Memduh Cihan and Mehmet Cihan trading v Cihan Family Pty Limited

[2023] NSWSC 1289

Supreme Court

New South Wales

Medium Neutral Citation:

Memduh Cihan and Mehmet Cihan trading as trustees of the Cihan Family Trust ABN 43 973 762 406 v Cihan Family Pty Limited [2023] NSWSC 1289

Hearing dates:

13 October 2023

Date of orders:

30 October 2023

Decision date:

30 October 2023

Jurisdiction:

Equity

Before:

McGrath J

Decision:

See [148]

Catchwords:

EQUITY — Real Property Act 1900 (NSW) – exceptions to indefeasibility of title — fraud and unconscionable conduct — transfer of 27.38% interest in real property from family trust to self-managed superannuation fund (Transfer) by a father at the direction of his adult son with the overwhelming benefit of the Transfer flowing away from the father to adult son and his family — in circumstances where the father is unable to read or understand the English language and was reliant on adult son as to the prudence of the Transfer — application of principles outlined in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 — lack of specificity as to precise act of adult son which would satisfy finding of fraud — HELD — fraud not established — special disability of the father established — no appearance on behalf of the defendant to rebut equitable presumption of invalidity — HELD — plaintiff has established unconscionable conduct — Transfer set aside

CIVIL PROCEDURE — pleadings — fraud – requirement for specific pleadings and particulars — HELD — plaintiff’s fraud claim rejected as not pleaded or particularised or otherwise included too late to afford defendant procedural fairness

Legislation Cited:

Evidence Act 1995 (NSW)

Real Property Act 1900 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868

Anderson v Anderson [2016] NSWSC 1204

Assets Co Ltd v Mere Roihi [1905] AC 176

Bahr v Nicolay (No 2) (1988) 164 CLR 604; [1988] HCA 16

Bank of New South Wales v Rogers (1941) 65 CLR 42

Banque Commerciale SA v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11

Breskvar v Wall (1971) 126 CLR 376

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

Butler v Fairclough (1917) 23 CLR 78; [1917] HCA 9

Cassegrain v Cassegrain (2015) 254 CLR 425; [2015] HCA 2

Cihan v Cihan [2022] NSWSC 538

Cihan v Cihan (No 2) [2022] NSWSC 538

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14

Hoho Property Pty Ltd v Bass Finance No 37 Pty Ltd [2023] NSWSC 411

IncheNoriag v Shaik Allie Bin Omar [1929] AC 127

Krakowski & Anor v Eurolynx Properties Ltd & Anor (1995) 183 CLR 563

Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537

Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491

Louth v Diprose (1992) 175 CLR 621; [1992] HCA 61

Mangano v Bullen [2020] NSWCA 283

Nadinic v Drinkwater (2017) 94 NSWLR 518; [2017] NSWCA 114

Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 67 ALJR 170

Nitopi v Nitopi [2023] NSWCA 162

Rejfek v McElroy (1965) 112 CLR 517

Schultz v Corwill Properties Pty Ltd [1969] 2 NSWR 576

Sgro v Australian Associated Motor Insurers Ltd (2015) 91 NSWLR 325; [2015] NSWCA 262

SJ Berry Pty Ltd v McEntee [2022] SASCA 133

Stuart v Kingston (1923) 32 CLR 309

Stubbingsv Jams 2 Pty Ltd [2022] HCA 6

Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49

Waimiha Sawmilling Co Ltd (in liq) v Waione Timber Co Ltd [1926] AC 101

Wentworth v Rogers (No 5) (1986) 6 NSWLR 534

Young v Hoger (2001) Q Conv R 54-548; [2000] QSC 455

Texts Cited:

Edgeworth B, Butt’s Land Law (Thomson Reuters, 7th ed, 2017)

Category:

Principal judgment

Parties:

Memduh Cihan and Mehmet Cihan as trustees of the Cihan Family Trust (ABN 43 973 762 406) (Plaintiff)
Cihan Family Pty Limited (ACN 150 063 166) (Defendant)

Representation:

Counsel:
G George (Plaintiff)

Solicitors:
Hitch Advisory (Plaintiff)

File Number(s):

2023/165885

Publication restriction:

Nil

JUDGMENT

INTRODUCTION

1. These proceedings involve a set of very unfortunate circumstances that have arisen within the Cihan family.

2. The second plaintiff, Mehmet Cihan, was born in Türkiye in 1944 and is 79 years old. Mehmet is the patriarch of the Cihan family.

3. Mehmet is married to Aysel Cihan and they have two children:

1. Kadir Cihan, born in 1967; and

2. the first plaintiff, Memduh Cihan, born in 1969.

4. In 1971, Mehmet, Aysel, Kadir and Memduh emigrated from Türkiye to Australia, settling in Sydney. Mehmet then became a dual Turkish and Australian national.

5. Kadir is married to another Aysel Cihan and they have four children:

1. Leyla Cihan;

2. Havva Cihan;

3. Mehmet Muhammed Cihan; and

4. Tuba Cihan.

6. Memduh is married to Ummuhan Cihan and they have two children:

1. Juneyt Cihan; and

2. Aylin Cihan.

7. I will refer to each of Mehmet, Aysel, Kadir, Memduh, Havva and Leyla by their first name for convenience, without meaning any disrespect to them.

8. While Mehmet can read and write the Turkish language to a limited degree, he has limited spoken English language skills and cannot read the English language. He communicates with his family and most of his friends in the Turkish language.

9. Memduh and Mehmet are the trustees of the Cihan Family Trust.

10. These proceedings arise from the circumstances in which the eldest son Kadir has taken advantage of his father Mehmet’s inability to understand fully the English language and his limited ability to understand sophisticated business arrangements. Kadir has caused Mehmet to enter into improvident arrangements which he did not understand and which have conferred benefits on Kadir and his own family which were not known about, understood or intended by Mehmet.

11. The proceedings have been brought by summons filed 24 May 2023 by Memduh and Mehmet as trustees of the Cihan Family Trust. The defendant is Cihan Family Pty Limited.

12. Cihan Family Pty Limited is the trustee of the Cihan Family Superannuation Fund.

13. The principal relief sought in the summons is to reverse the effect of a transaction which caused a 27.38% interest in a property identified as Certificate of Title Folio Identifier E/23162, known as 77-79 Liverpool Street, Sydney NSW 2000 (Liverpool Street Property), to be transferred from the Cihan Family Trust to Cihan Family Pty Limited as trustee for the Cihan Family Superannuation Fund.

14. At the hearing of the summons before me, Mr G George appeared as counsel for Memduh and Mehmet, instructed by Hitch Advisory. There was no appearance at the hearing on behalf of Cihan Family Pty Limited, including after it was called outside the courtroom.

15. I am satisfied that Cihan Family Pty Limited has been served at its registered office with the summons and each of the affidavits on which Mehmet and Memduh rely and that personal service of those documents was also effected on each of Havva as a director of Cihan Family Pty Limited and Kadir as a director of Cihan Family Pty Limited.

16. For the reasons set out below, I have held that Memduh and Mehmet as trustees of the Cihan Family Trust are entitled to the relief I propose to grant.

EVIDENCE

17. Memduh and Mehmet rely on the following evidence:

1. affidavit of Memduh Cihan affirmed 18 May 2023 and the exhibit to that affidavit;

2. affidavit of Mehmet Cihan affirmed 18 May 2023 and the exhibit to that affidavit;

3. affidavit of Neziha Yildiz affirmed 18 May 2023 (an accredited interpreter who sight translated the affidavit of Mehmet Cihan affirmed 18 May 2023 in the Turkish language);

4. affidavit of Joseph Khoury sworn 16 June 2023 (attesting to the service of the summons and affidavits on Havva as a director of Cihan Family Pty Limited);

5. affidavit of Joseph Khoury sworn 20 June 2023 (attesting to the service of the summons at the registered office of Cihan Family Pty Limited);

6. first affidavit of Joseph Khoury sworn 4 July 2023 (attesting to the service of the summons and affidavits on Kadir as a director of Cihan Family Pty Limited);

7. second affidavit of Joseph Khoury sworn 4 July 2023 (attesting to the service of the summons and affidavits on Leyla as a director of Cihan Family Pty Limited);

8. affidavit of Timothy James McGrath sworn 19 July 2023 (attesting to attempts made to communicate with Kadir, Havva and Leyla); and

9. affidavit of Tayla Mari Poyser affirmed 3 October 2023 (attesting to service of:

1. a letter dated 21 August 2023 from Hitch Advisory stating that the final hearing in the proceedings would take place on 13 October 2023; and

2. orders made by Peden J on 11 August 2023 listing the matter for hearing,

on each of Cihan Family Pty Limited, Kadir, Havva and Leyla).

RELEVANT FACTS

1971 – 1984: Cihan family arrival in Australia and work undertaken

18. As I have already mentioned, in 1971 Mehmet, his wife Aysel and their two children, Kadir and Memduh, emigrated from Türkiye to Australia. They settled in Sydney. As was common for many immigrants to Australia at that time, Mehmet and Aysel worked extremely hard across almost all days of the week undertaking several jobs to improve their economic circumstances.

19. Initially, Mehmet worked at ARC Lidcombe and held a second job working at a bedding factory in Redfern. In about 1977, Mehmet took a weekday job with NSW State Rail repairing train tracks and, on weekends, Mehmet and Aysel cleaned the grounds and staircase of the apartment complex in which they lived in return for a discount on their rent.

20. From about 1984, Mehmet continued working for NSW State Rail and on Friday nights and weekends, with the help of his family, they operated a kebab stall at Flemington Markets.

21. During this period, both Memduh and Kadir assisted Mehmet with his business and personal affairs from time to time, including acting as an interpreter in business meetings.

1979 – 1991: Acquisition of residential properties

22. From the money they had earned through their years of hard work, between 1979 and 1991, Mehmet and Aysel purchased three residential properties in Auburn.

1997: Establishment of Cihan Family Trust

23. In early 1997, Mehmet spoke to Memduh about how tired he was maintaining the Auburn residential properties and was encouraged by Memduh to sell them, buy commercial property and set up a family trust to make those acquisitions in order to reduce tax. Mehmet expressed interest in Memduh’s proposal and asked Memduh to assist him in arranging a meeting with a lawyer known to Memduh to discuss the establishment of the trust.

24. Following their conversation, Mehmet went with Memduh to the offices of a solicitor, Hakki Sayan, to discuss the establishment of a trust. Mr Sayan said that he would be able to prepare the necessary documents to establish a family discretionary trust. Shortly after, Mr Sayan arranged for Mehmet to come to his offices and sign a Discretionary Trust Deed dated 15 May 1997 which created the Cihan Family Trust. The Trust Deed was in English and, in light of his inability to read English, Mehmet did not and could not read it.

25. Under the Trust Deed, Mehmet was the sole trustee of the Cihan Family Trust, Kadir was appointed nominator of the Cihan Family Trust with power to remove a trustee and appoint another and the eligible beneficiaries were Mehmet, Kadir, Memduh, Havva, Leyla and Mehmet junior. Kadir’s appointment as nominator was subsequently the subject of successful challenge in this court by Mehmet in 2018 in the circumstances I have detailed below.

26. Memduh assisted Mehmet with the conduct and operations of the Cihan Family Trust, including by dealing with representatives of financiers, identifying and suggesting properties to be purchased by the Cihan Family Trust, preparing the financial accounts and taxation returns of the Cihan Family Trust and dealing with advisers, including lawyers and accountants.

27. Mehmet’s understanding was that upon the establishment of the Cihan Family Trust, he was then in a position to acquire commercial properties using the Cihan Family Trust, which would provide taxation benefits not otherwise available to him by purchasing the properties in his own name.

1997 – 2007: Acquisition of commercial properties

28. Between 1997 and 2007, Mehmet as trustee of the Cihan Family Trust, purchased five commercial properties across Marrickville, Bondi Beach, Auburn and central Sydney, the latter being the Liverpool Street Property which was acquired on 28 November 2002 for $3,390,000.

29. The Liverpool Street Property is a three-storey commercial building which had the potential for dual occupancy, with a tenant operating a Spanish restaurant on the ground floor. Memduh saw the Liverpool Street Property for sale and mentioned it to Mehmet. Mehmet then inspected the Liverpool Street Property with Memduh, who assisted with the acquisition, which was made complicated because it was leased by a company in administration. Memduh suggested to Mehmet that the Cihan Family Trust buy the Liverpool Street Property. Mehmet considered that the Liverpool Street Property provided a good opportunity to either allow the Spanish restaurant to continue its tenancy or alternatively take over its operations.

30. After Mehmet as trustee for the Cihan Family Trust acquired the Liverpool Street Property, he took over the operations of the Spanish restaurant, with the help of Memduh and Kadir. The business of the Spanish restaurant was owned by the Cihan Family Trust which Memduh ran at the direction of Mehmet as trustee of the Cihan Family Trust. Mehmet as trustee of the Cihan Family Trust received the income from the Spanish restaurant.

31. The understanding of Mehmet when purchasing all of these commercial properties was that as sole trustee of the Cihan Family Trust, he would be able to control those assets and would continue to do so until he appointed a replacement trustee in his place.

2007 – 2017: Memduh’s strained relationship with Mehmet

32. In 2007, Mehmet and Memduh had an argument which caused Mehmet to direct Memduh to stop working in the Spanish restaurant and for Mehmet and Kadir to take over the running of that restaurant. Memduh stopped working at the Spanish restaurant and opened his own restaurant. Memduh then maintained a relationship with Kadir and other members of the Cihan family but ceased or had limited contact with Mehmet for many years.

33. During 2010, Memduh attended a meeting with Mehmet and Kadir at which Mehmet requested that Memduh return to work at the Spanish restaurant and manage his financial and taxation affairs. Mehmet requested Memduh to do so on the basis that Kadir and Memduh would receive everything equally when Mehmet died. Memduh refused this offer.

34. Memduh continued to have limited contact with Mehmet until late 2017, when they resumed their relationship in the circumstances outlined below.

2009 – 2011: Establishment of the Cihan Family Superannuation Fund

35. In 2009, on the recommendation of Kadir, Mehmet and Kadir met with an accountant, Altug Sanli, of Ideal Business Group. As a result of that meeting, Mehmet appointed Mr Sanli to act as his accountant to take care of his financial and taxation affairs, including in relation to the Cihan Family Trust.

36. Mehmet had limited dealings with Mr Sanli. About every three months, Mr Sanli collected paperwork from Mehmet relating to the Spanish restaurant and the rent received by the Cihan Family Trust and lodged the documents required for the tax payable by the Cihan Family Trust for the operations of the Spanish restaurant. Occasionally, Mr Sanli would give Mehmet cheques to sign for income tax and GST payable. Otherwise, Kadir dealt with Mr Sanli in relation to any other financial and taxation matters.

37. In June or July 2010, Mehmet had a meeting with Kadir and Mr Sanli, where Kadir raised the issue that Mehmet was paying too much tax and proposed the setting up of a superannuation fund so that he would only have to pay 15% tax. Mr Sanli said that he could set up a superannuation fund which would reduce Mehmet’s tax. Mehmet responded that he did not know why he would need it, he was 64 years old and they had all they needed. Kadir said that it would reduce Mehmet’s tax to which Mehmet said he would think about it.

38. Subsequently, both Kadir and Mr Sanli said to Mehmet on a number of occasions that he should set up a superannuation fund to save tax.

39. At that time, Mehmet did not understand how he would save money by setting up a superannuation fund and at no time did anyone explain to him how the superannuation fund would work.

40. In 2010 (said to be January 2010 but the context suggests that it was after June-July 2010), Mehmet met with Mr Sanli and Kadir, during which the topic of Mehmet paying too much tax was raised, together with the proposal for a superannuation fund to be set up for Mehmet, which Mr Sanli had previously said. In response to Mehmet asking if it was just to reduce tax and nothing else changes, Mr Sanli said it was and the arrangements could be made by a solicitor. Mehmet suggested that they could see his solicitor, Angelo Andresakis.

41. Mehmet, Kadir and Mr Sanli then met with Mr Andresakis, who said he could not set up a superannuation fund as he did not practice in that area. After the meeting, Mr Sanli said that he knew lots of lawyers who set up superannuation funds and that he would take care of it.

42. During 2010, Mehmet had a further conversation with Mr Sanli, in which Mr Sanli asked who Mehmet wanted to be included as members of the superannuation fund, to which Mehmet responded that it would be himself, Aysel, Kadir and Memduh.

43. Subsequently, during a further conversation, Mr Sanli said that he had spoken to Memduh who had said that he did not want anything to do with the superannuation fund, to which Mehmet responded that they should just set up the fund for himself, Aysel and Kadir. Mr Sanli said that there would be a minimum of four people required, to which Mehmet said that the superannuation fund should be for himself, Aysel, Kadir and Havva (Kadir’s daughter).

44. In 2011, Mehmet had a conversation with Mr Sanli and Kadir, in which Mr Sanli said he had set up the superannuation fund. Kadir stated that they needed to put some property into it and proposed the Liverpool Street Property should go into it. Mr Sanli said that Mehmet was paying too much tax as the restaurant was producing high takings. Mehmet asked if Mr Sanli thought it best to do that, to which Mr Sanli said that it was. Kadir said that they would go to speak to Mr Andresakis and Mehmet could tell him to transfer the Liverpool Street Property, to which Mehmet said “ok”.

45. After this conversation, the Cihan Family Superannuation Fund was established by Deed dated 25 March 2011 (Super Deed), which appointed Cihan Family Pty Limited as trustee. The Super Deed is signed by Havva, Mehmet, Aysel and Kadir in their capacity as initial members of the Cihan Family Superannuation Fund and by Kadir as secretary and Havva as director on behalf of Cihan Family Pty Limited. Each of the signature pages is dated 25 March 2011.

46. Also on 25 March 2011, Cihan Family Pty Limited was incorporated. Mehmet, Aysel, Kadir and Havva were appointed as the directors and Kadir as secretary. The registered office was in North Croydon. It appears that Mehmet, Aysel, Kadir and Havva each held three ordinary shares in Cihan Family Pty Limited.

47. On 6 June 2011, Aysel ceased to be a director of Cihan Family Pty Limited.

48. At no stage was Mehmet advised or informed in either the English language or the Turkish language as to why property was required to be transferred into the Cihan Family Superannuation Fund and what the effect of any such transfer would be.

2011 – 2012: Transfer of interest in Liverpool Street Property to Cihan Family Superannuation Fund

49. On 23 November 2011, a transfer was signed by Mehmet as transferor which purported to transfer 27.38% of the Liverpool Street Property to Cihan Family Pty Limited as transferee for consideration stated to be $1,150,000 and held as joint tenants (Transfer). Mr Andresakis signed the Transfer on behalf of Cihan Family Pty Limited as “solicitor for the transferee”.

50. The Transfer was not registered on the title of the Liverpool Street Property in 2011, 2012 or 2013.

49. At the time that Mehmet signed the Transfer, he was not advised about the contents of it and at no time did anyone discuss with him the effect of the Transfer. At that time, Mehmet held the understanding that:

1. Kadir and Mr Sanli had recommended the establishment of the Cihan Family Superannuation Fund to save on the taxes Mehmet was paying;

2. Mr Sanli had arranged the preparation of the documents to establish the Cihan Family Superannuation Fund; and

3. Kadir and Mr Sanli had informed him that property needed to be transferred into the Cihan Family Superannuation Fund but did not explain to him why that was required, the effect of any transfer or that in signing the Transfer, it would alter the Cihan Family Trust’s interest in the Liverpool Street Property.

52. The evidence demonstrates that no consideration of $1,150,000 was received by Mehmet in his capacity as trustee of the Cihan Family Trust at the time of the Transfer or at any other time. Mehmet was never made aware that such a payment would be made. Mehmet was not aware of the value of a 27.38% interest in the Liverpool Street Property or how or why only a 27.38% interest was transferred.

53. None of the records of Cihan Family Pty Limited and the Cihan Family Superannuation Fund show that any consideration was paid by Cihan Family Pty Limited in respect of the Transfer at any time.

54. The Transfer is accompanied by an undated and unsigned Contract for the sale of land with the same details as the Transfer and also lists Andresakis & Associates as acting for Mehmet as trustee for the Cihan Family Trust. Mr Andresakis was therefore acting on both sides of the Transfer transaction.

55. On 19 January 2012, Andresakis & Associates sent a tax invoice to Mehmet charging professional fees of $550 for acting on the transfer of the Liverpool Street Property “including preparation of Contract for sale and Transfer, attending on you to sign documents; to stamping Contract and Transfer and attending to registration”. Amongst the disbursements listed on the tax invoice were stamp duty on contract and transfer ($48,760) and registration fee on transfer and discharge of mortgage ($298.50).

56. On 28 June 2012, Andresakis & Associates sent a further tax invoice to Mehmet charging professional fees of $550 for acting on the transfer of the Liverpool Street Property “including preparation of Contract for sale and Transfer, attending on you to sign documents; to stamping Contract and Transfer and attending to registration”. These matters appear to be an exact copy of the content in the tax invoice dated 19 January 2012. However, the amounts for the disbursements listed in the tax invoice are different from those contained in the tax invoice dated 19 January 2012. The disbursements listed in the tax invoice dated 28 June 2012 were stamp duty on contract and transfer ($28,135) and registration fee on transfer and discharge of mortgage ($306).

57. There is no evidence before me indicating that either of the tax invoices were ever paid. Nor is there any evidence before me regarding whether the substantial stamp duty referred to as a disbursement in each tax invoice was ever paid.

2011 – 2013: Financial statements for the Cihan Family Superannuation Fund

58. The financial statements for the Cihan Family Superannuation Fund as at 30 June 2011 (which were sent to Kadir) indicate assets comprising cash of $99,999, liabilities for provision for income tax of $15,000, net assets of $84,999 and employer concessional contributions totalling $100,000 which were divided as between Mehmet ($42,500), Kadir ($21,250) and Havva ($21,250), with $15,000 having been paid in tax on those contributions. In other words, all of the superannuation contributions were stated to have been made by the employer to the Cihan Family Superannuation Fund, not the individuals listed as members.

59. The financial statements for the Cihan Family Superannuation Fund as at 30 June 2012 (signed by Mehmet) are in stark contrast to those of the year before. They indicate assets comprising real estate properties of $1,198,700 (listed as the Liverpool Street Property), cash of $157,735.65, liabilities of taxes and sundry creditors of $56,908.45, net assets of $1,299,527.38 and liability for accrued benefits totalling $1,299,527.38 which were divided as between Mehmet ($248,733), Kadir ($530,809.01) and Havva ($519,985.11). These were divided as between employer contributions ($100,000) and member/personal contributions ($1,050,000).

60. The strong inference that can be drawn from these accounts is that the value of the 27.38% interest in the Liverpool Street Property purported to be the subject of the Transfer had principally been distributed as personal superannuation contributions said to have been made by Kadir and Havva, with very little attributed as personal superannuation contributions by Mehmet. This distribution implied that the benefit of the transfer of the 27.38% interest had overwhelmingly flowed to Kadir and his daughter Havva, and not as much to Mehmet, without any actual funds being provided to the Cihan Family Superannuation Fund by any of them.

61. The inference is reinforced by the financial statements for the Cihan Family Superannuation Fund as at 30 June 2013 (signed by Mehmet). They indicate assets comprising real estate properties of $1,198,700 (listed as the Liverpool Street Property), a term deposit of $350,000, liabilities for taxes and sundry creditors of $46,113.64, net assets of $1,504,469.23 and liability for accrued benefits totalling $1,504,469.23 which were divided as between Mehmet ($311,182), Kadir ($602,567.91) and Havva ($590,719.01). The rent being received from the Liverpool Street Property explains the uplift in funds.

62. Once again, the arrangements of the Cihan Family Superannuation Fund had been directed towards providing benefits to Kadir and his daughter Havva, and to a much lesser extent Mehmet. Neither Kadir nor Havva had provided any actual funds to the Cihan Family Superannuation Fund to achieve this outcome.

63. Mehmet did not make any contributions to the Cihan Family Superannuation Fund either.

2014: Leyla added as director and member of Cihan Family Pty Limited

64. On 21 May 2014, Leyla became a director of Cihan Family Pty Limited. She is also recorded as holding three ordinary shares of Cihan Family Pty Limited, although the date on which that occurred is unknown.

2014: Valuation of Liverpool Street Property

65. On 27 May 2014, the Liverpool Street Property was valued by All Over Property Pty Ltd at $4,500,000. The purpose of the valuation is stated to be “To Determine the Current Market Value for Superannuation Fund Asset Purposes” and is addressed to Ideal Accounting & Taxation Pty Ltd, an entity associated with Mr Sanli.

66. Based on that valuation, a 27.38% interest in the Liverpool Street Property would have been valued at $1,232,100 at that time.

2014: Financial statements for the Cihan Family Superannuation Fund

67. The financial statements for the Cihan Family Superannuation Fund as at 30 June 2014 (signed by Mehmet) indicate assets comprising real estate properties of $1,507,690 (listed as the Liverpool Street Property), a term deposit of $349,688.54, liabilities of taxes and sundry creditors ($95,882.97), net assets of $2,206,488.58 and liability for accrued benefits totalling $2,206,488.58 which were divided as between Mehmet ($505,040), Kadir ($680,356.85), Havva ($667,396.60) and Leyla ($173,694.74). This was the first appearance of Leyla as a beneficiary of contributions in the Cihan Family Superannuation Fund. The increase in the valuation of the Liverpool Street Property appears to be the source of the increase in contributions.

68. Mehmet did not become aware that Leyla had been added as a member of the Cihan Family Superannuation Fund at this time. He only became aware of this in late 2017 or early 2018. He did not authorise or ever discuss with anyone the notion of Leyla becoming a member of the Cihan Family Superannuation Fund. He would not have approved of Leyla’s involvement in the Cihan Family Superannuation Fund if it had been discussed with him.

69. While the contributions from Mehmet are recorded to have increased by $185,000 during the 2014 financial year, overwhelmingly the arrangements of the Cihan Family Superannuation Fund continued to be directed to benefitting Kadir and his daughters Havva and Leyla. Neither Kadir nor any of his children had provided any actual funds to the Cihan Family Superannuation Fund to fund the contributions. Mehmet had not provided any actual funds either.

2014: The Transfer is registered

70. On about 15 December 2014, the Transfer of the 27.38% interest in the Liverpool Street Property from the Cihan Family Trust to Cihan Family Pty Limited for consideration of $1,150,000 (signed on 23 November 2011) was registered as dealing no AJ110980 at (what is now known as) NSW Land Registry Services.

71. There is no explanation of why it took more than 3 years for the Transfer to be registered.

72. If Mehmet had known that Cihan Family Pty Limited, Kadir, Havva and Leyla would acquire an interest in the Liverpool Street Property or any of the Cihan Family Trust assets, he would not have agreed to the establishment of the Cihan Family Superannuation Fund.

2014: Purported sale of Liverpool Street Property

73. On 18 December 2014, a purported Contract for the sale of land was entered for the whole of the Liverpool Street Property between Mehmet as trustee for the Cihan Family Trust (vendor) and Cihan Family Pty Ltd as trustee for the Cihan Family Superannuation Fund (purchaser) for consideration of $3,267,900 (Purported Contract). The Purported Contract was signed by Mehmet on behalf of both the vendor and the purchaser and Andresakis & Associates is recorded as having acted for both the vendor and the purchaser. The Purported Contract is stamped by the Office of State Revenue with stamp duty assessed at $165,224.50.

74. The Purported Contract is accompanied by an undated transfer which states Mehmet to be the vendor and Cihan Family Pty Limited as the purchaser, has consideration of $3,267,900 and is signed by Mehmet as vendor and Mr Andresakis as solicitor for the purchaser (Undated Transfer). The Undated Transfer is stamped by the Office of State Revenue with stamp duty also assessed at $165,224.50.

75. There is no evidence of this transaction ever being registered on the title of the Liverpool Street Property. There is also no explanation of it.

76. There is no evidence that any payment was made by Cihan Family Pty Limited or received by the Cihan Family Trust in relation to this transaction at any time, either for the consideration of $3,267,900 or any other amount.

77. There is no evidence that the stamp duty on the Undated Transfer assessed at $165,224.50 was ever paid by Cihan Family Pty Limited.

78. Memduh and Mehmet do not seek any relief in relation to it in these proceedings.

2015 – 2016: Financial statements for the Cihan Family Superannuation Fund

79. The financial statements for the Cihan Family Superannuation Fund as at 30 June 2015 (unsigned) indicate assets comprising real estate properties of $4,214,380.93 (listed as the Liverpool Street Property), a cash deposit of $186,219.46, liabilities of taxes and sundry creditors ($72,205.72), net assets of $4,329,572.75 and liability for accrued benefits totalling $4,329,572.75 which were divided as between Mehmet ($577,081), Kadir ($1,483,149.78), Havva ($1,465,766.49) and Leyla ($803,575.21). The purported transfer of the Liverpool Street Property pursuant to the Purported Contract and the Undated Transfer appears to be the source of the very significant increase in contributions.

80. The strong inference that can be drawn from these accounts is that the value of the whole of the Liverpool Street Property purported to be the subject of the Undated Transfer had again principally been distributed as personal superannuation contributions said to have been made by Kadir, Havva and Leyla, with much less proportionately attributed as personal superannuation contributions by Mehmet. There was a nearly fivefold increase in Leyla’s contributions and a more than doubling of Kadir and Havva’s contributions. On the other hand, Mehmet’s contributions rose by less than half.

81. As had been the practice to this point, the benefit of the purported transfer of the whole of the Liverpool Street Property had overwhelmingly flowed to Kadir and his daughters Havva and Leyla, without any actual funds being provided to the Cihan Family Superannuation Fund by any of them. Mehmet did not provide any actual funds to the Cihan Family Superannuation Fund either, despite the lift in his contributions.

82. The financial statements for the Cihan Family Superannuation Fund as at 30 June 2016 (unsigned) indicate assets comprising real estate properties of $4,214,380.93 (unchanged from 2015, listed as the Liverpool Street Property), a cash deposit of $50,973.34, liabilities of taxes and sundry creditors ($38,321.90), net assets of $4,227,752.37 and liability for accrued benefits totalling $4,227,752.37 which were divided as between Mehmet ($406,890), Kadir ($1,507,112.89), Havva ($1,489,763.05) and Leyla ($823,985.62). These reflected relatively small increases in the contributions of Kadir, Havva and Leyla and a significant drop for Mehmet, due to income stream payments made to him during the year.

83. At this time, the benefits of the Cihan Family Superannuation Fund were continuing to be bestowed on Kadir and his daughters Havva and Leyla.

2017 – 2018: Memduh re-establishes relationship with Mehmet and investigates

84. In late 2017, Memduh and Mehmet re-established and have since maintained a good relationship between them, engaging in regular contact.

85. In late 2017 or early 2018, Kadir and Memduh helped Mehmet and Aysel to move to a newly built house in Auburn. At that time, Mehmet had a conversation with Memduh in which Mehmet told him that he wanted Memduh to take all of the paperwork he had to Memduh’s house and take care of Mehmet’s financial affairs. Memduh took the documents to his house and went through them. Amongst the documents were Mehmet’s will dated 5 June 2008, the Trust Deed, the Super Deed and the financial statements for the Cihan Family Superannuation Fund.

86. Before Memduh had received those documents, he was not aware of the existence of the Cihan Family Superannuation Fund.

87. In January and February 2018, Memduh and Mehmet attended meetings with financial advisers to find out what was happening in the affairs of the Cihan Family Superannuation Fund.

88. During a meeting in January 2018, Mr Sanli said to Memduh and Mehmet that he did not deal with the Cihan Family Superannuation Fund and that its financial affairs were dealt with by his business partner, Eyyup.

89. In February 2018, Memduh, Mehmet, Kadir, Mr Sanli and Eyyup had a meeting which occurred partly in the Turkish language and partly in the English language, during which Memduh and Mehmet were told by Eyyup that:

1. Mehmet had entitlements of around 10% of the value of the Cihan Family Superannuation Fund and the rest were with Kadir, Havva and Leyla;

2. Mehmet’s entitlements were valued at around $400,000; and

3. Leyla was included in the Cihan Family Superannuation Fund.

90. During the meeting, Mehmet said that he did not know that Leyla had been included and asked whether they could put Memduh on it and remove Havva and Leyla. Eyyup told Mehmet that he had signed off on Leyla’s inclusion in 2014 and that he should leave the Cihan Family Superannuation Fund as it was.

91. Mr Sanli and Eyyup then sought to explain how the Cihan Family Trust assets and Mehmet’s personal assets could be distributed equally between Memduh and Kadir without disturbing the arrangements under the Cihan Family Superannuation Fund.

92. Memduh then obtained documents relating to the Cihan Family Superannuation Fund and discovered that 27.38% of the Liverpool Street Property had been transferred into it and the Transfer had been registered on the title to it. Memduh was also unable to find any evidence that the Cihan Family Trust had received any payments from the Cihan Family Superannuation Fund or any other person as consideration for the transfer of that interest.

2018: Dispute concerning Kadir’s attempt to remove Mehmet as trustee

93. In 2018, Kadir purported to remove Mehmet as the trustee of the Cihan Family Trust and appoint Cihan Property Pty Limited in his place, exercising his rights as nominator under the Trust Deed.

94. On 20 December 2018, Mehmet commenced proceedings in this court against Kadir seeking orders that his removal as trustee of the Cihan Family Trust and the appointment of Cihan Property Pty Limited as trustee of the Cihan Family Trust was ineffective.

95. On 5 May 2022, Parker J delivered judgment in Cihan v Cihan [2022] NSWSC 538 in which his Honour found that Kadir’s purported removal of Mehmet was ineffective and that Mehmet remained the trustee of the Cihan Family Trust since 15 May 1997.

96. On 21 June 2022, Parker J made orders in accordance with the judgment.

97. On 19 July 2022, Parker J delivered judgment in Cihan v Cihan (No 2) [2022] NSWSC 538 in which his Honour concluded that Kadir and Cihan Property Pty Limited should pay Mehmet’s costs of the proceedings.

2022: Memduh appointed as joint trustee of the Cihan Family Trust

98. On 16 August 2022, Mehmet appointed Memduh to the role of joint trustee of the Cihan Family Trust pursuant to a Deed of Appointment of Trustee.

99. At all times since 16 August 2022, Mehmet and Memduh have acted as joint trustees of the Cihan Family Trust.

2023: Letter issued to Cihan Family Pty Limited and proceedings commenced

100. On 23 February 2023, Hitch Advisory (the solicitors for Memduh and Mehmet) issued a letter to Cihan Family Pty Limited as trustee of the Cihan Family Superannuation Fund, Kadir, Havva and Leyla asking them to consent to orders being made by the court to the effect that Cihan Family Pty Limited be removed as a registered proprietor of the Liverpool Street Property and that it is held by Mehmet and Memduh as trustees for the Cihan Family Trust.

101. There was no response to that letter.

102. On 24 May 2023, these proceedings were commenced by Memduh and Mehmet.

RELEVANT LEGAL PRINCIPLES

103. According to generally applicable principles, Cihan Family Pty Limited gained indefeasible title to the Liverpool Street Property on registration of the transfer, the Torrens system being one of title by registration: Breskvarv Wall (1971) 126 CLR 376, Barwick CJ at 384.

104. The concept of indefeasible title finds its expression in the opening portion of s 42(1) of the Real Property Act 1900 (NSW) (RPA) which is:

Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except…..

(emphasis added)

105. Despite the register recording that Cihan Family Pty Limited have indefeasible title to a 27.38% interest in the Liverpool Street Property, Memduh and Mehmet submitted that the Transfer of the Liverpool Street Property should be set aside because it was the product of fraud and unconscionable conduct, the relevant principles of which are set out below.

106. I note that Memduh and Mehmet did not make any claim that the Transfer was brought about by undue influence.

Fraud

107. Rule 6.3(c) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) provides:

6.3 Where statement of claim required

Proceedings of the following kinds must be commenced by statement of claim—

…

(c)   proceedings on a claim based on an allegation of fraud,

108. Rule 14.14 of the UCPR provides:

14.14 General rule as to matters to be pleaded specifically

(1)    In a statement of claim, the plaintiff must plead specifically any matter that, if not pleaded specifically, may take the defendant by surprise.

109. Rule 15.3 of the UCPR provides:

15.3 Allegations of behaviour in the nature of fraud

A pleading must give particulars of any fraud, misrepresentation, breach of trust, wilful default or undue influence on which the party relies.

110. Indeed, the need for sufficiently clear and precise pleadings and particulars is especially acute where fraud and dishonesty is alleged: AlmonaPty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868 at [334]. Particulars of fraud must be exactly given: Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 538. Such a pleading must allege not only the acts involved, but that they were done in a manner that involves fraud: Sgro v Australian Associated Motor Insurers Ltd (2015) 91 NSWLR 325; [2015] NSWCA 262 at [55], citing Banque Commerciale SA v Akhil Holdings Ltd (1990) 169 CLR 279 at 285; [1990] HCA 11.

111. Beazley P in Sgro continued at [56]-[57], as follows:

56   In Ghazal v Government Insurance Office (NSW) (1992) 29 NSWLR 336 at 344, Kirby P observed, in the context of the manner in which a case was run at trial, that it is necessary to fairly confront a person with the suggestion that a case is false or fraudulent. His Honour pointed out that this was once considered a question of fairness but was now accepted to be a basic obligation of procedural justice: Somaghi v Minister for Immigration, Local Government and Ethnic Affairs (1991) 31 FCR 100; 102 ALR 339 at 108-109, 118-119; Inzaurralde v Government Insurance Office of New South Wales (Court of Appeal, 28 October 1992, unreported) per Mahoney JA; Ghazal at 345.

57   The same is to be said of a finding of fraud. A finding of fraud, including fraud for the purposes of s 56, involves a finding that a person has been untruthful and deliberately so, with the intent of obtaining a financial gain. It is a finding of seriously wrong conduct. Although it was not suggested that criminal consequences are likely to flow from the finding in this case, the appellant submitted that there may be serious implications for his future insurance needs. But even without that concern, it cannot be gainsaid that, if a finding of fraud is to be made, it should be made clearly and the reasons for the finding articulated. A statement that “for whatever reason” the respondent’s entitlement to have the claim refused under s 56 does not satisfy this fundamental requirement.

112. In Almona at [334], Robb J summarised the following principles:

… I repeat the following observations concerning the importance of proper pleadings in fraud claims, and the need for the Court to be careful to avoid the procedural unfairness that can arise where a plaintiff’s fraud claim evolves over the course of the proceedings, or even the hearing. In Griffiths as trustee for the Griffiths HWL Practice Trust v Martinez as trustee for the Martinez HWL Practice Trust as representative of the partners trading as HWL Ebsworth Lawyers [2019] NSWSC 664 (Griffiths v Martinez), I said:

345 In my view, the level of dishonesty that was finally alleged…was hardly less serious than fraud as described by Leeming JA, with whom Beazley P and Sackville AJA agreed, in Nadinic v Drinkwater (2017) 94 NSWLR 518; [2017] NSWCA 114 (Nadinic) at [45] as “fraud (in the strong sense of deliberate falsehood or reckless indifference to the truth)”. In respect of such an allegation, Leeming JA said the following:

Fraud and the civil process

[45] Seventhly, an allegation of fraud (in the strong sense of deliberate falsehood or reckless indifference to the truth) is required to be pleaded specifically and particularised. The words immediately following Denning LJ’s generalisation “Fraud unravels everything” in Lazarus Estates Ltd v Beasley [1956] 1 QB 702 at 712 are “The court is careful not to find fraud unless it is distinctly pleaded and proved”. Those words were replaced by ellipses in the passages from Denning LJ’s judgment quoted by the primary judge in the first judgment at [31] and, again, in the second judgment at [5]. But their importance is considerable.

[46] In Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 573; [1995] HCA 68 the High Court observed that it has “frequently been said that fraud must be pleaded distinctly and with particularity”. More recently, in Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486; [2012] HCA 39 at [25]–[26], French CJ, Gummow, Hayne and Kiefel JJ said:

“[25] This is no pleader’s quibble. It is a point that reflects fundamental requirements for the fair trial of allegations of contravention of law. It is for the party making those allegations (in this case ASIC) to identify the case which it seeks to make and to do that clearly and distinctly. The statement of claim in these matters did not do that.

[26] Contrary to ASIC’s submissions in this Court, a case of fraud cannot properly be seen as a ‘fallback’ claim to be made against the possibility that the party accused of engaging in misleading or deceptive conduct by publishing notices in relation to a financial product may seek to characterise them as statements of opinion, not fact. It is fundamental, and long established, that if a case of fraud is to be mounted, it should be pleaded specifically and with particularity. A pleading of fraud will necessarily focus attention upon what it was that the person making the statement intended to convey by its making. And the pleading must make plain that it is alleged that the person who made the statement knew it to be false or was careless as to its truth or falsity. If an alternative case of misleading or deceptive conduct is to be advanced, it is necessary to identify that claim as separate from the allegation of fraud.” (Emphasis added, footnotes omitted)

[47] Eighthly, a finding of fraud is a serious one attracting the strictures in s 140 of the Evidence Act 1995 (NSW). It is trite that s 140 provides for no new principle: see Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37 at [205]. As Gleeson JA there said, by reference to earlier authority, the requirement in s 140(2) that there should be clear and cogent proof of serious allegations reflects the principles stated in Briginshaw v Briginshaw. Dixon J’s observations in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361 and 362; [1938] HCA 34 that proof to reasonable satisfaction “should not be produced by inexact proofs, indefinite testimony, or indirect inferences” have been applied on very many occasions.

[48] Ninthly, the seriousness of a finding of dishonesty or reckless indifference to the truth will ordinarily mean that it may not be made without an opportunity being given to deal with the criticism: Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 at [67]; Bale v Mills (2011) 81 NSWLR 498; [2011] NSWCA 226 at [66]–[67].

[49] Tenthly, a consequence of the three preceding points was stated by Beazley P in Sgro v Australian Associated Motor Insurers Ltd (2015) 91 NSWLR 325; [2015] NSWCA 262 at [54]:

“[54] The seriousness of a finding of fraud, including statutory fraud, does not permit of other than a specific finding that the fraud, or the contravening conduct, has in fact occurred.”

346 The observations made by Leeming JA provide general guidance as to how this Court must decide the dishonesty claim now made…But they are also of great significance to the manner in which the Court should treat the forensic reality of the case. The proposition that ordinarily a finding of dishonesty “may not be made without an opportunity being given to deal with the criticism” should colour the way the Court treats evidence given by the party accused before the full nature of the allegation of dishonesty is made clear.

347 A further consideration established by Nadinic flows from Leeming JA’s reference to the observation of Beazley P in Sgro v Australian Associated Motor Insurers Ltd (2015) 91 NSWLR 325; [2015] NSWCA 262 (Sgro) at [54]. It is that a consequence of the seriousness of a finding of fraud is that the only finding permitted is a specific one that that fraud has occurred. That means that the Court must have regard in specific terms to the way that the allegation of fraud or dishonesty has been pleaded.

348 Furthermore, as Leeming JA observed at [47], the Court should only find that the allegation has been proved if the evidence squarely supports that finding. In making that finding, the Court must be satisfied that there is “clear and cogent proof” of the allegation. To use the words of Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361 and 362; [1938] HCA 34, that the necessary level of the Court’s satisfaction that the allegation has been proved “should not be produced by inexact proofs, indefinite testimony, or indirect inferences”.

113. As set out above, fraud is an exception to the registered proprietor of an estate or interest in land recorded in a folio of the Register having indefeasible title under the terms of s 42(1) of the RPA. Section 43(1) of the RPA also provides that fraud is an exception to a purchaser of land from a registered proprietor not being affected by notice of the interest of another party, stating:

Except in the case of fraud no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire or ascertain the circumstances in or the consideration for which such registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or any part thereof, or shall be affected by notice direct or constructive of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding; and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud.

(emphasis added)

114. However, the RPA does not define “fraud”. The meaning of “fraud” in the context of s 42 of the RPA was summarised by Hallen J in Anderson v Anderson [2016] NSWSC 1204 at [367]-[371], as follows:

367   The Real Property Act does not define “fraud”. So far as the Real Property Act is concerned, the only assistance that can be derived is from s 43(1) which provides that notice is expressly excluded from the statutory concept. The provision provides, in substance, that a registered transferee of an interest in land is not to be affected by actual or constructive notice of any pre-existing unregistered interest or trust.

368   It is well settled, however, that the “fraud” spoken of in s 42 is actual fraud, not constructive or equitable fraud where there is no dishonesty or intention to cheat. The statutory fraud exception arises where there is dishonest conduct on the part of the registered proprietor, or his agent, whose title is challenged. It includes "dishonesty on the part of the registered proprietor in securing his registration as proprietor": Bahr v Nicolay (No 2) [1988] HCA 16; 164 CLR 604 at 614 (Mason CJ and Dawson J).

369   In Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89, at [192], the requirement that there be actual fraud or moral turpitude was confirmed.

370   In Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1926] AC 101 at 106-107, Lord Buckmaster, in delivering the judgment of the Privy Council, wrote:

“If the designed object of a transfer be to cheat a man of a known existing right, that is fraudulent and so also fraud may be established by a deliberate and dishonest trick causing an interest not to be registered and thus fraudulently keeping the register clear. It is not, however, necessary or wise to give abstract illustrations of what may constitute fraud in hypothetical conditions, for each case must depend upon its own circumstances. The act must be dishonest, and dishonesty must not be assumed solely by reason of knowledge of an unregistered interest.”

371   Thus, the critical elements of statutory fraud are dishonesty, moral turpitude, a want of probity, and a wilful and conscious seeking to defeat or disregard another’s rights.

115. For there to be fraud within the concept of s 42 of the RPA, there must be actual fraud, personal dishonesty or moral turpitude (Manganov Bullen [2020] NSWCA 283 at [36], [73] citing Assets Co Ltd v Mere Roihi [1905] AC 176 at 210; Butler v Fairclough (1917) 23 CLR 78 at 90, 97; [1917] HCA 9; Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 614; [1988] HCA 16). A design to cheat a person of a known existing right is fraudulent in that sense: Waimiha Sawmilling Co Ltd (in liq) v Waione Timber Co Ltd [1926] AC 101 at 106-107; Mangano v Bullen at [73].

116. Fraud is able to be found in the circumstances leading up to the registered proprietor acquiring the registered interest (B Edgeworth, Butt’s Land Law (Thomson Reuters, 7^th ed, 2017) at [12.640] citing Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491 at 503-504; Stuart v Kingston (1923) 32 CLR 309 at 329; Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537 at 543; Breskvar at 384; Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 633 per Wilson and Toohey JJ) and is not contingent upon a proof of motive: SJ Berry Pty Ltd v McEntee [2022] SASCA 133 at [243]. In Krakowski & Anor v Eurolynx Properties Ltd & Anor (1995) 183 CLR 563 at 579-580, the majority said:

It would have been erroneous for their Honours to have declined to find fraud merely because Eurolynx or its solicitor had not first formed a plan (set out) to trick the purchasers into buying unit 12. A representation may be made fraudulently without prior planning. Equally, a representation may be made fraudulently without evil motive. Lord Herschell in Derry v Peek said:

‘if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made.’

(Footnotes omitted, emphasis added)

117. The fraud must be “brought home to” the registered proprietor or his or her agent: Assets Co Ltd v Mere Roihi at 210 per Lord Lindley; Young v Hoger (2001) Q Conv R 54-548; [2000] QSC 455 at [42]; Schultz v Corwill Properties Pty Ltd [1969] 2 NSWR 576 at 582–3 per Street J.

118. The majority of the High Court (French CJ, Hayne, Bell and Gageler JJ) in Cassegrain v Cassegrain (2015) 254 CLR 425; [2015] HCA 2 at [40] confirmed that the reference to fraud being “brought home to the person whose registered title is impeached or to his agents” should be understood “as posing, in the case of an agent, questions about scope of authority and whether the agent’s knowledge of the fraud is to be imputed to the principal.”

119. For fraud to be established, the court must be satisfied on the balance of probabilities having regard to the seriousness of the allegation made: Briginshawv Briginshaw (1938) 60 CLR 336; [1938] HCA 34; Rejfek v McElroy (1965) 112 CLR 517 at 521; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 67 ALJR 170 at 170-171; Anderson v Anderson at [33]; Evidence Act 1995 (NSW), s 140.

120. In Briginshaw at 361, Dixon J emphasised that when the law requires the proof of any fact, the court must feel an actual persuasion of its occurrence or existence before it can be found, and “it cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality”. Dixon J continued, at 362, as follows:

But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters ‘reasonable satisfaction’ should not be produced by inexact proofs, indefinite testimony, or indirect inferences.

121. In Neat Holdings at 170-171, the majority of the High Court (Mason CJ, Brennan, Deane and Gaudron JJ) explained that where criminal conduct or fraud is sought to be proved in civil litigation, the strength of the evidence necessary to establish matters on the balance of probabilities may vary according to the nature of what it is sought to prove:

Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary ‘where so serious a matter as fraud is to be found’. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.

(Footnotes omitted, emphasis added)

Unconscionable Conduct

122. The principles relating to unconscionable conduct under general law provide that unconscionable conduct occurs where “a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage … the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position”: Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461 (Mason J); [1983] HCA 14; followed in Louth v Diprose (1992) 175 CLR 621 at 626 (Brennan J); [1992] HCA 61; Thornev Kennedy (2017) 263 CLR 85; [2017] HCA 49 at [38] (Kiefel CJ, Bell, Gageler, Keane and Edelmann JJ); Stubbings v Jams 2 Pty Ltd [2022] HCA 6 at [39], [45] (Kiefel CJ, Keane and Gleeson JJ).

123. According to Brennan J in Louth at 627, unconscionable conduct ordinarily arises when:

(1)   The parties’ relationship places the giver at a special disadvantage in relation to the receipt of property, to the knowledge of the recipient.

(2)   The recipient unconscionably exploits the giver’s disadvantage.

(3)   The recipient consequently overbears the will of the giver so that the giver is unable to judge what is in his or her best interests.

124. In relation to the requisite knowledge of the special disadvantage required on behalf of the recipient of property, the recipient must have actual or constructive knowledge of the special disadvantage, the latter arising from "knowledge of facts from which a person ought to have known that another person was suffering under the relevant special disadvantage": Nitopi v Nitopi [2023] NSWCA 162, per Bell CJ at [6]. However, constructive notice is insufficient, being notice of facts that might lead an inquiry to the discovery of the existence of a special disadvantage: Nitopi per Bell CJ at [9] and Ward P at [121].

125. As summarised by Rees J in Hoho Property Pty Ltd v Bass Finance No 37 Pty Ltd [2023] NSWSC 411 at [331]:

Equity will not intervene to relieve a plaintiff from the consequences of their own foolishness but, rather, to prevent their victimisation: Louth v Diprose at 638 (Deane J). Nor will equity intervene to relieve a plaintiff from the consequences of improvident transactions, where a plaintiff voluntarily engages in risky business, absent conduct on the part of the defendant which makes it just to require the defendant to restore the plaintiff to their previous position: Kakavas at [20]….

126. Rees J continued at [334]-[335] as follows:

334   Lack of English proficiency will not mean that a party has a special disadvantage unless it seriously affects their ability to make a judgment as to their own best interests: Australia and New Zealand Banking Group Ltd v Couanis [2020] WASC 125 at [218] (per Archer J). There may, however, be situations in which the inability to speak or read English in the context of a transaction that involves executing documents, such as guarantees and the like may, in all the circumstances, constitute a situation of special disadvantage: Li v So [2019] VSC 515 at [60] (per Croft J).

335   For example, in Luong v Du [2013] VSC 723, Emerton J observed, “the fact that Hong and Hue had a limited capacity to read and understand documents written in English does not mean they were incapable of making a judgment about their best interests”: at [123]. Whilst her Honour accepted that Mrs Hong had poor English and was not capable of reading the documents or understanding the documents without assistance, she and her husband were well capable of making further inquiries and consulting a solicitor when they felt the need: at [123]-[124]. Likewise, in Dinh v Commonwealth Bank of Australia [2021] WASCA 127, a party’s poor English did not constitute a special disadvantage in circumstances where they were experienced in financial matters, had been given a simple explanation of the terms of an agreement in the presence of person who could translate, and they actually understood the essential terms of the agreement: at [251] (per Buss P, Murphy and Mitchell JJA). In Rozenbilt v Vainer [2019] VSC 316, whilst the plaintiff had a limited grasp of the English language, he had numerous individuals available who would act as his interpreter, whether in meetings or in relation to the transaction and business documents; the documents had been explained to him by one of these persons; he was not disadvantaged to the point that he was unable to make a judgment as to his own best interests: at [107] (per Sifris J).

127. If the elements enumerated in Louth are established, the recipient of property bears the onus of proving that the transaction was not the product of unconscionable conduct, by demonstrating that the transaction was voluntary and that the giver fully understood the transaction and its consequences, and where the transaction is a simple transfer of property independent legal advice may not be necessary, so long as the giver understands the terms of the instrument of gift: Bank of New South Wales v Rogers (1941) 65 CLR 42 at 87; Inche Noriag v Shaik Allie Bin Omar [1929] AC 127 at 133.

APPLICATION OF LEGAL PRINCIPLES

Fraud

128. The principal issues before me on the claim of fraud as an exception to Cihan Family Pty Limited’s indefeasible title to 28.74% of the Liverpool Street Property are as follows:

1. whether Memduh and Mehmet have established to the requisite degree of proof the occurrence of actual fraud, personal dishonesty or moral turpitude; and

2. whether Memduh and Mehmet have pleaded their case with sufficient clarity so as to determine with precision the case in fraud, including the precise action of Kadir said to amount to fraud.

129. I will deal with each of these issues in turn, the first issue being one of substance and the second issue being one of procedural fairness. For the reasons set out below, I consider that on both issues the claim in fraud fails.

130. Memduh and Mehmet rely on the following facts and matters in submitting that there was actual fraud by Cihan Family Pty Limited in relation to the Transfer:

1. No consideration of $1,150,000 was paid at any time to Cihan Family Trust;

2. The Transfer was not registered on 23 November 2011 when it was executed but on 15 December 2014, almost 37 months later.

3. Mehmet believed that the whole of the Liverpool Street Property was being transferred and not a percentage interest.

4. Mehmet had no proper understanding of the transaction because he did not read English and he was required to rely on what he was being told. At no time was he told in the Turkish language precisely what was occurring.

5. Kadir, and presumably Mr Sanli, lied to Mehmet about the transaction.

6. The events which took place after the Transfer indicate Kadir, and therefore Cihan Family Pty Limited, were intent on acquiring the Liverpool Street Property to advance their own interests.

7. There has been no evidence given by Cihan Family Pty Limited or Kadir to explain how the Cihan Family Superannuation Fund acquired the interest and paid for it.

8. Documents concerning sales and transfer of interests in the Liverpool Street Property suggest that it was Kadir’s “plaything” and Kadir was hell bent on obtaining either the Liverpool Street Property or an interest in it for the Cihan Family Superannuation Fund without payment of any proper consideration.

131. Memduh and Mehmet did not direct me to a specific act of dishonesty, misrepresentation or moral turpitude on behalf of Kadir so as to enable a finding of fraud beyond an assertion in its written submissions that “Kadir and presumably Altug also, lied to Mehmet about the transaction”.

132. At the hearing, counsel for Memduh and Mehmet provided me with the following additional specification:

HIS HONOUR: What is it that you say is the lie?

GEORGE: That the property would be purchased by the defendant for $1.150 million. No such consideration was paid.

133. This statement is devoid of any specificity as to the precise actions of Kadir which would satisfy a finding of fraud and, in effect, is asking the court to make a finding of fraud on “inexact proofs, indefinite testimony, or indirect inferences”, which is contrary to the guidance in Briginshaw at 362. No specific statement or action by Kadir was identified beyond an inference that because the Transfer stated that consideration in the amount of $1,150,000 would be provided in exchange for a 27.38% interest in the Liverpool Street Property, which were both matters that were unknown to Mehmet at the time, Kadir must have lied to Mehmet as to the terms of the Transfer.

134. The authorities cited above repeatedly emphasise the necessity for the court to have regard to whether the allegation of fraud was specifically pleaded. In the present case, that is not possible in the absence of a specifically identified statement made or act by Kadir which Memduh and Mehmet claim to be false.

135. Whilst I am satisfied that the relevant directing mind and knowledge of those controlling the actions of Cihan Family Pty Limited was that of Kadir, insofar as the fraud was “brought home to” Cihan Family Pty Limited, I am not satisfied that it has been demonstrated to the requisite standard that Kadir perpetuated a fraud. The evidence before the court is not sufficient to enable a finding, bearing in mind the serious nature of allegations of fraud, that Kadir had in mind to obscure from Mehmet the true nature of the Transfer. The evidence before the court is contained in the form of contemporaneous documents, absent any form of objection or argument on behalf of Cihan Family Pty Limited, and the unchallenged affidavit evidence of Mehmet.

136. The mere improvident nature of the transaction, absent any objective evidence demonstrating that Kadir had acted fraudulently or dishonestly in his interactions with Mehmet, is not sufficient to amount to actual persuasion of its occurrence. The case of Memduh and Mehmet is principally reliant on an inference that Mehmet would not have wanted to transfer a 27.38% interest in the Liverpool Street Property to Cihan Family Pty Limited without receiving any form of consideration, and that he was not informed of that fact at the time of signing the Transfer. Such an inference, whilst available, is not sufficient of itself to amount to actual persuasion that Kadir had acted dishonestly or fraudulently in deliberately obscuring from Mehmet the fact that the benefits of the Transfer would overwhelmingly flow to Kadir and Havva.

137. In circumstances where clear, cogent and strict proof is necessary, I consider that Memduh and Mehmet have not established on the balance of probabilities that Kadir acted with actual fraud, personal dishonesty or moral turpitude.

138. Accordingly, in my opinion Memduh and Mehmet have failed to prove their claim in fraud such that they have not overturned the indefeasible title of Cihan Family Pty Limited to 27.38% interest in the Liverpool Street Property under s 42(1) of the RPA.

139. Turning to the procedural fairness issue, as stated above, these proceedings were commenced by summons. The summons simply states the relief that is sought against Cihan Family Pty Limited. The court has not ordered that the proceedings continue on pleadings, nor has the court made an order that the affidavits stand as pleadings. No particulars of any fraud were provided to Cihan Family Pty Limited or the court until they were raised by Memduh and Mehmet in their written submissions dated 11 October 2023, two days before the hearing date.

140. Cihan Family Pty Limited has not appeared or actively participated in these proceedings. That is its right and choice. Those controlling Cihan Family Pty Limited may well have made a forensic decision not to appear in light of the specific allegations raised against it contained in the summons. However, that does not grant a plaintiff liberty to raise any fraud allegations at the hearing of the matter in the absence of a defendant. As stated by Leeming JA in Nadinic v Drinkwater (2017) 94 NSWLR 518; [2017] NSWCA 114 at [48], “the seriousness of a finding of dishonesty or reckless indifference to the truth will ordinarily mean that it may not be made without an opportunity being given to deal with the criticism”.

141. I consider that Cihan Family Pty Limited has not been given adequate notice of the fraud claim as put against it at the hearing and has not been afforded adequate procedural fairness in relation to the allegations of fraud, even allowing for its failure to appear at the hearing. Accordingly, I also find that the allegation of fraud is not made out in those circumstances.

Unconscionable Conduct

142. I am satisfied that Mehmet suffered from a special disability when dealing with Kadir by reason of his inability to understand English which put him in a weaker position when providing his agreement to the proposed transaction embodied in the Transfer. The special disadvantage of Mehmet arose by virtue of his age and his reliance upon Kadir, who was directing matters with Mr Sanli to implement the transaction. This case is distinguished from previous cases concerning applications of special disadvantage arising from an inability to understand English because Mehmet had acted in presumed confidence of his son, Kadir. Mehmet had clearly placed significant reliance on the advice he received from Kadir, in circumstances where he was unable to understand the terms of the Transfer, which, in doing so, seriously affected his ability to make a judgment as to his own interests.

143. Mehmet’s inability to understand or read English would have been obvious to Kadir. Kadir would, based on his history in assisting Mehmet in conducting his financial and business affairs, have known that Mehmet was not familiar with the architecture or legal arrangements under a self-managed superannuation fund. It would have been obvious to him that Mehmet would place significant reliance and trust in his advice as to the most tax-appropriate structure in his financial circumstances.

144. Accordingly, I consider that Mehmet possessed the necessary vulnerability which, as his son, was actually known, or ought to have been known, by Kadir.

145. I am also satisfied that Kadir made unconscientious use of his superior position over Mehmet by reason of Mehmet’s special disadvantage, in order to procure the Transfer. I consider that the absence of explanation by Kadir to Mehmet as to the practical effect of the Transfer was predatory in circumstances where he knew that provided he assured Mehmet that the Transfer was prudent, Mehmet would sign the Transfer.

146. This gives rise to the equitable presumption that the transaction was the consequence of a special disadvantage in the sense described in Nitopi at [36]-[37]. In those circumstances, there was an onus upon Cihan Family Pty Limited to rebut the presumption of invalidity to prove that the suspect transaction in the Transfer was legitimate. But this has not been done because Cihan Family Pty Limited did not lead any evidence to contradict the case against it and is unable to overturn the presumption of invalidity.

147. In those circumstances, I consider that the Transfer should be set aside because of the unconscionable conduct of Kadir, who acted on behalf of Cihan Family Pty Limited as one of its directors in entering into the Transfer.

CONCLUSION

148. As a result, I make the following orders:

1. A declaration that the transfer dated 23 November 2011 bearing the dealing number AJ110980U and registered on title for the real property comprised in certificate of title folio identifier E/23162 being land more commonly known as 77-79 Liverpool Street, Sydney NSW 2000 (Liverpool Street Property) on 15 December 2014, is void and of no effect.

2. A declaration that Cihan Family Pty Limited (Defendant) holds its interest in the Liverpool Street Property on trust for Mehmet Cihan and Memduh Cihan (Plaintiffs) as trustees of the Cihan Family Trust.

3. An order that the Defendant execute and deliver up such documents as necessary to give effect to the transfer of its interest in the Liverpool Street Property to the Plaintiffs as trustees of the Cihan Family Trust.

4. An order that in the event the Defendant fails to execute and deliver documents in accordance with order 3, a Registrar of the Supreme Court of New South Wales be authorised to execute and deliver up such documents.

5. The Defendant pay the Plaintiffs’ costs.

**********

Decision last updated: 30 October 2023