009, the plaintiff instructed the defendants to assume conduct of the litigation in the Supreme Court, which included a prayer for appointment of a liquidator to the company; and

from 29 January 2009 to 9February 2009, the plaintiff instructed the defendants to appoint a liquidator to the company.

In their costs disclosure document of 15 December 2008, the defendants described the scope of work as:

“(a)   Review instructing materials;
(b)   Prosecute proceedings in the Supreme Court against the Elias family … regarding Joe & Joe Developments Pty Ltd;
(c)   Apply for an assessment of the legal costs incurred with your former solicitor, Eakin McCaffery Cox; and
(d)   Legal services on a general retainer basis.”

The plaintiff says that at his first meeting with the defendant, he explained the background and the defendant said:

“It is so easy to do. It is easy to split the asset … Mark Doble should have done it easily … Leave it to me.”

The plaintiff then referred to a further conversation with the defendant during the period December 2008 to January 2009, in which the defendant said:

“It should only take about one month to split the asset. We will put a person in and he will split the assets 50/50. It’s easy and quick. It should cost about $10,000 to $15,000 in legal costs for me and about $40–$50,000 for the person to split the assets.”

Having regard to the terms of the written retainer and the evidence of both the plaintiff and the defendant, I accept that the defendant was retained to prosecute the proceedings in the Supreme Court (that is for the appointment of a liquidator to the company) and that he was also retained to provide general advice to the plaintiffs relating to that which the plaintiffs wished to achieve through the appointment of a liquidator.
I accept that it was within the scope of the retainer that the defendant would also advise the plaintiff on other means of achieving his aims which would include the range of processes of external administration which might be available.
I also accept that the defendant was informed by the plaintiff of both his financial difficulties (albeit he asserted that he could raise the funds to pay the legal fees) and his desire to finalise his relationship with the Elias Interests as soon as possible. Even the defendant acknowledges that the plaintiff wanted someone to take control of the company, sell the units, pay him and finish it.
In my view, the content of the advice that the defendant should have provided falls within the terms of that which the defendant was retained to do. It is clear from the defendant’s conduct both before and after 9 February 2009 that he considered that his role included advising the plaintiff on the best way to achieve his aims, which included splitting the assets of the company in the quickest and most cost-effective way.

Principles to be applied

The CLA applies. Part 1A of the CLA applies to any claim for damages for harm resulting from negligence regardless of whether the claim is brought in tort or in contract. As the breaches of the retainer are said to be essentially the same as the breaches of the duty of care, the terms relied on (which, although not pleaded, must be implied terms) could only cast an obligation on the defendants to exercise reasonable care to do the things suggested in the amended statement of claim.

It is not necessary to consider the causes of action in contract and tort separately. The foundation for both causes of action is a failure to take care in the provision of the professional services. A solicitor owes a duty to his client both in contract and in tort. The scope of the tortious duty will normally be set by the terms of the retainer. [4]
4. Hawkins v Clayton at 544–545.
The matter is somewhat unusual in that, rather than the Court being required to assess the defendant’s liability having regard to s 5O, s 5B of the CLA applies.
Generally, in a professional negligence action, the defendant may rely on s 5O and the s 5O point would be dealt with firstly. [5] However, as s 5O of the CLA is not relied on by the defendants, the outcome of the matter depends on a conventional analysis under s 5B of the CLA.
5. Sparks v Hobson; Gray v Hobson [2018] NSWCA 29; 361 ALR 115 at [24], [326].
That requires identification of the existence and scope of the duty of care, informed by the elements of s 5B.

The scope of the duty

Considerable doubt has been expressed about the existence of a penumbral duty, but any doubt about the existence of a penumbral duty does not detract from the statement in David v David [6] as follows:

“It is sufficient to say that the notion that a solicitor may owe a client a ‘penumbral’ duty that extends beyond scope of the retainer is doubtful. If, however, the solicitor during the execution of his or her retainer learns of facts which put him or her on notice that the client’s interests are endangered or at risk unless further steps beyond the limits of the retainer are carried out, depending on the circumstances, the solicitor may be obliged to speak in order to bring to the attention of the client the aspect of concern and to advise of the need for further advice either from the solicitor or from a third party.”
6. [2009] NSWCA 8 at [76] (Allsop P).

The scope of the duty of care in a case such as this remains as summarised by Scott LJ in Groom v Crocker [7] (cited in Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [8] ):

“The retainer when given puts into operation the normal terms of the contractual relationship, including in particular the duty of the solicitor to protect the client’s interest and carry out his instructions in the matters in which the retainer relates, by all proper means. It is an incident of that duty that the solicitor should consult with his client on all questions of doubt which do not fall within the express or implied discretion left to him, and should keep the client informed to such an extent as may be reasonably necessary according to the same criteria.”
7. [1939] 1 K.B. 194 at 222.
8. [1979] Ch 384 at 409 (Oliver J).

In my view, if the defendant considered or should have considered, having regard to his instructions, that the recommendation given by HC to proceed by way of VA rather than CVL was not in the best interests of the plaintiffs or would not be effective to achieve the aims of the plaintiffs, he had a duty to raise this with the plaintiff and advise him as to options for altering the process or course which had been recommended by HC on the morning of 9 February 2009.
Further, if, as the plaintiffs allege, the defendant was informed of the recommendation of HC to proceed by way of VA prior to the appointment documents being signed, the duty owed to the plaintiff required the defendant to consider and advise the plaintiff on the appropriateness of the course prior to suggesting that the plaintiff sign the appointment documents.
Finally, I consider that the duty imposed on the defendant required him to consider and advise the plaintiff on the appropriateness of signing the DOCA in the circumstances which existed at the time and having regard to any instructions provided to him at that time. The defendant was not entitled to remain silent if he considered that the course adopted by the plaintiff would not achieve the aims about which he had previously been instructed. [9]
9. David v David at [76].
Having said that, the duty imposed on the defendants, whether contractual or tortious, is only to exercise reasonable care. There is no duty to prevent harm. The defendant was required to advise the plaintiff. He was not required to prevent the plaintiff doing something that the plaintiff wanted to do. That principle looms large in this case.

Section 5B of the CLA

In applying s 5B of the CLA the first step is the proper identification of the risk of harm.
There is nothing in the pleading which addresses the risk of harm or s 5B. I asked the parties to identify the risk of harm.
The plaintiffs describe the risk of harm as the risk of a significant reduction in the value of the plaintiffs’ shares. In their reply submissions they state:

“On or about February 9, 2009 until March 31, 2009 there was a foreseeable risk that the voluntary administration process could result in a significant diminution of the plaintiffs’ legal and/or equitable interests in the assets of the company.”

The defendants submit that the risk of harm was:

“the risk that the value of the plaintiffs’ chose in action might be further diminished if the external administration process became costly and protracted without countervailing benefit for the plaintiffs.” (Emphasis in original.)

Only once the risk of harm has been properly identified can the Court consider whether the risk was foreseeable, not insignificant and whether a reasonable person would have taken the precautions suggested. [10]
10. Uniting Church in Australia Property Trust (NSW) v Miller; Miller v Lithgow City Council (2015) 91 NSWLR 752; [2015] NSWCA 320 at [102]; Port Macquarie Hastings Council v Mooney [2014] NSWCA 156; (2014) 201 LGERA 314 at [52].
Unlike the question of breach, which must always be considered prospectively, in identifying the risk of harm the Court may have regard to what actually happened. Further, the risk of harm may be identified generally or more specifically. It is not to be confined to the precise set of circumstances which are alleged to have occurred.
It is necessary to identify the risk of harm with reference to the true source of loss. The risk is not identified by merely identifying that there may be loss i.e. economic loss.
In my view, the defendants’ description is too narrow or specific. In my view, the risk of harm was that the process of external administration (in whatever form) would significantly dilute and diminish the value of the plaintiffs’ shares in the company.
Plainly, the plaintiff wanted to end his relationship with the Elias Interests but he also wanted to extract as much of his “interest” in the company as was possible. The risk was that the means or process adopted would end up “eating up” his interest as part of the process of extracting his interest.
In my view, the risk of harm was both reasonably foreseeable and not insignificant within the meaning of those terms as set out in ss 5B(1)(a) and (b) of the CLA.
Unfortunately, in circumstances in which the shareholders/directors are in dispute, the process of external administration (whether voluntary administration, voluntary liquidation or court-appointed liquidation) involves both time and expense.
The risk that the process would significantly diminish the value of the plaintiffs’ interests in the company was something that was not only foreseeable by a person in the position of the defendant but also not insignificant.
The real issues in this case involve a consideration of the scope of the duty of care and what reasonable precautions were required on the part of the defendant to reduce the risk of harm having regard to s 5B(2) of the CLA. Further, there are a number of factual issues that have a significant bearing on the outcome.

Causation

It is important to emphasise that the plaintiff bears the onus of establishing causation, having regard to ss 5D and 5E of the CLA.
Although the plaintiff’s claim for damages might be described as a loss of the opportunity to obtain a better outcome (through liquidation rather than VA), the plaintiff must still establish that, but for the conduct of the defendant, there would have been the opportunity to obtain that better outcome through the alternative process. That necessarily involves the plaintiff establishing that, but for the conduct of the defendant, a liquidator would have been appointed to the company, rather than matters proceeding by way of a VA. Thereafter, the plaintiff is only required to establish that the defendant‘s conduct resulted in the loss of an opportunity of some value which can be assessed having regard to the available evidence and the contingencies. [11]
11. Sellars v Adelaide Petroleum NL; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 332 at 355 (Mason CJ, Dawson, Toohey and Gaudron JJ), 368 (Brennan J); [1994] HCA 4 (“Sellars v Adelaide Petroleum”).

Background facts

The plaintiff is currently 73. He came to Australia from Lebanon in 1969. He says that he is a capable businessman but that in 2009 he spoke limited English. [12] He said he had a hearing problem and that he generally could not understand things that were said to him. Most of his business relationships were with Arabic speakers. Despite his extensive period in Australia prior to 2009, he maintains that it was only in the last 10 years that his English has improved significantly. He tended to emphasise when giving evidence that he speaks and reads English much better now than he did back in 2009. There is certainly a significant issue between the parties about this.
12. Affidavit, Joseph Kossaifi, 5 May 2017 at paras 3–11.
He has been engaged in property development both before and after the events the subject of these proceedings. He worked as a builder and also as a project manager.
The plaintiff and the members of the Elias family were long-time acquaintances prior to 2005. In March 2005, Tony Elias approached the plaintiff asking him whether he would join with him in a development at North Narrabeen.
On 8 April 2005, the company was registered for the purposes of undertaking the development. The issued capital in the company comprised 100 shares. The plaintiff and the second plaintiff held 25 shares each. The other 50 shares were held by members of the Elias family.
George Elias was nominated as the licensed builder for the project during the period 2005 to 2008.
The land situated at 11 Gondola Road and 12 Rickard Road in North Narrabeen was successfully developed. At the end of construction in February 2007, a strata plan was registered. The development comprised of two commercial or retail units, eight commercial offices, four residential units and five townhouses. By the time of engagement of the defendants, there remained two residential units and five commercial units available for sale.
By March 2007, a disagreement had emerged between the plaintiff and the Elias Interests as to what to do with the units. The plaintiff says that he was looking for a quick end to the relationship and simply wanted to split the assets in the company so that he and the Elias Interests could go their separate ways. The plaintiff says that Tony Elias would not agree on any of his proposals. He says that in May 2008, he spoke to the solicitor who had undertaken the conveyancing work in respect of the land, Robert Whebe. He says that he told Mr Whebe that he had attempted to work out how to split with Tony Elias but Tony Elias would not listen. [13]
13. Affidavit, Joseph Kossaifi, 5 May 2017 at para 43.
Thereafter, the plaintiff spoke to his neighbour, a barrister who he says is fluent in Arabic, about his problems. The barrister recommended the law firm Eakin McCaffrey Cox.
On 21 May 2008, the plaintiffs instructed Mark Doble of EMC, he says, for the purposes of organising the splitting of the assets of the company and terminating his relationship with the Elias Interests. Tony Elias instructed Grant Butterfield of Marsdens in response.
On 26 June 2008, there was a meeting at the offices of EMC during which there was an altercation between the plaintiff and members of the Elias Interests. The plaintiff says that Tony Elias punched him in the face. The matter was reported to the Police.
On 15 July 2008, EMC wrote to Marsdens setting out that, as the relationship between the parties was such that the Board could no longer effectively function, they were instructed to make an application for the winding up of the company.
On 21 July 2008, the plaintiffs filed proceedings in this Court for the winding up of the company by way of application under ss 461 and 462 or alternatively ss 232, 233 and 234 of the Corporations Act 2001 (Cth).
The plaintiffs pleaded that there was a deadlock in the company management and that it was just and equitable that the Court wind up the company pursuant to s 461(1)(k) of the Corporations Act.
In the alternative, the plaintiffs pleaded that the affairs of the company were being conducted by Tony Elias in an oppressive or unfairly prejudicial and discriminatory manner within the meaning ss 461(1)(f) or 232(e) of the Corporations Act.
On 21 October 2008, the plaintiff attended a mediation before the Registrar with his solicitor and barrister. Tony Elias and his solicitor were also in attendance. An agreement in principle was reached to the effect that either the plaintiffs or the Elias Interests would buy each other’s shares but it was up to the Elias Interests to decide which would happen. Following the mediation, Mr Doble circulated a draft deed of settlement.
There was no appearance before the Court when the proceedings were listed on 30 November 2008. The plaintiff says this was because Mr Doble had told him that the matter had settled, albeit the plaintiff had cautioned Mr Doble not to trust the Elias family. The proceedings were dismissed.
However, the proposed settlement fell apart and on learning that the proceedings had been dismissed the plaintiff decided to change solicitors. He subsequently met with the defendant.
On 26 July 2008, the defendant wrote a cold-call letter to the company and Tony Elias noting their involvement in the proceedings and promoting his services to them.
It must be that this letter came to the attention of the plaintiff, as in November 2008, the plaintiff contacted the defendant having recalled the letter of 26 August 2008.
On 15 December 2008, the defendant forwarded a costs agreement to the plaintiffs. On 17 December 2008, Ms Cavill swore an affidavit in support of reinstatement of the proceedings.
On 15 January 2009, the defendant sent an email to Ms Cavill, noting that the plaintiff was coming in on Monday and that she should take some evidence to support an urgent application for the appointment of a provisional liquidator to the company and that Counsel should be retained.
On 15 January 2009, the defendant wrote to the plaintiff referring to a conversation that the defendant had had with Mr Butterfield. Mr Butterfield had apparently advised the defendant that the Elias Interests were still prepared to settle on the terms proposed in the earlier deed of settlement and apologised for the delay on the part of his clients. The plaintiff was asked to contact the defendant to indicate whether he was still prepared to settle the dispute on the basis of the plaintiff buying out the Elias Interests in the company.
On 19 January 2009, the defendant wrote to Marsdens enclosing consent orders in respect of the reinstatement of the proceedings and seeking consent for the appointment of a provisional liquidator. It is notable that the Elias Interests did not indicate their consent to this proposed course at any time prior to 9 February.
On 23 January 2009, Marsdens wrote to the defendant in response to the plaintiffs’ offer of $645,000 for Unit 6 suggesting that the plaintiffs had demonstrated that the corporation is well able to function and sell the assets of the corporation without the appointment of a liquidator. Marsdens opposed a provisional liquidator being appointed.
Marsdens sought orders for a timetable to put on evidence in reply to the plaintiffs’ evidence on the motion (that is, they were opposing the reinstatement of the proceedings for the appointment of a liquidator). Then on 29 January 2009, Ms Cavill wrote to Mr Butterfield agreeing to Marsdens’ approach (for the exchange of evidence) and agreeing to mention Marsdens’ appearance when the matter was next before the Court on 3 February 2009. Up to this time, the Elias Interests continued to oppose the appointment of a liquidator to the company.
However, the plaintiffs and the Elias Interests, through their solicitors, then agreed on the appointment of a voluntary liquidator. Consent orders were filed adjourning the proceedings seeking a court-appointed liquidator until 9 February 2009. Having not been able to agree on the appointment of the defendant’s original suggestions as to liquidator, the parties then agreed on the appointment of Blair Pleash of HC. A meeting at HC was convened to take place at 9.00am on 9 February. The defendant agreed to stand the proceedings in the list to allow that meeting to go ahead.
Mr Butterfield wrote at 12:02pm on 6 February 2009 as follows:

“The parties have exhausted all attempts to settle and therefore, on the basis that the proceedings are NOT re instituted, we will agree to the VL. … George Elias is the representative for the Director - Tony Elias and the Elias family. I note George and Joe will be joint chairpersons to the extent it matters.”

At 1.38pm, Jovan Singh of HC forwarded appointment documents to the defendant, that is, documents to effect the voluntary winding up of the company. The defendant then wrote to Mr Butterfield as well as the representatives of HC confirming that he would have his clients execute that day, being 6 February 2009. Mr Butterfield also sent a group email to the effect that George Elias would just bring the application to Mr Pleash on Monday at 9.00am.
At 2.48pm on 6 February 2009, Ms Cavill sent an email to Mr Pleash and the defendant confirming that she had spoken with the plaintiff and he awaited a call from Mr Pleash. She also sent an email to Counsel retained to appear in Court on the Monday, noting that the parties were signing up to a CVL and thus he would not need to appear on the Monday.
At 4:50pm on Friday 6 February 2009, Mr Singh, an employee of HC, circulated a consent for a provisional liquidator by way of precaution in the absence of an agreement on Monday. Then at 5.00pm, Ms Cavill sent a group email confirming that she had spoken with Tim from HC who had spoken to both directors and that everyone was on-board. She would be going to Court at 9.15am to stand the matter over for six weeks. I take the reference to “Tim” to be Tim Cook and that he had said to Ms Cavill that he had spoken to both directors, being Tony Elias and the plaintiff, and that they were both on board as to the appointment of a liquidator. Contained within the court book is Ms Cavill’s handwritten note as to her conversation with Mr Cook.
It is clear that as at 5.00pm on the business day before the meeting of 9 February 2009, all involved had agreed to the course of appointing HC pursuant to a CVL and standing over the proceedings for the appointment of a liquidator whilst that occurred.
A meeting was arranged at the offices of HC on 9 February 2009. The plaintiff was asked by the defendant or a solicitor employed on behalf of the defendant to attend at the meeting. The defendant thought that the plaintiff would be attending for the purposes of signing documents appointing the representatives of HC by way of a CVL.
On 9 February 2009, the plaintiff attended at HC. There is a dispute as to who he met with, who participated in the meetings and whether he attended the offices of the defendant during the day, spoke to anyone on behalf of the defendant during the day or obtained advice from the defendant about signing the documents during the day.

During the course of 9 February, Richard Albarran and Blair Pleash of HC recommended that they be appointed as voluntary administrators. There is a dispute as to whether anyone, being either the defendant or his employed solicitor, Ms Cavill, found out prior to the signing of the documents that HC had recommended a VA rather than CVL.
It is the plaintiff’s evidence that it had been suggested to him by HC that the company was unable to pay its debts, with which he did not agree. He did not want to sign the documents but only did so having been told by the defendant through Ms Cavill that he must do so. There are competing versions as to what occurred on that day. The plaintiff says that he would not have signed the documents on 9 February 2009 without the defendant’s advice to do so.
On the very day of the meeting with HC, the application to reinstate the winding up proceedings was listed for directions in this Court. Ms Cavill attended and, with the consent of Marsdens, had the matter stood over to 17 February 2009.
I will review in detail what happened between 9 February and 31 March 2009 later in this judgment.
Suffice to say that there is again a dispute as to the instructions and advice provided. There is a dispute as the extent to which the plaintiff relied on the defendant for the drafting of the DOCA and again the extent to which the plaintiff simply took matters into his own hands.
On 31 March 2009, the DOCA was signed. Messrs Albarran and Pleash were appointed deed administrators.
As the DOCA was signed within the required time, the company did not fall into liquidation.
By May 2009, there were issues relating to the administrator’s costs, which the defendant was instructed to deal with on behalf of the plaintiff. At the same time, the plaintiff retained the defendant to deal with EMC’s costs. An objection to EMC’s costs was signed by the defendant on behalf of the plaintiff on 20 May 2009.
On 27 May 2009, there was a further meeting of creditors chaired by Mr Albarran. Tony Elias raised issues as to the conduct of the administrators. Mr Elias maintained that the administrators were never asked to investigate the company but were just there as administrators. Mr Elias maintained that the administrators had made it difficult to implement the deed.
On 11 June 2009, the plaintiffs made a first tranche payment of $250,000 to the deed fund. In accordance with clause 26.4(c)(1) of the deed, in consideration for an executed share transfer of 30% of their shares, Lot 4 was transferred to the plaintiffs. The administrators lodged a caveat over Lot 4.
The Elias Interests also paid their first tranche but reached agreement with the administrators that their Lot (Lot 6) could be transferred to a third party, apparently to avoid stamp duty. As the administrators could not lodge a caveat on Lot 6, the administrators retained the whole of the proceeds of sale of Lot 6 that is, the first tranche payment of $250,000 and the balance of the proceeds of sale being $390,000.
The shareholders were required to make a second tranche payment within 84 days of the DOCA, being 23 June 2009. No one made the payment for the second tranche as required.
On 13 August 2009, the defendant circulated an email specifying that the plaintiff was in a position to pay his additional $150,000 but had concerns as to whether such a payment would create a sufficient fund from which all creditors could be paid. On the defendant’s calculations, having regard to the administrative fees, there would be a shortfall of $213,974.60.
By August 2009, the administrators had formed the view that to bring the DOCA to an end, either party could make a payment of $470,849.14 or contribute 50% of that total liability. On receipt of that amount the administrators would transfer the remaining titles to Lots 12 and 15 to the plaintiffs and Lots 16 and 18 to the Elias Interests. The defendants wrote to the plaintiff on 18 August 2009 about this.
There continued to be an issue as to the administrators’ fees and the fees of their solicitors.
By September 2009, the plaintiffs were having difficulties with cash flow and were unable to raise the funds for the second tranche which had been payable by 23 June 2009.
On 27 November 2009, the administrators commenced their own proceedings seeking directions from the Court and orders for the termination of the DOCA on the basis that both the plaintiff and the Elias Interests were in breach of their obligations under the DOCA.
In his affidavit sworn 27 November 2009 for the purposes of those proceedings, Blair Pleash refers to receiving a series of complaints from Tony Elias about the fees.
Mr Pleash says that between 9 February 2009 and 31 March 2009 when the DOCA was signed, HC spent 315.545 hours at a total cost of $115,525. During the period 31 March 2009 to 31 October 2009, administrators expended a total of 365.95 hours at a total cost of $129,433.
Unfortunately, the deed administrator’s fees continued to escalate thereafter as they became embroiled in litigation with the Elias Interests and the plaintiffs.
By December 2009, the plaintiff (through the defendant) was calling on the administrators to attend a settlement at which the plaintiffs could pay the second tranche.
The administrators did not attend. Instead, by letter dated 9 December 2009, Etienne Lawyers stated that the shareholder groups had been in non-compliance of the DOCA since 23 June 2009 and took issue with the complaints and criticisms of the administrators’ conduct.
Whilst all this was taking place, the defendants were endeavouring to deal with the plaintiff’s objections to the EMC assessment of costs. When that was concluded and the plaintiffs did not pay, EMC served a bankruptcy notice on the plaintiff in claiming a debt in the amount of $51,149.16.
By January 2010, the defendants were:

dealing with the ongoing dispute with the Elias Interests;

attempting to stave off EMC’s threatened bankruptcy in respect of fees owing to EMC; and

continuing to deal with the issues raised by the administrators.

On 2 February 2010, the plaintiff swore an affidavit for the purposes of the proceedings being pursued by the administrators with the company as defendant.
In March 2010, the plaintiffs were joined as second defendants to the proceedings being pursued by the administrators and the Elias Interests were joined as third defendants.
On 7 May 2010, the parties finally reached agreement in respect of the proceedings pursued by the administrators and short minutes of order were filed in Court. The settlement essentially involved the parties acknowledging that the sum of $1,100,000 should be regarded as contributions to the deed fund constituted by the DOCA and that the plaintiffs and the Elias Interests should be regarded as having complied with the obligations under clause 26.8 of the DOCA.
By January 2011, the legal costs incurred by the deed’s administrators totalled approximately $600,000. This had been paid entirely from the assets of the company. The plaintiff sought advice from the defendants on challenging that assessment.
On 7 December 2011, the plaintiffs terminated the retainer of the defendants.
In 2012, the Elias Interests commenced proceedings against the administrators.
In 2016, the Elias Interests pursued orders that the company be placed into liquidation.
The proceedings were resolved on 7 February 2017, including terms that the plaintiffs be released from their guarantee to the administrators.
The company was deregistered on 6 July 2018, being 10 years after the plaintiff sought to split the assets held in the company.
It is not surprising that the plaintiff expresses considerable frustration. He seeks to attribute responsibility to the solicitors who acted for him in 2009–2010 and specifically identifies their conduct over a two-month period, February to March 2009.
The plaintiffs commenced these proceedings on 6 February 2015.

The plaintiff’s evidence

The plaintiff initially sought to give evidence through an interpreter. He quickly abandoned the interpreter and chose to answer almost all questions in English. English is not his first language and his vocabulary is not that of a person whose first language is English. In that sense, it might be said that his English is limited or deficient as he maintains.
I formed the view that he had difficulty understanding lengthy questions and tended to answer based on a part of the question or a concept. However, I also formed the view that he understood shorter questions using ordinary English words. There were times during cross-examination when I had the impression that his understanding was very limited and other times when he was quick to answer in a way which demonstrated that he understood the question completely.
He says his English is much better than it was previously and specifically much better than it was in 2009. He could read documents in English when giving evidence although he did not necessarily understand every word.
He refers to generally only dealing with Arabic-speaking people prior to 2009. Although he had been in Australia 40 years and had operated a building and project management company, he says that he used to obtain assistance from other persons when he had to speak in English. He maintains a significant improvement in his English over the past 10 years. That is, he asks the Court to consider his vulnerability, not on how he presents in 2020, but on the basis that his English and general ability to understand English concepts were much more deficient in 2009.
On one view, it is surprising that his English would have improved so much over the past 10 years, that is, between his 40^th and 50^th year in Australia. However, on his evidence he has been dealing with more English-speaking persons in the past 10 years and thus his English has improved.
Further, he maintained when answering questions in cross-examination that he could read English better than understand it when spoken. He signed documents when told to by a person such as the defendant without reading them. An example of cross-examination is as follows (in respect of an earlier affidavit prepared by EMC):

“Q. And do you remember putting your signature on‑‑
A. WITNESS: Yeah, I sign it. Yeah, I sign it. Actually, as I said before, when the solicitor tell me sign, I don't read, I sign. Because I was trust. I don't know what they do. I was trusting them. I never read anything before. I start reading every sentence and even after I start, no, doing wrong, then I start to read with my dictionary.
Q. So you said you remember putting your signature on your affidavit?
A. WITNESS: Yes.
Q. Do you remember signing every single page?
A. WITNESS: No. I signed, yeah, I signed, but every single, I don't know. I don't remember that. But I signed, yes.
Q. So your evidence is that you were given a typed up affidavit?
A. WITNESS: Yes.
Q. And you just signed it?
A. WITNESS: Whatever they tell me sign I sign.
Q. So you didn't satisfy yourself‑‑
A. WITNESS: Even I don't read them. When we talking, they writing and I don't read it because I was trust everybody before. I was dumb. I know, I say myself I was dumb. Nobody approve that, but this is why.
…
Q. And you did not read‑‑
A. WITNESS: No.
…
Q. Did you tell the lawyers the truth about what was going on at that time?
A. WITNESS: Choice what I was going to do? My choice?
…
Q. I suggest to you, Mr Kossaifi, that what really happened is that you did read a draft of this affidavit before you signed it?
A. WITNESS: Never.
Q. And I suggest to you, Mr Kossaifi, that you read the final version of this affidavit before you signed it?
A. WITNESS: Never. Never I read it. This is the first time I see it. I saw it when I signed it, but I do not know what I signed and now I read. Now maybe I understand most of it, but now I read.
…
Q. Can I ask you to read that, Mr Kossaifi. Would it help if I read it out loud, Mr Kossaifi?
A. WITNESS: "The board of the company can no longer function"‑‑
HIS HONOUR
Q. No, you don't have to read it. Can you read it to yourself?
A. WITNESS: Yeah.
Q. Okay, just read it to yourself?
A. WITNESS: Here he mention my wife and I never, never mention—”.

Later in the cross-examination, the plaintiff again asserted that he never read the affidavits:

“A. WITNESS: How many affidavit I done? I don't understand. As I said again, where they tell me to sign I sign, but number 1, number 2, number 10, I don't know. Now, but this, I said it, yes.
…
A. WITNESS: I never read them. And I want to read them now if I may fresh my memory.”

Again, he repeated that he just did what the defendant said and he did not read the documents:

“Q. Never ever seen it?
A WITNESS: As I said maybe I did but I never do anything without Farshad. If he tell me sign, I sign. I never read. I start read after when I saw the monkey business going I start to read to see what is going on.
Q. Your evidence, I want to be very clear about this, your evidence is that you may have received this document but you don't remember?
A. WITNESS: I may, yes.”

In his affidavit, he refers to having spoken with the defendant on hundreds of occasions. The defendant does not speak Arabic. Nor does Ms Cavill. He maintains that he rarely understood what he was being told and just relied on the defendant to “make it right”. He says he rarely read the letters sent to him by the defendant. Paragraph 63 of his affidavit of 5 May 2017 is indicative of his evidence:

“After I retained Mr Amirbeaggi, he frequently sent me documents by facsimile. Sometimes he mailed me letters. However, I rarely read the letters which he sent me. I almost never read his letters from start to finish. It was too time consuming for me to do so. I usually read the parts of his facsimiles which had numbers and dollar amounts. I couldn’t understand his letters without referring to my Arabic/English dictionary.”

The defendant and Ms Cavill both gave evidence to the effect that they did not believe that the plaintiff had any difficulty understanding and they did not have any difficulty understanding the plaintiff.
Any suggestion that the plaintiff could not read or write in English in the period 2005 to 2009 is negated by the existence of documents prepared by the plaintiff and in his own handwriting. Whether the plaintiff chose not to read documents such as affidavits before signing them is a matter for him but I do not accept that the plaintiff had no ability to read documents, albeit he might not have understood or recognised some words and legal terms.
When asked to read paragraphs of an earlier affidavit prepared on his behalf he did so (in part aloud), albeit he said he did not read it at the time and said he did not tell the solicitors some of the statements made in the affidavit.
It does not follow that he had a good grasp of legal concepts or a thorough understanding of Court processes and the processes of insolvency, but the same may be said for many persons, irrespective of whether English is their first language.
He demonstrated that his English was adequate for ordinary communications when giving evidence. Similarly he demonstrated that he could read English when giving evidence. However, he says it is a lot better now than in 2009.
It is difficult to assess the adequacy of his English as at 2009. The defendant and Ms Cavill believed that the plaintiff was capable of and did understand them when they spoke to him in 2009 (in English). It would be most surprising if the defendant and Ms Cavill could have recorded the contemporaneous file notes of conversations with the plaintiff, if his English in 2009 was as deficient as he maintains.
Further, on 17 February 2009 the plaintiff forwarded a facsimile directly to Mr Albarran of HC as follows:

“Please freeze everything and stop doing any further work related to Joe & Joe Developments Pty Ltd.
reason we had meeting on 16/2/09
Directors, shareholders and creditors
and we may have a final agreement to satisfy every body.
I will talk to you within couple days
Kind regards”

The document is in the plaintiff’s handwriting and signed by him.
Of course, the personal characteristics of the plaintiff might inform the way in which advice is given but I do not accept that the plaintiff was unable to communicate properly with the defendant or generally understand what he was being told. On his own case, he was able to communicate with the defendant on 9 February such that the defendant should have intervened on behalf of the plaintiff both prior to and after the appointment of the administrators.
The plaintiff was an experienced project manager/developer who had been involved in the development of projects in Sydney for many years prior to 2009. He was not a person who would be considered vulnerable in the sense of being incapable of understanding advice given in plain and simple language. That is not to say that he necessarily understood the difference between liquidation and VA but most laypersons would similarly not understand the difference between those processes.
I have some reservations about the way in which the plaintiff gave his evidence and his approach to some questions. Just as there is an emphasis in the early part of his affidavit on his vulnerability and the extent to which he relied upon the defendant (referring to hundreds of conversations with the defendant) and relying on him for everything (when the course of events immediately after 9 February suggests that he did not), he tended to emphasise in oral evidence that he did not read the documents and that he relied on the defendant for everything.
Some of his conduct is inconsistent with such an approach. Some of his evidence was exaggerated. Further his insistence on certain events which are most unlikely to have happened leads me to have some doubt about aspects of his evidence, although I accept that his aims in instructing EMC and then the defendants were as he maintains. He wanted the assets to be split in the quickest way.
He denied having conversations and meetings about which there are contemporaneous records. He denied providing instructions on some matters even though there is no other logical explanation — the only alternative being that persons such as the defendant and Mr Cook must have made up things (not now but back in 2009). He denied reading some documents he was sent, even though the contemporaneous records show that he responded to them in such a way that he must have read and understood them. This was amply demonstrated through cross-examination on some events during the deed administration.
I also consider that he saw litigation as a last resort. As his conduct demonstrated, he believed that he could do a deal with the Elias Interests and was prepared to do so even whilst the lawyers and accountants were pursuing more formal processes.

The processes of external administration

As the plaintiff seeks to contrast the process of liquidation with voluntary administration, it is necessary to say something about those processes.
Liquidation and voluntary administration are forms of external administration. A company may be placed into liquidation if the company is insolvent but there may be other reasons for liquidation.
The general grounds on which a company may be wound up by the Court are set out in s 461 of the Corporations Act. In the proceedings commenced by EMC and taken over by the defendants, the plaintiffs sought winding up of the company under ss 461 and 462 or alternatively ss 232, 233 and 234. As set out in s 233 of the Corporations Act, the Court can make an order that the company be wound up if it considers it appropriate. If an order is made under s 233, it is as if the order were made under s 461: Corporations Act s 233(2).
In Fexuto Pty Limited v Bosnjak Holdings Pty Limited & Ors [2001] NSWCA 97; (2001) 37 ACSR 672 at [89], Spigelman CJ observed:

“It may be accepted that the existence of irreconcilable differences among persons involved in what is, in effect, a partnership, will destroy the personal relationship involving mutual confidence, that lies at the heart of the partnership analogy. This analogy has been applied both to applications for winding up on the just and equitable ground and also to oppression suits. (Although the differences in form are not immaterial: see Re a Company (No 002567 of 1982) [1983] 2 All ER 854; [1983] 1 WLR 927 at 935–6 per Vinelott J.) Irreconcilable differences may establish a basis for winding up, they do not of themselves constitute oppression or unfair prejudice: see McMillan v Toledo Enterprises International Pty Ltd (1995) 18 ACSR 603 at 604.”

Leaving aside the willingness of the Elias Interests to agree to liquidation, the type of breakdown in the relationship between the plaintiffs and the Elias Interests which had occurred prior to 2008 would have been grounds for the liquidation of the company as sought by the plaintiff in the proceedings commenced in 2008.
A Court order for winding up must be distinguished from a voluntary winding up. The company may resolve by special resolution that it be wound up voluntarily. In those circumstances, the winding up is taken to have commenced when the resolution was passed or if immediately before the resolution was passed the company was under administration, the day on which the administration began: Corporations Act s 513B.
Having said that, once the decision is taken to wind up the company, whether voluntarily or by order of the Court, the process is similar. The process that the directors had agreed to prior to 9 February 2009 was a creditors’ voluntary winding up. In a creditors’ voluntary winding up, the Court is generally not involved.
It is notable that a creditors’ voluntary liquidation is a process that may be adopted when the company is insolvent. As the name suggests, the creditors have a role in the liquidation process in the sense that they can seek information, determine the liquidator’s remuneration, establish committees, agree to oversee the liquidator and vote to remove the liquidator. A creditors’ voluntary winding up is governed by Part 5.5 of the Corporations Act.
In the draft documentation circulated for signing by the directors on 6 February 2009, the wording of the resolution was to the effect that the company was being wound up on the grounds that it was insolvent, which the plaintiff disputes.
Voluntary administration is regulated by Part 5.3A of the Corporations Act. As set out in s 435A of the Corporations Act, the objects are to provide for the business, property and affairs of an insolvent company to be administered in a way that:

maximises the chances of the company, or as much as is possible of its business, continuing in existence; and

if it is not possible for the company or its business to continue existence — results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.

The process of voluntary administration generally provides a limited timeframe to achieve the purposes of the administration. For example, the first creditors’ meeting under s 436E must be held within eight business days of the appointment.
The DOCA must be executed within 15 days after the end of the second meeting of creditors. If that does not occur, the administration ends and the company will be placed into liquidation: Corporations Act ss 444B, 446A. In the plaintiff's case, this is of some significance.
The role of the administrator is set out in s 437A(1). The administrator has control of the company’s affairs and carries on the business and manages the property and its affairs. It may also terminate or dispose of part of the business or property and may perform any function and exercise any power that the company or any of its officers could perform or exercise whilst not under administration.
Section 438A of the Corporations Act specifies a mandatory obligation on the administrator in the following terms:

438A   Administrator to investigate affairs and consider possible courses of action
As soon as practicable after the administration of a company begins, the administrator must:
(a)   investigate the company’s business, property, affairs and financial circumstances; and
(b)   form an opinion about each of the following matters:
(i)   whether it would be in the interests of the company’s creditors for the company to execute a deed of company arrangement;
(ii)   whether it would be in the creditors’ interests for the administration to end;
(iii)   whether it would be in the creditors’ interests for the company to be wound up.

An administrator is entitled to be indemnified including in respect of the administrator’s remuneration: Corporations Act s 443D(b). An administrator’s remuneration was to be determined in accordance with s 449E (which has since been repealed — administrators’ remuneration is now regulated by Div 60 of the Insolvency Practice Schedule (Sch 2) of the Corporations Act). Similarly, the deed administrator’s remuneration was determined in accordance with s 449E.
Finally, it is possible to challenge the appointment of the administrators or seek to bring the administration at an end: s 447A(1)). It was accepted by the defendant in cross-examination that the plaintiff could have sought orders from the Court bringing the VA to an end (if there was a proper basis to do so). This is, again, important to the plaintiff’s alleged second period of breach as identified in the plaintiff’s opening submissions.
Voluntary administration might be considered a process whereby creditors and members can consider the best process for achieving the best return to the creditors and members during a limited but protected period. If the aim is not to maximise the chances of the company continuing in existence, the company will inevitably end up in liquidation or deregistration.

The first allegation of breach

The plaintiff identifies the first breach as occurring before and up to the time of the appointment of the administrators on 9 February 2009. As there appears to be no dispute that, prior to the plaintiff’s attendance at HC on 9 February 2009, the defendant thought that the meeting at HC was for the purposes of initiating a CVL, the conduct of the defendant allegedly comprising the first breach happened over a narrow time frame.

The plaintiff’s version

The plaintiff says that in early February 2009, he received a call from either the defendant or Ms Cavill informing him that he needed to go to the offices of HC to sign documents so that they could do the split. He did not know how HC would split the assets of the company but believed that the defendant had sorted everything out for him.
He says that he attended at the defendant’s offices at 9.00am and spoke to Ms Cavill. He says he was expecting the defendant to go with him to HC. He says that he wanted to talk to the defendant about what was going to happen and wanted the defendant to go to the meeting with him. He was told by Ms Cavill that he should go to the meeting without the defendant and that he should go upstairs to sign up. The firms were located in the same building.
On attending at HC he was met by Mr Albarran who told him that there was a problem because the company was insolvent. He asked Mr Albarran what he meant. They continued:

“When I arrived at Hall Chadwick for the 9.00am meeting I was met with Mr Albarran. George Elias was also in reception. The three of us went into an office, where a conversation to the following effect took place:
Mr Albarran:   “[Speaking to George] We are signing papers for me to take over the company. We have a problem because the company is insolvent.”
Me:   “What do you mean by “company is insolvent” I want know what is going on.”
Mr Albarran:   “It means the company does not have any money to pay its debts.”
Me:   “Wait a minute, what do you mean we have no money. Money was never a problem. We have $100,000 in the cheque account. The problem is I want to split the company and that is it. I don’t want to be with them anymore. That is the reason we are here. Why are you only talking to George, talk to me as well.”
Mr Albarran:   “Shut up, you don’t know what you are talking about.”
George Elias:   “I will ring my brother to see whether I should sign.”
Mr Albarran:   “Are you going to sign Joe?”
Me:   “No”.” [14]
14. Affidavit, Joseph Kossaifi, 5 May 2017 at para 75.

On the plaintiff’s recollection of what occurred at HC:

Mr Albarran must have already discussed the issues with George Elias prior to the plaintiff arriving;

The only comment of substance made by Mr Albarran was that the company was insolvent, which he explained as meaning that the company could not pay his debts;

Mr Albarran’s response to the plaintiff’s protest and rejection of this was to tell him to shut up as he did not know what he was talking about; and

there was no one else such as Mr Cook in the meeting.

He says he refused to sign the document because he did not agree that the company had any financial problems. He says that he was only at HC for 5–10 minutes. He says he went downstairs to talk to the defendant and Ms Cavill was still there. He spoke to Ms Cavill, explaining that they wanted him to sign documents on the basis that the company does not have any money and he did not want to do that. He just wanted to split the assets. Ms Cavill told him that the defendant was not there. He then went home and sometime later he received a call from Ms Cavill to the following effect:

“I then went home. Sometime after I arrived home, I received a call from Ms Cavill and we had a conversation to the following effect:
Ms Cavill:   “Farshad told me to tell you that you have to go back and sign the documents. That is the best way to go ahead.”
Me:   “Have the other party signed?”
Ms Cavill:   “Yes, the other parties have already signed.” [15]
15. Affidavit, Joseph Kossaifi, 5 May 2017 at para 78.

He says that he then returned to the offices of HC and met with Mr Albarran. No one else was present. Mr Albarran put a document in front of him which he noticed had already been signed by George Elias. Mr Albarran said, “Thank you for coming back Joe, please sign here.”
He then signed the notice of appointment of administrators.
He says he did not read it and Mr Albarran did not read it to him or explain what it meant. He says he was not given a copy of the document to take away and he understood the effect of signing the document would be that the company’s assets would be split quickly.
Further, the plaintiff stated that the minutes of the directors meeting on 9 February 2009 were not signed until three weeks after the DOCA was signed. In re-examination, he gave the following evidence:

“Q. Now is your opportunity to tell us how it happened?
A. WITNESS: I remember this DOCA after ‑ exact time I don't know ‑ but around three weeks after I signed the DOCA. I was in Farshad's office. He said "you've got to sign this". I said "what is that?" He said "this for the ASIC. You have to sign it". I look at it and he said to me, I ask him "what's that?" ASIC? But what's in it?" He said that "company have meeting, you've got meeting with director and this what we have to do". I said "never happen". He said "no, no, no, no, you've got to sign if to be quick, to split the company". I said "Farshad, the ASIC, they know, you put me in trouble. I be in trouble maybe". He said, "don't worry about it, nobody will see". I sign it and that's it.
Q. I want to take you to the document itself. Can you just read to yourself, or perhaps I'll read it to you but follow on the page, if you would?
A. WITNESS: (Witness nodded).
Q. It says that the people present was Tony Elias and yourself at the offices and it was resolved that Tony Elias was to be appointed the joint chairman. See that?
A. WITNESS: Never happen, never.
Q.
“The directors discussed the financial affairs of the company and considered that if the company was not already insolvent it was likely to become insolvent at some future time. The directors further discussed the consequences of the company's position and the appointment of the administrator under part 5(3)(a) of the Corporations Act.”
Now, did you ever, at any time, on 9 February or at any time prior to 9 February, have a meeting where those things were discussed?
A. WITNESS: With?
Q. The things I've just read to you, did you ever have a meeting, you and Tony, where those things that I've just read to you were discussed?
A. WITNESS: Never.”

He says that document was signed in the presence of the defendant at a later time. On the document, Mr Cook appears as a witness to his signature. On the plaintiff’s evidence, the document was backdated and witnessed by the defendant, not Mr Cook. It might be said that if I accept the plaintiff’s evidence about this document, the defendant must have known well after 9 February that the appointment of a VA was invalid. Of course, there would be other consequences if I accept the plaintiff’s evidence about this document.

The defendant’s version

The defendant says that after the initial objection from Marsdens to the appointment of another firm, they agreed on the appointment of HC for a CVL.
On 6 February 2009, the defendant wrote to HC as follows:

“Gents,
New job for you.
A CVL (or MVL) required arising from a dispute between the two directors of JOE & JOE DEVELOPMENTS PTY LTD ...
The directors want the company shut down and the properties sold. I just need to check the position regarding the extent of creditors so as to determine whether MVL more appropriate.”
Has to happen today, as the matter is back in Court on Monday for the purpose of appointing a provisional liquidator...”

There is an email from Mr Butterfield to the defendant dated 6 February 2009 in the following terms:

“The parties have exhausted all attempts to settle and therefore, on the basis that the proceedings are NOT re instituted, we will agree to the VL.
I note Blair Pleash of Hall Chadwick will send the documents for signature. …
As discussed can you mention the motion subject to the VL confirming the appointment have the matter, as a safety net in case we need to approach the court again …”.

The defendant says that he understood from the plaintiff’s instructions that the plaintiff wanted immediate displacement of control and realisation of assets. Therefore the company was, in his opinion, a suitable candidate for a CVL. The defendant says that at no time in the lead-up to the appointment of HC did he recommend, advise on or suggest to the plaintiff that he should appoint an administrator to the company. [16]
16. Affidavit, Farshad Amirbeaggi, 6 January 2019 at paras 78–79.
Further, he did not think a VA would bring about the finality the plaintiffs desired and the VA was inconsistent with the orders sought in the Court process already filed.
Further, he refers to the far greater level of consideration required for a VA than a CVL. [17] He says he had not been engaged to and not considered nor advised upon all the matters that should have been considered prior to the entry into a VA.
17. Affidavit, Farshad Amirbeaggi, 6 January 2019 at para 82.
He refers to the document produced by HC on the Friday before the meeting which was consistent with his belief that HC would be appointed pursuant to a CVL on the morning of 9 February 2009.
The defendant denies telling the plaintiff that it would only take one month to split the assets and denies having a conversation about the likely costs. [18]
18. Affidavit, Farshad Amirbeaggi, 6 January 2020 at para 85.
The defendant believed that the plaintiffs did not have money to fund the steps required to prosecute their interests. They continued to fail to meet the defendant’s request for a payment of fees or putting money in trust but continued to assure the defendant that, having regard to other real estate sales and developments in which the plaintiff was involved, the money would be forthcoming.
In fact, the plaintiff never made payment of any professional costs and disbursements to the defendant. It was not until two years after their engagement that the defendants took a transfer from the plaintiff of Unit 4 in the development and finally received partial payment of the accrued professional costs and disbursements. Prior to that time, being during the two years for which the defendant had been providing services to the plaintiffs, the plaintiffs did not pay any of the costs or disbursements incurred.
The defendant says that prior to 9 February 2009, either he or Ms Cavill had spoken to the plaintiff about the appointment of a liquidator on a number of occasions. Indeed, in his affidavit, the defendant refers to his usual practice of giving advice, which he says would have been as follows:

“FA: ‘A CVL results in the immediate appointment of a liquidator to the company. Upon his or her appointment, the CVL will make inquiry into the affairs of the company, realise its assets, determine and pay its creditors, and pay any surplus to the shareholders.’
AND
FA: ‘Whilst we have had some back and forth with Marsdens as to who should be appointed CVL, we have finally agreed on Hall Chadwick.’” [19]
19. Affidavit, Farshad Amirbeaggi, 6 January 2020 at para 98.

The defendant believed that the sole purpose of the meeting on 9 February 2009 was for the CVL documentation to be executed by the plaintiff and the Elias Interests. He did not consider it was necessary for him to attend that meeting, bearing in mind that it only had one purpose.
The defendant says that he did not speak to the plaintiff during the course of the morning of 9 February. He received two emails from Ms Cavill. The first was at 9:59am, noting that, as the meeting at HC had not yet started at the time that she attended Court, she stood the proceedings over for another week.
He received a further email at 2:59pm from Ms Cavill as follows:

“Hall Chadwick people ended up signing them up to a VA this morning, and they are discussing the possibility of a DOCA.”

He says that after he had left his office, he spoke to Mr Cook as follows:

“FA:   ‘I’ve been away with clients for most all of the day. I’ve got an email from Danielle that tells me it ended up being a VA. How come?’
TC:   ‘Yes, I spoke with Danielle after the appointment was made. It was meant to be a CVL, but the directors spent a couple of hours with Richard talking through it all. Apparently, the directors had spent time over the weekend negotiating and thought they might be able to reach an agreement without a liquidation. They were concerned about a liquidation affecting their credit rating, builder’s licenses, and home warranty insurance. Richard told them they could avoid all of that if they reached an agreement through a VA and a Deed. They carried on a bit throughout the meeting arguing with each other but ended up accepting Richard’s advice. They wanted to try giving settlement another go and appointed us VA. If they can’t agree, then we’ll just drop it into liquidation at the creditors’ meeting. We talked them through the process, so they know what is involved.’
FA:   ‘Thanks for letting me know. I’ll call the client and discuss next steps.’” [20]
20. Affidavit, Farshad Amirbeaggi, 6 January 2020 at para 110.6.

He says he then spoke to the plaintiff either on the evening of 9 February or shortly thereafter in the following terms:

“FA: ‘I’ve spoken with Hall Chadwick. You appointed them as Voluntary Administrators. They’ve told me but I wanted to understand your thinking. Especially given what you told me of the history with the Elias family. What’s the plan?’
JK: ‘I talked to Elias over the weekend. He thinks we can settle. Liquidation will have problems for finance, builders’ licenses, and insurance. Hall Chadwick said we can settle and have an agreement in a voluntary administration, and then we won’t have those problems. So, we appointed them voluntary administrators. They told us if we don’t settle, we can put it into liquidation from there.’

they say that if the company had been wound up rather than put into voluntary administration, they would have received a return on their shares of between $1,073,145 and $1,048,525;

they say that as a result of the voluntary administration they received a return of $580,000. The loss is thus calculated as the difference between their expected return on their investment minus what they received, being $493,145 to $468,525;

secondly, they say that based on the expert report of Phillip Stern, solicitors’ fees in respect of winding up proceedings would have been between $4,800 and $7,695. They ultimately paid the defendant $299,020 including an overpayment of $54,250. They thus calculate their loss at $345,575 to $348,470;

they also claim loss of rent of $10,600 in respect of the rental loss of Lot 4; and

they say that the financial spiral that resulted from the delay in finalising the split of the assets and the requirement that the plaintiffs make payments into the fund meant that the plaintiff was required to obtain a $372,000 mortgage against Lot 4 and liquidate other assets and take out high interest loans. For example, the plaintiff says that he was forced to sell units owned at Mount Pritchard, which he had owned since 1985, due to the financial duress he was suffering in February 2014. He relies on a valuation report from David Bird to the effect that, if he had not sold the properties, in December 2019 there would have been an increase in value of $200,000 in respect of each property. He would have further obtained rental income for the same period of between $240,000 and $245,000.

It is again difficult to assess loss, having regard to the findings that I have made. It is important to emphasise that damages are compensatory but there are limits normally arising through the principles of causation and remoteness.
The plaintiff’s approach to loss is based on the assumptions that:

the liquidator’s fees would have been a fraction of the administrators’ fees;

there would have been no shareholder disputes;

there would have been no dispute between directors;

his own lawyers would have charged him less than $10,000 instead of $250,000;

he would not have been asked to raise any money or make any payment to any fund;

he would have suffered no financial duress in 2014;

he would not have sold any of his properties;

he would have continued to rent these properties;

the value of his properties in 2019 would have been considerably higher (not that he would have sold them); and

he would not have borrowed money and even if he did borrow money he would have obtained better interest rates.

The plaintiff relies on expert evidence. The experts were not required for cross-examination and there was no challenge to the content of their reports.
The defendant’s response on loss is that the plaintiff has not demonstrated that, had he received the advice that he alleges should have been given, he would have taken a different course. He submits that the only conclusion that the Court could reach is that the counterfactual would have involved the parties taking similar paths to that which they did, involving an open-ended course of contested litigation with no proof that the Elias Interests would have consented to a liquidator or not objected to the decision-making of the liquidator.
It is important not to confuse the issue of causation with the issue of assessment. The plaintiff bears the onus of establishing causation. Once duty, breach and causation are established then the Court will assess damages. The plaintiff also bears the onus of establishing his loss but the Court will not shy away from undertaking the assessment task because of difficulties in estimation. [39]
39. Fink v Fink (1946) 74 CLR 127 at 134–135, 143; [1946] HCA 54; Sellars v Adelaide Petroleum at 349; Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83; [1991] HCA 54 (“Commonwealth v Amann”).
I have already made factual findings on causation in respect of the second and third period of breach. I am now undertaking a hypothetical assessment of damages on the counterfactual being that the company would have been placed into liquidation rather than a VA. The plaintiff must establish that his claimed losses have been caused by the defendant’s tortious conduct or breach of contract.
In assessing damages on the counterfactual, I am really adopting the approach set out in Sellars v Adelaide Petroleum [40] as follows:

“On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable.” (Emphasis in original.)
40. (1994) 179 CLR 332 at 355 (Mason CJ, Dawson, Toohey and Gaudron JJ); [1994] HCA 4.

In Commonwealth v Amann,[41] Deane J observed that there are cases where considerations of justice or the limitations of curial method render ultimate findings, about what would have been or will be, impractical and inappropriate. In those cases damages must be assessed on another basis, that is, with reference to the probabilities of the possibilities of what would have happened or would happen, rather than on the basis of speculation that probabilities would have or will come to pass and that possibilities would not or will not.
41. (1991) 174 CLR 64 at 118; [1991] HCA 54.
In a case such as this, the Court is assessing the value of the loss of a commercial opportunity, that is, the value of the prospect of obtaining a better outcome from a liquidation rather than voluntary administration. Unless I consider that such a value is completely speculative such that only nominal damages would be awarded, I would assess the alleged loss having regard to the possibilities and contingencies. Despite the difficulties in assessment, I would still place a value on the loss of opportunity.
On the plaintiff’s case, the assessment of damages is simple. I would just have regard to the expert evidence relating to the likely legal and accounting fees associated with the liquidation. I would then assume there would be no other expenses and calculate the difference between what their net benefit would have been compared to what it was, again having regard to the assumptions as to the value of the land in 2009.
There are a number of problems with that approach in this matter, including:

the loss that might be sustained must depend upon any findings that are made as to what would have occurred but for the conduct of the defendant or an assessment for the contingencies;

it is highly unlikely that any liquidation would have proceeded in the manner suggested having regard to the general attitude of the Elias Interests, the general approach of both the plaintiffs and the Elias Interests to paying any fees and allowing professionals to charge for their services and the likelihood that there would be ongoing shareholder disputes; and

the valuations relied on by the plaintiff were undertaken without regard to any possible diminution arising if sold as part of the liquidation process.

It can be said that if EMC had continued to pursue the orders which were sought in the original proceedings filed in 2008, then both accounting and legal fees would be substantially less than they turned out to be. It might also be said that if the defendant had been instructed to continue to pursue a Court-appointed liquidator or voluntary liquidation in early February 2009, the accounting fees and legal fees would be less.
By 31 March 2009, HC had already incurred fees of $115,000. Although there was no focus on what happened after 31 March 2009 on the hearing of the matter, in any damages assessment I must have regard to the contingencies. The plaintiff’s case is that legal fees under $10,000 would have been incurred. Even Mr Stern says that this estimate is on the basis that the Elias Interests would have consented to a Court-appointed liquidation and that there would be no disputes.
At no stage prior to 9 February did the Elias Interests consent to a Court-appointed liquidation. They had resisted that idea. They asked that the proceedings be stood over on a regular basis while further attempts were made to resolve the matter. Prior to 9 February, they only consented to a CVL. Further, it was the Elias interests who did not comply with their obligations under the deed in respect of the first tranche payment and sought a variation. It was the Elias Interests who sought to challenge HC. If the Elias Interests had consented to a Court-appointed liquidator either in 2008 or early 2009, it may be that events might have turned out differently.
Having said all of that, I am prepared to accept on the counterfactual that both legal and accounting fees would have been considerably less. After all, according to the plaintiff, not only did HC render fees of around $700,000, but the lawyers appointed by it also incurred a similar sum.
The plaintiff’s best case on loss of value may be $493,000 plus interest. That assumes that a Court-appointed liquidator would have quickly and efficiently realised the assets at full market value with minimal legal fees and no dispute leading to an increase in liquidator’s fees. I do not accept this would have occurred. There is a real risk that the liquidator would have been forced to incur costs and fees dealing with issues raised by the Elias Interests and the plaintiff.
In his affidavit of 12 February 2019, the plaintiff sets out his view of his 2012 balance sheet. He includes shares in the company valued at $1.4 million. This balance sheet also includes value of other real estate (after deduction of debt secured) in the sum of $1,117,000. Of course, he had not paid the fees owing to EMC. He did not pay those fees until March 2013.
As he says in his affidavit of 12 February 2019, he went on to develop 8 strata units at 12 Freda Place on behalf of Banda Developments. He says he had cash flow problems and the development was stalled because of those cash flow problems. He also says that in 2014 he was forced to sell four units at North Liverpool Road, Mount Prichard for the sum of $1.3 million. He estimates that the land is now worth $2.5 million and thus he has suffered a loss of $1.2 million as a result of being forced to sell.
He then refers to the loan secured against his Earlwood home and over the Banda property and as well as over the Mount Prichard property. He calculates interest and brokers fees in respect of the Earlwood property at $638,219.82 and makes similar calculations in respect of the Banda property in the sum of $111,943.50 and the Mount Pritchard property in the sum of $218,700.
Proceeding by way of a Court-appointed liquidator in 2008 might have been a much simpler process than VA and the DOCA. There were complexities to the DOCA and perhaps some inconsistencies, but the plaintiff’s approach to assessment of loss rather ignores everything that happened post 31 March 2009 and attributes the cost of all borrowings to that which occurred in February to March 2009.
I accept that the plaintiff was required to borrow to fund the first tranche of $250,000. I accept that if the matter had proceeded by way of a liquidation and the liquidator had sold the assets as part of the liquidation for the purposes of paying all creditors (which, other than accounting or legal fees, were minimal), then the plaintiff would not have had to pay into a fund and would not have had to borrow to pay that amount. On the counterfactual, as sought by the plaintiff, the plaintiff would be entitled to recover interest on the borrowings but only for a limited period.
Again, it is relevant to understand what happened after 31 March 2009. The plaintiff did pay the first tranche and was in a position to pay the second tranche of $150,000 by August 2009. However, by this time, a problem had emerged in that the Elias Interests had not paid the first tranche in accordance with the terms of the DOCA but had sought a variation. They then considered that the result of that variation was that they had paid both the first and second tranches, which the administrators disputed.
By August 2009, the administrators had formed the view that to bring the DOCA to an end, either party could make a payment of $470,840.14 or contribute 50% of that total liability. On receipt of that amount, the administrators would transfer the remaining titles to Lots 12 and 15 to the plaintiffs and Lots 16 and 18 to the Elias Interests.
The defendant wrote to the plaintiff on 18 August 2009 to that effect. The plaintiff then responded with his own proposal. The defendant then provided further advice to him regarding the discrepancy between his earlier advice to him as to the operation of the DOCA and the plaintiff’s instructions as to how he wished to approach the matter.
Ultimately, the administrators commenced their own proceedings against the company, seeking directions and orders for the termination of the DOCA on the basis that both the plaintiff and the Elias Interests were in breach of their obligations under the DOCA.
During the period 31 March 2009 to 31 October 2009, administrators expended a total of 365.95 hours at a total cost of $129,433. The administrators sought confirmation of their fees from the Court.
In December 2009, the defendants called on the administrators to attend a settlement conference for the purposes of enabling transfers of the sum of $772,100 and to enable completion of the DOCA. Etienne Lawyers responded pointing out that the shareholders had been in breach of the DOCA since 23 June 2009 and taking issue with the complaints and criticisms of the administrators’ conduct. Whilst all this was taking place, the defendant was endeavouring to deal with the plaintiff’s objections to the EMC assessment of costs. When that was concluded and the plaintiff did not pay, EMC served a bankruptcy notice on the plaintiff, claiming a debt in the amount of $51,149.16.
On 17 May 2010, the parties finally reached agreement in respect of the proceedings pursued by the administrators. The settlement essentially involved the parties acknowledging the sum of $1.1 million paid to the administrator should be regarded as contributions to the deed fund constituted by the DOCA and that the plaintiffs and the Elias Interests should be regarded as having complied with the obligations under clause 26.8 of the DOCA.
By January 2011, administrators’ legal fees amounted to $600,000. These fees had been paid from the assets of the company. Issues continued to arise into 2012.
The plaintiff terminated its retainer of the defendant on 7 December 2011 and the plaintiff’s current solicitors commenced to act for the plaintiffs in late December 2011.
This brief summary of everything that occurred in the years following March 2009 leads to considerable doubt that, if the company had been placed into liquidation, the process would have been over within months with minimal expense. I do not accept that a different process would have led to both the plaintiffs and the Elias interests being entirely compliant and dealing with the liquidator quickly and efficiently.
Further, it is appropriate to compare the plaintiff’s land value estimates with that of HC as set out in the report to creditors of 10 March 2009. Notably HC considered the estimated realisable value based on the DOCA and based on liquidation. HC estimated the value of the land at a figure approximate to the Bird opinion relied upon by the plaintiff in these proceedings (if the DOCA process continued), but estimated the land value on a liquidation basis only at $2,189,000.
HC engaged the services of a registered valuer, Murray Liston. Mr Liston informed HC that the properties, if sold separately under auction on a forced sale basis, may realise $1.99 million. That is significantly less than the value of the land as claimed by the plaintiff and valued by HC on sale through the VA process.
The basis of the plaintiff’s assessment of damage is the valuation report of Kohler Bird dated 26 July 2018. Mr Bird was retained to provide a retrospective market value of the properties. He defines market value as the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arms-length transaction after profit and marketing and where the parties had each acted knowledgeably, prudently and without compulsion. His approach to market value appears to be the same approach as identified by HC in its report to creditors as to the market value of the land for the purposes of a DOCA.
A difficulty with the plaintiff’s assessment is that he relies as a starting point not on the liquidation value but on an estimate made without regard to the fact that the property would have been sold through the liquidator.
The option of buying each other out was agreed to at the mediation and neither party pursued that option. If the matter had proceeded by way of liquidation, the property would likely have been sold in 2009 as a liquidation sale. Of course, this was right in the middle of the GFC.
As such, the plaintiff’s assessment of loss based on what would have been the return to shareholders by way of liquidation is based on assumptions which have not been made out and are unlikely.
Doing my best to value the loss of opportunity, I would apply a contingency of 30% on account of the possibilities that disputes would have arisen, and the likelihood that legal and liquidator’s fees would be higher. Further, any different approach to the valuation of the assets (such as contained in the creditors’ report) must result in a further and potentially substantial discount.
In addition, on the counterfactual to that which I have found, and if the defendant’s breach occurred during the third period, then the value of the lost opportunity would be further reduced because by 31 March 2019, HC had already incurred fees of $120,000.
As I have said, it is difficult to assess loss based on the counterfactual when I have rejected a number of elements of the counterfactual. Further it is not possible to be precise even on the counterfactual as so much of the assessment is speculative in the sense that I am considering possibilities. However, doing the best I can, I would assess the loss of opportunity to obtain a benefit in the sum $250,000.
This assumes that substantially less would have been spent on legal and accounting fees, but that there still would have been disputes with the liquidator and disputes as to the liquidator’s fees. It allows for the prospect that a sale by a liquidator would not achieve the price that an ordinary market value sale would achieve (as suggested by HC in the second report to creditors). It assumes much higher legal fees than predicted by Mr Stern.
I accept also that the plaintiffs would be entitled to interest on the amount borrowed to pay into the deed fund but interest would be limited to the time when the plaintiff received the benefit of the property which was transferred to him. This would not be a significant sum.

Consequential loss

The losses claimed as set out in [377(5)] of this judgment could be described as consequential losses. They are in addition to the alleged loss in value of the shares in the company and the cost of borrowing to fund the deed payments.

The plaintiff says that he owned other properties that he was forced to sell because of the inability to realise the anticipated profit from the liquidation of the company in 2009. He says that in 2014, he sold a property at Mt Pritchard that he otherwise would have retained. He would have earned regular income from that property and then would have made a capital gain in 2019. He claims both the loss of rental income and the lost capital gain.
He says, further, that as a result of the reduction in return from the development undertaken by the company as a result of the VA process, he did not have the available funds to finance his other developments. He needed to effect interim finance and entered into two loan contracts to do so. He says that he personally incurred fees, interest and other expenses, including litigation expenses in association with loan contracts taken out by another property of which he was a shareholder, Banda Developments Pty Ltd.
In other words, he says that he was continuing to pursue other property development ventures in the years subsequent to 2009 and that finance costs associated with a development undertaken by another company should be paid by the defendants.
As is well known, direct loss is generally the type of loss falling within the first limb in Hadley v Baxendale [42] being the loss arising naturally or in the usual course of things from the breach of contract.
42. (1854) 9 Ex 341; 156 ER 145.
Consequential loss may be losses falling within the second limb of the rule in Hadley v Baxendale, being a type of loss which may reasonably have been in the contemplation of the parties at the time of entry into the contract as the probable result of the breach of the contract.
In Regional Power Corporation v Pacific Hydro Group Two Pty Ltd (No 2), [43] Martin J described consequential loss as “a loss at a step removed from the transaction and its immediate effects.”
43. (2013) 46 WAR 281; [2013] WASC 356 at [109] (quoting Ryan J in GEC Alsthom Australia Ltd v City of Sunshine (Federal Court of Australia, Ryan J, 20 February 1996, unrep)).
As was said in Wallace v Kam, [44] the liability for breach of a duty to exercise reasonable care and skill to avoid harm does not extend beyond harm that was foreseeable at the time of breach.
44. [2012] NSWCA 82; [2012] Aust Torts Reports 82-101 at [24].
In the end, even on the counterfactual, I do not accept that the plaintiffs would have been entitled to recover any of these amounts. Whether the remedy is in contract or tort, they are too remote. It would not have been in the reasonable contemplation of the defendant that if he failed to comply with his contractual obligations, the plaintiff would have been forced to sell other properties years later and would have difficulty financing other projects through another company, such that he would be forced to borrow at high rates.
Some of the losses are more than a step removed from the transaction. It is difficult to see the basis on which the plaintiffs could recover finance costs associated with a different development company in developing a different property, some years after 2009.
The proposition that the plaintiff could recover a capital gain which may have materialised years after the tortious conduct in respect of another investment property held by him at the time and even for five years after the tortious conduct seems absurd.

Conclusion

If the plaintiff had established breach of duty of care or contract then I would be prepared to accept that the plaintiff suffered some loss as a result of loss of opportunity to realise a greater value from his shareholding in the company through the alternative process of liquidation. In a sense, it is difficult to envisage how the process could have turned out any worse or more time-consuming and expensive.
The process of voluntary administration and administration of a DOCA, which required both the plaintiffs and the Elias Interests to make payments into the deed fund in return for transfer of property to them, led to significant dispute whilst all the while requiring the plaintiffs and the Elias Interests to pay more money into the fund just to cover the ongoing accounting and legal expenses.
I have not accepted that this resulted from the defendants’ tortious conduct but, if I had, I would have accepted there was a better opportunity to receive a greater return through the liquidation process, originally envisaged and proposed by the defendant. I would have assessed damages in the order of $250,000 plus interest on the loans necessary to fund the deed payments. Interest would then be payable on those sums.

Orders

I enter judgment for the defendants. I order that the plaintiffs pay the defendants’ costs.
I grant liberty to the parties to apply on three days’ notice should the parties seek any alternative costs order.

**********

Endnotes

Decision last updated: 03 July 2020

Medium Neutral Citation:	Kossaifi v ACN 111 804 383 Pty Ltd [2020] NSWSC 853
Hearing dates:	24–28 February 2020, 2–3 March 2020
Date of orders:	03 July 2020
Decision date:	03 July 2020
Jurisdiction:	Common Law
Before:	Cavanagh J
Decision:	(1) Judgment for the defendants. (2) The plaintiffs to pay the defendants’ costs. (3) Grant liberty to the parties to apply on three days’ notice should the parties seek any alternative costs order.
Catchwords:	NEGLIGENCE — professional negligence — claim against solicitors by former clients in tort and contract — relationship breakdown between company directors and shareholders — advice as to appropriate process to divide company assets between shareholders — external administration — scope of duty of care owed by solicitor to client in the circumstances — Civil Liability Act 2002 (NSW) s 5O not pleaded in defence — liability assessed under Civil Liability Act s 5B NEGLIGENCE — causation — loss of opportunity to take alternative course resulting in different financial outcome — whether defendant's alleged breaches of duty caused plaintiff's loss — extent of plaintiff's reliance on defendant for advice — whether plaintiff would have accepted and acted upon further advice from defendant contrary to course adopted by plaintiff and other shareholders
Legislation Cited:	Civil Liability Act2002 (NSW), Pts 1A, 4, ss 5B, 5D, 5E, 5O Corporations Act 2001 (Cth) Pts 5.3A, 5.5, ss 232, 233, 234, 435A, 435C, 436A, 436E, 437A, 438A, 439A, 443D, 444B, 446A, 447A, 449E, 461, 462, 463E, 513B, Sch 2 Professional Standards Act 1994 (NSW)
Cases Cited:	Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 Correa v Whittingham (2013) 278 FLR 310; [2013] NSWCA 263 David v David [2009] NSWCA 8 Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453; [2000] NSWSC 99 Fexuto Pty Limited v Bosnjak Holdings Pty Limited & Ors [2001] NSWCA 97; (2001) 37 ACSR 672 Fink v Fink (1946) 74 CLR 127; [1946] HCA 54 GEC Alsthom Australia Ltd v City of Sunshine (Federal Court of Australia, Ryan J, 20 February 1996, unrep) Groom v Crocker [1939] 1 K.B. 194 Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 Hawkins v Clayton (1988) 164 CLR 539; [1988] HCA 15 In the matter of Antqip Hire Pty Limited (subject to deed of company arrangement) (in liquidation) [2020] NSWSC 487 In the matter of Joe & Joe Developments Pty Ltd (subject to a Deed of Company Arrangement) [2014] NSWSC 1444 In the matter of Lime Gourmet Pizza Bar (Charlestown) Pty Ltd (formerly under administration) [2015] NSWSC 244 In the matter of Warwick Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd) [2015] NSWSC 937 Kazar v Duus (1998) 88 FCR 218; [1998] FCA 1378 Leary v Federal Commissioner of Taxation (1980) 47 FLR 414; [1980] FCA 112 Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384 Port Macquarie Hastings Council v Mooney [2014] NSWCA 156; (2014) 201 LGERA 314 Regional Power Corporation v Pacific Hydro Group Two Pty Ltd (No 2) (2013) 46 WAR 281; [2013] WASC 356 Sellars v Adelaide Petroleum NL; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 322; [1994] HCA 4 Sparks v Hobson; Gray v Hobson [2018] NSWCA 29; 361 ALR 115 Uniting Church in Australia Property Trust (NSW) v Miller; Miller v Lithgow City Council (2015) 91 NSWLR 752; [2015] NSWCA 320 Wagner v International Health Promotions Pty Ltd (1994) 15 ACSR 419 Wallace v Kam [2012] NSWCA 82; [2012] Aust Torts Reports 82-101
Category:	Principal judgment
Parties:	Joseph Kossaifi (First Plaintiff) Dolly Kossaifi (Second Plaintiff) ACN 111 804 383 Pty Ltd (First Defendant) Farshad Amirbeaggi (Second Defendant)
Representation:	Counsel: N J Adams SC (with J Horowitz) (First and Second Plaintiffs) I R Pike SC (with F T Roughley) (First and Second Defendants) Solicitors: Sweeney Tiggemann (First and Second Plaintiffs) YPOL Lawyers (First and Second Defendants)
File Number(s):	2015/38153
Publication restriction:	None