Meshumar v Otmy - [2018] NSWSC 125

Supreme Court

New South Wales

Medium Neutral Citation: Meshumar v Otmy [2018] NSWSC 125
Hearing dates: 15-18 May 2017, 13 June 2017
Date of orders: 16 February 2018
Decision date: 16 February 2018
Jurisdiction: Equity
Before: Robb J
Decision:
(1) The plaintiff’s claim is dismissed.
(2) The plaintiff is to pay the defendant’s costs of the proceedings.

Catchwords:
EQUITY — Equitable remedies — Specific performance — Land — Where plaintiff claimed one third interest in real property as beneficiary of oral express trust — Where plaintiff did not plead existence of contract — Whether plaintiff could rely on payment of purchase price, power of attorney signed by registered proprietor and receipt of rent as acts of part performance — Whether doctrine of part performance applies to express declarations of trust.
EQUITY — Trusts and trustees — Constructive trusts — Where defendant became registered proprietor of real property in which plaintiff claimed one third interest — Where plaintiff claimed defendant promised to recognise plaintiff’s one third interest — Whether plaintiff could enforce interest against defendant that it could not enforce against original registered proprietor.
Legislation Cited: Conveyancing Act 1919 (NSW)
Real Property Act 1900 (NSW)
Cases Cited: Arambasic v Veza (No 4) [2014] NSWSC 1109
Bahr v Nicolay (No 2) (1988) 164 CLR 604; [1988] HCA 16
Baloglow v Konstanidis [2001] NSWCA 451
Campbell v Campbell [2015] NSWSC 784
Ciaglia v Ciaglia [2010] NSWSC 341; (2010] 269 ALR 175
Damberg v Damberg (2001) 52 NSWLR 492; [2001] NSWCA 87
Geradis v Gerges [2008] NSWSC 134
Hagan v Waterhouse (No 2) (1991) 34 NSWLR 308
Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312; [2003] NSWSC 851
Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312; [2003] NSWSC 851
Khoury v Khouri (2006) 66 NSWLR 241; [2006] NSWCA 184
Lai See Law v Yan Mo [2009] NSWSC 639
Merrag Pty Ltd v Khoury [2009] NSWSC 915
Re Oliver Brown Pty Ltd (No 2) [2012] NSWSC 1222
Regent v Millett (1976) 133 CLR 679
Rochefoucauld v Boustead [1897] 1 Ch 196
Ryan v Starr [2005] NSWSC 170
Secretary, Department of Social Security v James (1990) 95 ALR 615
Smilevska v Smilevska (No 2) [2016] NSWSC 397
Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462
Vlahos Pty Ltd v Vlahos [2017] VSCA 166
Vu v Nguyen [2011] NSWSC 1369
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 432; [1988] HCA 7
Category: Principal judgment
Parties: Ofir Meshumar (plaintiff)
Avshalom Sher Otmy (first defendant)
Registrar General (second defendant)
Representation:
Counsel: D F Elliot (plaintiff)
J O’Sullivan (first defendant)
Solicitors: Spectrum Legal Group Pty Limited (plaintiff)
& Legal (defendant)

File Number(s): 2015/366228

Judgment

Introduction

The plaintiff and the first defendant, who I will call Mr Meshumar and Mr Otmy respectively, are each Israeli citizens. They met and became friends when Mr Meshumar travelled to Australia in 2003.
The second defendant is the Registrar-General, who was apparently joined as a party for the purposes of a claim by Mr Meshumar for an order restraining the recording of the lapsing of a caveat on the register in respect of the property the subject of these proceedings. That claim was omitted from Mr Meshumar’s amended statement of claim, and the second defendant has not taken part in these proceedings.
In May 2010, Mr Otmy introduced Mr Meshumar to Mr Meir Sadra, who as I understand it was also originally, and may still be, an Israeli citizen. Mr Sadra was at that time the registered proprietor of 11/102-106 Campbell Parade, Bondi (Unit 11). Mr Meshumar claims that he paid Mr Sadra $200,000 in cash in September 2010 in exchange for a one third equitable interest in Unit 11. He claims that it was agreed that Mr Sadra would solely be responsible for the pre-existing mortgage over Unit 11 but that they would split the net income in proportion to their respective shares.
On 20 February 2012, Mr Sadra transferred title to Unit 11 to Mr Otmy. Mr Meshumar claims that Mr Otmy knew of his interest in the property at this time. He claims that Mr Otmy said that he would look after Mr Meshumar's share, that he would not be disadvantaged by the change of ownership, and that Mr Otmy would continue to pay him one third of the net income. According to Mr Meshumar, he relied upon Mr Otmy’s assurances, and did not take any steps to protect his interest in Unit 11.
Mr Otmy denies the substance of Mr Meshumar’s claims. He denies that Mr Meshumar paid $200,000 to Mr Sadra in exchange for a one third interest in the property. He denies knowing of any such interest. He denies ever saying that he would look after Mr Meshumar’s share and pay him one third of the net income.
The evidence shows that the initial transaction alleged by Mr Meshumar was not solely between him and Mr Sadra, and that transaction was not unconnected with the subsequent transfer of Unit 11 to Mr Otmy. According to Mr Meshumar, the initial transaction involved the three men and the beneficial interest was divided into equal one third shares between them, on the basis that Mr Sadra would be solely responsible for the pre-existing mortgage. The arrangement between the men was broadly in the nature of a joint venture whereby they would hold Unit 11 for a number of years before selling it and dividing the price equally. According to Mr Meshumar, the title to the property was transferred from Mr Sadra to Mr Otmy because the men feared that Mr Sadra would be forced into bankruptcy because of his parlous financial position. Mr Meshumar claimed that after the transfer of Unit 11 to him, Mr Otmy held a one third share in the property on trust for each of Mr Meshumar and Mr Sadra. In fact, Mr Sadra was made bankrupt after the transfer of Unit 11.
On 14 December 2015, Mr Meshumar commenced these proceedings against Mr Otmy.

Issues raised by pleadings

Amended statement of claim

By his amended statement of claim filed on 5 May 2015, Mr Meshumar relevantly seeks the following relief:

4.   Declaration that:
a.   The plaintiff holds one third (1/3) equitable interest in the property located at and known as 11/104-106 Campbell Parade, Bondi Beach in the State of New South Wales, folio identifier 11/SP49165 (the Property).
b.   The first defendant is responsible for all loan and any other repayments or payments under the mortgage registered on the Property.
5. Appoint (sic) order pursuant to s 66G of the Conveyancing Act, 1919 (NSW) that Trustees for the sale of (sic) Property be appointed.
6.   Order (sic) the taking of accounts between the plaintiff and the first defendant concerning all receipts and payments in relation to the Property.
[Plus consequential relief]

The formulation of the declaration sought in par 4(a) of the prayers for relief does not make the basis of the one third equitable interest claimed by Mr Meshumar clear. However, in par 10 of the pleading Mr Meshumar alleged a number of statements made by Mr Sadra in September 2010, including at (c) that Mr Sadra would sell to Mr Meshumar a one third equitable interest in Unit 11 for $200,000 and at (d) that following the payment of the $200,000, Mr Meshumar would become an equitable owner of a one third interest in Unit 11 “which Mr Sadra would hold on trust for the plaintiff”.
Mr Meshumar did not plead that he and Mr Sadra entered into any contract. Rather, he alleged that he paid the $200,000 to Mr Sadra on the basis of a number of “statements” made by Mr Sadra. Although some of the statements would have the effect that upon payment of the money Mr Sadra would immediately hold a one third interest in Unit 11 on trust for Mr Meshumar, other statements took the form of promises, by reason of the use of the word “would” in relation to some action of Mr Sadra in the future. Thus, Mr Sadra would be liable to pay the mortgage; Mr Sadra would indemnify Mr Meshumar if the mortgagee claimed against Mr Meshumar’s one third interest; Mr Meshumar would only be liable for one third of the outgoings other than mortgage payments; Mr Meshumar would be entitled to one third of the rent after deduction of his share of outgoings; Mr Sadra would keep Unit 11 for at least three years; Unit 11 would then be sold; and Mr Meshumar would then receive one third of the sale proceeds after deducting only the sale and marketing costs.
In this way, Mr Meshumar pleaded a claim that once he paid the $200,000 to Mr Sadra, Mr Sadra would immediately hold one third of the title to Unit 11 on trust for Mr Meshumar, but the terms of the trust, including promises made by Mr Sadra, were as contained in the statements made by Mr Sadra.
One thing that is clear about Mr Meshumar’s claim is that it is not pleaded as a contract claim, in the sense of the contract described by Tobias JA in Thompson v White [2006] NSWCA 350; (2006) 13 BPR 24,537 at [140]-[143]. There, his Honour found that the trial judge had found that there was a contract between the three parties under which a property would be acquired in the name of the appellant on the basis that a house would be constructed upon it which would then be sold and the profit divided between the three parties in equal shares. The agreement did not purport to create any immediate interest in the property in the two respondents, and it was not intended to vest any interest in them in the future. Consequently, the agreement was enforceable even though it was not evidenced in writing, and s 23C of the Conveyancing Act 1919 (NSW) did not have any application to the agreement. The agreement in that case was therefore enforceable notwithstanding that it was oral.
Although it may have been arguable that the facts as alleged by Mr Meshumar gave rise to an agreement of this sort, he clearly claimed a proprietary interest in Unit 11 on the basis that he was the beneficiary of a trust, and the case was conducted on that basis.
Although Mr Meshumar alleged that Mr Sadra stated that he “would sell to [Mr Meshumar] one third of the equitable interest in the property for $200,000”, Mr Meshumar did not treat this statement in the balance of his amended statement of claim as giving rise to a promise to convey a one third interest in Unit 11 (as, for instance, by means of a transfer of the property into the names of the three men as tenants in common). The allegation that this statement was made appears to be treated as being a basis for the creation of the trust.
It seems to be clear from the way par 10 of the amended statement of claim has been drafted that Mr Meshumar alleges that Mr Sadra created an immediate express trust by means of the oral statements that he made, in conjunction with Mr Meshumar paying to Mr Sadra the $200,000. This conclusion is confirmed by Mr Meshumar’s closing written submissions which make it clear that he claims that the trust was fully constituted upon Mr Meshumar’s payment of the $200,000 to Mr Sadra (par 22).
In par 12(b) of his amended statement of claim Mr Meshumar pleaded “an express, implied, resulting and/or constructive trust was created”. Given that Mr Meshumar had already pleaded that Mr Sadra said, albeit orally, that he would hold the property on trust as to one third for Mr Meshumar, it appears that in reality Mr Meshumar has only alleged that he became the beneficiary of an express trust. The basis upon which any trust was said to be implied has not been made clear. Mr Sadra was already the owner of Unit 11, and it does not appear how a resulting trust could have been created, as Mr Meshumar did not pay any money to the person who sold Unit 11 to Mr Sadra. The amended statement of claim did not make the nature or basis for the creation of a constructive trust clear.
Relevantly for present purposes, the amended statement of claim goes on to allege how title to Unit 11 was transferred by Mr Sadra to Mr Otmy, and how Mr Meshumar alleged his beneficial interest in the property continued in existence after the transfer and the registration of Mr Otmy as proprietor.
In essence, Mr Meshumar pleaded in par 16 that, before Mr Sadra transferred the title to Unit 11 to Mr Otmy, Mr Otmy assured Mr Meshumar that Mr Otmy would look after Mr Meshumar’s share in Unit 11, that Mr Meshumar would continue to get one third of the rent less outgoings, and that even though Mr Otmy’s name would be on the title to Unit 11, nothing would change with respect to Mr Meshumar’s interest in that property. Mr Meshumar then pleaded in par 16A that in reliance on those statements he did not take certain steps that he could have taken to protect his position.
Mr Meshumar alleged the circumstances in which Mr Sadra transferred the legal title to Unit 11 to Mr Otmy in par 17. He alleged that upon the registration of the transfer on 27 February 2012 Mr Otmy became the holder of Mr Meshumar’s one third equitable interest in Unit 11 on trust for Mr Meshumar. Significantly, he also alleged in par 17(d) that Mr Sadra retained an equitable interest in Unit 11 as to about one third. The effect of these allegations was to put a case that following the transfer each of the three men had a one third interest in Unit 11.
Consequently, Mr Meshumar alleged in par 18, that Mr Otmy became the legal owner of Unit 11 “on the basis that” he held a one third equitable interest in Unit 11 on trust for Mr Meshumar.
Mr Meshumar did not explicitly identify the nature of this trust in par 18 of the amended statement of claim, but in par 35 he alleged that the trust imposed on Mr Otmy was an express one. Then, in par 38 of the amended statement of claim Mr Meshumar alleged that Mr Otmy held one third of his beneficial interest in Unit 11 on a constructive trust for Mr Meshumar.
The manner in which Mr Meshumar pleaded the continuation of his one third beneficial interest in Unit 11 upon the transfer of the title to the property to Mr Otmy, together with the retention of a one third beneficial interest by Mr Sadra, implies that Mr Sadra transferred the property to Mr Otmy on terms that he would hold the beneficial interest in the property in those proportions. That suggests that the basis of the creation of the trust was the principle recognised by the Court of Appeal of England and Wales in Rochefoucauld v Boustead [1897] 1 Ch 196. Mr Meshumar relied upon that principle in his final submissions, as well as the principle upon which the High Court in Bahr v Nicolay (No 2) (1988) 164 CLR 604; [1988] HCA 16 found the existence of an equity that survived the registered proprietor’s indefeasible title.
In par 17(e) of the amended statement of claim, Mr Meshumar pleaded that, when Mr Sadra transferred title to Unit 11 to Mr Otmy on 20 February 2012, Mr Otmy granted a first registered mortgage to Australia and New Zealand Banking Group Ltd to secure a debt of about $500,000. That borrowing was in large part applied to repay a mortgage that was registered against the title to Unit 11 to secure a loan to Mr Sadra.
One of the terms of the alleged express trust (pleaded in par 36(a) and (b) of the amended statement of claim) was that Mr Otmy and/or Mr Sadra would be liable to repay the mortgage and would indemnify Mr Meshumar in relation to the mortgage. In so far as Mr Otmy is concerned, this term appears to flow out of the alleged statements made by him that he would look after Mr Meshumar’s share in Unit 11, and that nothing would change with respect to Mr Meshumar’s interest in the property. There is no allegation that Mr Otmy said expressly that Mr Meshumar would be exonerated from any liability to repay any part of the new mortgage.
In his closing submissions, Mr Meshumar asked the Court to make the declaration sought in par 4(a) of his prayers for relief. No mention was made of the declaration sought in par 4(b) that Mr Otmy is responsible for all mortgage payments. If the Court did make the declaration in the terms of par 4(a) the declaration may arguably have the effect that Mr Otmy holds the title to Unit 11 on a bare trust for Mr Meshumar as to one third, although the better view is that the relief claimed would have the ambiguous result of not dealing with the consequences of the mortgage.
In Khoury v Khouri (2006) 66 NSWLR 241; [2006] NSWCA 184 (Khoury) Hodgson JA noted at [24], in respect of a claim that the appellant had agreed to create a trust over land in favour of the respondent, that the trial judge had simply made a declaration that the respondent was entitled to a beneficial interest in the property. His Honour observed that it would have been a better procedure for the trial judge to consider whether the respondent was entitled to specific performance, and in dealing with that remedy to determine how the existing mortgage over the property should have been dealt with. On this issue Bryson JA observed at [31] that the effect of the declaration may be to treat the appellant as bare trustee for the respondent, without dealing with the difficulties that the existing mortgage might create if the respondent called for a transfer of his interest in the property. These observations are material to the issue that I have raised above in so far as the amended statement of claim contains no indication of how Mr Meshumar says the Court should deal with the mortgage that Mr Otmy granted over Unit 11.
It will be necessary to consider the effect of this mortgage in relation to the relief that should be granted, if Mr Meshumar establishes his claim that Mr Otmy holds Unit 11 partly on trust for Mr Meshumar. Mr Meshumar has not made any submissions concerning how the Court should take into account the mortgage granted by Mr Otmy. Mr Meshumar has sought the taking of accounts. It would be necessary in addition for the Court to deal with the existence of the mortgage granted by Mr Otmy and any repayments that have been made in respect of it.
It should be recorded that in pars 5 to 7 of his amended statement of claim Mr Meshumar alleged that Mr Otmy owed him a fiduciary duty at all material times because he had consulted Mr Otmy, who was a psychologist, for assessment and treatment in relation to the attention deficit hyperactivity disorder (ADHD) from which Mr Meshumar suffered. Mr Meshumar did not seek to make any case out of this allegation at the hearing.

Amended defence

While Mr Otmy made a number of admissions concerning various uncontroversial allegations, he comprehensively denied the allegations that are the basis of Mr Meshumar’s claim; in particular, the allegations in par 12 of the amended statement of claim concerning the creation of a trust agreed to by Mr Sadra in respect of a one third interest in Unit 11, and also the allegations in pars 16, 16A, 17 and 18 as to how Mr Otmy became subject to a trust in favour of Mr Meshumar.
In relation to the creation of both of the alleged trusts, Mr Otmy pleaded in pars 12 and 18 of the amended defence that, by reason of the absence of writing signed by Mr Sadra or by Mr Otmy, Mr Meshumar was prevented by ss 23C and 23D of the Conveyancing Act from having acquired any interest in Unit 11.
It is to be noted that Mr Otmy did not plead that because he was the registered proprietor of Unit 11 his title to the property was indefeasible under s 42 of the Real Property Act 1900 (NSW), and no reliance was placed upon that provision in his submissions. It is possible that this surprising course has resulted from the fact that Mr Meshumar in pars 29 and 30 of his amended statement of claim alleged affirmatively that Mr Otmy’s title to Unit 11 was not indefeasible because his conduct amounted to fraud within the meaning of ss 42 and 43 of the Real Property Act 1900 (NSW). Mr Otmy denied these allegations in his defence. Mr Meshumar’s final written submissions responded to an argument that Mr Otmy’s title to Unit 11 was indefeasible by application of s 42 of the Real Property Act, even though that defence was not raised by Mr Otmy and the issue was not mentioned in his submissions. Mr Otmy clearly contested Mr Meshumar’s claim that he had an interest in Unit 11 and that the circumstances gave rise to a personal equity against Mr Otmy that would penetrate the cloak of indefeasibility: see the discussion by Gleeson JA (with whom Meagher and Barrett JJA agreed) in Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [224] to [229]; and the consideration of the circumstances in which a personal equity will defeat indefeasibility by Austin J in Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312; [2003] NSWSC 851 at [95] to [104]. In effect, Mr Otmy has elected to fight Mr Meshumar on the facts in respect of this issue.

Reply

Mr Meshumar filed a reply in which he pleaded in response to par 12 of the amended defence that, notwithstanding the absence of writing, he was entitled to enforce the trust agreed to by Mr Sadra by application of the doctrine of part performance; based upon his payment of the $200,000, the grant by Mr Sadra to him in August 2011 of a power of attorney in respect of Unit 11, and the payment to him between 22 March 2011 to 27 February 2015 of a share in the rent payments received from the letting of the property. Mr Meshumar did not claim that the express trust declared by Mr Sadra was manifested by some writing signed by Mr Sadra, so the effect of s 23C of the Conveyancing Act will be that the trust was not validly created, unless Mr Meshumar succeeds in establishing part performance.
Mr Meshumar also raised in his reply, in answer to pars 12 and 18 of the amended defence, a claim that by reason of Mr Otmy’s knowledge of Mr Meshumar’s one third equitable interest in Unit 11 by reason of the trust created by Mr Sadra, and the representations made by Mr Otmy before the transfer of the title to Unit 11 to him, and Mr Meshumar’s reliance on those representations, Mr Otmy is estopped from denying Mr Meshumar’s one third interest in Unit 11.

Preliminary observations

The heart of Mr Meshumar’s case is his claim that Mr Otmy holds the title to Unit 11 as to one third on trust for Mr Meshumar.
He makes that claim on the basis that Mr Sadra made a declaration of trust in favour of Mr Meshumar that gave Mr Meshumar a one third beneficial interest in Unit 11, and that Mr Otmy became subject to an equivalent trust obligation in favour of Mr Meshumar.
Mr Meshumar must therefore prove that two transactions were entered into and were effective and that the terms of the trusts were as alleged by Mr Meshumar.
Mr Meshumar must overcome the problem that both transactions were entirely oral and that Mr Otmy relies upon s 23C of the Conveyancing Act in respect of both. Mr Meshumar’s response is to rely upon the principle of part performance and the claim that the trust imposed upon Mr Otmy was a constructive one.
Mr Meshumar’s task is burdened with the fact that he claims to have paid Mr Sadra $200,000 in cash, and there is no objective evidence of the existence of that cash or its payment or use, and there would be no evidence of it at all but for one concession made by Mr Sadra that was impliedly endorsed by Mr Otmy.
Moreover, the testimony of Mr Meshumar on the one hand and Mr Otmy and Mr Sadra on the other are starkly inconsistent. Possibly, what is most advantageous to Mr Meshumar’s case is that Mr Otmy and Mr Sadra have so completely denied Mr Meshumar’s evidence that they have failed to provide any explanation for aspects of his evidence that are supportive of his case.
As Mr Meshumar must prove that one oral express trust was effectively declared in his favour as a bridge to proving that Mr Otmy holds Unit 11 on trust for Mr Meshumar as a result of oral dealings, it is perhaps not too colourful a metaphor to bring to mind the conduct of Lord Nelson immortalised as ‘Nelson’s Patent Bridge for Boarding First Rates’, whereby during the Battle of Cape St Vincent on 14 February 1797 Nelson as captain of the 74-gun HMS Captain achieved the surrender of the Spanish 120-gun San Joseph over the deck of the 80-gun San Nicolas, which he had led his men to board and caused to surrender.
It will be appropriate at the outset to refer to the principles that have been accepted by the Courts concerning the standard of proof that must be satisfied before a Court will accept that a plaintiff in Mr Meshumar’s position has proved his case. As these principles are not controversial, and are well-established by many authorities, it will be convenient to set out the following observations by Sackar J in Campbell v Campbell [2015] NSWSC 784 at [73] to [79], with which I respectfully agree. Nothing is to be served by a trial judge in my position providing his own restatement of these principles. Given the ultimate importance in this case of findings involving the credit of the witnesses, it will be appropriate to set out an extract from his Honour’s observations at some length:

[73] In Watson v Foxman (1995) 49 NSWLR 315 and 319, McLelland CJ in Eq made the following remarks:
… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

[74] I made the following observations in Craig v Silverbrook [2013] NSWSC 1687 at [140]–[142]:
…
142 In the recent decision of McGraddie v McGraddie [2013] UKSC 58; [2013] 1 WLR 2477, the UK Supreme Court emphasised that, especially in cases where a trial judge is faced with a stark choice between irreconcilable accounts, the credibility of the parties’ testimony, and the trial judge’s assessment of the character of witnesses and the manner in which the witnesses give evidence, is of primary importance. Those observations are particularly relevant to the present case. Similar observations have been made in Australian authorities (Fox v Percy at [23]; Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 at [41] per McHugh J and see generally comments in Ritchie’s Uniform Civil Procedure NSW at SCA s 75A.20).

[75] In Camden v McKenzie [2008] 1 Qd R 39 at [34] Keane JA (as he then was) made the observation that “the rational resolution of an issue involving the credibility of witnesses will require reference to, and analysis of, any evidence independent of the parties which is apt to cast light on the probabilities of the situation.“ This remark was cited with approval by Leeming JA (with whom Barrett JA and Tobias AJA agreed) in New South Wales v Hunt (2014) 86 NSWLR 226 at [56].
[76] Hallen J recently set out the relevant principles in Evans and Braddock [2015] NSWSC 249 at [70]–[77]. After referring to Watson v Foxman, his Honour said:
…
72 I also remember what was said by Emmett J (as his Honour then was) in Warner v Hung, in the matter of Bellpac Pty Ltd (rec’s and mgrs aptd) (in liq) (No 2) [2011] FCA 1123 ; (2011) 297 ALR 56, at [48]:
When proof of any fact is required, the Court must feel an actual persuasion of the occurrence or existence of that fact before it can be found. Mere mechanical comparison of probabilities, independent of any belief in reality, cannot justify the finding of a fact. Actual persuasion is achieved where the affirmative of an allegation is made out to the reasonable satisfaction of the Court. However, reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequences of the fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding are considerations that must affect whether the fact has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences (see Briginshaw v Briginshaw (1938) 60 CLR 336 at 361–2).

73 The credibility of a witness and his, or her, veracity may also be tested by reference to the objective facts proved independently of the evidence given, in particular by reference to the documents in the case, by paying particular regard to his, or her, motives, and to the overall probabilities: Armagas Ltd v Mundogas S A (The “Ocean Frost“) [1985] 1 Lloyd’s Rep 1, per Robert Goff LJ, at 57. Also see, In the matter of Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547, per Black J, at [7].
74 A Court, in cases involving events which occurred long before the litigation, usually prefers to rely upon contemporaneous, or near contemporaneous, documents, which will often provide valuable and, usually, more revealing, information than what may be flawed attempts at recollection of those facts by persons with an interest in the outcome of the litigation: Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200, per Jagot J, at [1247]. Greater weight is usually accorded to such documents, as often they provide a safer repository of reliable fact, particularly when it is clear that they have been prepared by a person with no reason to misstate those facts in the documents and where there is no suggestion that the documents are other than genuine: Hughes v St Barbara Mines Ltd [No 4] [2010] WASC 160, per Kenneth Martin J, at [157].
…
76 The circumstances of this case, make what was written by Tamberlin J in Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd (trading as Uncle Ben’s of Australia) (Federal Court of Australia, Tamberlin J, 29 June 1995, unrep), at 122–123 (in a passage cited with approval by the High Court when it upheld his Honour’s decision: Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [1999] HCA 15 ; (1999) 161 ALR 599, at [15]) appropriate to remember:
[Given the lapse of time] between the events and conversations raised in evidence and the hearing of the evidence before me, the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In circumstances where the events took place so long ago, it must be an exceptional witness whose undocumented testimony can be unreservedly relied on. The witnesses in this case unfortunately did not come within that exceptional class. The discussions referred to in evidence were capable of bearing quite opposed meanings depending on subtle differences of nuance and emphasis, and a proper appreciation of the significance of those matters must necessarily be considerably diminished over such a long period of time.

…

[79] In Neale v Bank of Western Australia [2014] NSWSC 315, Hammerschlag J at [198] made the following observations:
198 Where a party seeks to rely upon spoken words as a foundation for a cause of action the conversation must be proved to the reasonable satisfaction of the Court. This means that the Court must feel an actual persuasion of its occurrence or its existence. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, 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 of whether the issue has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; Helton v Allen (1940) 63 CLR 691 at 712; Rejfek v McElroy(1965) 112 CLR 517 at 521; Watson v Foxman (1995) 49 NSWLR 315 at 319.

While it is necessary for the Court to feel an actual persuasion of the occurrence or existence of the facts before they can be found, the Court should be wary of abandoning the fact-finding task because of its difficulty. That task has been most difficult in this case. At the end of the day, the Court must analyse as carefully and rationally as it can all of the testimonial and objective evidence to make a judgment as to whether the evidence does justify the finding of particular facts on the balance of probabilities.
This exercise will require a detailed examination of the evidence which I will now undertake. It will be convenient to make many of the necessary comments on the evidence in context. When I have completed the task, I will give consideration to the primary findings that should be made. First, however, I will deal with the credit that should be accorded to the testimony of the witnesses who were called at the hearing.

Credibility of witnesses’ evidence

The parties have made detailed submissions concerning the credibility of their own and the opponent’s witnesses. It will assist in an understanding of the following consideration of the facts if I briefly state at the outset the conclusions that I have reached concerning the apparent credibility of each of the witnesses.

Mr Meshumar

From the way Mr Meshumar gave his evidence I would be inclined to believe him, at least to the extent of accepting that the evidence he gave reflected his genuine beliefs. I say inclined, because the substance of his version of relevant events, denied outright as it was by Mr Otmy and Mr Sadra, could not be accepted as sufficient to satisfy the test described by Hammerschlag J in Neale v Bank of Western Australia unless it was adequately corroborated by objective evidence. I formed the inclination to accept that Mr Meshumar was attempting to give truthful evidence on the basis of my perception of his demeanour in the witness box. That opinion must, however, accommodate the fact that many aspects of Mr Meshumar’s evidence were unsatisfactory if considered objectively and clinically.
The thrust of Mr Otmy’s case, and the evidence that he and Mr Sadra gave, is that the whole of the essential parts of Mr Meshumar’s evidence was a concoction. I reject the suggestion that Mr Meshumar’s case is a fantasy made up by him to enlist the Court as his agent in carrying out an outrageous fraud against Mr Otmy. I am satisfied that a substantial part of Mr Meshumar’s evidence ought on balance to be accepted, but the grievous problem Mr Meshumar’s evidence faces is the absence of crucial corroboration in many instances, the patchwork nature of much of the evidence, and the fact that some of the objective evidence does not sit consistently with Mr Meshumar’s claims (a good example being the evidence of payments made to Mr Sadra, to which I will come below). The consequence is that confidence in the whole of Mr Meshumar’s evidence is undermined by an inability of the Court to discern which of his evidence is reliable and which is not. The Court is driven to rely primarily on the objective evidence, and to use that evidence as the prism for deciding what parts of Mr Meshumar’s evidence should be accepted.
The evidence is that Mr Meshumar suffers from ADHD, and this appears to have been reflected in the manner in which he gave some of his evidence. In his final written submissions, Mr Meshumar relied upon an extract from a letter dated 27 November 2007 written “To whom it may concern” by a representative of Disability Services at the University of Sydney, where Mr Meshumar was a student at the time. The letter included the statement:

This letter is by way of introduction to let you know the extent of [Mr Meshumar’s] disability. [Mr Meshumar’s] disability may affect him in the following ways:
Reduced ability to process written material
Reduced capacity to write quickly
Reduction in memory and ability to concentrate

(Note that this letter was included in an exhibit to Mr Meshumar’s affidavit of 5 May 2016. It appears that it was omitted from the Court book and was not formally tendered into evidence. In his submissions in reply, Mr Otmy did not object to the use of this material).

On 10 February 2013, Mr Otmy himself provided a report, as a consultant psychologist, to the presiding judge in a case in the District Court involving a traffic infringement by Mr Meshumar. The report included:

This letter serves as testimony of Mr Meshumar’s condition of ADHD resulting in his behavioural and social difficulties.
…
Mr Meshumar’s difficulties as they are listed above are direct result of the ADHD Syndrome from which he suffers.
Being hyper active and having short attention span, he is easily distracted, and is unable to maintain concentration for long periods of time. This affects his ability to manage his decision making process and maintaining his rationality in stressful social interactions.
I found Mr Meshumar’s difficulties to be severe.
ADHD is also affecting his emotional conduct. Being of short temper and impulsive Mr Meshumar sometimes finds himself in “hot water” situation that could be easily avoided if he had better control of his verbal expressions. This is more likely to occur in situations that are emotionally loaded such as conflicts or confrontations.
…
In my opinion Mr Meshumar is a very intelligent person and is capable of the highest achievements.

It is not feasible to attempt to explain the position in detail, but I believe that Mr Meshumar’s condition affected many aspects of his evidence, which was often disjointed and not strictly responsive, even though Mr Meshumar appeared to be attempting to respond properly to questions from the cross examiner.
Mr Meshumar has a quite competent command of English, but it is likely that some residual deficiencies in his capacity to understand and to express himself in English led to some of his responses having logical and syntactical shortcomings. While some of his responses in cross-examination were not entirely satisfactory, I formed the opinion on the whole that he attempted to give truthful evidence according to his memory. His memory was clearly deficient in a number of respects; for example, he could not remember when he paid the $200,000 to Mr Sadra when he gave instructions to his solicitor, and had to work the date out by reconstructing from the date that he was first paid what he claimed was a share of the rent from Unit 11, having regard to his case that Mr Sadra had agreed to pay a share of rent from 6 months after the date of his agreement with Mr Meshumar. As will be seen, Mr Meshumar also gave instructions to his solicitor as to the terms of his agreement with Mr Otmy and Mr Sadra that were inconsistent with the case that he ran at trial.
On matters that are controversial the Court would hesitate to act on Mr Meshumar’s evidence in-so-far as it was based solely on his recollection, and was not corroborated by objective evidence. That is not so much because I consider Mr Meshumar to be an untruthful witness, but because his memory is insufficiently reliable. The Court must also allow for the self-interested nature of Mr Meshumar’s evidence.

Mr Otmy

Mr Otmy gave his evidence in a focused and straightforward way that would ordinarily be considered to be credible. However, the critical parts of his evidence took the form of simple denials of assertions made by Mr Meshumar, and consequentially consisted of evidence that is relatively easy for a witness to give without the need for elaborate or consistent explanation. Significant parts of Mr Otmy’s evidence cannot stand consistently with that given by Mr Meshumar. The resolution of the issue of whose case should be accepted will depend upon a careful analysis of all of the objective evidence, as that will be the only way to choose between them.
The credibility of a witness does not of course depend solely upon the witness’ performance in the witness box. The appropriate finding on credibility of a witness who is also a party will often depend upon the entirety of the case put by the witness. As has happened in this case, and will be considered in context below, a number of significant parts of the objective evidence called for explanation by Mr Otmy, as that evidence tended to support the validity of Mr Meshumar’s case, notwithstanding the obvious evidentiary deficiencies in that case. In various respects Mr Otmy dealt with the contrary evidence by making bald and unsubstantiated assertions that the evidence related to some other transaction to that to which it appeared to relate, or he made a blasé response without engaging with the significance of the evidence. On the whole, I am not satisfied that Mr Otmy responded fully and truthfully to the objective evidence, and I am no more inclined to act upon his uncorroborated oral evidence than I am to act upon the equivalent evidence given by Mr Meshumar.

The reality is that in this case the Court faces the task of having to resolve stark differences in the testimony of the two parties which in both cases is significantly unsatisfactory and unreliable although for different reasons.

Mr Sadra

I found Mr Sadra to be a muddled and unhelpful witness, who made a number of offhand and improbable responses to important questions that were put to him. It is clear that Mr Sadra was in Mr Otmy’s camp. Yet Mr Otmy did not call Mr Sadra as a witness, and Mr Meshumar found it necessary for him to do so on subpoena. I do not consider Mr Sadra's evidence to be reliable. The basis of that finding will be apparent from the extracts from the examination and cross-examination of Mr Sadra that are set out below.
It is also material that Mr Otmy and Mr Sadra have had a continuing financial relationship since Mr Sadra transferred Unit 11 to Mr Otmy, including through the period of Mr Sadra’s bankruptcy. The nature of that relationship was not a central issue and was not explored in detail, but it appears that Mr Otmy has trusted Mr Sadra to act as his agent, on an informal basis, to supervise the letting of Unit 11, the making of mortgage repayments, the payment of outgoings, and the payment of the balance of the rent to Mr Otmy.
That may be thought to be an unusual relationship, but this serves to focus on the fact that the whole of Mr Meshumar’s case is based upon conduct that according to ordinary Australian norms is highly unusual. There are some factors at play in this matter, such as the relationship between Mr Otmy and Mr Sadra, which suggest that the financial and business practices of these three members of the Israeli expatriate community may not accord entirely with ordinary Australian norms. This can be no more than a supposition, and is not a basis for the Court to draw positive conclusions. It is more a justification for the Court to moderate a natural inclination to draw conclusions based upon departures from what might be considered to be normal Australian modes of behaviour. That makes it the more important for the Court to focus on what is established by the objective evidence.

Ms Berman

Ms Kris Anne Berman is a former girlfriend of Mr Meshumar. She freely conceded that she hoped he would win his case. She was also clearly in Mr Meshumar’s camp as she sat with him through much of the proceedings. Ms Berman gave evidence of a number of conversations in which Mr Otmy made admissions that are damaging to his case. Ms Berman appeared to me to be a candid and credible witness, although it is necessary to remember that she gave evidence of the terms of brief conversations that occurred some time ago, and the evidence of even candid witnesses can be fallible in such circumstances.
I do not accept Mr Otmy’s submission that, as Ms Berman was not a witness to any of the conversations giving rise to the alleged transactions, her account of them was a ‘Chinese whispers’ version, coloured by the fact that she had been in a relationship with Mr Meshumar. Nor do I accept Mr Otmy’s submission that Ms Berman was an unreliable witness who was trying to tailor her evidence, even if only unconsciously. It is true that Ms Berman was only present when a small number of conversations took place between Mr Meshumar and Mr Otmy that are relevant to the present dispute. As will be seen, Ms Berman gave evidence of conversations that she overheard which are objectively consistent with Mr Otmy acknowledging that Mr Meshumar had a proprietary interest in Unit 11.

Ms Stack

Ms Tatiana Stack was the solicitor for Mr Meshumar for a considerable period. She gave evidence of a number of conversations with both Mr Otmy and Mr Sadra in relation to documents that she had been instructed by Mr Meshumar to draft and have executed. Ms Stack was an impressive witness, who was candid and careful in the evidence that she gave. Ms Stack appeared to me to be speaking from a genuine recollection of relevant events, although her memory may be no less fallible than the memory of most witnesses. However, Ms Stack prepared contemporaneous file notes of the conversations that she had, and I accept that the file notes were prepared conscientiously, and although they are brief, they provide the most reliable objective evidence of the relevant events. (Mr Otmy submitted in his final written submissions that Ms Stack’s file notes were not contemporaneous with the events giving rise to the alleged transactions but were made years after them. No reference to the evidence was given for this submission and I do not accept it).

Background

I propose to start with a chronological examination of the evidence and a preliminary analysis in context of the significance of important aspects of the evidence.
I interpose that I have attempted to set out extracts from the transcript and the terms of all communications, in particular emails and texts exactly, without drowning the extracts in the expression “sic”.
Both Mr Meshumar and Mr Otmy agreed that they met when Mr Meshumar travelled to Australia in 2003. Mr Meshumar claimed that they developed a close personal friendship but according to Mr Otmy they were ‘only friends’. They also each agreed that Mr Otmy, in his capacity as a psychologist, treated Mr Meshumar between 2007 and 2009 for ADHD.
A conversation that Mr Meshumar recounted in his principal affidavit that he had with Mr Otmy in about 2009 may be of some relevance to the subsequent course of events. Mr Meshumar observed to Mr Otmy that many people seemed to be making serious money from property, and that he wanted to buy something too. Mr Otmy replied that Mr Meshumar would have to wait until he became a permanent resident because under Australian law “you cannot buy property unless you are permanent resident or a citizen”. Mr Otmy did not respond in his evidence to this conversation. The parties did not explore the correctness of this advice given by Mr Otmy. The advice that Mr Meshumar claimed he was given by Mr Otmy may not be strictly true, as if Mr Meshumar was a temporary resident he could buy an established dwelling if he used it as his residence in Australia and got approval from the Foreign Investment Review Board. It is not necessary to delve into the authority for that proposition, as Mr Otmy’s advice may be taken to be substantially true in relation to the acquisition by a temporary resident, such as Mr Meshumar, of a proprietary interest in an established dwelling, which Unit 11 was, for the commercial purpose of renting it. The belief that Mr Meshumar and Mr Otmy shared, that Mr Meshumar was not entitled to acquire any ownership rights in respect of an established dwelling, may explain certain unusual features of the transactions that occurred later.

August 2010 – Mr Meshumar loans $20,000 to Mr Sadra

Mr Meshumar said that Mr Otmy introduced him to Mr Sadra in May 2010. He said that Mr Otmy proposed that he loan Mr Sadra $20,000 and set up a meeting at a café in Bondi to discuss the possibility. Mr Otmy confirmed Mr Meshumar’s account of events in this respect. He said in his principal affidavit that he himself was not in a position to lend $20,000 to Mr Sadra at that time, and further said that he had never lent any money to Mr Sadra. As will be seen, Mr Otmy’s claim that he had never lent any money to Mr Sadra is inconsistent with a claim subsequently made by Mr Otmy that he advanced $310,000 to Mr Sadra. This inconsistency substantially diminishes the credibility of Mr Otmy’s evidence. Mr Otmy sought to explain his mistake by reference to the exigencies of his need to confirm the contents of his draft affidavit electronically when he was in Israel. The problem with this response is the magnitude and obviousness of the error. The alleged error is significant because if Mr Otmy in fact paid the relevant amount to Mr Sadra in return for an interest in Unit 11, which is Mr Meshumar’s case, then it would be the principal affidavit that was true rather than Mr Otmy’s subsequent correction.
Each of Mr Meshumar, Mr Otmy and Mr Sadra gave evidence that they met at the café in Bondi and discussed the possibility of Mr Meshumar lending $20,000 to Mr Sadra.
Mr Meshumar said that he met with Mr Otmy a few days after the meeting at the café to further discuss the possibility of loaning money to Mr Sadra. He said that he told Mr Otmy that he was worried about losing the money but that Mr Otmy assured him that Mr Sadra would repay him. Mr Meshumar also said that Mr Otmy brought up the possibility of him buying an interest in one of Mr Sadra’s properties at this meeting. According to Mr Meshumar, Mr Otmy said that Mr Sadra was thinking of selling shares in one of the units in the Campbell Parade building, and told him that loaning him the $20,000 could be a good way to get a foot in the door.
Mr Otmy agreed that he met with Mr Meshumar and discussed the possibility of his loaning $20,000 to Mr Sadra, but denied that they discussed his purchasing property in the Campbell Parade building. He said they only discussed the possibility that making the loan could lead to further business opportunities, and said that he may only have been ‘vaguely aware’ that Mr Sadra even owned some of the residential apartments in the Campbell Parade building at the time.
Mr Meshumar said that he agreed to lend the money to Mr Sadra in late August 2010. He said that he put together a loan agreement from various precedents that he found online and that Mr Sadra signed the agreement with Mr Otmy present as a witness on 1 September 2010. Mr Otmy confirmed that he witnessed the execution of the loan agreement.
It is of some significance that Mr Meshumar appreciated the wisdom of having the $20,000 loan recorded in a loan agreement, and that he was able to prepare an adequate document by resorting to online precedents. Mr Meshumar’s case is that he subsequently paid $200,000 in cash to Mr Sadra for a one third interest in Unit 11, without insisting that the transaction be evidenced in writing before he made the payment. As will be seen, Mr Meshumar gave evidence that after he had made the payment he made repeated requests that Mr Sadra confirm the transaction in writing, but that evidence does not provide a satisfactory explanation as to why Mr Meshumar did not require a written agreement before he made the payment.
Mr Meshumar said that he paid Mr Sadra the $20,000 in the form of two cheques on 2 September 2010. Mr Sadra confirmed this claim. He also confirmed that their agreement was that the loan would be repaid over one year at 10% interest by way of weekly instalments of $423.08.
The evidence, in the form of Mr Meshumar’s National Australia Bank statements, shows that 52 payments of $423.08 were made into Mr Meshumar’s account, over the period between 9 September 2010 and 5 September 2011.

September 2010 – Mr Meshumar claims to have paid $200,000 to Mr Sadra

Mr Meshumar said that a week after paying Mr Sadra the $20,000, he met with Mr Otmy and discussed again the prospect of purchasing an interest in a unit in the Campbell Parade building. Mr Meshumar said that Mr Otmy told him that Mr Sadra wanted to sell part of Unit 11 and that they should go in one third each. According to Mr Meshumar, Mr Otmy said that the property was worth $600,000.
At this time Mr Meshumar was not an Australian permanent resident. He said that he raised the issue with Mr Otmy as to how he could buy an interest in Unit 11 without being a permanent resident, and Mr Otmy responded: “We will pay Meir and it will stay in his name. This will save us a lot of money, there are major costs when you sell a property”. Mr Meshumar questioned whether Mr Sadra could be trusted “with that much money”. He said that Mr Otmy again vouched for Mr Sadra, saying: “Meir won’t double cross me. We go way back. There is nothing to worry about”.
Mr Otmy denied that this conversation occurred. He reiterated that he did not know that Mr Sadra owned residential properties in the Campbell Parade building and said that, following the meeting where Mr Meshumar and Mr Sadra signed the loan agreement, Mr Meshumar and Mr Sadra formed an independent business relationship that he was not involved in.
Mr Otmy did not provide any objective evidence of any independent business relationship between Mr Meshumar and Mr Sadra. Mr Otmy’s assertion concerning the existence of the relationship provided him with a cloak to assert his ignorance of the significance of communications between Mr Meshumar and Mr Sadra, in which the evidence shows Mr Otmy was engaged, and in which he claimed to be a mere go-between. The Court is entitled to be suspicious of Mr Otmy’s claims that he was unaware of the content or significance of communications that he passed between the other two men.
Mr Meshumar described a series of meetings and discussions that led to him and Mr Otmy purchasing interests in Unit 11. The first occurred in September 2010 at the Sababa café in Bondi. Mr Meshumar described meeting Mr Otmy at the café and Mr Sadra being seated at another table. He said that, when Mr Sadra stood up to speak with them, they had a conversation in the following terms. As the effect, if any, of the conversation may be sensitive to the precise words that were used, I will set out the material part of the conversation given by Mr Meshumar in his principal affidavit:

I said:      Hi Meir. Are you looking to sell your unit?
Meir said:   Yes.
I said:      What’s going on? How much do you want for it?
Meir said:   I am going through a hard time at the moment and I need to sort out some problems. I think a fair price for Campbell Parade is $600,000. I don’t want to sell the whole property though. I want to keep one third and sell the remaining two thirds to you and Avshalom for $200,000 each. That way we will each own one third of the property. What do you both think?
I said:      I’m in.
Otmy said:    it’s a deal.

Mr Meshumar said they shook hands before Mr Sadra returned to his own table and he and Mr Otmy left.
This conversation, as recounted by Mr Meshumar, is objectively consistent with the parties agreeing that Mr Sadra would immediately sell a one third interest in Unit 11 to each of Mr Meshumar and Mr Otmy and retain a one third interest himself. There was no discussion about the parties formally documenting or recording the transaction. Mr Meshumar’s version of the conversation does not assert that Mr Sadra used the word “trust” or any other expression consistent with the formation of an intention to create an express trust. That is not surprising given that the three parties were expatriate Israelis. As will be seen, Mr Meshumar gave evidence that at this time he was not even familiar with the concept of a “deed”. It thus appears that the formulation of the pleading in par 10(d) of the amended statement of claim that Mr Sadra stated, in substance, to Mr Meshumar that he would hold the one third interest “on trust” for Mr Meshumar was a lawyer’s gloss on the evidence.
In the middle of September, Mr Meshumar moved to Vaucluse. He said that Mr Otmy visited him and they discussed how the mortgage liability and income from Unit 11 should be split. He said that they each resolved to speak to Mr Sadra.
Mr Meshumar said that he visited Mr Sadra at his shop in Bondi a few days later. He said that Mr Sadra agreed to pay him one third of the income from the property but asked to delay starting to make payments for six months. He also said that Mr Sadra assured him that he would not be in any way liable under the mortgage.
In late September, Mr Meshumar said that he met with Mr Otmy, again at his home in Vaucluse. He said that he told Mr Otmy that he wanted to be bought out of Unit 11 in three years, at which time he would be a permanent resident and be able to buy his own property. He said that he proposed that Mr Otmy and Mr Sadra agree to buy him out in three years or take the property to auction, and that Mr Otmy agreed to speak to Mr Sadra about it.
Mr Meshumar said that he spoke to Mr Sadra later in September to confirm that Mr Otmy had discussed the three-year buy out with him. He said that Mr Sadra confirmed that they would buy him out or auction the property in three years, but warned him that he would have to pay one third of the sales and marketing costs.
Mr Meshumar said that he agreed to the terms with Mr Sadra such that, by the end of September, the deal was finalised. He said that he met with Mr Sadra and offered to provide him with a bank cheque for $200,000. However, according to Mr Meshumar, he also had a lot of cash at the time, and Mr Sadra asked to be paid in cash.
As a result, Mr Meshumar said, Mr Sadra came to his home in Vaucluse to pick up the money, which he said he had prepared in $5,000 bundles. He said that Mr Sadra began counting the money but stopped without finishing because he was running late for an appointment. He said they shook hands and that Mr Sadra congratulated him on becoming a one third owner of the property.
Although, as I have observed above, the initial conversation between Mr Meshumar and Mr Sadra was expressed simply in terms of an immediate partial transfer of the ownership of Unit 11 to Mr Meshumar and Mr Otmy, the better view of the whole of the evidence concerning the communications between the parties up to the time when Mr Meshumar said that he paid his $200,000 in cash to Mr Sadra is that, on Mr Meshumar’s version of events, the parties entered into an agreement that provided in part for a partial transfer of ownership, but also dealt with how the rent from the property would be shared, and when the property would be sold and the proceeds of sale shared (or alternatively when Mr Meshumar would be bought out by Mr Otmy and Mr Sadra). According to Mr Meshumar’s version, it was also a term of the agreement that Mr Sadra alone would be responsible for repaying the existing mortgage over Unit 11.
In accordance with leave granted by the Court, in his oral evidence in chief Mr Meshumar said that he had asked for a document that confirmed the interest he had in Unit 11 on many occasions after he paid the $200,000. He had a conversation to this effect at least five times with Mr Sadra from September 2010 up to the time in 2012 when Mr Sadra transferred the property to Mr Otmy. On each occasion Mr Sadra responded in words to the effect: “Sure thing, don’t worry. Your third is secure, you shouldn’t be worried at all, I’ll make sure it will happen”. Mr Meshumar said that he also asked Mr Otmy on numerous occasions to get Mr Sadra to provide a written agreement to him, and said “later on, I found it’s called a deed”.
In cross-examination, Mr Meshumar attempted on a number of occasions to explain why he did not insist upon the transaction being documented by referring to his status as only a temporary resident in Australia who was not entitled to own pre-existing residential property. He said that he was told that he could not own property and “We’ll keep it in a secret”. He claimed that he was told that the transaction had to be in secret and “Yes, we’ll keep it in hush-hush”. Mr Meshumar said that statements to this effect were made to him by Mr Otmy on a number of occasions.
Mr Otmy and Mr Sadra denied that any of these events occurred.
In his affidavit, Mr Otmy said repeatedly that he never discussed jointly investing in Unit 11 with Mr Meshumar, and during cross-examination he steadfastly denied any such suggestion.
Mr Otmy denied that he was aware that Mr Sadra wanted to sell part of Unit 11 in September 2010. He denied that he told Mr Meshumar about the possibility of purchasing an interest. He denied that they met and agreed to become one third owners. He denied that Mr Meshumar told him that he had paid Mr Sadra in cash. He denied that he was aware of the terms of the agreement between Mr Meshumar and Mr Sadra.
Mr Sadra did admit to having discussions with Mr Meshumar concerning the sale of Unit 11, but said that they had discussions about everything. He said they discussed business deals, purchasing businesses and purchasing shops, and that the purchase of Unit 11 was part of these broader discussions. When asked when the discussions began, Mr Sadra said: "Well, maybe around the early, you know, [20]11 or something like that, or around that time when he ask me to provide him with something”.

Mr Sadra's evidence of these discussions and their consequences was not clear. He appeared to concede that he and Mr Meshumar agreed that Mr Meshumar would purchase an interest in Unit 11. However, he said that Mr Meshumar "wanted some documents” and went on to say that "he always ask for documents, every time we did something he wanted some documents, he loved documents”.
The cross-examination of Mr Sadra on this subject was as follows (which incidentally tends to show that while Mr Sadra could communicate in English, his English syntax was not at all clear):

Q. Can you recall what was said during the meeting with Mr Meshumar?
A. We were just, as I said, discussing business deals, you know, and I was open minded to do all different stuff, and as I said, we're talking about business, purchasing business, shops, you know, setting up, and the unit was part, I mean, if you're interested.
Q. All right.
A. He said he was interested.
Q. He said he was interested in purchasing
A. But the same as he was interested in, you know, the other stuff that I was showing him.
Q. All right. Is that as far as the discussion went?
A. No, I took him very seriously and, you know, just in order to, you know, to feel that he is not alone, like I'm giving him something bad. So he suggest to put Avshalom as options. But we've never been short in the option.
Q. All right. When you say he was interested in purchasing unit 11, was it all of unit 11 or just a part of unit 11?
A. As I said, you know, we were talking about, you always pull me out of there. I'm trying to explain to you what's, you know - I was the chemistry, you know, that we had. So, and you're separating the entities. So if we're talking about the unit, I told him if he wants to buy the unit, it's possible and then he was interested. But in order to secure himself, he wasn't really sure, you know, he wasn't trusting me maybe. So there are some times you put somebody else in the carriage in order to feel comfortable.
Q. All right, and what did you say
A. And in order to do it he said so I would do it and I said, "Okay, I'll bring you something that you'll feel, you will see," and that's how I ended up bringing this arrangement agreement. In order to move forward, within interesting buying, he always ask for documents, every time we did something he wanted some documents, he loved documents.
Q. All right. So once you had those discussions with Mr Meshumar, did you then go and see Mr Klimt to have the document drawn up?
A. When we discuss everything I've been told by Mr Klimt on the phone, you know, at the time he's like at apartment, I met him, I'm not really sure of the time. But I need something to show if an arrangement like that can be. Then I gave him some points, you know.
Q. So you spoke with Mr Meshumar - correct me if I'm wrong here - but you spoke to Mr Meshumar first about selling him the property.
A. Yes.
Q. Then you spoke to Mr Klimt, and you told him what the proposed arrangement was, and thirdly, then he provided you with the draft deed.
A. I spoke to Ofir, I saw what he's comfortable with, then I spoke to Peter Klimt and told him a rough idea what's - you know, I need something to show. Don't worry about my details and we go from there.
Q. And the fact that there's the $310,000 referred to in that deed matches the amount that Mr Otmy had transferred to you. That's just a coincidence?
A. Maybe, I'm not really sure.
Q. Okay. But you accept you provided instructions to Mr Klimt and as a result of that he provided you that draft deed?
A. He just did something then I think.

Mr Sadra said that he arranged for a draft deed to be drawn up by his solicitor, Peter Klimt. I will return to this draft deed shortly.
Counsel for Mr Meshumar asked Mr Sadra whether or not Mr Meshumar gave him any money beyond the $20,000 loan discussed earlier. Mr Sadra denied receiving money for any other purpose.
Counsel for Mr Meshumar then made an application under s 38 of the Evidence Act 1995 (NSW) for leave to cross examine Mr Sadra. I granted the application.
Counsel for Mr Meshumar pressed Mr Sadra about his meeting with Mr Otmy and Mr Meshumar in September 2010. Mr Sadra agreed that they met at Sababa Café in Bondi. Counsel for Mr Meshumar put it to Mr Sadra that he had told Mr Meshumar that he wanted to sell two-thirds in Unit 11 to him and Mr Otmy for $200,000 each. Mr Sadra denied this. He also denied having discussions at his shop in Bondi with Mr Meshumar about the rent and mortgage liabilities, and went on to deny all of the evidence given by Mr Meshumar in relation to his paying $200,000 in cash for a one-third interest in Unit 11.
In summary, Mr Meshumar claims to have paid $200,000 in cash for a one third interest in Unit 11 and both Mr Otmy and Mr Sadra deny that he did so.
In relation to the $200,000 in cash, there is no direct evidence that it ever existed. Mr Meshumar affirmed his primary affidavit in the proceedings on 5 May 2016. In this affidavit he did not provide any details of where he obtained the $200,000. It was not until the day before the hearing (14 May 2017) that he affirmed a further affidavit in which he explained where he got the money.
In this further affidavit, Mr Meshumar said that, between February 2005 and March 2010, his mother regularly transferred him two instalments of about $450 each week from Israel via Western Union. He said that over that period he accumulated approximately $235,000 and said that he kept the money, when he lived at Bondi, under the carpet, and when he lived at Bellevue Hill, in his closet under a lot of clothes.
Despite claiming to have received the money via Western Union, Mr Meshumar did not provide any evidence from Western Union in support of his claim. He explained in his further affidavit that he had contacted Western Union and that Western Union had told him that it could not track accounts for transactions over five years old.
Despite claiming to have received the money from his mother, Mr Meshumar did not obtain from her an affidavit confirming that she had transferred the money to him in the way that he claimed. He said in his affidavit that she had transferred him the money in two instalments each week because she did not like carrying large amounts of cash. During cross examination, Mr Meshumar gave various reasons as to why she sent him money: because she wanted to set him up in Australia; because he needed to show security of support to study at an Australian university; and because his mother received a pension in Israel that was contingent upon her not having a large amount of money in her bank account.

October to February 2011 – The draft deed and the contract for sale

Mr Meshumar said that in late 2010 he had a conversation with Mr Otmy about rumours involving Mr Sadra. He said that he had heard rumours that Mr Sadra owed a lot of money and was in a very bad way financially. He said that he told Mr Otmy that he needed written confirmation of his one third ownership of Unit 11, and that Mr Otmy said that he would speak to Mr Sadra about it.
The events between October 2010 and February 2011 are complicated when documents provided under subpoena by Mr Adam Stack and Mr Peter Klimt, at that time of Adam Stack & Co and Klimt & Associates respectively, are taken into consideration.
On 8 December 2010, Adam Stack & Co sent a fax to Klimt & Associates that was in the following form:

Date: 8 December 2010
Pages: 1 (including this page)
To: Klimt & Associates
…
Re: Otmy purchase from Sadra
Property: 11/102 Campbell Parade, Bondi Beach
…
We refer to the above matter and confirm that we act for Avshalom Sher Otmy. We are instructed to ask for the following amendments to the Contract:
1. The Purchaser's name and our details be inserted on the front page of the Contract;
2. Completion date be changed to 31 January 2011, with a view to an earlier settlement if possible;
3. In clause 11 '10%' be changed to '8%';
4. In clause 19, after (b) the words 'This clause is to apply Mutatis Mutandis for the benefit of the Purchaser' be inserted;
5. An updated title search for the property be provided.

We await your reply.
…

A file note by Mr Stack dated 22 December 2010 stated the following:

Meeting with [Mr Otmy]
Paid $20,000 & released to [Mr Sadra]   Ppty as investment
Settlement date OK
He has $   No bank required all funds in his a/c ready to go.
..
Deposit   NB: Already paid & released but says held by lawyer
…

On 6 January 2011, Adam Stack & Co sent a letter to Mr Otmy that was in the following form:

6 January 2011
…
Re: Your purchase from Sadra
Property: 11/102 Campbell Parade, Bondi Beach
We are pleased to confirm that contracts were exchanged on 23 December 2010.
The deposit will be held by the Vendor's solicitor in their trust account in accordance with the contract.
The contract is now binding upon both you and the Vendor, and settlement is to take place within six (6) weeks from that date of exchange, that is, by 31 January 2011.
New South Wales Government stamp duty of $14.410.00 will be payable on the contract and the contract and transfer will need to be stamped by 23 March 2011 to avoid any interest.
We note that you have satisfied yourself prior to exchange of contracts that the improvements on the Property are structurally sound and free from pests and borers.
Subject to your instructions, we have ordered the following statutory searches on the Property: -
…

We will also be seeking replies to requisitions on the title of the Property from the Vendor's solicitors on matters we consider relevant to the transaction. We will also be preparing and forwarding to the Vendor's solicitors the executed Transfer in anticipation of settlement after stamp duty has been paid.
…
On the day of the settlement we will arrange for a person to attend the settlement on your behalf, to pay the settlement monies as directed by the Vendor and receive the necessary documents to enable the Property to be transferred into your name. You will not be required to attend settlement yourself.
We will keep you advised of developments and will let you know when a settlement time can be arranged.

On 25 January 2011, Adam Stack & Co sent a fax to Klimt & Associates that was in the following form:

Date: 25 January 2011
Pages: 4 (including this page)
To: Klimt & Associates
…
Re: Otmy purchase from Sadra
Property: 11/102 Campbell Parade, Bondi Beach
We refer to the above matter and confirm settlement is scheduled to take place on 31 January 2011.
Please find attached the following:
1. Draft settlement figures for your client’s approval;
2. Section 306 Certificate; and
3. Section 66 Certificate.
Please advise cheque details.

On 25 January 2011, Mr Klimt sent an email to Mr Sadra that stated the following:

Dear Meir,
Further to my telephone conversation with you this morning I note that although under the contract settlement is to take place on 31st January both you and the purchaser are still dealing with financial matters with the result that you have told me that you do not believe either party can settle on the date set by the contract. I understand this has been discussed with the purchaser.
For your information and on the basis of the advice given to me by the discharging lender for a settlement to take place on or shortly before 4th February 2011 I estimate the applicable figures would be as follows:
To monies payable to discharge the mortgage including all interest and fees on the basis that there have been no payments made by you since 23rd December 2010 viz
$424,753.42
Approximate amount payable by the purchaser as the balance of purchase money and adjustments as specified in the attached draft settlement sheet (figures on which will vary slightly)
$397.100.94
Approximate balance required to discharge mortgage
$ 27,652.48

Please let me know when you are in a position to finalise at which stage I will obtain up to date final figures and arrange with you to sign the appropriate transfer documents.

Also in evidence was a contract for sale in respect of Unit 11 for an amount of $420,000. This contract was dated 23 December 2010. It listed Mr Sadra as vendor and Mr Otmy as purchaser and was signed by Mr Sadra as vendor.
These documents appear to establish that Mr Sadra and Mr Otmy were in the process of arranging a transfer of the title to Unit 11 from Mr Sadra to Mr Otmy during December 2010 and January 2011. However, despite the fact that Mr Sadra and Mr Otmy exchanged contracts, the sale of Unit 11 did not take place. It appears that Mr Otmy and Mr Sadra may have executed a deed of rescission in relation to the contract for sale, as a file copy of an unsigned deed of rescission was tendered by Mr Meshumar.
Mr Otmy was questioned about these documents during cross-examination. When asked if he accepted that a contract existed between himself and Mr Sadra in respect of Unit 11, Mr Otmy said ‘No’. He said that he signed the contract for sale at Mr Sadra’s request, and that it was ‘another exercise’ in Mr Sadra’s business.
Mr Otmy also denied paying the $20,000 deposit that Mr Stack referred to him as having paid in his file note dated 22 December 2010. Mr Otmy asked to be shown a transaction to confirm the payment. Whilst there is no record of a $20,000 transaction in any of Mr Otmy’s banking records prior to 22 December 2010, he had paid $50,000 to Mr Sadra on 18 November 2010, and this payment was made by way of bank transfer and was recorded in his bank statements.
Mr Sadra gave evidence that the purpose of the contract for sale was to protect Mr Otmy’s interest in respect of the $50,000. He gave this evidence unprompted when asked if he had only contracted to sell Unit 11 to Mr Otmy once. The exchange between counsel for Mr Meshumar and Mr Sadra was as follows:

Q. You've only ever contracted to sell the property to him once. Is that right?
A. No. I think I did another one in 2010, but I don't think he was involved too much in it.
Q. He wasn't involved too much in it?
A. Yes. I just did it I think when he gave me some money at the beginning, I just felt that I need to do something to secure his interest, and I ask Peter Klimt to do a contract.
Q. So in order to secure Mr Otmy's interest, you executed a contract to sell the property to him. Is that right?
A. In 2013, yes.
Q. Did he ask you to do that?
A. No.
Q. What was your concern to protect his interest at that time?
A. I think it's the nature of the human being. I mean, he gave me something. He had no guarantee. I felt comfortable that I would at least give him the option.
Q. What had he given you?
A. He gave me $50,000.
Q. To protect him, you executed a sale and purchase agreement with him?
A. Yes. There was not much in the purchase agreement. It's not that he's ending with the $200,000 or $300,000.
Q. Did the sale go ahead?
A. No.
Q. Why did it not go ahead?
A. It didn't go ahead; he wasn't interested.
Q. He wasn't interested.
A. He wasn't interested. It wasn't a subject for him. I don't think he knew. I just ask him, "Go sign." He didn't even know what he was doing.
Q. So you just gave him the sale and purchase agreement to sign.
A. I didn't give him anything. I ask Peter Klimt to do a draft contract. He send it I think to Adam - maybe Adam.
Q. Do you know whether that contract was signed?
A. Pardon me?
Q. Do you know whether Mr Otmy signed the sale and purchase agreement?
A. Probably sign sometimes.
Q. I think you said before he wasn't too interested in it. Is that right?
A. Not interested. I don't think he was - I would just ask him to go and sign something there, and he went and probably signed it. It didn't get into details of what is it.
Q. Can you recall whether he had his own lawyer acting for him?
A. I think Adam Stack.
Q. Did he pay you a deposit?
A. Which one?
Q. Did Mr Otmy pay you a deposit.
A. He gave me, as I said, the 50,000. That's it.
Q. No more than that.
A. No.
Q. Are you certain about that?
A. Pardon me?
Q. Are you certain that he did not give you a deposit?
A. Yes.

When counsel for Mr Meshumar showed Mr Sadra the file note by Mr Stack dated 22 December 2010, the following exchange occurred:

Q. This is obtained from the solicitor from Mr Otmy's conveyancing file. It says there, "Paid 20,000 and release to [Mr Sadra]."
A. Yes.
Q. Does that cause you to change the answer you just gave?
A. No.
Q. Is that wrong, is it?
A. That one he gave me 50; so the 20 is in the 50 anyway.

While the evidence does establish that the contract for the sale of Unit 11 by Mr Sadra to Mr Otmy was not completed, and was probably rescinded, it is difficult to accept Mr Otmy’s assertion in cross-examination that the contract did not exist, and that what he signed was no more than ‘another exercise’ in Mr Sadra’s business. At the least, Mr Otmy did not provide any explanation of his involvement in entering into the contract (which involved him in retaining a solicitor in the conventional way and becoming liable to pay that solicitor’s fees) that would make it rational for the Court to accept that the creation of the contract was no more than ‘another exercise’.
Virtually everything associated with the contract for Mr Sadra to sell Unit 11 to Mr Otmy is mysterious. It should be acknowledged that in rational terms the very existence of the contract in December 2010 and January 2011 for Mr Sadra to sell Unit 11 to Mr Otmy is apparently inconsistent with either gentleman knowing that in September 2010 Mr Meshumar paid $200,000 for a one third interest in the property with Mr Otmy and Mr Sadra. Yet Mr Otmy effectively disowned the contract as being intended to reflect a real transaction, and Mr Sadra said that he had instigated the transaction for Mr Otmy’s benefit effectively against Mr Otmy’s will. Neither Mr Klimt nor Mr Stack was called to give any evidence to explain this transaction.
In early 2011, according to Mr Meshumar, he and Mr Otmy had a further conversation about his wanting to have something in writing. Referring to the loan for $20,000, Mr Meshumar said that he told Mr Otmy: "I am having all these problems with [Mr Sadra] not paying me the loan properly and it's stressing me out". He said that Mr Otmy told him: "Just be patient, it will come. Don't worry about [Mr Sadra]".
Mr Meshumar said that he also spoke to Mr Sadra about his concerns, later in early 2011. He said that he had a conversation with Mr Sadra, either at Sababa Café or at Mr Sadra’s shop, in which Mr Sadra said that he was preparing a written agreement.
Following these conversations, in about February 2011, Mr Meshumar said that he met with Mr Otmy and that Mr Otmy gave him a draft deed that he said was given to him by Mr Sadra. Mr Sadra had this draft deed drawn up by his solicitor, Peter Klimt. Mr Meshumar tendered a copy of it as part of his evidence, along with an email from Mr Klimt to Mr Sadra dated 14 February 2011 attaching a draft of the deed.
The draft deed, as received by Mr Meshumar, was in the following form:

THIS DEED made 2011
BETWEEN:
MEIR SADRA of 11/49 Bennett Street, Bondi in the state of New South Wales
(Meir) of the first part
OFIR MESHUMAR of PO Box 7414 Bondi Beach 2026
(Ofir) of the second part
AND:
AVSHALOM OTMY of PO Box 7414 Bondi Beach 2026
(Avshalom) of the third part
WHEREAS:
A. Meir is the registered proprietor of 11/102 Campbell Parade, Bondi Beach2026 (being property comprised in Folio Identifier 11/SP49165) (hereinafter called the Unit).
B. Ofir and Avshalom have advanced monies to Meir (the loan).
C. In consideration of the loan Meir and Ofir and Avshalom have agreed upon the terms and conditions upon which Meir continues to hold the title to the unit and receive repayment of the loan.
D. The parties have agreed to reduce to writing the terms of their agreement.
NOW THIS DEED WITNESSETH:
1. Meir acknowledges have received from Ofir and Avshalom Three hundred and ten thousand dollars ($310,000.00) as the loan (the loan).
2. In consideration of the loan Meir hereby assigns to Ofir and Avshalom a sixty six percent (66%) interest in any income obtained from the unit and Ofir and Avshalom agree to pay sixty six percent (66%) of all levies made by the Owners of strata Plan 49165, all council and water rates levied in respect of the unit and any land tax charges during the currency of this Deed.

It is not necessary in this case to consider or resolve the question of whether the trust that arises in this situation should properly be regarded as an express or a constructive trust. I note that in Ryan v Starr (above), White J dealt with the case before him on the basis that, although any express trust would have been unenforceable for want of writing, his Honour could apply the principles as stated by Wilson and Toohey JJ, and Brennan J, and deal with the matter on the basis that a constructive trust was created.
The facts of Bahr v Nicolay (No 2) may be distinguished from those in the present case in two respects. First, in that case it was assumed that the equitable interest in the property that the appellants had by reason of their prior contract with the vendor was an enforceable one, at least on the assumption that the appellants would be able to establish a right to an order for specific performance. In the present case I have held that the express oral trust that Mr Sadra declared in favour of Mr Meshumar, though valid, was unenforceable against Mr Sadra by reason of the absence of the writing required by s 23C(1)(b). Secondly, the obligation upon the purchasers arose under an express term of the contract between the vendor and the purchasers which contained a term that required the purchasers to recognise and give effect to the appellants’ prior equitable interest. In the present case no finding can be made that there was any contract between Mr Sadra and Mr Otmy, or that such a contract contained a term that required Mr Otmy to recognise and give effect to Mr Meshumar’s one third equitable interest in Unit 11.
It may be that if the evidence had established the existence of such a term in a contract between Mr Sadra and Mr Otmy, it may not have mattered that Mr Sadra’s declaration of trust in favour of Mr Meshumar was unenforceable against him. The trust interest nonetheless existed, and Mr Sadra did not have to take advantage of its unenforceability against him. If, notwithstanding the unenforceability, Mr Sadra had obliged Mr Otmy by contract to recognise and give effect to Mr Meshumar’s prior equitable interest, the constructive trust found by the members of the High Court in Bahr v Nicolay (No 2) may have arisen. That did not happen however.
Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312; [2003] NSWSC 851 (Heggies Bulkhaul) was a case decided by Austin J, in which his Honour found a constructive trust of the general type recognised in Bahr v Nicolay (No 2) in circumstances where the obligation of the purchaser, who became registered proprietor to recognise a prior unregistered interest did not arise under a contract with the vendor, but arose under a separate collateral undertaking given to the holder of the unregistered equitable interest.
Austin J considered the judgments in Bahr v Nicolay (No 2) in the context of exceptions to the indefeasibility of the title of the registered proprietor of land and concluded:

[103] For present purposes, what emerges from the judgments is that:
(i) an unregistered interest may be asserted against the registered proprietor if there was fraud at the time of transfer or registration, under the fraud exception to s 42;
(ii) if the registered proprietor subsequently engages in unconscionable conduct intended to deny or defeat the unregistered interest, the holder of the unregistered interest may obtain relief against the registered proprietor, either because the registered proprietor's conduct comes within the fraud exception to s 42, or because the conduct creates an equity which the holder of the unregistered interest may assert against the registered proprietor;
(iii) but such an equity will not be created merely because the registered proprietor asserts his registered title after acquiring it with notice of the unregistered interest, the additional ingredient being some form of acknowledgement of the unregistered interest, or an agreement or undertaking to act in accordance with it, from which the registered proprietor later resiles
[104] The Snowlong case is an example of facts held to contain the "additional ingredient". In that case the contract of sale of land disclosed the existence of an unregistered lease agreement for a term of five years plus options. A copy of the unregistered lease agreement was annexed to the contract, and under the contract the purchaser agreed to abide by the terms and conditions of the lease. Wood J carefully analysed the judgments in Bahr v Nicolay (No 2). His Honour found that the contract of sale gave rise to an undertaking by the purchaser to take title subject to a lease in the terms annexed to the contract. The case was not merely one of a purchaser having notice of a third party's rights, but rather it was a case where the purchaser agreed or undertook to recognise those rights. Applying the reasoning of Mason CJ and Dawson J, he found that the facts gave rise to an express trust, or in the alternative, the purchaser's subsequent repudiation of the undertaking would constitute fraud for the purposes of s 42. He expressed the view that the same result would be achieved if the reasoning of Wilson and Toohey JJ, or the reasoning of Brennan J, were to be applied.

In that case, the plaintiff was a lessee from the vendor, who had the benefit of options for renewal of the lease, but for reasons not presently relevant entered into a new agreement with the vendor for a new lease. The new agreement was evidenced by correspondence. The new lease contained modifications that suited the vendor. The plaintiff protected its unregistered interest by lodging a caveat. The purchaser was related to the vendor and Austin J found that the purchaser had actual notice of the plaintiff’s equitable interest in the property by means of the agreement by the vendor to grant a new lease to the plaintiff. The vendor executed a transfer of land to the purchaser. The vendor then wrote a letter to the plaintiff (which Austin J found was known to the purchaser because of the relationship between the persons who controlled the vendor and the purchaser). His Honour found:

[109] After AMES executed transfers of the land to Global, Mr Kekatos on its behalf wrote a letter to Mr Breeze at HBL dated 16 December 1999. The purpose of the letter was to seek the consent of HBL to the transfer, since HBL had lodged a caveat in respect of a joint venture agreement to which it was a party. The letter said that AMES had entered into arrangements to transfer the property of the quarry to "a company [namely Global] controlled by the respective wives of the current directors of this company". It sought HBL's consent to registration of the transfer to Global, and consent to a transfer of the current mortgage. It continued:
As you may be aware the lease to your company is registered on the title to the property and will not be affected by any Transfer as stated above as the buyer will always take title subject to the registered lease. It is only in relation to the Caveat lodged in respect of the joint venture arrangement that we will require your written consent.

[110] I infer that HBL consented to the transfer, which was subsequently registered. The letter of 16 December 1999 does not refer specifically to the agreement for a new lease that Mr Kekatos had himself negotiated with Mr Breeze only three months earlier. However, since the parties regarded the agreement for a new lease as an exercise of the first option to renew contained in the existing registered lease (as is evident from the terms of the September correspondence), the reference in the letter of 16 December to "the lease to your company" should be taken to encompass the agreement to renew the lease. Therefore by that letter Mr Kekatos was assuring Mr Breeze and HBL that the transfer would not affect either the old lease or the arrangements for a new lease.
[111] Although in the circumstances the matter was not put to any of HBL's witnesses, it is appropriate to infer that HBL would not have consented to registration of the transfer if there had been any suggestion that its position in relation to the renewal of lease might have been affected, without first clarifying its position.
[112] In my opinion Mr Kekatos' letter of 16 December 1999, construed as I have indicated, followed by HBL's consent to the transfer of the land, is comparable to the acknowledgements and undertakings held to be determinative in Bahr v Nicolay (No 2) and the Snowlong case. In those cases, however, the acknowledgements and undertakings were given on behalf of the registered proprietor. Here, Mr Kekatos purported to write the letter on behalf of AMES rather than Global.
[113] There are, nevertheless, some additional facts which, in my view, lead to the inference that Global authorised the letter and is bound by the state of affairs which it sets out. Global had actual knowledge, at all relevant times, of the arrangements giving HBL an interest under an agreement for a new lease. The letter was written after execution of the transfers in favour of Global. It described Global as a company controlled by the wives of the current directors of AMES. The wives were in fact the directors of Global, but Mr Kekatos (who wrote the letter) was the chief financial officer and Wayne Stafford (who had day-to-day management of Global) was aware of its contents. Although there is no direct evidence that the directors of Global resolved to authorise the letter, those circumstances warrant the inference that the letter was authorised by Global.
[114] The letter on its proper construction acknowledged the interest of HBL under the registered lease and under the arrangements for renewal. It contained a representation, and impliedly an undertaking, that HBL's interest would not be affected by the transfer. In my opinion, by application of the reasoning of Mason CJ and Dawson J in Bahr v Nicolay (No 2), the letter created an express trust under which, upon becoming registered proprietor, Global held the fee simple, already subject to the registered lease, in trust to grant a new lease to HBL pursuant to their agreement of September 1999. Further, in terms of their Honours' reasoning (especially in the passage at 615 extracted above), this was a case of an undertaking to recognise HBL's interest in a new lease, apparently honestly given, which induced HBL's consent and permitted registration of the transfer, but was subsequently repudiated in final submissions at the hearing, for the purpose of defeating HBL's prior interest. That repudiation was fraudulent for the purposes of s 42, because it had as its object the destruction of HBL's unregistered interest notwithstanding that the preservation of the unregistered interest was the foundation or assumption underlying HBL's consent to the registration of the transfer.
[115] While, like Wood J in Snowlong, I prefer to adopt the analysis of Mason CJ and Dawson J, the same substantive result would follow, still on the basis that Global authorised the letter of 16 December 1999, by the application of the reasoning of Wilson and Toohey JJ, and the reasoning of Brennan J.

Thus, Austin J found that the purchaser was bound by a trust (his Honour preferred the analysis adopted by Mason CJ and Wilson J that led to the finding that the trust was express) in circumstances where the undertaking given by the registered proprietor to recognise the prior equitable interest in the property was made to the holder of that interest and not the vendor of the property. Provided that, before the purchaser has achieved registration, the purchaser has entered into a contract or undertaking to recognise and give effect to some pre-existing equitable interest in the property, it does not matter whether the contract or undertaking is made with the vendor or the holder of the earlier equitable interest.
It therefore does not matter that Mr Otmy’s assurances were given to Mr Meshumar rather than to Mr Sadra, but it is necessary to address the question of whether the making of the assurances constituted an undertaking by Mr Otmy that gave rise to a constructive trust binding Mr Otmy, when he subsequently refused to recognise and give effect to Mr Meshumar’s interest, and repudiated his undertaking, given that although Mr Meshumar’s interest as a beneficiary of a trust over Unit 11 was valid, it was not enforceable against Mr Sadra as trustee for want of the writing required by s 23C(1)(b).
The view that Austin J preferred was that the effect of the correspondence that the purchaser authorised the vendor to engage in with the plaintiff was that an express trust was declared that was enforceable because of the presence of writing. It is not clear how his Honour would have analysed the presence of unconscionable conduct on the part of the purchaser, if he had preferred to base his decision on the imposition of a constructive trust. It is probable that the unconscionable conduct would have been found in the repudiation by the purchaser of the undertaking that was given to the plaintiff on the purchaser’s behalf, that if the plaintiff consented to the registration of the transfer, which was not expressed to be subject to the purchaser’s interest in the property, notwithstanding the lodgement of the caveat, the purchaser would recognise and implement the purchaser’s interest. Austin J does not appear to have found that there was an enforceable agreement between the purchaser and the plaintiff in the contractual sense, but merely an undertaking. The effect of the undertaking was, however, to enable the purchaser to become registered proprietor with the benefit of indefeasibility, in circumstances where the holder of the prior interest had an enforceable right to prevent the purchaser being registered as proprietor in a manner that extinguished the prior interest, but did not exercise that right, but rather consented to the registration of the transfer on the basis of an undertaking by the purchaser to recognise and implement the prior interest. The unconscionable conduct that would support the imposition of a constructive trust would be the repudiation of the undertaking which was essential to the purchaser achieving an apparently indefeasible title to the property.
In Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 Gleeson JA, with whom Meagher and Barrett JJA agreed, held:

[228] Earlier in Heggies Bulkhaul v Global Minerals Australia [2003] NSWSC 851; 59 NSWLR 312, Austin J at [103]–[104] had contrasted those cases where a personal equity will not be created (those where the registered proprietor merely asserts his registered title after acquiring it with notice of the unregistered interest) with those cases which contain what his Honour referred to as the “additional ingredient” sufficient to create a personal equity.
[229] Having reviewed the authorities, in particular Bahr v Nicolay, Austin J described the “additional ingredient“ as conduct involving some form of acknowledgment of the unregistered interest, or an agreement or undertaking to act in accordance with it, from which the registered proprietor later resiles.

Austin J based his statement of principle on extracts from the judgments in Bahr v Nicolay (No 2). His Honour noted at [100], the statement by Mason CJ and Dawson J at 615, which described the unconscionable conduct as “an undertaking honestly given which induces the execution of a transfer and is subsequently repudiated for the purpose of defeating the prior interest. The repudiation is fraudulent because it has as its object the destruction of an unregistered interest notwithstanding that the preservation of the unregistered interest was the foundation or assumption underlying the execution of the transfer”. At [101], Austin J noted the basis of the reasoning of Wilson and Toohey JJ at 638 that the prior estate or equity was enforceable against the registered proprietor “not by virtue of notice of them by [the registered proprietor], but because of their acceptance of a transfer on terms that they would be bound by the interest the appellants had in the land by reason of the contract with the [vendor]”. At [102], his Honour set out an extract from the judgment of Brennan J at 654 which included: “the fraud which attracts the intervention of equity consists in the unconscionable attempt by the registered proprietor to deny the unregistered interest to which he has undertaken to subject his registered title”.
As I understand the basis of the High Court’s reasoning and the interpretation of that reasoning made by Austin J, the prior equitable estate or interest in the property will be enforceable against the registered proprietor because the registered proprietor has obtained registration, and thus putative indefeasibility of title, where the “foundation or assumption”, or the “terms” were, or the registered proprietor had “undertaken” that the registered proprietor’s title would be subject to the unregistered estate or interest. In Bahr v Nicolay (No 2) this state of affairs arose as a term of an enforceable contract between the purchaser and the vendor. In Heggies Bulkhaul it arose as a result of an undertaking given to the holder of the prior equitable interest that was not of a contractual nature. In both cases the crux of the issue was that the registered proprietor could not have achieved registration and apparent indefeasibility because the party to whom the undertaking was given was in a position to prevent the registered proprietor to obtain a title that was not subject to the prior equitable interest, but has not done so on the faith of the undertaking that the prior interest would be recognised.
In my understanding it is crucial to the repudiation of the undertaking being unconscionable that the party to whom the undertaking was made was in a legal or practical position to prevent the registration of the transfer that would destroy the prior equitable interest unless the undertaking was given. Absent this power, the mere giving of assurances to a party who claimed a prior interest in the property, which was not enforceable against the parties to the transfer of the property, would not take the case out of the situation where a personal equity will not be created where the registered proprietor merely asserts his registered title after acquiring it with notice of some unregistered interest.
In this case, as I have found that although the oral express trust that Mr Sadra declared in favour of Mr Meshumar was valid, but it was not enforceable because of the absence of writing, I also find that Mr Meshumar has not established that the assurances that Mr Otmy gave to him have created a personal equity that allows him to enforce any interest in Unit 11 as beneficiary of any trust against Mr Otmy. That is because, as Mr Meshumar’s case has been presented, the effect of the unenforceability of Mr Meshumar’s claim to a beneficial interest in Unit 11 is that he did not have an interest in the property that could support his caveat, and he could not have prevented Mr Sadra transferring Unit 11 to Mr Otmy absolutely in a manner that did not recognise Mr Meshumar’s beneficial interest. It is fundamental to the preservation of the entrenched doctrine of indefeasibility of title by registration of dealings that notice of some existing, unregistered claimed interest does not lead to a finding that a refusal to recognise the prior claim is unconscionable, unless, there is a proper basis for that finding that does not undermine the effective operation of the doctrine. That basis may in particular circumstances exist where the prior claim was enforceable in a manner that allowed the claimant to prevent the opponent becoming registered proprietor. The unconscionability comes from resiling from some agreement or undertaking after registration where the registered proprietor would have been prevented from achieving apparent indefeasibility of title but for the making of the agreement or the giving of the undertaking.

In reaching this conclusion, I do not express any general view as to the circumstances in which the assurances given by Mr Otmy may have given rise to a personal equity that defeated his indefeasible title to Unit 11. Each case will depend upon its own facts. As I have noted, Mr Meshumar’s beneficial interest was valid but it was not enforceable. In different circumstances, it may have been established that Mr Sadra recognised the validity of Mr Meshumar’s interest notwithstanding its technical unenforceability. It may have been proved that Mr Otmy made his assurances to Mr Meshumar in circumstances known to Mr Sadra, where a conclusion could be drawn that Mr Otmy was aware that Mr Sadra would have protected Mr Meshumar’s interest in Unit 11 were it not for Mr Otmy undertaking that he would give effect to Mr Meshumar’s interest. It is not necessary to decide whether the repudiation by Mr Otmy of that undertaking would have given rise to a personal equity in Mr Meshumar. The point is that the unenforceability of Mr Meshumar’s interest is not the critical issue. It is whether Mr Otmy only achieved the state of registered proprietor on the basis of an assumption or undertaking that the prior interest of Mr Meshumar would be given effect. In this case Mr Meshumar has not established the necessary personal equity against Mr Otmy.
Although Mr Meshumar apparently makes an alternative claim based upon the principle recognised in Rochefoucauld v Boustead (above), I have already found that Mr Meshumar’s case did not in any real way attempt to establish that Mr Sadra transferred Unit 11 to Mr Otmy on the basis of some positive agreement with Mr Sadra that Mr Otmy would hold the title to the property on trust for the three men in equal one third shares. I therefore must reject that claim.

Mr Otmy’s additional defences

I will now respond to a number of separate defences raised by Mr Otmy against the possibility that the Court might find that Mr Meshumar had some enforceable proprietary interest in Unit 11.
Mr Otmy put a defence based upon a claim that Mr Meshumar came to Court with unclean hands because the cash that he claimed he paid to Mr Sadra was accumulated from remittances that Mr Meshumar said he received from his mother in Israel that she paid to him in order to retain an entitlement to an Israeli pension to which the mother may not have been entitled if she retained too great an amount of cash. There are likely to be many reasons why this defence should be rejected. It was not seriously developed or explained, particularly in respect of the assertion that Mr Meshumar’s mother’s conduct was intended to evade some Israeli law. The conduct, even if it involved some illegality under a foreign law, was the mother’s conduct and not the conduct of Mr Meshumar. In any event, it is sufficient to reject the defence to apply the principle stated by White J in Ciaglia v Ciaglia [2010] NSWSC 341; (2010] 269 ALR 175, where his Honour said at [48]: “To make out a defence of unclean hands the plaintiff’s wrongful conduct must have an “immediate and necessary relation to the Equity sued for”: Dewhirst v Edwards [1983] 1 NSWLR 34 at 51”.
Mr Otmy put a second argument based upon the doctrine of unclean hands in that he said that the original transaction whereby Mr Meshumar obtained his interest in Unit 11 “was designed to subvert Australia’s foreign ownership laws”. It is true that Mr Meshumar acknowledged that he had been told by Mr Otmy that because of his temporary residence status he was not allowed to own property in his own name. Common sense requires an acceptance that the original transaction was entered into in the form adopted by the parties in part so that Mr Meshumar’s name would not appear on the title to Unit 11 and he could nonetheless share in any increase in the value of the property. However, apart from this defence being raised by Mr Otmy, it was not developed and only stated in bare terms. The legal basis of the prohibition was not explored. I will assume that the source of the illegality relied upon by Mr Otmy was the Foreign Acquisitions and Takeovers Act 1975 (Cth). Section 134 of that Act provides: “An act is not invalidated by the fact that it constitutes an offence against or contravention of a civil penalty provision of this Act”. In the complete absence of any explanation by Mr Otmy of how Mr Meshumar’s conduct involved some contravention of what I assume to be that Act, and why the contravention involves him in having unclean hands, I would apply the statutory intent evident in s 134 of the Act to avoid the outcome that the Court will not recognise and enforce a proprietary interest that the Act treats as valid. I reject this aspect of Mr Otmy’s defence.
A submission was made by Mr Otmy that the Court in its discretion should not grant the relief sought by Mr Meshumar because he did not pay his share of the $142,000 strata levy (being $47,333) or his one third share of the $36,000 transfer costs of Unit 11 to Mr Otmy. I do not accept that this submission would provide a justification for denying relief to Mr Meshumar. The evidence is unclear about what happened in relation to the payment of these costs. The better view on the evidence is that there was some discussion between the three men concerning Mr Meshumar’s obligation to contribute to these costs, but the discussion occurred in the context that Mr Meshumar was seeking formal recognition of his interest in Unit 11, but that recognition was not forthcoming. It may be that if Mr Meshumar had succeeded in his claim in the accounting that would have taken place between Mr Meshumar and Mr Otmy the former would have been required to make an allowance in favour of the latter in respect of some share in these costs.

Conclusion

For the foregoing reasons I order that Mr Meshumar’s claim is dismissed and that he should pay Mr Otmy’s costs of the proceedings.

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Decision last updated: 16 February 2018

Medium Neutral Citation:	Meshumar v Otmy [2018] NSWSC 125
Hearing dates:	15-18 May 2017, 13 June 2017
Date of orders:	16 February 2018
Decision date:	16 February 2018
Jurisdiction:	Equity
Before:	Robb J
Decision:	(1) The plaintiff’s claim is dismissed. (2) The plaintiff is to pay the defendant’s costs of the proceedings.
Catchwords:	EQUITY — Equitable remedies — Specific performance — Land — Where plaintiff claimed one third interest in real property as beneficiary of oral express trust — Where plaintiff did not plead existence of contract — Whether plaintiff could rely on payment of purchase price, power of attorney signed by registered proprietor and receipt of rent as acts of part performance — Whether doctrine of part performance applies to express declarations of trust. EQUITY — Trusts and trustees — Constructive trusts — Where defendant became registered proprietor of real property in which plaintiff claimed one third interest — Where plaintiff claimed defendant promised to recognise plaintiff’s one third interest — Whether plaintiff could enforce interest against defendant that it could not enforce against original registered proprietor.
Legislation Cited:	Conveyancing Act 1919 (NSW) Real Property Act 1900 (NSW)
Cases Cited:	Arambasic v Veza (No 4) [2014] NSWSC 1109 Bahr v Nicolay (No 2) (1988) 164 CLR 604; [1988] HCA 16 Baloglow v Konstanidis [2001] NSWCA 451 Campbell v Campbell [2015] NSWSC 784 Ciaglia v Ciaglia [2010] NSWSC 341; (2010] 269 ALR 175 Damberg v Damberg (2001) 52 NSWLR 492; [2001] NSWCA 87 Geradis v Gerges [2008] NSWSC 134 Hagan v Waterhouse (No 2) (1991) 34 NSWLR 308 Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312; [2003] NSWSC 851 Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312; [2003] NSWSC 851 Khoury v Khouri (2006) 66 NSWLR 241; [2006] NSWCA 184 Lai See Law v Yan Mo [2009] NSWSC 639 Merrag Pty Ltd v Khoury [2009] NSWSC 915 Re Oliver Brown Pty Ltd (No 2) [2012] NSWSC 1222 Regent v Millett (1976) 133 CLR 679 Rochefoucauld v Boustead [1897] 1 Ch 196 Ryan v Starr [2005] NSWSC 170 Secretary, Department of Social Security v James (1990) 95 ALR 615 Smilevska v Smilevska (No 2) [2016] NSWSC 397 Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 Vlahos Pty Ltd v Vlahos [2017] VSCA 166 Vu v Nguyen [2011] NSWSC 1369 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 432; [1988] HCA 7
Category:	Principal judgment
Parties:	Ofir Meshumar (plaintiff) Avshalom Sher Otmy (first defendant) Registrar General (second defendant)
Representation:	Counsel: D F Elliot (plaintiff) J O’Sullivan (first defendant) Solicitors: Spectrum Legal Group Pty Limited (plaintiff) & Legal (defendant)
File Number(s):	2015/366228