Lee v Mavaddat - [2005] WASC 68

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: LEE -v- MAVADDAT [2005] WASC 68

CORAM: ROBERTS-SMITH J

HEARD: 8-12, 15-19, 22-26, 29 NOVEMBER 2004 & 17 JANUARY 2005

DELIVERED : 29 APRIL 2005

FILE NO/S: CIV 1862 of 2001
CIV 1824 of 2001
Consolidated by Order dated 24 October 2001

BETWEEN: KYUNG HEE LEE
Plaintiff
AND
MICHAEL MOOJAN MAVADDAT
Defendant

Catchwords:

Contract - Partnership agreement to acquire and develop property - Purchase of property negotiated by defendant - Defendant taking "extreme" commission on sale - Whether disclosed to plaintiff - Whether authorised - Whether unjust enrichment - Price paid - Whether breach of defendant's duty of care - Loan from bank to fund project in plaintiff's name only and security only over her property - Whether to be a joint loan and jointly secured - Whether false or misleading conduct - Whether undue influence, breach of fiduciary duty or unconscionable conduct - Project management and other fees taken by defendant - Whether authorised - Whether informed consent - Use of partnership funds

Legislation:

Fair Trading Act 1987 (WA) , s 79

Result:

Plaintiff's claim allowed
Counterclaim dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr J Gilmour QC & Mr S M Davies
Defendant: Mr N W McKerracher QC & Mr S Penglis

Solicitors:

Plaintiff: Stables Scott
Defendant: Freehills

Case(s) referred to in judgment(s):

Boardman v Phipps [1967] 2 AC 46
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Gemstone Corp of Australia Ltd v Grasso (1994) 62 SASR 239
Hill v Rose [1990] VR 129
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413
Madden v Kevereski [1983] 1 NSWLR 305
March v E & M H Stramare Pty Ltd (1991) 171 CLR 506
Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211

Case(s) also cited:

Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384
Blomley v Ryan (1956) 99 CLR 362
Brickenden v London Loan & Savings Co [1934] 3 DLR 465
Browne v Dunn (1893) 6 R 67
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Freeway Hotel v Ugle, unreported; FCt SCt of WA; Library No 940017; 21 January 1994
Fry v Lane; Whittet v Bush (1888) 40 Ch D 312
Harrison v Schipp [2001] NSWCA 13
Maguire v Makaronis (1997) 188 CLR 449
Mahoney v Purnell [1996] 3 All ER 61
McKenzie v McDonald [1927] VLR 134
New Zealand Netherlands Society 'Oranje' Inc v Kuys [1973] 1 WLR 1126
Nocton v Lord Ashburton [1914] AC 932
R v Birks (1990) 19 NSWLR 677
Seymour v ABC (1997) 19 NSWLR 219

ROBERTS-SMITH J: This case involves financial and business dealings between the plaintiff, the Korean wife of a wealthy Chinese businessman living in Hong Kong, and an entrepreneurial real estate agent and businessman in Perth, Western Australia.

The pleaded case

By her statement of claim the plaintiff pleads:
"1.The Plaintiff:
1.1is the registered proprietor of the property situated at 116 Forrest Street, South Perth, being the land contained in certificate of title volume 1895 folio 823 ('the South Perth Property');
1.2is a director of Courtza Pty Ltd (ACN 009 368 450) ('Courtza');
1.3is a Korean citizen and has a poor understanding of spoken and written English;
1.4has limited experience in business matters;
1.5at all material times reposed trust and confidence in the defendant in relation to her involvement in the Partnership (defined in paragraph 4 below) and the Project (defined in paragraph 3.1 below).
2.The defendant is:
2.1the registered proprietor of the property situated at 28 Simpson Street, Applecross ('the Applecross property');
2.2a licensed real estate agent under the Real Estate and business Agents Act 1978;
2.3a director of Keywest International Group Pty Ltd (ACN 070 201 384) ('Keywest')
3.In May 1999 the plaintiff and the defendant entered into an agreement ('the Agreement') for the acquisition, development and sale for profit of a property situated at 237‑241 Hay Street, Subiaco ('the Subiaco Property') on the following terms:
3.1they would incorporate a company as the vehicle for the acquisition, development and sale of the Subiaco property within 12 months ('the Project') and they would each:
3.1.1hold 50% of the issued shares in the company;
3.1.2be directors of the company;
3.2they would jointly borrow $1,650,000.00 from a bank for a term of 12 months to fund the purchase price for and all redevelopment costs of the Subiaco Property, and they would mortgage the South Perth and Applecross Properties to secure that loan;
3.3the defendant would, on behalf of himself and the plaintiff:
3.3.1take the necessary steps for the matters set out at 3.1 above to be achieved;
3.3.2conduct negotiations with the registered proprietor of the Subiaco Property, Absica Pty Ltd (ACN 236 219 675) ('Absica') in relation to the price and terms on which the Subiaco Property was to be acquired by the company to be used for the Project;
3.4the plaintiff and the defendant would do all things reasonably required by them to obtain the loan referred to in subparagraph 3.2 above ('the Implied Term').
Particulars
The terms set out at subparagraphs 3.1 to 3.3 above were express and were agreed upon discussion between the plaintiff and the defendant in around May, 1999;
3.5The Implied Term was implied into the Agreement to achieve business efficacy.
4.By their entry into the Agreement, the plaintiff and the defendant constituted themselves as partners ('the Partnership') in the carrying out of the Project.
5.By reason of the matters pleaded in paragraph 1.3, 1.4, 1.5, 2.2 and 3 above, a relationship of trust and confidence arose between the plaintiff and the defendant in relation to their involvement in the Project.
6.By reason of the matters pleaded in paragraphs 3 alternatively 4 alternatively 3 and 5 above, the defendant in taking steps as part of the Project owed to the plaintiff fiduciary duties:
6.1ATo act in good faith towards the plaintiff as a partner;
6.1BTo act in good faith towards the plaintiff in carrying out the Project;
6.1To refrain from preferring his personal interests to the interest of the plaintiff;
6.2To refrain from securing for himself any benefit to the exclusion of the plaintiff.
7.During September, 1999 and pursuant to the term of the Agreement pleaded at subparagraph 3.1 above, the defendant took steps to incorporate Ark Securities Pty Ltd (ACN 089 490 728) ('the Company') with himself and the plaintiff as its directors and holders of 50% each of its shares."
The statement of claim then continues in relation to what are described as "the St George Bank loans and the plaintiff's loan".
The plaintiff pleads that in late 1999 and early 2000 the defendant had dealings with officers of St George Bank Ltd ("the Bank") purportedly to obtain a loan for himself and the plaintiff as pleaded in par 3.2. In his dealings with the Bank the defendant acted as agent for himself and the plaintiff and owed fiduciary duties to her.
By written loan offer ("the loan offer") dated 4 January 2000, the Bank offered to lend the plaintiff $1,625,000 for a period of 12 months, to be secured by registered mortgage over the South Perth property.
It is then pleaded that about 4 January 2000 at the South Perth property, the defendant showed the plaintiff those pages of the loan offer which required her signature and advised her that if she did not sign the loan offer immediately, the Bank would not be prepared to make the proposed loan and there was not sufficient time for her to take advice on it from her accountant Robert Lim. It is pleaded that he did not tell the plaintiff that the loan offer was made to her but not to him and that the Bank did not require any security from him for it. He then witnessed the plaintiff's signature on the loan offer.
By par 12 it is pleaded that by his conduct the defendant impliedly represented that the loan offer had been made to him as well as the plaintiff and that the Bank required him to mortgage the Applecross property to secure the loan ('the loan offer representation").
The plaintiff pleads that in reliance on the loan offer representation, she accepted the loan offer and took out a loan from the Bank in the terms there set out ("the first bank loan") and executed a mortgage over the South Perth property ("the mortgage") to secure it.
Upon the plaintiff accepting the loan offer and executing the mortgage, the Bank credited $1,625,000 to the company's account held with the Bank. The loan was to be repaid in full on 4 January 2001 together with all interest accruing to that date.
As the company did not repay the plaintiff's loan by 4 January 2001, on or around 29 January that year the plaintiff took out a further loan from the Bank for the full amount then owing, namely $1,745,000, repayable with interest on or around 29 January 2002, and otherwise on the same terms and conditions ("the second bank loan").
It is pleaded that the loan offer representation was false, in that the Bank did not require the defendant to be a party to the first bank loan and did not require any security from the defendant to secure it.
The defendant's conduct in making the loan offer representation ("the Contravention") is then pleaded as constituting misleading or deceptive conduct in breach of s 79 of the Fair Trading Act 1987 in the following manner:
"20.The plaintiff has suffered alternatively is likely to suffer loss and damage by reason of the Contravention, in that:
20.1if the defendant had not engaged in the Contravention, the plaintiff would not have accepted the Loan Offer, granted the mortgage, made the Plaintiff's Loan, or taken out the First and Second Bank Loans;
20.2by her solicitors' letter of demand dated 6 June, 2001, the plaintiff made demand of the Company for payment of the full amount then owing on the Second Bank Loan, namely $1,671,796.99 in response to which no payment has been made;
20.3AAs at 29 October 2004 the amount owing on the Second Bank Loan was $2,000,000 with interest continuing to accrue.
20.3on 15 June, 2001, the company was placed into voluntary liquidation, and will be able to pay only approximately $500,000 to the plaintiff by way of repayment of the Plaintiff's Loan. Further particulars will be provided after expert reports have been obtained;
20.4in the premises, the plaintiff after recourse to the company under the Plaintiff's Loan will be unable to pay approximately $1,500,000 required to make full payment of the principal and interest owing under the Second Bank Loan, and will suffer loss and damage to that extent."
There are alternative pleas of breach of fiduciary duties, undue influence, unconscionable conduct and breach of contract in relation to the first bank loan and the mortgage.
Paragraphs 27 to 35 inclusive of the statement of claim concern what is described as "The Purchase of the Subiaco Property and the Commission":
"27.By a written Offer and Acceptance dated 30 August 1999, Absica agreed to sell the Subiaco Property to Courtza and Keywest ('the Purchaser') (as agents for the Company) on terms all of which had been negotiated by the defendant on behalf of the Company inter alia as follows:
27.1the purchase price was $843,000.00, of which:
27.1.1a deposit ('the Deposit') of $133,000.00 was payable upon acceptance by Absica of the offer by the Purchaser;
27.1.2the sum of $80,000.00 was payable by the transfer of Courtza to Absica of 2 residential units owned by Courtza that formed part of the Emerald Hotel situated at 24 Mount Street, Perth;
27.2settlement was to take place on or before 30 days after finance approval had been obtained by the Purchaser for a loan of $610,000.00.
28.By an agreement ('the Commission Agreement') made in around mid August, 1999, Absica agreed to pay to Keywest alternatively the defendant a commission on the sale by it of the Subiaco Property to the Purchaser of $133,000.00 ('the Commission'). …
29.In or around September 1999, the defendant:
29.1caused the Company to pay him $133,000.00 as payment of the Commission; alternatively
29.2lent the Commission to the Company which in turn treated that amount as payment of the deposit on the purchase of the Subiaco Property from Absica ('the Commission Loan').
30.The Commission Agreement was made without the fully informed consent of the plaintiff.
31.By entering into the Commission Agreement and by reason of the matters pleaded in paragraph 29 above, the defendant:
31.1obtained a benefit that was to the detriment of the plaintiff, in that Absica would have been prepared to sell the Subiaco Property to the Purchaser for a price of $710,000.00 if no commission was payable to Keywest alternatively the defendant;
31.2thereby breached his obligations owed to the plaintiff as pleaded in paragraph 6 above."
There are claims of unjust enrichment and breach of duty of care also pleaded in relation to the Subiaco property and the commission.
Paragraphs 36 to 39 inclusive are headed "Project Management Fees". The plaintiff pleads that as a director of the company, the defendant caused it to make payments to him totalling $372,000 for services allegedly provided by him to the company, all of which the defendant claims were "project management fees", between September 1999 and March 2001.
It is further pleaded that the defendant caused the company to make further payments to him totalling $150,000 between 3 November 1999 and 27 June 2000, described as "further fees".
The plaintiff pleads that she had not given fully informed consent for the payment of any such fees and the defendant did not provide any services, or any sufficient services to justify payment of them. It is pleaded that the payments constituted breaches of the defendant's fiduciary obligations to the plaintiff, breach of contract and that he was unjustly enriched at the expense of the plaintiff by the amount of the payments.
There is a further claim in relation to the use of partnership funds, at par 40 and par 41 of the statement of claim. At par 40 it is pleaded that in breach of his fiduciary obligations to the plaintiff, the defendant, without the plaintiff's agreement or consent, applied (or caused the company to apply) the funds of the partnership other than for the business of the partnership. Particulars of specific payments, including an amount of not less than $157,231 for the purchase of shares, are given.
By his defence and counterclaim the defendant admits par 1.1 but denies par 1.2 to 1.5 of the statement of claim.
As to par 3 of the statement of claim, the defendant admits that one of the purposes for which the company was incorporated was to purchase real property for development and sale, that the plaintiff and defendant were to equally hold 50 per cent of the issued shares in the company and were to be directors of it, that the defendant took the necessary steps to acquire the property and conducted negotiations with Absica, the registered proprietor of it.
Paragraph 3 of the statement of claim was otherwise denied.
The defendant's defence then continues:
"4.In further answer to paragraph 3 of the Amended Statement of Claim, the Defendant says that:
(a)in or about August 1999, the Plaintiff and the Defendant agreed with each other to carry on, in partnership:-
(1)the establishment and operation of a health and beauty therapy business;
(2)the acquisition, development and ultimate sale for profit of real property
('Partnership')
(b)in or about December 1999 the Plaintiff and the Defendant agreed, that:
(1)As the Plaintiff did not want either her husband or her financial adviser, Robert Lim to know the full extent of her business interests and dealings the agreement set out below in this sub‑paragraph (b) ('the Relationship Agreement') would not be recorded in writing and nor would the Defendant disclose to any person the fact that the Plaintiff had loaned the Defendant $150,000 at the end of 1998;
(2)The Defendant would continue to devote his time, operate the accounts and attend to the running of all of the ongoing business affairs of the Company and draw from the Company a minimum of $20,000 per month as 'project management fees' as and from the time the Company was formed in September, but in the presence of the Plaintiff's husband or Lim, he was to refer to these payments as 'drawings';
(3)The Defendant could, if necessary, draw against those fees in advance;
(4)On settlement of the Subiaco property, the Defendant, instead of taking his commission of $133,000, would contribute that sum as part of the purchase price by way of loan to the Company and thereafter could, if necessary, draw against that amount separately from his project management fees;
(5)The Plaintiff would be entitled to take moneys from the Company as required by her;
(6)The Defendant should establish a professional office, in which the Plaintiff would also have an office, as a base for all their future activities;
(7)The Plaintiff would establish with funding from the Company, the beauty business that had previously been discussed between the Plaintiff and the Defendant in August of 1999 and would later sell that business into the Company which would then pay her a monthly minimum fee;
(8)The Plaintiff and the Defendant would try to expand the real estate business of the Company; at a later time the Plaintiff would become a partner with the Defendant in all of his business ventures, including those of Key West Realty and Key West International Group Pty Ltd;
(9)Any and all net profits of the Company would be distributed to the family trusts of the Plaintiff and Defendant after all expenses and adjustment for drawings on a 50%‑50% basis;
(c)by entry into the Relationship Agreement the Plaintiff gave to the Defendant her informed consent to the matters therein agreed."
The rest of the plaintiff's claims were generally traversed by the defendant.
The defendant does admit that the plaintiff loaned the sum of $1,625,000 to the company which he pleads then became the company's and not that of the partnership.
The defendant asserts that the plaintiff has not pleaded, nor is it the fact, that any conduct of the defendant caused the plaintiff to take out the first bank loan, grant the mortgage and/or make the plaintiff's loan.
Paragraph 40 of the statement of claim was denied:
"… save to admit that the Defendant , as a director of the Company, caused the Company, from its funds, to:
(a)purchase shares in the name of the Company;
(b)pay an option fee of $40,000 to Linpark Holdings Pty Ltd;
(c)pay him $60,000 on or about 27 June 2000;
(d)pay to the Plaintiff the amounts alleged in paragraph 40.4 for and on behalf of Key West, with such amounts being by way of a loan of funds to the Defendant;
(e)advance to the Defendant $150,000 on funds payable to him from the Company which funds were used by Key West as part of the consideration paid by it in its acquisition of 817 Canning Highway, Applecross;
(f)pay $4,000 to Key West on or about 24 November 1999 and $7,000 to Absica on or about 24 January 2000;
(g)pay the amounts referred to in items 1‑7 (inclusive) of Schedule A and that the same were expended on 'Dizzy Lamb Park'."
In his counterclaim the defendant asserts that about August 1999, he and the plaintiff agreed with each other to carry on, in partnership, the establishment and operation of a health and beauty therapy business and the acquisition, development and ultimate sale for profit, of real estate. By reason of their partnership they owed each other duties of a fiduciary nature. It was an express term of the agreement that the partnership would be carried on through a company which the plaintiff and the defendant would be the joint shareholders and directors. The company that was acquired for the purpose of the partnership was Ark Securities Pty Ltd ("Ark Securities").

The defendant pleads that on 21 January 2000 the partnership, through Ark Securities, purchased the Subiaco property for the purpose of developing the property, establishing and operating a health and beauty salon on part of it, and renting and/or selling the balance at a profit.
The defendant pleads that the Subiaco property was fully leased when purchased by Ark Securities, but that in about May 2000, the plaintiff and defendant took steps to remove two of the three tenants from the Subiaco property so that the plaintiff, on behalf of the partnership, could establish the beauty salon. He pleads that the plaintiff wished the third tenant (a barber business) to remain, as she considered it could coexist with the beauty salon. The tenants vacated the Subiaco property about January 2001.
It is then pleaded that in breach of her duties to the partnership, the plaintiff opened her own health and beauty therapy salon at South Perth in about January 2001, as a consequence of which the defendant has suffered, and will continue to suffer loss and damage and the plaintiff has earned and will continue to earn a profit for her own benefit to the exclusion of the partnership.
It is then pleaded that in breach of her duties the plaintiff refused to join with the defendant to cause Ark Securities to lease the Subiaco property (two specific proposed leases are referred to).
Finally, the defendant pleads that the plaintiff refused to meet with the defendant for the purpose of making decisions with respect to the partnership, as a consequence of which it became moribund, leaving the defendant with no option but to agree to the appointment of a provisional liquidator and ultimately the liquidation of Ark Securities.
In all essential respects the plaintiff denies, or does not admit the pleadings in the counterclaim.

The conflicting narratives

The plaintiff is now 53 years of age, having been born in South Korea in January 1952.
She attended a Korean private school at which she learned a little English. She left school at 19 years of age and then studied Home Economics but did not finish the course.
She worked as a hostess for Korean Air, a domestic airline, for about 18 months, before working as a secretary in the Department of Defence in South Korea. She remained in that employment for 2 years.
Between 1975 and her marriage in 1978 she worked as a kindergarten teacher in South Korea.
She married Yuen Ling (Johnson) Lee in January 1978. She became a full‑time housewife and has not been employed as a wage earner since. The only time she did work outside the home was when she opened a beauty salon in South Perth in March 2001, which she operated for about a year.
The plaintiff and her husband lived with their two children in Hong Kong until about 1987 or 1988 when she brought them to Australia to attend school. Her husband continued to live in Hong Kong in order to look after his business affairs.
Their children, both boys, were born in Hong Kong in 1979 and 1980 respectively. The youngest son was killed in a car accident in 2002.
The plaintiff has lived in Western Australia ever since she moved here in 1987/1988. When she arrived she did not know anyone here. Her evidence was that she does not make friends easily and since she has been in Western Australia, has rarely mixed socially. According to her, her time generally is spent with her children, shopping and at the gymnasium. She says that since she has been in Western Australia, she has continued to speak mainly Korean. When she speaks with her husband on the telephone or when they are together, they speak a mixture of some Korean, some Cantonese and some English. Her husband's native language is Cantonese and she can speak a little of that. Her husband speaks a little Korean.
The plaintiff says that her friends are mostly Asian people and her close friends are Chinese and Korean, with whom she mainly communicates in a mixture of Chinese, English and Korean. She goes to a Korean church and the people she speaks to there speak only Korean.
Although both her sons attended Wesley College, she says that at home and with her they have always spoken a mixture of English, Chinese and Korean.
The plaintiff says that she does not speak English often and does find understanding and speaking in English to be difficult and limited. She finds it difficult to read English and does not read books in that language. Nor does she read English newspapers.
The plaintiff says further that until mid‑1999, and her involvement in the matters the subject of these proceedings, she had not been involved in any business and had limited knowledge of it.
The defendant was born in Iran in July 1956. He grew up mainly overseas, living as a child in Germany, the United Kingdom and Sweden.
When he was approximately 14 years old he was sent to New York to live with family friends and to continue his studies. He states that he finished his secondary high school certificate at New Town High School, New York, and then went to Long Island University where he studied Science leading to Medicine but did not complete his degree and left university in 1981.
About October or November 1982 the defendant moved to Sydney with his father and stepmother, under the business migration scheme.
About 6 or 7 months later, about June 1983, they moved to Perth. When they first arrived they rented a house on the Esplanade at South Perth.
In 1983 the defendant bought a master franchise from Sydney called "Auto Bake" and established the first "The Cookie Man" shop in Perth, located in the Carillion Centre.
In 1984 he undertook a real estate agent sales representative's course. That lasted for some two or three weeks, upon completion of which he became a qualified sales representative.
He then gained employment as a real estate representative with a firm in Booragoon. Whilst there, he commenced part‑time study for a Diploma in Real Estate and Business Management at TAFE at Perth.
The defendant met his wife about the beginning of 1986 and they married in September of that year.
He left the real estate firm in 1987 and for some five or six months worked with another real estate firm in Applecross before moving to another firm ("The Professionals") in the same suburb.
The defendant first met the plaintiff and her husband in January 1988 when they attended a home open that he was conducting at Applecross. They told him they had just moved from Hong Kong to Perth and were looking to purchase a house.
Not long after that meeting, Mr Lee bought 51 Elizabeth Street, South Perth through the defendant and The Professionals.
The plaintiff and her two boys took up residence at that property whilst her husband mainly lived in Hong Kong.
About 18 April 1988, Johnson Lee purchased an investment property at 4 Elston Place, Booragoon for $135,000. The defendant assisted with the purchase of the property which was listed with The Professionals at Applecross. The defendant received a commission from the sale of the property.
In May 1991 the property was transferred to Courtza, the Lee's investment company. Robert Lim of Chin Lim Pty Ltd, the Lee's accountant, was a co‑director of Courtza. The property was sold in October 1993 for $174,000. The sale was made through the defendant, who received a commission on it.
In October 1990 the defendant recommended to the Lees that they purchase a commercial property in Malaga. They subsequently did so through him and again he received a commission. They sold that property in December 1994, again through the defendant, who received a commission.
The defendant completed the TAFE course for an Associate Diploma of Business in Real Estate in 1993.
Also in 1993 a property at 116 Forrest Street, South Perth ("the Forrest Street property") came on the market. This was a one thousand square metre residential house and land in a very prominent and elevated position. It was passed in at auction. According to the defendant, he advised the Lees of this property whilst they were in Hong Kong. Upon their return they purchased it for approximately $615,000 - again through the defendant, who received a commission on the sale.
The plaintiff and her children continued to live at the Elizabeth Street property. She and her husband wished to build a new house on the Forrest Street property and eventually did so through a builder, Brian Burke.
In his statement the defendant maintains that at all times in his presence, the plaintiff spoke to Brian Burke and the architect in English and that she dealt with them on a regular basis during the course of the development of the Forrest Street property over the next 1½ or 2 years.
In mid‑1989 The Professionals became involved in a block of residential units known as the Mounts Bay Apartments.
These were turned into serviced apartments with a guaranteed income return for the first two years. The development is now known as the Emerald Hotel. The defendant presented the Lees with information about the development and about July 1989, through Courtza, they purchased three separate apartments in the complex for $400,000 cash. The defendant received a commission from the sale.
The defendant was involved in a car accident in 1991. In the same year he filed a Part X arrangement under the Bankruptcy Act and also left the employ of The Professionals.
He was discharged from the Part X arrangement in 1992 or 1993 and then formed his own business called "West One" the name of which he changed a year later to "Key West Realty".
Thus far there is nothing particularly remarkable about the case on the pleadings.
However, the apparently commercial relationship there set out was in fact presented in the evidence in a wholly different light which at times bordered on the bizarre.
Broadly, the defendant says that he and the plaintiff commenced an intimate sexual relationship in about 1988, which continued until late 2000. He asserts that in the course of that relationship, the plaintiff told him she wanted to leave her husband and be with him and to look at business opportunities with him using money supplied by Johnson Lee. He says many of the matters pleaded arose out of her express desire to give the defendant money and to engage in business activities with him. He says it was only when her husband became aware that the plaintiff had secretly made a loan of $150,000 to the defendant and against the background of her jealousy over an affair the defendant had been having with his secretary, that she made allegations against him about their business dealings.
The plaintiff denies any intimate or sexual relationship with the defendant and instead says he took advantage of her lack of understanding of written or spoken English and her reliance upon him in financial and business matters.
According to the defendant, shortly after the Lees purchased the property at 51 Elizabeth Street, the plaintiff asked him to arrange an inspection of the vacant property across the road which was being marketed by another real estate firm. He says he did so and they met at the property and that was where they had sex for the first time. The defendant asserts that thereafter they met regularly, sometimes daily, and conducted an intimate physical relationship until late 2000, other than for about 1½ or 2 years between 1994 to 1996.
The defendant says that about 1998, the plaintiff started seeing him far more frequently, saying to him in effect that no‑one had ever treated her like he had and that she would really like to be with him and look at business opportunities together using money to be supplied from Johnson Lee.
He says that it was in that context that in December 1998 she loaned Keywest $150,000. The funds were lent on the basis that Keywest would pay interest to the plaintiff of 10 per cent over 12 months, being $1250 per calendar month, payable in advance. A written heads of agreement document concerning this loan was signed. The defendant says that Keywest made repayments of interest to the plaintiff until the two of them fell into dispute about some Persian carpets.
The plaintiff's account of this was somewhat different. She says that she mentioned to the defendant that she had $150,000 cash in the bank and asked him how she should invest it. She asked him because she did not know anyone else who knew anything about investments and he had bought and sold properties and always told them he was a good businessman. She says he was consistently asking her for money to invest and telling her that she should do so because he could get better than bank interest. She says he said that if she loaned the money to him, he would get her 10 per cent interest and if he made a profit on it, he would also pay the profit to her. She says it was on that basis she loaned him the money for one year on the understanding that it was repayable on 30 days notice.
According to the plaintiff, the defendant did make some interest payments first by cheque but later by direct deposit into her bank account but has never returned the $150,000 principal to her. That loan is the subject of a separate action between the plaintiff and defendant in the District Court.
The first transaction which is the subject of these proceedings is the purchase of the Subiaco property.
The plaintiff's description of what happened about that is as follows.
About May 1999 the defendant came to her home many times asking her to go into business with him. He told her that he could buy the Subiaco property and that they should go into business together with everything being 50/50. He told her they could buy the Subiaco property for around $850,000, knock down the building, build a much nicer building, perhaps rent it for a while and then sell it for more than they had paid.
He showed her a newspaper which described Subiaco as being a good suburb for property and said he would send a copy of the newspaper clipping to Johnson Lee, which he did.
The plaintiff did not know anything about property in Subiaco, nor the value of properties generally.
The defendant told the plaintiff that if they demolished the property and rebuilt it, they could make over $1 million and that even if they did not demolish the property, he could easily get $1.1 million for it. He said he could sell the property for "$1.1 million tomorrow".
The defendant told the plaintiff that the vendor's partners were always fighting and arguing about the property and that was why he could get it for about $850,000, which would be a bargain.
In addition to saying they "would be 50/50" he told the plaintiff that they would both put their houses "into the bank" in return for a loan which would then be advanced to the company they would form.
The plaintiff understood from this that she would put her home into the bank and the defendant would do the same. She knew his family home was in Applecross. He told her the loan would be in both their names.
He said the company which they formed could repay the loan within 12 months so they could then repay the bank and get the titles to her home and his back.
He first told her they would need to borrow $850,000, but later said they would need more money to demolish and rebuild and that would be about $1.65 million. He said it was better to borrow more whilst the interest rate was low rather than get another loan later when the interest rate was higher.
At first the plaintiff did not want to be involved in taking out any loan because she did not want to mortgage her home to the bank. However the defendant came to her house almost every day urging her to do this and about June 1999 she told him she would go into business with him on the basis he had explained to her.
Accordingly, the defendant told the plaintiff that he would talk to the bank to borrow the money, set up the company and arrange to buy the Subiaco property.
At one point the defendant took her to Subiaco to see the Subiaco property. He took her to Black Tom's Bar and showed her the property across the road. He told her to wait in the Bar whilst he went across the road to get some documents. When she said she would go with him he told her it was not necessary. She says she "was not allowed" to go and see anybody or talk to anybody about it or inspect it.
He said nothing about the property being owned by his accountant.
At that time the defendant was also trying to sell the three Mounts Bay units ("the Emerald Hotel suites"). He told her that it would be necessary to put up one of those units as part of the deal to buy the Subiaco property and for that purpose the unit would be valued at $80,000 as part of the purchase price.
The plaintiff asserts that it was important to her that the defendant and she would be equal partners and that if her house was given as security to the bank, then his should also and they would both be equally liable. She would not have entered into the deal to purchase the Subiaco property if she had understood that would not be the result.
Before the contract for the purchase of the Subiaco property was signed, the defendant tried to convince the plaintiff that she should take only a 40 per cent interest and he would take 60 per cent. She refused.
The defendant brought the contact for the purchase of the Subiaco property to the plaintiff at her home. He pointed out that the 40 per cent/60 per cent he had previously put in the contract had been ruled out and 50 per cent/50 per cent had been written in. That is the only change she can remember reading on the contract.
After he had pointed that out to her, he turned the contract over and asked her to sign it. She did not read the front page. Clauses numbered 4‑7 were not on the contract when she signed it.
The defendant told her she had to sign "now". She said she wanted to show the contract to Robert Lim. He said there was no time for that. She had to sign the contract quickly otherwise they would lose the property because it would be sold quickly. He reiterated this was a very good location and good for business.
She signed where the defendant told her to.
When she did so, Courtza's seal was not on the contract, nor was the Keywest International Group seal. She could not remember if the defendant had signed. She was unable to recognise the (Chinese) signature of the other person between the two stamps. There was only her and the defendant at her home at the time.
The defendant then told the plaintiff that he needed money for the deposit. She arranged for her brother in Korea to send $53,000. She paid that amount to the defendant. Ark Securities repaid that amount sometime later.
Again, what the defendant says about this, is quite different. He gives the following account.
From 6 April to 20 July 1999 the defendant was overseas on holiday with his family. He maintained contact with the plaintiff whilst he was away. She told him she was nearing completion of a beauty therapy course and wished to start a business of her own and wanted to acquire premises from which to conduct it.
When he returned from holidays about August 1999, the plaintiff and he discussed the idea of setting up a company (ultimately Ark Securities) for the purpose of investing in real estate. They also discussed the plaintiff establishing and operating a beauty therapy salon from one of the properties to be purchased.
He says that at the time, one of the properties he was selling was the Subiaco property. That had been advertised in the newspaper by Keywest Realty for approximately $820,000.
The plaintiff and defendant were having lunch at a restaurant called Black Tom's in Subiaco across the road from the Subiaco property. The defendant told the plaintiff that he was selling the Subiaco property and that it was owned by a company associated with his accountant.
They discussed the idea of purchasing the Subiaco property for the purpose of redevelopment and for the plaintiff to occupy the ground level commercial portions for her beauty salon.
Accordingly, about 9 September 1999, Ark Securities was formed by the plaintiff and defendant, they being co‑directors with equal shares in the company.

The original offer to purchase the Subiaco property was executed by the defendant for Keywest and the plaintiff for Courtza. The sum offered was $823,000. That offer was not accepted.
Consequently, the defendant prepared a new offer and acceptance form in the amount of $843,000. He signed that document about 28 August 1999. the ownership ratio was changed from 50 per cent/50 per cent to 40 per cent for Courtza and 60 per cent for Keywest International Group Pty Ltd. The defendant calculated the new ratio by reference to what he described as his loan contribution of $133,000 and Courtza's loan contribution of $80,000 through the Emerald Hotel unit which was part of the consideration payable to the vendors.
About 30 August 1999 the defendant took the offer and acceptance form to the plaintiff at her Forrest Street property for her to sign. He pointed out to her that as requested by her and Johnson Lee, he had changed the percentages back to equal shares.
When the plaintiff signed the offer and acceptance, it included special conditions 4, 5, 6 and 7. Only special condition 8 was added later when Ark Securities was identified as the purchaser's nominee.
The defendant faxed the document to Johnson Lee who signed it and returned it to him by facsimile.
The reference to $133,000 is to the amount of the defendant's commission on the transaction.
The plaintiff asserts that she first found out about that sometime after May 2001.
She says that prior to that the defendant never said anything to her about being paid a commission and she did not realise he was to get one.
She does say that after she signed the contract the defendant came to her home on a number of occasions with documents for her to sign. Whenever he put a document in front of her he simply presented the signing page and told her to sign it. She never had an interpreter with her and did not read any document. She trusted the defendant. He never explained to her that he was getting a commission on the sale of the property. She says that if she did sign a disclosure document, she does not remember seeing anything about a commission which would be paid in the sum of $133,000 and if she had, she would never have agreed to it. If the vendor was prepared to receive $133,000 less than the price they were paying, she would have wanted the property to be purchased for a sum less by that amount.
As against this, the defendant's evidence is that about 30 August 1999, the plaintiff (on behalf of Courtza) signed in his presence a disclosure statement relating to the payment of the commission of $133,000 to Keywest as a result of the sale of the Subiaco property. He says that before she signed it, he told her in substance that the disclosure statement was required so as to confirm the fact that all parties were aware that Keywest, a party to the transaction, was receiving a commission from the sale and the amount of it.
The document is headed "Disclosure as a Principal" and gives notice that the defendant, a director of Keywest International, is a licensed real estate agent and that Keywest Realty is entitled to charge a commission of $133,000 under contract with Absica on settlement of the purchase of the Subiaco property which was to coincide with simultaneous settlement of the Mount Street unit as per offer and acceptance signed on 30 August 1999. The plaintiff's signature appears against the common seal of Courtza and there are two signatures against the common seal of Absica.
It was the defendant's evidence that about 1 September 1999 he sent a facsimile to Johnson Lee advising that the offer to purchase the Subiaco property for $843,000 had been accepted by Absica. He erroneously attached to that facsimile the offer and acceptance showing the 60 per cent/40 per cent division. He told Johnson Lee that stamp duty would be approximately $40,000 and they should pay half each. He asked Mr Lee to forward his $20,000. Johnson Lee did so.

The St George Bank loan

It was of course necessary for the partnership to obtain a bank loan. As to that, the plaintiff says she never spoke to anyone from any bank with respect to any loan. The defendant told her that he would handle all matters concerning the purchase of the Subiaco property and the loan. She asked to go to the bank with the defendant but he said there was no need to do so. He told her he would arrange an interpreter later on and that if she did what he asked her to do, there would be no problems.
At some stage the defendant asked her what property and assets she had. He then typed up a statement of position and she signed it. It had a list of assets but no dollar values at that time. He told her this was to keep in his records.
The plaintiff saw a man outside her home at some stage. He did not come inside. When she asked the defendant later who that was, he told her it was an insurance person.
A few days after that conversation the defendant brought an insurance broker to the house. The plaintiff was not sure if he was the same one she had seen a few days earlier.
Apart from the insurance broker the defendant brought to her home on that occasion the plaintiff did not meet or talk to anyone involved in setting up the company, applying for any loan or obtaining the loan from the St George Bank or the payment by the Bank to the company of the amount borrowed.
It was the plaintiff's evidence that she did not receive a copy of the contract until about March 2000.
The plaintiff accepts that she signed a Borrower Acceptance and Acknowledgement on a St George Bank facility letter dated 5 November 1999 offering a fixed rate interest only cash advance facility in the sum of $704,000 for the purpose of the purchase of the commercial land and improvements of the Subiaco property ("the St George facility letter").
About that, she says that when she signed it, all the defendant told her was that it was a document for the Bank which she had to sign. He had the document open at the part where her signature was required and so she signed it. He kept saying she should trust him and they could get a lawyer and an interpreter later, but she needed to sign the document immediately. This was in her home. The defendant saw her son (Benely) there and told him that as he was 18 he had to come and sign also. He witnessed the plaintiff's signature on a Guarantor's Acceptance and Acknowledgement.
Benely asked what he was signing and the defendant said it was just a bank document.
When the plaintiff signed the document, the defendant's signature was not on it.
In relation to this and generally in relation to any documents signed by the plaintiff at the instance of the defendant, she maintained that he always pressured her to sign them before she could have anyone else explain them to her even though she told him on a number of occasions that she would need a lawyer and an interpreter. She maintains that the defendant always said she would not need an interpreter and should trust him. He told her she should sign the documents and they could be translated later. She said if she had any doubts and continued to query him he would get angry at her. On a number of occasions she asked him to have Robert Lim look at the documents but the defendant never gave her time to allow that. He would tell her to let him do everything for her and not to ask Lim because he was an accountant not a businessman and would have no idea about this sort of business.
The next major step in this transaction was the Residential Loan Agreement and Mortgage.
It is the plaintiff's evidence that the next document she signed was a Residential Loan Agreement Offer with St George Bank. The offer is dated 5 January 2000 and the date against her signature is 10 January 2000.
She says the defendant brought that document to her home, telling her it was a bank document and that she should sign it. The only page presented to her was the page on which she was required to sign. She did so without reading the document and the defendant did not explain it to her.
Before she signed she asked the defendant whether she could speak to Lim about it but the defendant told her there was no time to waste because the Bank needed the document back quickly otherwise it might not loan the money.
The plaintiff also signed mortgage and guarantee documents on the same date. They were under a covering letter from Gadens Lawyers dated 7 January 2000. They related to a loan agreement dated 5 January 2000 with St George Bank for a facility of $1,625,000, the plaintiff being the sole borrower and the security property being her property at 116 Forrest Street, South Perth. In each instance her signature was witnessed by the defendant.
Again the plaintiff says that she was never told by the defendant that his house was not "in the bank" like hers, nor that he was not liable to the Bank in the same way as she was. Had she known that, she would never have signed any documents nor been involved in the transaction at all.
The defendant's evidence about the course of events to that point was as follows.
The defendant and his family had moved to live at Simpson Street, Applecross in 1998. That house was fully mortgaged, a fact which he had explained to the plaintiff as part of disclosing to her almost every detail of his life as he had done throughout their relationship. He did not tell either the plaintiff nor Johnson Lee that any property owned by him was to be made available as security for the loan to acquire the Subiaco property.
The initial funding sought was for an amount sufficient to purchase the property, with the Subiaco property itself to be the security and with the plaintiff and defendant providing directors' guarantees. He refers to a letter dated 7 October 1999 from Mr Wayne R Martin, Business Banking Manager, BankWest, addressed to the Directors of Ark Securities at 20 Kearns Crescent, Applecross (the defendant's business address) indicating that the Bank would be interested in considering the funding request. The indicative terms and conditions for the proposed credit facility included that the buyer would be Ark Securities and the loan would be a fixed interest loan of $650,000 for a 12‑month term to assist in the purchase of the Subiaco property. The proposed security would be a registered mortgage over the Subiaco property and one of the Emerald Hotel units, together with a registered debenture over assets and undertakings of the company and a guarantee and indemnity from the directors. The sixth page of that document, in a block for the signature of "individual giving his/her consent", bears a signature which appears to be that of the plaintiff and is dated 7 October 1999. There is no other signature on the credit facility document.
There is also a letter dated 8 October 1999 from St George Bank Ltd, addressed to the directors of Ark, again at the defendant's business address, indicating the terms and conditions upon which St George Bank would be prepared to give further consideration to a finance proposal to Ark Securities. The indicative terms proposed a total line of $730,000 to be secured by a registered first mortgage over the Subiaco property, a registered charge over all property leasing contracts, chattels and fixtures relating to the property and unlimited joint and several guarantees and indemnities from the plaintiff, the defendant, Courtza and Keywest International.
The defendant says he forwarded a copy of each of those letters to Johnson Lee by facsimile on 11 October 1999. There is in evidence a copy of a facsimile header with printed details showing the fax was sent at 1331 hours on 11 October 1999.
The fax header was addressed to Johnson Lee. It said the terms and conditions of finance approval for the purchase of the Subiaco property were attached and that after he had studied the documents the defendant would call him to discuss them. The defendant wrote that they would have to act as it had been over four weeks "and the contract will run out". He wrote that he had also attached the statement of account and requested Johnson Lee send $20,000 by telegraphic transfer to Keywest International St George account that day if possible.
The defendant says that both the plaintiff and Johnson Lee told him to proceed with St George Bank.
There is a St George Bank receipt to Ark Securities for $53,000 dated 13 October 1999.
According to the defendant, St George Bank wrote to the directors of Ark Securities on 5 November 1999, forwarding guarantee documents, which he and the plaintiff signed as directors of Keywest International and Courtza respectively.
On 1 November 1999 the defendant faxed to Mr Michael Dunleavy of St George Bank on Keywest International letterhead, a memorandum forwarding a copy of a letter addressed to Mr Dunleavy from Lombardo & Co, the defendant's accountants, regarding confirmation of his income for 1997, 1998 and 1999. He said he hoped that satisfied the final requirement for finance approval for the purchase of the Subiaco property. The memorandum was signed:
"Michael Mavaddat, ADCREM BSc. (USA)"
The Lombardo & Co letter forwarded with the faxed memorandum, confirmed "that in accordance with documentation provided by our client as well as our inspection of certain banking records and audited sales trust accounts we can provide you with the following information …" The letter then listed commissions and consultation fees earned by the defendant trading as Keywest Realty, to a total of $236,078. The letter added that furthermore the accountants had inspected offer and acceptances and documents relating to unconditional dealings pending settlement which would net the defendant some $260,000 in the next three months as well as conditional dealings amounting to an additional $65,000. They wrote that they were presently preparing his taxation papers for filing on the basis of documentation provided. The letter was signed by Mr Carl Lombardo.
On 23 November 1999, BankWest wrote to the directors of Ark Securities at the defendant's Applecross business address, advising that the request for a loan of $830,000 could not be approved in its current format, but BankWest would consider a loan facility of $616,220 based upon certain terms and conditions. They included that security be taken over the Subiaco property and two of the Emerald Hotel units.
The letter went on to say:
"The other alternative for you to consider, is that a residential property be placed as security for your loan request, eg 116 Forrest Street, South Perth, and then the Bank would be able to consider the full loan request of $830,000. In using this property as security, the Bank would not require security over the property known as 23‑241 Hay Street, Subiaco or Lot 43 and Lot 48 of the 'Emerald Hotel'.
The Bank can then offer you a cheaper rate loan being a residential secured business loan which has a current variable rate of 6.8% PA compared to the current fixed interest loan rate of 8.01% PA."
On 1 December 1999 Mr Anthony Hare of St George Bank sent a facsimile letter to the directors of Ark Securities for the attention of the defendant in which he advised that following their conversation that morning, the proposed security property had been valued. The Subiaco property was valued at $750,000 and the two Emerald Hotel units at $190,000 combined. However, Mr Hare noted that the valuer had advised the Bank the Emerald Hotel units were considered to be poor mortgage security propositions. He said that subject to the issues being addressed to the Bank's satisfaction, the facility limit would be a maximum of $657,500.
The defendant replied by facsimile letter a short time later the same day. He wrote that the valuers had downgraded the value of the properties both for Subiaco and the Emerald Hotel and that the West Australian Newspaper business section attested to both the good value of Subiaco as well as the changing Emerald Hotel. He wrote that despite all that, the Bank had the personal guarantees of Mrs Lee as well as the defendant and all respective companies. He said they were very anxious to proceed immediately and asked the Bank to forward its unconditional letter of approval. The letter was signed by the defendant for Keywest International over the printed designation "Michael Mavaddat, BSc ADCREM, Managing Director".
Mr Martin of BankWest wrote to the directors of Ark Securities again on 3 December 1999. The letter was addressed to the defendant's business address at Applecross. Mr Martin referred to a telephone conversation between him and the defendant that morning regarding finance options for the purchase of the Subiaco property. He wrote that if the plaintiff were to contribute her half of the security, BankWest would be prepared to consider the total funding on the basis of a residential secured business loan "currently at 6.80% PA variable rate". The other option would be to take out a three year fixed interest loan, the then current rate of which was 8.7 per cent per annum.
Also on 3 December 1999 Mr Hare of St George Bank sent a facsimile to the directors of Ark Securities. He confirmed that further to his conversation with the defendant that morning, and in view of the valuer's advice to the Bank in respect of the Emerald Hotel security property, St George would consider the application on either one of two bases. They were that first, additional acceptable unencumbered security be contributed, namely a registered first mortgage over Mrs Lee's South Perth residence which had an estimated value of $3 million or secondly the facility be solely secured against the Subiaco property to a maximum loan valuation ratio of 70 per cent - so that the facility limit would be $525,000.
The defendant's evidence was that he reported to Johnson Lee by facsimile dated 6 December 1999, forwarding a copy of the St George's Bank letter dated 3 December. It will be necessary to return to this later. The text of the message was:
"LEE SON
I HAVE TRIED TO PHONE YOU MANY TIMES IN LAST FEW DAYS. I LIKE TO REPORT TO YOU:
1)I HAVE RECEIVED STAMP DUTY FUNDS THANK YOU. I HAD NO T/T ADVISE [sic] AND THEREFORE DID NOT KNOW THAT THE FUNDS HAD COME.
2)WE HAD SIGNED EVERYTHING SO TO GO TO SETTLEMENT SUBJECT TO VALUATION OF HOTEL SUITES.
3)I HAVE BEEN TRYING THREE DIFFERENT BANKS OVER THE LAST THREE MONTHS AND SPENT LOTS OF TIME AND ENERGY AND MONEY TO GET THE FINANCE.
4)THE BANKS WILL NOT FINANCE THE HOTEL SUITES. I HAVE ENCLOSED THE LAST LETTER FROM ST GEORGE BANK.
5)I GUARANTEED YOUR EXTRA BORROWING OF $83,000.00 TO PAY OUT COMMONWELATH [sic] BANK AND GAVE SECURITY OF MY OTHER PROPERTIES INCLUDING MY FAMILY HOME, HOWEVER THE VALUATION REPORT FOR EMERALD WAS NOT ACCEPTABLE TO THE BANK.
6)I HAVE PAID $20,000 NON REFUNDABLE DEPOSIT TO EXTEND THE PURCHASE CONTRACT TO END OF THIS MONTH. I HAVE ALSO ALREADY SPENT OVER $10,000 IN VALUATION REPORT AND OTHER FEES. SO FAR SPENT $30,000.00, BECAUSE WE WILL MAKE PROFIT IF WE SELL TODAY OF $250,000.AUD.
7)YOUR MONEY IS THERE FOR YOU AT ANY TIME, HOWEVER, I HAVE LOST A LOT OF FACE WITH BANKS, AND OWNERS AND FRIENDS THAT KNOW THAT WE HAVE FINISHED THE SUBIACO DEAL.
8)MRS LEE IS VERY ANXIOUS TO START HER BUSINESS. I HAVE MANY COMMITMENTS, AND HAVE ALREADY LOCKED AWAY $160,000 FOR THE PAST FEW MONTHS IN THIS DEAL…
9)SUBIACO PROPERTIES ARE HOT AND THE VALUES HAVE GONE UP, AND THE PROPERTY IS WORTH A LOT MORE THAN THREE MONTHS AGO. FROM THE PROJECT AT HAY STREET WE ARE TO GAIN SOME $850,000 FROM DEVELOPMENT AND WE HAVE ALREADY BEEN OFFERED $250,000 MORE.
10)WE CAN NOT AFFORD TO LOSE THIS OPPRTUNITY [sic]. PLEASE ASSIST IN GETTING THIS DEAL FINISHED, HONESTLY I DO NOT HAVE ANY ADDITIONAL FUNDS TO GIVE UNTIL MARCH WHEN I CAN GIVE $450,000 FROM SALE OF OTHER PROPERTIES. I HAVE ALSO PLACED $50,000 WORKING CAPITAL INTO OUR COMPANY ARK SECURITIES.
11)WHEN THE DEAL IS COMPLETED THEN WE CAN INVITE OTHER INVESTORS IN THIS WAY WE DO NOT LOSE PROFIT THAT WE HAVE GAINED.
12)THERE ARE TWO OPTIONS AT THE MOMENT:
A)THAT YOU PAY THE EMERALD WHICH YOU OWE $83,000 OFF AND ALSO HELP WITH ADDITIONAL $50,000 TO FINISH THE DEAL, SO HAVE ENOUGH MONEY TO CARRY ON THE PROJECT, AND MAKE PROFIT.
B)OR YOU OFFER YOUR PROPERTY AT 116 FORREST AS SECURITY IN EXCHANGE OF SUBIACO AT MUCH LOWER INTEREST RATE OF 6.88% RATHER THAN 8.7%. THE DEAL CAN BE DONE IN THE NEXT TWO WEEKS AND WE WILL THEN PAY BACK FORREST STREET IN THE FIRST TWELVE MONTHS.
I HAVE ATTACHED BANK LETTERS AS WELL AS NEWS PAPER [sic] REPORTS ON SUBIACO.
LEE SON PLEASE HELP SO I CAN PROVE TO YOU HOW WE CAN MAKE MONEY AS WELL AS NOT LOOSING [sic] FACE.
I CAN NOT AT THIS STAGE ASK FROM BINGELLI OR MY OTHER FRIENDS TO PUT MONEY. I WILL LOOSE [sic] A LOT OF FACE. BUT AFTER THE DEAL IS SETTLED WE CAN ASK THEM TO BUT [sic] FUNDS TO CARRY ON PROJECT.
REGARDS MICHAEL" (Bolding emphasis added)

On 8 December 1999, BankWest wrote to the directors of Ark Securities at the Applecross address, referring to the conversation between Mr Martin and the defendant that morning, and advising that now that the plaintiff had agreed to use her home as security for the facility the Bank could offer the option of the residential secured business loan or the fixed interest commercial loan facility. Mr Martin wrote that it would be an easier task to seek approval for the whole purchase and development up front as costs involved in the dealing would be considerably reduced and the directors would not have to come back to the Bank to seek approval for another loan to complete the development of the project.
The defendant faxed a copy of that letter to Johnson Lee the same day. He pointed out that the Bank had suggested they stamp the loan for an amount of $1.7 million for the whole project but use only $830,000 to pay for the dealing now, including repaying the Commonwealth Bank $83,000. He said the reason for that was they would save money at the much cheaper rate of 6.8 per cent rather than 8.7 per cent and they would not have to go back to the Bank to pay more fees for construction. The facility of $870,000 would be available for future development and they would be able to charge the investors more later. They would not be charged interest on unused moneys and there would be no extra charge to repay earlier - he added, "You then have clear title to Subiaco and the two Emerald Hotel suites".
According to the defendant these communications were the first time he had any discussions with the plaintiff, her husband, or anyone at a bank regarding a loan in the order of $1.7 million or the loan being secured over the plaintiff's house in South Perth, rather than over the Subiaco property itself.
The defendant says he subsequently spoke to the plaintiff and her husband separately, both of whom told him they wished to proceed by way of a loan of $1.7 million to be secured by way of mortgage over the Forrest Street property.
He says he was subsequently told by the plaintiff, that having discussed the matter with her husband and Robert Lim, they wished to proceed with the St George Bank, rather than BankWest because it did not require a charge over Ark Securities' assets and because BankWest would not allow all of the funds to be drawn down at settlement.
The defendant denies the plaintiff's claims that he pressured her into the transaction or into executing the Bank documents. He says she executed each of the Bank documents at her house in his presence, reviewing the documents in front of him before signing. He says further, that he asked her whether she wanted to consult Robert Lim and she said she did not because they had been talking about it for weeks and she was anxious to get started.
On 9 December 1999 the defendant wrote on Ark Securities' letterhead to Mr Lombardo of Absica confirming that Ark Securities had instructed its settlement agency to proceed with the settlement of the Subiaco property subject to the terms and conditions as per the contract of 31 August 1999.
One of Absica's directors, Mr Gino Terriaca, sent a facsimile message to Mr Lombardo on 13 December 1999, advising that further to the meeting of the members of the Absica syndicate to discuss the sale of the Subiaco property, he confirmed that he was not in favour of the sale of the property, unless some form of compensation was offered by the prospective purchaser for the considerable time delay. He wrote that as vendors they had incurred the opportunity cost of not having had the settlement proceeds, as well as, and perhaps more significantly, not having benefited from the capital gain that the property had enjoyed in recent months in line with the extensive Subiaco redevelopment, record sales and other development in the area. He said it was clear that Subiaco was becoming a popular area for investors and would continue to enjoy significant capital growth and he reiterated that for those reasons he was not in favour of the sale unless additional compensation was offered.
Lombardo professed to have a poor recollection of the details of this, but he did confirm that he had communicated that to the defendant, as a result of which the defendant gave him $7000 in cash as compensation to Absica for the delay. He could not recall when that money was paid, but it could have been before settlement (which was in January 2000).
A finance application document for completion and execution was faxed to the defendant by St George Bank on 17 December 1999.
On 20 December 1999 the Bank faxed to the defendant a letter addressed to the plaintiff at 116 Forrest Street, headed "Provisional Housing Loan Approval" and indicating finance approval for a loan of $1,850,000 to the plaintiff with security over her property at 116 Forrest Street.
The documents in evidence show that on 20 December 1999 the defendant wrote to the St George Bank referring to earlier discussions and enclosing copies of the signed finance approval/credit reference by the plaintiff, a copy of her driver's licence and passport, a copy of family composition regarding the maiden name Lim/Lee and the birth registration of children showing maiden name.
Mention should be made at this point of the Persian carpets.
It was the defendant's evidence that about 25 November 1999 he delivered two Persian carpets which were part of his family's heirlooms, to the plaintiff at Forrest Street. He says he also gave the plaintiff a catalogue of carpets which she told him she was going to use to show "her many affluent clients and friends" and it was agreed that if she was successful in selling them she could receive a share of the profits. He says that to that end she selected some of the most expensive ones for display in and, decoration of, her home. His next mention of the carpets was that about 18 February 2000 he sent a letter to the plaintiff concerning what he described as the consignment of the Persian carpets to her Forrest Street property. He says she had confirmed with him during a previous conversation that she was happy to purchase them, offsetting them against the moneys that she had lent Keywest International. She also told him she did not want Johnson Lee to find out she had lent this money. The defendant's evidence was that he told her he was happy to extend their arrangement until 29 February 2000, but that if she should wish to keep the carpets beyond that date, no further interest would be payable on the $150,000 loan and the debt would be extinguished. If she decided to return the carpets, he would continue to pay the interest on her loan and the terms of it could be extended. He says he did offer to pay her back the full amount with interest, subject to her returning the carpets in the form they were originally delivered to her.
The plaintiff's evidence about this was that a few months after she loaned him the $150,000, the defendant brought two Persian carpets to her home to display them, saying her friends might wish to buy them. She says this happened sometime after he got back from his holiday and was about mid‑1999. According to the plaintiff she told the defendant that she did not want the carpets because she liked the timber floors and whenever she saw him she asked him to take them away but he did not.
She says he later told her that she had to sign a document about the carpets for insurance purposes. She told him she did not want to sign it but he said it was only for insurance and it did not matter. It was just in case the carpets were lost or damage so he could claim on insurance.
She says that later he asked her if she had paid her insurance for the carpets, but she told him she was not going to do so because they were not her carpets and she told him he should pay any insurance for them. She says he laughed and said "Okay, I'll pay for it".
The plaintiff went on to say that her husband came to Perth in early 2000 and she told the defendant in front of him that she did not want the carpets to be in the house, but the defendant would not listen to her and would not remove them. Her husband was angry and told the defendant to remove the carpets. The defendant did remove them but when Johnson Lee returned to Hong Kong, he brought the carpets back, despite the plaintiff telling him that she did not want them. He ignored her.
The subject of the Persian carpets recurred several times during the course of the trial. There is no pleaded issue in respect of the carpets nor the $150,000 loan and I take it that evidence was led as going to the relationship between the parties and bearing in that way upon the issues which are pleaded.
On 4 January 2000, St George Bank sent a facsimile letter to Mrs Lee at the defendant's office, confirming her decision to proceed with the reviewed loan facilities detailed in the enclosed conditional approval letter. The anticipated settlement date was 7 January 2000. The residential loan agreement offer dated 5 January is signed by the plaintiff, her acceptance being dated 10 January 2000.
There is also an application under the Transfer of Land Act 1893 by the plaintiff to have her name and address on the Forrest Street title changed from her maiden name of Lim to her married name of Lee, dated 7 January 2000 and witnessed by the defendant. That is accompanied by a statutory declaration signed by the plaintiff on the same date and also witnessed by the defendant.
In his evidence‑in‑chief the defendant said that on or about 7 January 2000 the plaintiff applied to the Department of Land Administration to change from her maiden name of "Lim" to her married name of "Lee". To do that she needed to provide a statutory declaration which he witnessed for her.
What the plaintiff said about this in her evidence was that the defendant came to her home and told her the Bank wanted proof that the person named on the title was her. She says she had not realised, and he explained, that the title was in her maiden name of Lim. He told her the Bank wanted documents to prove her identity for the loan, namely her passport, driver's licence and marriage certificate and he also wanted Courtza's common seal. She says he kept all of those items except her driver's licence for about 8 months even though she kept asking him for the originals to be returned. He told her he had just moved office and could not locate them.
A matter which assumed considerable importance in the course of the proceedings was a meeting which the defendant said occurred between the plaintiff and himself over lunch at Coco's Restaurant in South Perth in late 1999 after she had decided to take out the loan for $1.7 million but before settlement.
It was the defendant's evidence that he and the plaintiff regularly dined at Coco's. He said that at this lunch in late 1999 the plaintiff told him that she wanted to give him money to demonstrate her love and affection for him and to "reignite the old passionate fire" that they had shared for so many years. He says she told him that she hated her husband and wanted to leave him. For his part, the defendant says he did not want to leave his wife and children and marry the plaintiff and when, throughout their relationship, she asked him to do so, he told her that.
It was his evidence that at the Coco's lunch the plaintiff told him that she did not want her husband or Robert Lim to know the full extent of her business interests and dealings and therefore did not want to have her agreement with the defendant recorded in writing and nor was he to disclose to anyone the $150,000 she had given him at the end of 1998. The defendant said he agreed to this.
He said they further agreed that he should continue to devote his time, operate the accounts and attend to the running of all the ongoing business affairs of Ark Securities and draw from Ark Securities a minimum of $20,000 a month as project management fees backdated to the time the company was formed in September, but in the presence of Johnson Lee or Robert Lim he was to refer to these payments as "drawings".
Further matters which the defendant says were agreed between them on that occasion were that he could, if necessary, draw against those fees in advance; he could draw against the $133,000 which Ark Securities owed him as a separate item from his project management fees; the plaintiff would be entitled to take moneys from Ark Securities as she required; he would establish a professional office, in which she too would have an office, as a base for all their future activities; she would establish, with funding from Ark Securities, the beauty business they had previously discussed and once it was established, Ark Securities would then pay her a monthly minimum fee; they would try to expand the real estate and development business of Ark Securities; at a later time the plaintiff wished to become the defendant's partner in all of his business ventures, including Keywest Realty and Keywest International and any and all net profits would be distributed to their family trusts after all expenses and adjustments for drawing on a 50/50 basis.
Again, the plaintiff's evidence about this stands in stark contrast.
She testified she had been to Coco's with the defendant only once; it was not lunch, it was coffee and it was in late 1999. She had called him about paying her interest on the $150,000 loan because he was not paying regularly. He suggested they meet, have a coffee and talk about it. While they were having coffee he told her he would pay her the interest in one sum at the end of the loan. She said she did not want that and wished to be paid every month. She says there was no discussion about the $1.7 million loan and the discussion he refers to simply did not occur.
In cross‑examination she repeatedly denied that she had ever had any kind of sexual relationship with the defendant or that she was making her claims against him because she was angry about his relationship with Helen Guo and also because she was trying to save face with her husband. At one point in her cross‑examination, in response to questions of that kind, she said that the defendant had asked her many times to go away on holiday with him, had told her he wanted to go to Queensland with her and even when she went to Korea he asked to go with her, but she refused all of these. She also said he asked her to marry him.
I turn for the moment to the defendant's share trading activities.
There is in evidence a share trading application to Macquarie Porter Weston stockbrokers, bearing a facsimile print‑out date of 13 January 2000 ('the share trading agreement"). The document is signed by the plaintiff and defendant and bears Ark Securities' common seal.
The plaintiff's explanation of this is as follows.
In January 2000 the defendant spoke to her and suggested that they buy some shares. She told him that she never bought shares because her husband said it was like gambling. He had a document with him which he asked her to sign, and told her that it would be good to make money. She said she had no idea about buying and selling shares but he told her the document was only an application form and if shares were good then he would let her know. He told her to sign the document just in case she changed her mind, saying that he would not buy shares then but if something came up he could buy shares at that time if she had a change of heart. He showed her where to sign and she did, although she did not read the document. When she signed it she relied upon what the defendant had told her and expected that he would not buy shares unless she changed her mind. He never did subsequently ask her whether or not he could buy any shares and the first time she became aware that he had done so was about April or May 2000 when he gave her a share file with copies of contract notes and statements of account issued by a stockbroker. On that occasion she asked how he could buy shares. She said it was dangerous and was like gambling. She says his response was to tell her that it was not dangerous and he could make her a millionaire.
The defendant's evidence in this regard was that the share trading account with Macquarie was opened in early 2000 because the plaintiff told him she wished to invest money Ark Securities was not using, in the share market. He says she told him in substance that she wanted to trade in shares as her friends were making considerable money on the share market. He says that in deciding what to trade on behalf of Ark Securities he took advice from Macquarie and in addition from time to time the plaintiff told him what shares she wished to purchase, indicating that she had obtained the information from friends and Robert Lim.
He says at no time did the plaintiff or her husband complain to him about the share trading he was undertaking on behalf of Ark Securities and he denies there were conversations as described by the plaintiff.
The defendant further says that he kept full records in the form of a separate share trading file of contract notes and statements of account which he kept in his office. He says he had told the plaintiff she could come to his office whenever she wanted to and access Ark Securities' documents, which she did, and that in addition, each month he gave her a listing of all share trading that he had undertaken.
He says that the plaintiff once asked him to meet with her and Robert Lim in relation to the purchase of approximately $100,000 worth of shares in a company Robert Lim started, involving the manufacture of engines, and on about 8 February 2000 he went to Lim's office to discuss this. He told the plaintiff that he considered the investment was too risky and they did not proceed with it.
Settlement of the Subiaco property occurred through LJW Settlements around 21 January 2000.
At settlement, from the funds Ark Securities had borrowed from St George, $635,791.02 was paid to Absica, $81,541.49 was paid to Courtza to discharge the Commonwealth Bank mortgage over the Emerald Hotel unit and $37,927.55 was paid to LJW Settlements for stamp duty.
On 14 January 2000 the defendant signed a cheque on the Ark Securities' account payable to the plaintiff in the sum of $75,200. That included repayment of the $53,000 loaned by her brother.
There were three tenants of the Subiaco property as at the date of settlement.
The defendant's evidence was that he received instructions from the plaintiff to see if they could vacate the existing tenants as quickly as possible to enable them to prepare the premises for her beauty therapy business. Accordingly, at their direction, two of the tenants vacated the Subiaco property soon after Ark Securities acquired it. The third tenant, a hairdressing business, remained at the plaintiff's request because she considered it could coexist with her beauty salon.
The defendant says that he and the plaintiff briefed Calvin Koh an architect, to discuss how they could potentially develop the Subiaco property.
The plaintiff says this is false. She says that what she wanted to do was to keep the tenants there so the property was rented out or to get the redevelopment going quickly. She says she never gave any instruction to prepare the property for her beauty salon business and was in no position to give the defendant "instructions". She says she never gave any directions about the existing tenants.
She says she was very concerned that bank interest on the St George Bank loan was escalating and she wanted the redevelopment done as quickly as possible so they could sell the property within 12 months.
She gave no thought to opening a beauty therapy business at Subiaco because she had no connection with Subiaco and did not know the area, it was too far from her home and she did not know the type of people who lived or worked there. Since arriving in Western Australia in 1988 she had always lived in South Perth which was where her children had gone to school. She did not feel comfortable in Subiaco.

Of course, at the date of hearing, that was already more than a week earlier. Furthermore, there had been an expectation even at the end of April, that the distribution would not then be too far in the future. Given the proposed orders (2) and (2A), Mr McKerracher was unable to point to any prejudice his client would suffer were I to give judgment of the amount sought forthwith. If that were done and the plaintiff subsequently were to receive funds from the liquidator, the defendant's position would be safeguarded. Also, the situation was of the defendant's own making. On the other hand, it seemed to me the plaintiff ought not to be kept out of recovery on the judgment in her favour, for an uncertain period. These were the reasons I gave judgment on 22 June in the principal amount.
The rate of interest of proposed order (3) was that being charged to the plaintiff by St George Bank on the outstanding loan moneys which could not be repaid until she recovers from the defendant. Mr Davies suggested one reason the plaintiff wanted liberty to apply was to cover the possibility the Bank might change its interest rate, necessitating a variation of the order. I indicated that possibility could be accommodated by an appropriate amendment to the proposed order, adding words to the effect that the rate of interest would be 7.32 per cent or such higher rate that the Bank charges the plaintiff, and that I would make the order in those terms.

Declaration of trust - property at 817 Canning Highway

The defendant's opposition to an order in these terms was based on the notion that the property could not properly be said to be held by the defendant in trust for the partnership, because the partnership contribution was only as to some 46 per cent of the purchase price.
The case as pleaded was that $150,000 of Ark Securities' funds were applied as part of the consideration for the acquisition of the premises at 817 Canning Highway, Applecross. That claim was made out. The payment was unauthorised and constituted a breach of the defendant's fiduciary duty. The purchase price was $320,000. The evidence was (and I found) that the defendant used partnership funds to pay the deposit on the property and to undertake what were described as improvements to it.
In relation to this proposed order, it is submitted on behalf of the defendant that the highest the plaintiff's case could be put is that the partnership had a 46.875 per cent interest in the property (reflecting the $150,000), giving the plaintiff a 23.4 per cent interest. As Mr Davies for the plaintiff points out, this formulation would give the defendant a benefit to the extent of 50 per cent of the $150,000 (presumably by virtue of his interest in the partnership), which would be quite misconceived because the partnership did not authorise expenditure of those moneys for that purpose at all. That must be so. But the substance of the objection was that a declaration that the defendant holds the whole of the property by way of constructive trust on behalf of the partnership ought not to be made because the partnership funds amounted to only some proportion of the total expenditure on the property.
It is clear that where a fiduciary makes a profit out of his relationship, he will become a constructive trustee of that profit or all of the property so acquired by him (see "Jacobs Law of Trusts in Australia", 6th ed, [208]). A partnership is a recognised relationship giving rise to fiduciary duties. As pointed out in "Jacobs" (supra) at [1330]:
"(7)'[A] fiduciary is liable to account for a profit or benefit if it was obtained (1) in circumstances where there was a conflict or possible conflict of interest and duty or (2) by reason of the fiduciary position or by reason of the fiduciary taking advantage of opportunity or knowledge which he derived in consequence of his occupation of the fiduciary position' (Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 107, 55 ALR 417 per Mason J).
(8)Any profit or benefit obtained by a fiduciary in either of these two situations is held by him as a constructive trustee (At 107, 417 per Mason J; see also the same case in the Court of Appeal [1983] 2 NSWLR 157 at 212).
(9)Contrary to the holding of McLelland J at first instance in United States Surgical Corp v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 813‑14), both the Court of Appeal ([1983] 2 NSWLR 157 at 233‑43) and Mason J on further appeal to the High Court (1984) 156 CLR 41 at 102‑10) were at pains to point out that it was no objection to the imposition of a constructive trust that it was not the duty of the defendant to obtain for the plaintiff the profit or benefit in question; the only issue was whether the profit or benefit had accrued to him in breach of his duty, that duty having two limbs as described in (7) above."
Pertinently to the present case, the authors note (at [1331]):
"Where the gain is an asset to which the defendant has himself contributed, the court may by charge or severance distinguish the respective interests therein, but where the court is unable to make the distinction, the trust will extend to the whole asset lest the fiduciary take advantage of his own wrong and the plaintiff lose all (United States Surgical Corp v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 at 238‑42; Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 at 499)."
As I have found, what occurred here, is that the defendant took advantage of the partnership assets and used them to purchase a property in his own name. The primary position therefore is that the property should be regarded as being held on trust by him for the benefit of the partnership. This is not a case in which the defendant ran a case to the effect that just allowances should be made to him in relation to this prayer for relief. The case was not pleaded in that way and no evidence was led with respect to it (as was the situation in Harrison v Schipp [2001] NSWCA 13 at 143 et seq). In these circumstances, I reached the conclusion that the proper order was for a declaration in the terms sought by the plaintiff.

Indemnity costs

The usual course is that costs are ordered to be paid on a party/party basis. It is accepted that indemnity costs can be ordered as and when the justice of the case so requires.
I considered the authorities in relation to indemnity costs in SDS Corporation Ltd v Pasdonnay Ltd & Anor [2004] WASC 26 (S2) (delivered 27 February 2004 at [46] ‑ [106]). I adhere to what I said there and will not repeat it.
The submissions advanced against the orders sought are in substance that whilst the principle may be applied to defendants as well as plaintiffs, a court ought to be slower in being prepared to presume an ulterior motive in the absence of any evidence from which such emotive may fairly be inferred, eg Biltoft Holdings Pty Ltd v Casselan Pty Ltd (1991) 4 WAR 14 at 20. It is submitted that in this case there is no evidence upon which any "ulterior motive" may be established, and it ought not to be inferred; there were no "known" facts which made the defendant's case hopeless (see Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd & Ors (1988) 81 ALR 397 at 401); and had the defendant's evidence been accepted, it would have given the defendant a defence to the plaintiff's claims. It is further submitted that in these circumstances the plaintiff's argument is tantamount to a proposition that where a defendant gives evidence which, if accepted, sounds in a good defence, but that evidence is not accepted, he ought to have known that he had no defence and therefore an indemnity order as to costs ought be made - which proposition, it is said, cannot be and is not correct.
The plaintiff referred to the judgment of Holland J in Degmam Pty Ltd (In liq) v Wright (No 2) [1983] 2 NSWLR 354 at 358. There his Honour held a case had been made out for the making of a special costs order, it being:
"… sufficient to say that the allegations of fact she made as the basis of her defences and causes of action were in my opinion false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability to the plaintiff from herself to the second cross‑defendant. As well as that, she so conducted herself in the proceedings, by multiplying allegation upon allegation, and by prevaricating in the witness box, as grossly to prolong the litigation, thereby to cause the other parties to incur liability for solicitor and client costs far beyond what they could reasonably have expected to incur in litigation of genuine issues."
In Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, Sheppard J presented a useful distillation of principles (at 232 ‑ 234) from his survey of the authorities in this area. It is clear from those that the "settled practice" is for costs orders to be made on a party/party basis, and a different order usually ought not be made. It will be made only where justified by the circumstances. As Sheppard J pointed out, the tests have been variously put, but in essence all seem to come to the existence of some special or unusual feature of the particular case justifying such an order. Some examples of such circumstances given by his Honour include the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud; evidence of particular misconduct that causes loss of time to the court and to other parties; the fact that the proceedings were commenced or continued for some ulterior motive, or in wilful disregard of known facts or clearly established law; and the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions, amongst others.
Having instanced these and other examples, his Honour reiterated (at 234) that the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.
Senior counsel for the defendant argued in effect that comparisons with other cases may lead to differing results. He referred to Hypec Electronics Pty Ltd (In liq) v Mead & Ors (2004) 61 NSWLR 169. That was a case which involved the conduct of litigation by a liquidator, it being found that his conduct of it was improper in the sense of being not reasonable nor honest. On the issue of indemnity costs, Campbell J discussed Colgate and authorities in which the principles summarised by Sheppard J had been considered. Pertinently to the present point, the case is important because of its recognition of the principle it is the party's conduct of the proceedings as litigant which bears on the issue of indemnity costs.
Campbell J noted at the outset ([41]) that conduct of a party prior to the litigation commencing, and which is a direct cause of it, is not among the examples Sackville J gave in his collection of relevant principles in respect of indemnity costs orders in Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 at [7] ‑ [8]. Campbell J referred to the decision of the Full Court of South Australia in Cretazzo v Lombardi (1975) 13 SASR 4 at 11, which affirmed that the general discretion to make an order for costs is absolute and unfettered, except that it must be exercised judicially, not arbitrarily or capriciously, and that it cannot be exercised on grounds unconnected with the litigation. His Honour observed that if that be true of the general discretion as to costs, it must also be true of the discretion to order indemnity costs. Then considering what sort of connection with the litigation is necessary, Campbell J quoted the following passage from the judgment of Heerey J in Henderson v Amadio Pty Ltd, unreported; FCA; 22 March 1996:
"… the authorities cited by Sheppard J in his summary in Colgate Palmolive Co v Cussons Pty Ltd … at 233 suggest that the improper conduct of an unsuccessful party which will lead to an award of indemnity costs is usually related to the way the litigation is conducted, rather than the inherent badness of the conduct which gave rise to the litigation. This is not universally true; for example contempt of court usually attracts costs on an indemnity basis. Nevertheless, it seems to be rare that findings of serious misconduct such as fraud of itself gives rise to an order for costs on an indemnity basis."
His Honour then turned to Harrison v Schipp (supra). In that case the primary Judge had made an order for indemnity costs because the defendants had engaged in unconscionable conduct and breaches of fiduciary duty in a particularly deplorable way. The New South Wales Court of Appeal quashed the decision to award indemnity costs. I quote further from the judgment of Campbell J in Hypec:
"Giles JA [sic] (with whom Handley J and Fitzgerald JA agreed) said (at [136]‑[139]):
'[136]   The trial judge did not exercise his discretion by regard to the time taken by Mr Harrison in propounding false documents, or otherwise by regard to delinquency in the conduct of the proceedings.   Hagan v Waterhouse (No 2) (1992) 34 NSWLR 400 provides no support for indemnity costs as a means of providing complete restitution, or otherwise for regard to the substantive unconscionable conduct or breach of fiduciary duty when exercising the discretion as to costs, and such regard would in my view not be correct. The unconscionable conduct or breach of fiduciary duty leads to compensatory or other relief and costs on the normal basis, and more must be established for a special order as to costs. In my opinion his Honour's exercise of his discretion was on a wrong principle.
[137]   The discretion must be re‑exercised. It is true that evidence of Messrs Cameron and Harrison was not accepted, indeed they were found to have given false evidence and propounded false documents. But I do not think there was delinquency approaching that considered to justify a special order as to costs in Degmam Pty Ltd (in liq) v Wright (No 2) (1983) 2 NSWLR 354, or that departure from the ordinary basis on which costs should be assessed between litigants was otherwise warranted.
[138]   It was necessary that the circumstances in which Mrs Schipp came to put her money into the two properties and leave it with Messrs Cameron and Harrison be gone into, in particular with exploration of her understanding of what she was doing and the influences working upon her. I am not satisfied that this was a case in which the appellants, properly advised, should have known that they would be found liable (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 at 401), or that the court's time and Mrs Schipp's money were wasted on 'totally frivolous and thoroughly unjustified defences' (Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 at 362), to use some of the expressions relevant in this area.
[139]   Departure from the settled practice of costs on a party and party basis is discretionary, and beyond the need for a sufficient special or unusual feature in the case no fixed rule can be laid down. Some of the matters thought to justify it are collected by Sheppard J in Colgate‑Palmolive Pty Ltd v Cussons (1993) 46 FCR 225 at 233‑234. In the present case no other sufficient special or unusual feature is present. The trial judge's order as to costs should be set aside so far as it provided for costs on an indemnity basis.'
In NMFM Property Pty Ltd v Citibank Ltd (No 2) (2001) 109 FCR 77, Lindgren J said (at 92 [56]):
'The ordinary rule is that an award of costs is on the party and party basis, and that it is only in a special case that the discretion to depart from that rule will be properly exercised: Venture Industries at 153 per Black CJ, 158 per Cooper and Merkel JJ. In my opinion, there is no counterpart ordinary rule that in the absence of special circumstances indemnity costs will be ordered where the losing party was guilty of ethical or moral delinquency in the antecedent facts which have given rise to the litigation. Even in a proved case of fraud, for example, in my opinion the presumption is that a costs order against the fraudulent party will be on the party and party basis. The conduct of a party that is relevant to the issue of indemnity costs is the party's conduct as litigant. But, as noted below, the knowledge that a party has, including knowledge of his or her past conduct, may be relevant to an assessment of his or her conduct as litigant.'
See also, to similar effect, Sande v Medsara Pty Ltd (No 2) [2004] NSWSC 262 at [7], per Burchett AJ; White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 303 at [10]‑[11], per McDougall J. A connection with litigation, which takes the form of being the facts which are themselves the subject matter of the litigation, is not a relevant type of connection for the purposes of making an indemnity costs order. Nor is it a relevant sort of connection that a person has, in the circumstances which are the subject of the litigation, breached duties which they owe to one of the litigants, where that breach of duty is not itself the subject of the litigation. …"
I accept the foregoing to be an accurate statement of the relevant principles and in this case I am satisfied the following aspects of the defendant's conduct went to his conduct of the litigation and had such an impact upon it from the point of view of the plaintiff and the court itself, as to justify the unusual course of making an indemnity costs order.
As I have found, this is a case in which the evidence of the defendant and his whole defence to the claim was a deliberate concoction. His conduct prolonged the trial. That was so not only because of the many false issues raised by the defendant including "SMS Technologies" and "Dizzy Lamb Park" but by his lengthy and persistent obfuscation, dissembling and prevarication in cross‑examination (see my reasons for judgment at [314] to [383]). The defendant propounded false documents to the Court in the course of this litigation (see reasons at [375] ‑ [382]). The defendant must, or ought to, have known at all material times that he had no chance of success in his defence of the claim or in his counterclaim - this is not simply a case of the defendant's evidence not being accepted. In the circumstances his defence of the case and prosecution of the counterclaim must be presumed to have been continued for some ulterior motive or in wilful disregard of the known facts and the established law. That motive must have been a desire to keep the plaintiff out of her funds and to retain for himself the benefit of them for as long as possible. I am satisfied that by reason of his manner of conducting this litigation, the defendant has caused considerable unnecessary expense and cost to the plaintiff beyond that which could reasonably be expected to be incurred in litigation of genuine issues. The justice of the case requires an order for indemnity costs.

Liberty to apply

I am not disposed to give the parties liberty to apply. The judgment is final. I agree with senior counsel for the defendant, albeit expressed in the context of a different proposed order, that there should be finality. Mr Davies' main concern was the possible need to revise the rate of interest should St George Bank change that charged to the plaintiff. That possibility has now been accommodated. The other matters which may necessitate adjustment of the judgment amount have likewise been accommodated, as to reduction of the sum by reason of payment of a dividend by the liquidator either before payment by the defendant or afterwards. Relief sought by the plaintiff by way of an accounting has not been pursued. Any further matters relating to costs can be dealt with in the ordinary way.

In addition to the orders made on 22 June, I would order that the defendant pay the plaintiff's costs on an indemnity basis and I consider the form in which the proposed order is expressed, to be appropriate (see Degmam (supra).