Overdean Developments Pty Ltd v Garslev Holdings Pty Ltd (No 3)

[2021] NSWSC 1482

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Overdean Developments Pty Ltd v Garslev Holdings Pty Ltd (No 3) [2021] NSWSC 1482

Hearing dates:

22, 23, 24 and 25 June 2020, 23, 24, 27, 28, 29, 30 and 31 July 2020

Date of orders:

17 November 2021

Decision date:

17 November 2021

Jurisdiction:

Equity - Expedition List

Before:

Williams J

Decision:

See paragraphs [856]-[857].

Catchwords:

RES JUDICATA – multiple prior proceedings in this Court arising out of the administration and liquidation two companies that also gave rise to the events the subject of these proceedings – whether plaintiffs’ claims in these proceedings are precluded by the doctrines of res judicata, issue estoppel or Anushun estoppel – whether plaintiffs’ claims in these proceedings are an abuse of process

POWER OF ATTORNEY – determination in previous proceedings that power of attorney irrevocable by reason of Powers of Attorney Act 2003 (NSW), s 15 – construction of power of attorney – consideration of whether attorneys owed fiduciary duties to principal – held that attorneys owed duties not to obtain unauthorised benefits (or confer such benefits on third parties) and not to act in circumstances of conflict between attorneys’ interests (or interests of third parties) and principal’s interests

FIDUCIARY DUTIES – breach of fiduciary duties by attorneys in entering into a series of deeds dealing with the proceeds of the principal’s rights and interests in respect of which the attorneys had been appointed to act on behalf of the principal – alleged conspiracies – whether third party induced or procured breaches of fiduciary duties – whether third party knowing recipient of property obtained by breaches of fiduciary duties – whether breaches of fiduciary duties were a dishonest and fraudulent design in which third party was a knowing assistant – use of power of attorney to retain solicitor to act in name of principal but for benefit of third party a fraud on the power remedies as against attorneys and third parties

LAND LAW – Torrens title – indefeasibility of title – fraud exception to indefeasibility

LEGAL PRACTITIONERS – consideration of what constitutes engaging in legal practice within the meaning of s 10 of the Legal Profession Uniform Law (NSW) – consequences of attorneys appointed under power of attorney undertaking work that amounted to engaging in legal practice in circumstances where the attorneys were not qualified entities within the meaning of the Uniform Law

Legislation Cited:

Civil Procedure Act 2005 (NSW), ss 56, 100

Conveyancing Act 1919 (NSW), s 12

Corporations Act 2001 (Cth), ss 126, 128, 129, 197, 420B, 436C, 440B, 442C, 443D, 443E, 447C, 459C, 459Q, 459S, 477

Criminal Code Act 1995 (Cth), s 134.2

Legal Profession Act 2004 (NSW), s 14

Legal Profession Act 2007 (Qld), ss 24, 52-53

Legal Profession Regulation 2007 (Qld), s 6

Legal Profession Uniform General Rules 2015 (NSW), cl 10

Legal Profession Uniform Law (NSW), ss 6, 9, 10, 11, 172, 173, 174, 178, 187, Pt 4.3, 9.1, 9.2

Legal Profession Uniform Law Application Act 2014 (NSW), sch 2

Powers of Attorney Act 2003 (NSW), ss 8, 9, 10, 12, 13, 15, 16, 28, Pt 2

Powers of Attorney Regulation 2011 (NSW), sch 2

Superannuation Industry (Supervision) Act 1993 (Cth)

Supreme Court Act 1970 (NSW), s 68

Taxation Administration Act 1953 (Cth), sch 1 s 444-15

Transfer of Land Act 1958 (Vic), ss 42, 43, 77, 78, 89A

Trustee Act 1925 (NSW), ss 9, 71

Uniform Civil Procedure Rules 2005 (NSW), rr 6.24, 13.1, 13.4, 14.28

Cases Cited:

Akierman Holdings Pty Ltd v Akerman (No. 2) (2020) 147 ACSR 63; [2020] NSWSC 970

Assets Co Ltd v Mere Roihi [1905] AC 176 at 210;

Baba v Sheehan (2021) 151 ACSR 462; [2021] NSWCA 58 at [6] per Brereton JA.

Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1993] 1 WLR 509

Barnes v Addy (1874) 43 LJ Ch 513; (1874) 22 WR 505

Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256; [2006] HCA 27

Beck v Weinstock [2012] NSWCA 289

Blair v Curran (1939) 62 CLR 464

C G Maloney Pty Ltd v Noon [2011] NSWCA 397

Champerslife Pty Ltd v Manojloviski (2010) 75 NSWLR 245; [2010] NSWCA 33

Clayton v Bant (2020) 95 ALJR 34; [2020] HCA 44

Codelfa Construction Pty Ltd v State Rail Authority (1982) 149 CLR 337

Commonwealth Bank of Australia v Barker (2014) 253 CLR 169; [2014] HCA 32

Council of the New South Wales Bar Association v Dwyer [2015] NSWCA 302

Despot v Registrar-General of NSW [2013] NSWCA 313

Ekes v Commonwealth Bank of Australia (2014) 313 ALR 665; [2014] NSWCA 336

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22

Great Investments Ltd v Warner (2016) 243 FCR 516; [2016] FCAFC 85

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6

Gunasegaram v Blue Visions Management Pty Ltd; Same v Chdiac (2018) 129 ACSR 265; [2018] NSWCA 179

Hanock v Rinehart (2015) 106 ACSR 207; [2015] NSWSC 646

Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; [2003] NSWCA 10

Harstedt Pty Ltd v Tomanek (2018) 55 VR 158; [2018] VSCA 84

Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266

Howard v Commission of Taxation (2014) 253 CLR 83; [2014] HCA 21

In the matter of Beechworth Land Estates Pty Ltd (2019) 140 ACSR 1; [2019] NSWSC 1129

In the matter of Beechworth Land Estates Pty Ltd (administrators appointed) [2017] NSWSC 1447

In the matter of Beechworth Land Estates Pty Ltd (admins apptd) and Griffith Estates Pty Ltd (admins apptd); Cussen and of Beechworth Land Estates Pty Ltd v Douglas Estate Holdings Pty Ltd and Others (2019) 140 ACSR 1; [2019] NSWSC 1129

In the matter of Beechworth Land Estates Pty Ltd (in liquidation) and Griffith Estates Pty Ltd (in liquidation) [2018] NSWSC 1703

In the matter of Beechworth Land Estates Pty Ltd [2018] NSWSC 1630

John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19

Kordovoulos v Dixon-Hughes [2021] NSWSC 722

Kuligowski v Metrobus (2004) 220 CLR 363; [2004] HCA 34

Mackay v Dick [1881] 6 App Cas 251

Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543

McFee v Reilly [2018] NSWCA 322

Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427; [2011] HCA 48

Photios v Cussen (in their capacity as joint administrators of Beechworth Land Estates Pty Ltd (admins apptd) [2015] NSWSC 336

Pittmore Pty Ltd v Chan (2020) 104 NSWLR 62; [2020] NSWCA 344

Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45

Rogers v The Queen (1994) 181 CLR 251 at 286

Taheri v Vitek (2014) 87 NSWLR 403; [2014] NSWCA 209

Talako v Talako [2021] HCA 15

Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; [2015] HCA 28

UBS AG v Tyne (2018) 265 CLR 77; [2018] HCA 45

Victoria International Container Terminal Limited v Lunt (2021) 288 ALR 376; [2021] HCA 11

Warman International Ltd v Dwyer (1995) 182 CLR 544

Williams v Spautz (1992) 174 CLR 509

Texts Cited:

Handley, K R, Spencer Bower and Handley: Res Judicata (5th ed, LexisNexis Butterworths, 2019)

Heydon, J D, M J Leeming and P G Turner, Meagher, Gummow & Lehane’s Equity Doctrines and Remedies (5th ed, 2015)

Thomas, Geraint, Thomas on Powers (2nd ed, 2012), Chapter 9

Category:

Principal judgment

Parties:

Overdean Developments Pty Ltd as trustee of the Dean Super Fund (First Plaintiff)
Brian Dean (Second Plaintiff)
B.A.D Nominees (NSW) Pty Ltd (Third Plaintiff)
Garslev Holdings Pty Ltd (First Defendant)
Leonardus Gerardus Smits (Third Defendant)
Peter Shah Mahommed (Fourth Defendant)
Vestecorp Financial Services Pty Ltd (Fifth Defendant)
Jacobus Smits (Sixth Defendant)

Representation:

Counsel:
D Allen (Plaintiffs)
L Smits, solicitor (Defendants)

Solicitors:
Kekatos Lawyers (Plaintiffs)
Leonardus Smits (Defendants)

File Number(s):

2018/384191

Publication restriction:

N/A

Judgment

1. OVERVIEW

1. These proceedings arise out of:

1. a Power of Attorney executed on 9 May 2016 by BAD Nominees (NSW) Pty Limited (BAD Nominees) appointing Mr Leonardus Smits (Mr Smits) and Mr Peter Shah Mahommed (Mr Mahommed) as its attorneys for a period of three years to exercise its rights and powers under or ancillary to certain loans that it made in February 2013 to Beechworth Land Estates Pty Limited and Griffith Estates Pty Limited; and

2. the subsequent conduct of Messrs Smits and Mahommed and Mr Mahommed’s company, Vestecorp Financial Services Pty Limited (Vestecorp), acting or purporting to act in accordance with the Power of Attorney and/or a Consultancy Agreement or a document entitled “Irrevocable Authorisation and Direction” (the IAD) executed by BAD Nominees on the same date.

2. It is convenient to describe the parties to these proceedings and other persons and entities involved in relevant events in the context of a very brief overview of those events.

3. BAD Nominees was formerly the second defendant but is now the third plaintiff in these proceedings. ^[1] At the time that it executed the Power of Attorney, Consultancy Agreement and IAD on 9 May 2016, BAD Nominees was the trustee of a self-managed superannuation fund known as the Dean Super Fund.

   1. Third Further Amended Statement of Claim (3FASOC).

4. The Dean Super Fund was established by the second plaintiff in these proceedings, Mr Brian Dean (Mr Dean), in December 2012. ^[2]

   2. Mr Dean’s affidavit sworn 27 February 2019, paragraphs 6-12 and Exhibit 20 pp 232-312.

5. Mr Dean completed his formal education in the eighth grade of school at the age of 14 in 1962. He worked as a train driver from about 1965 to 2003 and subsequently became a farmer. ^[3]

   3. Mr Dean’s affidavit sworn 27 February 2019, paragraphs 4-5; Exhibit 1.

6. Mr Dean is the sole beneficiary of the Dean Super Fund. ^[4]

   4. 3FASOC [4]; Mr Dean’s affidavit sworn 27 February 2019, paragraph 9. He was the sole member when the Fund was established in December 2012, and there is no evidence of any additional members subsequently being admitted; Exhibit 20 pp 232-233,237, 253, 282, 297; T177.19-179.34. There is no evidence to support the defendants’ pleaded contention that Mr Dean is not the sole beneficiary; second Further Amended Defence filed on 4 December 2019 (2FAD) [4(a)].

7. BAD Nominees was the trustee of the Dean Super Fund from the establishment of the fund in December 2012 until 5 September 2018. ^[5] Mr Dean has been the sole shareholder and director of BAD Nominees at all times. ^[6]

   5. Mr Dean’s affidavit sworn 27 February 2019, paragraphs 6-12; Exhibit 20, pp 229-312, 1688-1697.

   6. Mr Dean’s affidavit sworn 27 February 2019, paragraphs 6-12 and Exhibit 20, pp 229-312, 1688-1697.

8. In February 2013, BAD Nominees (as trustee of the Dean Super Fund) made a loan of $2,000,000 to Beechworth Land Estates Pty Ltd (BLE) to fund BLE’s acquisition of a mortgage in respect of 39 lots of land located in Beechworth, Victoria (the Beechworth land) by assignment from the existing mortgagee, Suncorp Metway Limited (Suncorp). The mortgagor, Redhill Developments Pty Ltd (Redhill), had defaulted under the mortgage and Suncorp assigned the mortgage to BLE rather than enforcing its security interest. The loan made by BAD Nominees to BLE for the purpose of BLE acquiring Suncorp’s mortgage was secured on the terms of a general security agreement. ^[7] It is convenient to refer to these transactions between BAD Nominees and BLE as the February 2013 loan and the February 2013 security.

   7. 3FASOC, paragraphs 8-11; 2FAD, paragraphs 8-11; In the matter of Beechworth Land Estates Pty Ltd (admins apptd) and Griffith Estates Pty Ltd (admins apptd); Cussen and of Beechworth Land Estates Pty Ltd v Douglas Estate Holdings Pty Ltd and Others (2019) 140 ACSR 1; [2019] NSWSC 1129 at [2].

9. At some stage prior to July 2014, BAD Nominees, as trustee of the Dean Super Fund, also lent funds to Griffith Estates Pty Ltd (GEP).

10. BLE, Suncorp, Redhill and GEP are not parties to these proceedings.

11. On 14 July 2014, administrators were appointed to BLE and GEP pursuant to s 436C of the Corporations Act 2001 (Cth). ^[8]

    8. In the matter of Beechworth Land Estates Pty Ltd (administrators appointed) [2017] NSWSC 1447 at [6]; Photios v Cussen (in their capacity as joint administrators of Beechworth Land Estates Pty Ltd (admins apptd) [2015] NSWSC 336 at [12].

12. On 22 July 2014, BAD Nominees lodged a proof of debt with the administrators for an amount of $807,903.04 claimed to be owing by BLE under the February 2013 loan and secured by the February 2013 security.

13. The administration of BLE proved to be long and complex, and was ultimately extended to 21 February 2018, when BLE went into liquidation. ^[9]

    9. 3FASOC, paragraph 15; 2FAD, paragraph 15; In the matter of Beechworth Land Estates Pty Ltd (2019) 140 ACSR 1; [2019] NSWSC 1129 at [4].

14. In early May 2016, Messrs Mahommed and Smits became aware that BAD Nominees was still waiting to receive any payment out of the administration of BLE, almost two years after the administrators were appointed, and lacked legal representation in proceedings that were then on foot relating to the administration of BLE and GEP. BAD Nominees executed the Power of Attorney, Consultancy Agreement and IAD on 9 May 2016 following a series of discussions and meetings between Mr Dean and Messrs Smits and Mahommed during the period 3 to 9 May 2016.

15. Under the Power of Attorney, BAD Nominees appointed Mr Smits and Mr Mahommed as its attorneys for a period of three years “to act and to exercise all powers, rights and privileges of or imputable to or exercisable by [BAD Nominees] in relation to and in respect of” specified matters relating to BLE and GEP, and the administration and foreshadowed liquidation of those companies. ^[10]

    10. Exhibit 2, p 5.

16. The Consultancy Agreement set out terms on which BAD Nominees (as trustee for the Dean Super Fund) engaged Vestecorp and Mr Smits as consultants to provide “services, functions and powers” and “matters referred to” in the Power of Attorney.

17. The IAD was signed by Mr Dean as sole director of BAD Nominees. It was addressed to Messrs Smits and Mahommed and Vestecorp and was expressed as being given in consideration of their undertaking to execute the Power of Attorney and Consultancy Agreement. The provisions of the IAD included an authority and direction to Messrs Smits and Mahommed and the administrators of GEP and BLE to pay to Messrs Smits, Mahommed and Vestecorp 25% “of all moneys, damages, interest and costs due, owing or payable to [BAD Nominees] in respect of any Griffith Lots referred to in current Legal Proceeding as directed in writing by you and for your absolute benefit and the balance of 75% shall be paid to [BAD Nominees]”. ^[11]

    11. Exhibit 2, p 28.

18. Mr Smits is the third defendant in these proceedings. He has been an Australian legal practitioner for many years. However, it is common ground that he was not an Australian legal practitioner during the period from 1 May 2016 to 6 February 2017. ^[12] During 2017 and 2018, Mr Mahommed exercised or purported to exercise his authority under the Power of Attorney to retain Mr Smits as a solicitor to act for BAD Nominees.

    12. 3FASOC, paragraph 21; 2FAD, paragraph 21.

19. Mr Mahommed and Vestecorp are the fourth and fifth defendants (respectively) in these proceedings. Mr Mahommed was the sole director, sole shareholder and sole controlling mind of Vestecorp at all material times. ^[13]

    13. 3FASOC, paragraph 19; 2FAD, paragraph 19(b); Exhibit 20, pp 1647-1655.

20. Mr Geoffrey Cohen (Mr Cohen) is a solicitor who has acted for Mr Dean and/or BAD Nominees at various times before and after May 2016. The name of Mr Cohen’s firm is Mylora Law. ^[14] Mr Cohen was not acting as a solicitor for Mr Dean or BAD Nominees at the time that the Power of Attorney, Consultancy Agreement and IAD were executed. Mr Terry Armstrong (Mr Armstrong), an accountant, and Mr Gregory Conlon (Mr Conlon), a business adviser, had established relationships with Mr Dean and were assisting him in May 2016. Messrs Cohen, Armstrong and Conlon are not parties to these proceedings.

    14. 3FASOC, paragraph 73.

21. Mr James Photios (Mr Photios) was the sole director of BLE at all times material to these proceedings. ^[15] He is not a party to these proceedings.

    15. Exhibit 20, pp 1717-1734.

22. Maitland Finance and Acquisition Pty Ltd (referred to by the parties as MAFA) entered into a deed with BAD Nominees on 10 August 2016 pursuant to which BAD Nominees assigned (or purported to assign) to MAFA the debt owed to BAD Nominees by BLE (the MAFA deed). Mr John Batiste (Mr Batiste) is the sole director of MAFA and Mr Tim Orlizki (Mr Orlizki) is a solicitor who acted for MAFA at certain times relevant to these proceedings. MAFA, Mr Batiste and Mr Orlizki are not parties to these proceedings.

23. Negotiations between the administrators of BLE on the one hand and BAD Nominees and MAFA on the other hand culminated in an agreement made on 2 August 2017 for the transfer of nine lots of the Beechworth land from BLE (as mortgagee in possession) to BAD Nominees in consideration for a reduction of $1,000,000 in the amount claimed by BAD Nominees in the administration of BLE (the 2 August 2017 contract). ^[16]

    16. 3FASOC, paragraphs 87-91; 2FAD, paragraphs 87-91.

24. Garslev Pty Ltd (Garslev) is the first defendant in these proceedings. The sixth defendant, Mr Jaccobus Smits, was the sole director and sole shareholder of Garslev at all material times. I will refer to him as Mr J Smits to distinguish him from his brother, the third defendant Mr Leonardus Smits. ^[17]

    17. 3FASOC, paragraphs 20(b)-20(c); 2FAD, paragraphs 20(b)-20(c); Exhibit 20, pp 1666-1677.

25. The plaintiffs claim that, at all times from May 2016, Mr Mahommed and Mr Smits were the controlling minds of Garslev and that Mr J Smits acted at their direction in relation to the affairs of Garslev and permitted them to act as agents of Garslev and to use Garslev as a vehicle to undertake and profit from the Yeppoon development. The plaintiffs allege that Garslev is the “corporate alter ego” of Mr Mahommed and Mr Smits. ^[18] The defendants dispute this. They maintain that Mr J Smits has been (and remains) the controlling mind of Garslev at all times since before May 2016. ^[19]

    18. 3FASOC, paragraphs 18, 20.

    19. 2FAD, paragraphs 18, 20.

26. These proceedings principally concern certain deeds entered into by BAD Nominees (through Mr Mahommed, using the Power of Attorney) and Garslev on 20 March 2018 and 5 November 2018. Those deeds provided for the assignment by BAD Nominees to Garslev of BAD Nominees’ right to the transfer of the nine lots under the 2 August 2017 contract and BAD Nominees’ other rights in relation to BLE, in consideration for $850,000. The 20 March 2018 deed permitted Garslev to pay that $850,000 sum by paying fees allegedly owed, or to become owing in the future, by BAD Nominees, to Messrs Smits and Mahommed and Vestecorp. Under two deeds entered into on 5 November 2018, Messrs Smits and Mahommed and Vestecorp assigned to Garslev their rights in respect of those alleged present and future debts in consideration for Garslev’s promise to pay to them the equivalent amounts out of the proceeds of a property development that Garslev was undertaking at Yeppoon in Queensland (the Yeppoon development). Garslev set off the unspecified amounts of the alleged debts assigned to it against the $850,000 payable to BAD Nominees under the deed dated 20 March 2018. BAD Nominees acknowledged that Garslev had thereby satisfied all of its obligations under that deed.

27. Garslev became the registered proprietor of the nine lots of the Beechworth land on 5 November 2018 without making any monetary payment to BAD Nominees. Garslev promptly on-sold the nine lots for an aggregate sale price of $1,126,000. The majority of those sale proceeds have been paid into court pursuant to orders made on 1 February 2019 shortly after the commencement of these proceedings.

28. Using the Power of Attorney, Mr Mahommed retained Mr Smits to act as BAD Nominees’ solicitor in litigation concerning its remaining rights against BLE in the latter half of 2018. The costs associated with that litigation were charged to BAD Nominees, notwithstanding that its rights against BLE had been assigned to Garslev under the deed entered into on 20 March 2018.

2. Overdean Developments Pty Ltd (Overdean) is the first plaintiff in these proceedings. Mr Dean has been a director of Overdean since its incorporation in June 2004 and its sole director since 4 September 2018. He has been the sole shareholder of the company at all times relevant to these proceedings. ^[20]

   20. 3FASOC, paragraph 5; 2FAD, paragraph 5; Exhibit 20, pp 1634-1646.

3. Overdean replaced BAD Nominees as the trustee of the Dean Super Fund on 5 September 2018. ^[21] The validity of Overdean’s appointment as trustee was upheld by Black J In the matter of Beechworth Land Estates Pty Ltd (in liquidation) and Griffith Estates Pty Ltd (in liquidation) [2018] NSWSC 1703.

   21. 3FASOC, paragraph 3; 2FAD, paragraph 3(a).

4. The principal relief claimed by the plaintiffs in these proceedings is a declaration that the Power of Attorney, Consultancy Agreement and IAD were rescinded for breach of fiduciary duty and/or a declaration that the deeds entered into on 20 March 2018 and 5 November 2018 were rescinded on the grounds that they were entered into in breach of fiduciary duty by Messrs Smits and Mahommed in which Garslev and Mr J Smits were knowing assistants. The plaintiffs claim that Garslev holds the proceeds of sale of the nine lots on constructive trust for BAD Nominees or Overdean. The plaintiffs also claim equitable compensation and/or restitution against all defendants.

5. The defendants deny that the plaintiffs are entitled to any relief, and cross‑claim for damages in the sum of $769,397.92 (plus interest). That sum is comprised principally of the total amount of fees charged and costs incurred by Mr Smits and Vestecorp pursuant to or allegedly pursuant to the Power of Attorney, Consultancy Agreement, IAD and Mr Smits’ retainers as a solicitor for BAD Nominees, less the amount of $850,000 offset against these total fees and costs pursuant to the deeds dated 20 March 2018 and 5 November 2018. The cross-claim also includes a claim against Mr Dean for damages for allegedly procuring or inducing breaches by BAD Nominees of the Consultancy Agreement and the deeds entered into with Garslev. The damages include the $769,397.92 sum referred to above and additional damages allegedly suffered by Garslev.

1. INTRODUCTORY OBSERVATIONS AND STRUCTURE OF THESE REASONS

33. The pleadings in this matter are voluminous. Large parts of the defence read more like a submission than a pleading. It has therefore not been necessary to refer to every aspect of the issues pleaded in these reasons for judgment. I have nevertheless endeavoured to give a reasonably comprehensive account of those issues and to note matters that were pleaded by a party but that did not feature in that party’s case as presented at trial and are therefore taken to have been abandoned. I considered it prudent to do so in case of any appeal and also because, as will become apparent, the plaintiffs have a history of seeking to relitigate matters in fresh proceedings and the defendants have a tendency to overstate the scope of matters that have been determined in prior proceedings and estopples arising from prior proceedings.

34. The defendants’ evidence is also voluminous. The defendants read in this proceeding 14 affidavits of Mr Mahommed, many of which had been prepared for the purpose of earlier proceedings, rather than preparing one comprehensive affidavit addressing the issues relevant to this proceeding. To the extent that those affidavits addressed matters relevant to this proceeding, there was a high degree of repetition and duplication between the affidavits. The defendants also tendered several folders of documents, many of which were already included in the six volume court book prepared by the plaintiffs and tendered at the hearing. All of the evidence has been considered, but it has not been necessary to refer to every detail of the evidence in these reasons.

35. The defendants also prepared written submissions of 340 pages prior to the commencement of the hearing. Those submissions contained a great deal of material that did not directly address the substance of the issues raised by the pleadings, and also purported to raise several matters that were outside the scope of the defendants’ very lengthy pleadings. Mr Smits, who appeared for all defendants at the final hearing, made oral opening submissions and prepared a more succinct written closing submission. He declined the opportunity to supplement his written closing submission with oral submissions. Mr Smits confirmed that the substance of the defendants’ submissions to be considered by the Court are recorded in their written closing submissions, together with any specific parts of the earlier submissions specifically referred in the written closing submissions. ^[22] In the preparation of these reasons, I have approached my consideration of the defendants’ submissions accordingly, although I have also had regard to their oral opening submissions and any parts of the 340 page written opening submissions expressly referred to therein. I have also had regard to the plaintiffs’ written and oral opening submissions and oral closing submissions, including their oral submissions in reply to the defendants’ written closing submissions. All of the parties’ submissions referred to above have been carefully considered, although it has not been necessary to refer to the substance of all of them in disposing of the issues raised for determination.

    22. T580.4-580.13.

36. In Section III of these reasons immediately below, I have summarised in broadly chronological order the key events that are the subject of these proceedings, and the pleaded allegations and claims in respect of those events. Where relevant matters of fact are the subject of dispute between the parties, this is noted in Section III of these reasons and my findings in relation to those matters are set out in Section IV to the extent that such findings are necessary to determine the real issues in these proceedings.

37. As will become apparent, the matters in dispute between the parties include the fees charged to BAD Nominees in respect of work claimed to have been done by Messrs Smits and Mahommed and Vestecorp under the Power of Attorney and Consultancy Agreement and, in the case of Mr Smits, as solicitor retained by Mr Mahommed to act for BAD Nominees. There is also a dispute about whether the work claimed to have been done constituted the provision of legal services and, if so, whether that work could lawfully be undertaken by the persons who claim to have done the work. I have found it convenient to address all of those matters together at the end of Section III rather than to deal with them individually in chronological order throughout Section III.

1. SUMMARY OF KEY EVENTS, ALLEGATIONS AND CLAIMS FOR RELIEF

February 2013 loan and security

38. As explained by Parker J in his Honour’s judgment in other proceedings in this Court relating to BLE: ^[23]

“BLE was incorporated in October 2012 as a special purpose vehicle for acquiring control of a property development in Beechworth, Victoria, from the financier, Suncorp Metway Limited (‘Suncorp’). The original developer was a company called Redhill Estate Developments Pty Ltd (‘Redhill’). Redhill had mortgaged the land, which consisted of 39 lots, to Suncorp as security for a loan of $1.55 million. Redhill later defaulted. Rather than exercise its power of sale under the mortgage, Suncorp assigned the debt owed to it by Redhill, and the benefit of the mortgage, to BLE.

BLE funded the purchase by borrowing up to $2 million from [BAD Nominees]. The loan was recorded in a Deed of Loan and secured under a general security agreement dated 1 February 2013….”

23. In the matter of Beechworth Land Estates Pty Ltd (2019) 140 ACSR 1; [2019] NSWSC 1129 at [2]–[3].

39. It was in these circumstances that BLE came to be the mortgagee of the Beechworth land on 1 February 2013, as referred to at [8] above. The Assignment Deed between Suncorp and BLE dated 8 November 2012 assigned to BLE all of Suncorp’s estate and interest in “the Securities”, moneys secured by or payable under the Securities and Suncorp’s rights, powers and entitlements under the Securities, in consideration for $1,550,000. The “Securities” included registered mortgage AF168070Y dated 27 June 2007 in respect of Redhill’s land in certificate of title volume 10767 folios 961, 959 and 960 and volume 10851 folio 564 (which I assume were the title references for the Beechworth land at that time). ^[24]

    24. 3FASOC, paragraphs 10-13; 2FAD, paragraphs 10-13; Registered Mortgage AF1708070Y and Deed of Assignment dated 8 November 2012 at Exhibit 20, pp 204-228.

40. Pursuant to the Deed of Loan dated 1 February 2013 between BAD Nominees (as trustee of the Dean Super Fund) and BLE, BAD Nominees agreed to lend BLE an aggregate amount of up to $2,000,000 to be applied for the purpose of BLE completing the assignment from Suncorp of the Securities referred to above and taking steps to enforce BLE’s rights in accordance with those Securities. The loan was repayable one year after the date of the Deed of Loan, or on such other date as BAD Nominees and BLE may agree in writing. BLE was required to pay interest at rates specified in drawdown notices. ^[25]

    25. Deed of Loan at Exhibit 20, pp 313-344.

41. Pursuant to the February 2013 security (also entered into by BAD Nominees in its capacity as trustee of the Dean Super Fund), BLE charged in favour of BAD Nominees all of BLE’s right, title and interest in the “secured property” or “security property” to secure the due and punctual repayment of all moneys lent by BAD Nominees to BLE as at the date of the February 2013 security or in the future. The “security property” comprised all circulating and non‑circulating real and personal property of BLE (including BLE’s interest in the Beechworth land and rights as mortgagee under registered mortgage AF168070Y). ^[26]

    26. General Security Agreement at Exhibit 20, pp 345-400.

42. The February 2013 security was registered on the Personal Property Securities Register (PPSR) on 13 May 2013. ^[27]

    27. Exhibit 19, pp 211-212.

Administrators appointed to BLE and GEP: July 2014

43. On 14 July 2014, Vangory Holdings Pty Ltd (Vangory Holdings) appointed administrators to BLE and Vangory Services Pty Ltd (Vangory Services) appointed administrators to GEP pursuant to s 436C of the Corporations Act. ^[28] Messrs Neil Cussen and Ezio Senatore of Deloitte were the appointed administrators of both companies.

    28. In the matter of Beechworth Land Estates Pty Ltd (administrators appointed) [2017] NSWSC 1447 at [6]; Photios v Cussen (in their capacity as joint administrators of Beechworth Land Estates Pty Ltd (admins apptd) [2015] NSWSC 336 at [12].

44. Vangory Services and Vangory Holdings were also secured creditors of BLE, with security interests registered on the PPSR on 26 January 2014 and 11 June 2014 respectively. Reports issued by the administrators of BLE recorded that BAD Nominees’ security interest was ranked first in priority amongst secured creditors, with Vangory Services and Vangory Holdings ranked second and third respectively. ^[29] Nevertheless, there were disputes during the course of the administration concerning the priority between Vangory Holdings and BAD Nominees, and as between the claims of all secured creditors and the administrators’ claims for their remuneration. ^[30]

    29. For example, Exhibit 19, p 166.

    30. In the matter of Beechworth Land Estates Pty Ltd [2018] NSWSC 1630 at [3].

45. At the time of the administrators’ appointment, 28 lots of the Beechworth land remained unsold and BLE was mortgagee in possession of those lots. ^[31] The administrators were subsequently appointed as agents of BLE as mortgagee in possession of the 28 lots of the Beechworth land and as court appointed receivers of those 28 lots. ^[32]

    31. [2019] NSWSC 1129 at [5].

    32. [2018] NSWSC 1630 at [4].

46. On 22 July 2014, BAD Nominees lodged a proof of debt with the administrators for an amount of $807,903.04 claimed to be owing by BLE to BAD Nominees under the February 2013 loan. Loan and payment ledgers issued as at 20 July 2014 reveal that this sum comprised $335,410.10 principal owing from an initial advance of $1,400,000, an amount of $61,030.55 that BLE had drawn down under a redraw facility, substantial interest charges and some exit fees. The interest rate on the $1,400,000 loan was 12 per cent, with a default interest rate of 18 per cent. Interest was calculated on the daily balance of the loan and payable monthly in arrears. The proof of debt stated that BAD Nominees held security for the debt under the February 2013 security that had been registered on the PPSR on 13 May 2013. ^[33]

    33. Exhibit 20, p 479; Exhibit 19, pp 161-162; February 2013 loan, clause 4 at Exhibit 20, pp 321-322.

The 2014 proceedings

47. On 4 August 2014, Mr Photios and various other parties commenced proceeding 2014/229138 in this Court seeking orders under s 447C of the Corporations Act declaring that the appointments of the administrators were invalid (the 2014 proceedings). Ultimately, the appointments were held to be valid insofar as they concerned BLE and were subsequently validated insofar as they concerned GEP. ^[34]

    34. Photios v Cussen [2015] NSWSC 336 at [160]-[162].

48. Orders were subsequently made in the 2014 proceedings extending on several occasions the convening period for the second meeting of creditors. The convening period was ultimately extended until February 2018. ^[35]

    35. [2017] NSWSC 1447 at [9].

Assignment from BAD Nominees to Batbel Pty Ltd and the statutory demand issued by Vangory Holdings

49. Prior to the appointment of the administrators, BAD Nominees had entered into a deed on 8 July 2014 pursuant to which it had assigned its interest in the February 2013 loan and February 2013 security to Batbel Pty Ltd (Batbel) in consideration for $816,797.87, which was payable 28 days after the date of the deed. ^[36]

    36. Exhibit 5, pp 572-586.

50. It appears that the deed was not performed, or not fully performed, as BAD Nominees issued a notice to Batbel on 10 January 2015 terminating the deed. ^[37]

    37. Exhibit 5, p 587.

51. Batbel responded by issuing a notice to complete on 19 January 2015. ^[38] However, completion did not occur. On 24 June 2015, Batbel assigned to Vangory Holdings a debt of $62,000 that Batbel claimed was owed to it by BAD Nominees, being the deposit instalments paid by Batbel under the 8 July 2014 deed. On 30 December 2015, Vangory Holdings issued a statutory demand to BAD Nominees in respect of the alleged debt assigned to it. ^[39]

    38. Exhibit 19, p 588.

    39. Exhibit 20, pp 415-418.

52. BAD Nominees did not pay the amount demanded and Vangory Holdings did not commence proceedings to wind up BAD Nominees relying on its failure to comply with the statutory demand. ^[40] However, as will become apparent, the statutory demand assumed some importance in the subsequent discussions between Messrs Dean, Mahommed and Smits in early May 2016.

    40. Corporations Act 2001 (Cth), ss 459C, 459Q, 459S.

May 2016 negotiations and the alleged Attorney conspiracy

53. The plaintiffs allege that Mr Photios informed Messrs Smits and Mahommed in May 2016 that Mr Dean was a retired train driver and farmer who had lent money to BLE, that Mr Dean had appeared in the 2014 proceedings and informed the Court that he was owed a lot of money by BLE and that he did not know what to do, and that Mr Dean could not recover the money owing by BLE without the assistance of a legal practitioner. ^[41] As referred to earlier in these reasons, Mr Photios was the sole director of BLE at all times material to these proceedings. The plaintiffs allege that Mr Photios was also a client or associate or Mr Smits. ^[42]

    41. 3FASOC, paragraphs 25-26.

    42. Exhibit 20, pp 1717-1734.

54. The plaintiffs allege that, on learning this information, Messrs Smits and Mahommed agreed that they would procure from BAD Nominees an agreement or agreements pursuant to which they would: ^[43]

    43. 3FASOC, paragraph 27.

1. perform legal services for BAD Nominees (or, in the case of Mr Mahommed, assist Mr Smits to perform legal services for BAD Nominees);

2. charge BAD Nominees for legal services;

3. secure payment of their charges for legal services, or any other services, by having BAD Nominees give them a power of attorney;

4. use the power of attorney to ensure that they were paid;

5. be paid an amount greater than a fair, reasonable and proportionate charge for the services provided;

6. decide how, how much, and when they would be paid because the power of attorney would permit them to pay themselves without the knowledge and approval of BAD Nominees and BAD Nominees would not have the wherewithal or funds to take action to dispute the charges;

7. use the power of attorney to stop Mr Dean complaining by preventing Mr Dean from acting in the name of BAD Nominees; and

8. assist one another and act as one another’s agent in implementing the agreement.

55. The plaintiffs refer to this alleged agreement as the Attorney conspiracy and I will adopt the same terminology. Invoking the second limb of Barnes v Addy, the plaintiffs plead that the Attorney conspiracy was a dishonest and fraudulent design under which Messrs Smits and Mahommed agreed to deceive Mr Dean into believing that Mr Smits could and would provide the legal services required to recover money from BLE, with the assistance of Mr Mahommed, in return for fees that were fair, reasonable and proportionate, whereas Messrs Smits and Mahommed intended to determine how much they would be paid without reference to what work they performed and irrespective of whether the charges were fair, reasonable and proportionate. ^[44]

    44. 3FASOC, paragraph 28.

56. The plaintiffs allege that Mr Mahommed then initiated contact with Mr Dean by telephoning him on 3 May 2016. They claim that, during this conversation, Mr Mahommed learned that: ^[45]

    45. 3FASOC, paragraph 30.

1. Mr Dean was distraught about not being able to recover the money that BAD Nominees had lent to BLE and that this made his own financial position, and that of his disabled daughter, insecure;

2. Mr Dean was not well educated and was naïve when it came to legal matters and, in particular, did not know how to go about recovering money from BLE or its administrators;

3. Mr Dean would sign documents without fully understanding their import if told to do so by someone he understood was an Australian legal practitioner, as he would trust such a person; and

4. Mr Dean was vulnerable to accepting offers of help without fully understanding the ramifications of that help.

57. The plaintiffs allege that Mr Mahommed then communicated his knowledge to Mr Smits, and that the knowledge of Mr Mahommed can be imputed to Mr Smits by reason of the Attorney conspiracy. ^[46]

    46. 3FASOC, paragraph 31.

58. Messrs Smits and Mahommed deny the alleged Attorney conspiracy. ^[47] They specifically deny discussing or agreeing that they would perform legal services for BAD Nominees or charge BAD Nominees for legal services. They plead that they believed that any moneys owing by BLE to BAD Nominees could be recovered without the intervention of a legal practitioner, probably by the appointment of a private receiver. ^[48] However, inconsistently with that contention, Messrs Smits and Mahommed say that the 2014 proceedings were complex and that recovery action on behalf of BAD Nominees included potential legal proceedings in addition to the appointment of private receivers. ^[49] Messrs Smits and Mahommed embrace the notion that payment of the fees of Mr Smits and Vestecorp for consultancy services would be protected by the Power of Attorney but plead that they did not consider that it would be necessary to use the Power of Attorney for that purpose because they believed that Mr Dean and BAD Nominees would pay their fees in accordance with the Consultancy Agreement and the IAD. ^[50]

    47. 2FAD, paragraphs 27-28.

    48. 2FAD, paragraph 25(d).

    49. 2FAD, paragraph 32.

    50. 2FAD, paragraphs 25(d), 27-28.

57. Messrs Smits and Mahommed deny learning the matters referred to at [53] above from Mr Photios, and also deny that Mr Photios was a client or associate of Mr Smits. They further plead that Mr Dean informed them that he had lent money to BAD Nominees which had in turn lent money to BLE, that he was a retired train driver and also an investor in complex property developments, a trader in loan securities and a funder of multimillion dollar loans and that he had engaged several legal firms in relation to those and other substantial matters. In the second further amended defence, Messrs Smits and Mahommed obfuscate how they came to know anything about Mr Dean and what caused Mr Mahommed to initiate contact with Mr Dean on 3 May 2016. ^[51] There is no dispute that the initial contact was a telephone call from Mr Mahommed to Mr Dean on that date, ^[52] but Mr Mahommed denies that he obtained the knowledge alleged by the plaintiffs during that telephone conversation referred to at [56] above. Messrs Smits and Mahommed also allege that, contrary to what they were told by Mr Dean, no moneys were owing by BLE to BAD Nominees under the February 2013 loan and the February 2013 security as at May 2016, and BAD Nominees held no security in respect of the moneys loaned to GEP. ^[53] It will be necessary to return to the allegation that no moneys were owing by BLE later in this reasons. In relation to GEP, it is clear from the terms of the IAD referred to at [79] below that Messrs Smits and Mahommed knew by the time they executed that document that BAD Nominees held no enforceable security for the loan to GEP.

    51. 2FAD, paragraphs 25-26.

    52. 3FASOC, paragraph 29; 2FAD, paragraph 29.

    53. 2FAD, paragraph 25(a).

58. It is common ground that Mr Dean met with Messrs Smits and Mahommed on 8 May 2016.

59. The plaintiffs allege that the meeting culminated in an offer made to Mr Dean on 8 May 2016 that: ^[54]

1. if retained, Messrs Mahommed and Smits would recover money from BLE within one month in exchange for fair, reasonable and proportionate fees which would only be payable from money recovered through their efforts; and

2. Mr Smits, being an Australian legal practitioner, would provide the necessary legal services to recover money from BLE in return for payment of a fair, reasonable and proportionate fee, which would only be payable from money recovered through their efforts.

   54. 3FASOC, paragraphs 32-33.

62. The plaintiffs allege that Mr Dean accepted this offer on 8 May 2016 and that the purpose of the meeting with Messrs Mahommed and Smits on 9 May 2016 was to sign documents to give effect to the agreement reached by Mr Dean’s acceptance of the offer on 8 May 2016. ^[55]

    55. 3FASOC, paragraphs 35, 40.

63. The plaintiffs claim that, during the negotiations, Mr Smits owed a fiduciary duty to Mr Dean and BAD Nominees, including a duty not to act where Mr Smits’ interests conflicted with the interests of Mr Dean and BAD Nominees. The plaintiffs claim that this fiduciary duty was owed because Mr Smits was acting as a lawyer negotiating a retainer with a prospective client. ^[56]

    56. 3FASOC, paragraphs 36-38.

64. The plaintiffs also claim that Mr Mahommed and Vestecorp owed the same fiduciary duty to Mr Dean and BAD Nominees because Mr Mahommed was held out during the negotiations as a close associate of Mr Smits, and he and Mr Smits were proposing to become the agents and attorneys for BAD Nominees for the purpose of providing legal services with the authority to make decisions and enter into contracts on behalf of BAD Nominees using the proposed power of attorney. ^[57]

    57. 3FASOC, paragraphs 39, 49.

65. Messrs Mahommed and Smits admit that Mr Dean made it known to them that he was frustrated by being unable to collect the moneys that he claimed were owing by BLE to BAD Nominees. As I have already mentioned at [59] above, Messrs Mahommed and Smits also plead that no moneys were in fact owing by BLE to BAD Nominees under the February 2013 loan and the February 2013 security as at May 2016. ^[58] It will be necessary to return to this allegation later in these reasons.

    58. 2FAD, paragraphs 25(a), 34.

66. Messrs Mahommed and Smits deny making the offer alleged by the plaintiffs and referred to at [61] above, or that Mr Dean or BAD Nominees accepted any such offer. They maintain that the terms of the agreement reached are those set out in the Power of Attorney, Consultancy Agreement and IAD executed on 9 May 2016 after Mr Dean said on 8 May that he required further time to consult with his advisers, Messrs Conlon and Armstrong. ^[59]

    59. 2FAD, paragraphs 32-33, 35 and 40.

67. Messrs Smits and Mahommed and Vestecorp deny that they owed Mr Dean and BAD Nominees the fiduciary duties alleged by the plaintiffs and referred to at [63]-[64] above. ^[60] They plead that Mr Smits informed Mr Dean during the May 2016 negotiations that he had retired as a solicitor on 30 June 2003, that he had become a bankrupt on 19 January 2016, that he had no intention of practising as a lawyer and could only act under a power of attorney or as a consultant for BAD Nominees. They deny that Mr Mahommed was held out during the negotiations as someone who would be assisting or working closely with Mr Smits in order to provide legal services to Mr Dean or BAD Nominees. ^[61]

    60. 2FAD, paragraphs 36-39, 49.

    61. 2FAD, paragraphs 37(d)-(f), 39.

68. Messrs Smits and Mahommed also claim that Mr Dean informed them that he was advised by Mr Armstrong, Mr Conlon, and by solicitors (specifically, Mr Cohen, Mr Adam Huxley, Mr Gus Dib and Mr Orlizki), and that Mr Smits encouraged Mr Dean to obtain advice from Mr Cohen or another competent lawyer about the agreements that he proposed to enter into with Messrs Smits and Mahommed and Vestecorp. ^[62] They contend that Messrs Dean and Conlon consulted Mr Orlizki concerning Mr Smits’ bankruptcy and legal qualification to act before the documents were signed. ^[63]

    62. 2FAD, paragraphs 37(g)-(m), 39.

    63. 2FAD, paragraph 37(n), 39.

69. Further, Messrs Smits and Mahommed do not admit that any fiduciary duty that they may be found to have owed during the May 2016 negotiations included “an absolute or unqualified obligation not to act in conflict with the alleged interests of [Mr Dean or BAD Nominees]”. ^[64] Further, they contend that any such fiduciary duty was discharged by Mr Smits warning Mr Dean to seek competent and independent legal advice in circumstances where he had access to such legal advisers and he did in fact obtain such advice before signing the Power of Attorney, Consultancy Agreement and IAD and required certain changes to those documents prior to signing based on that legal advice. ^[65]

    64. 2FAD, paragraphs 38(b)-(c), 39.

    65. 2FAD, paragraphs 38(e)-(j) and (m)-(n), 39.

Power of Attorney, Consultancy Agreement, IAD and other documents executed on 9 May 2016

70. Although the IAD and Consultancy Agreement bear the date 5 May 2016, those documents were executed together with the Power of Attorney on 9 May 2016. ^[66]

    66. Exhibit 2, pp 1-16.

71. Clause 1 of the Power of Attorney provided that BAD Nominees appoints Mr Smits and Mr Mahommed, jointly and severally, to be its attorneys. Clause 4 provided that the power operated on and from 5 May 2016 to 5 May 2019.

72. Clause 2 provided that:

1. the attorneys may exercise the authority conferred by Part 2 of the Powers of Attorney Act 2003 (NSW) to do anything on behalf of BAD Nominees that BAD Nominees may lawfully authorise an attorney to do; and

2. the attorneys shall be appointed:

“… irrevocably for three (3) years as ‘authorised representatives’ and agents of the principal to act and to exercise all powers, rights and privileges of or imputable to or exercisable by the principal in relation to and respect of the matters referred to in page 5…”

73. The matters referred to on page 5 of the Power of Attorney were:

“(a)    Beechworth Land Estates Pty Ltd (Administrators Appointed) A.C.N. 160 808 631 (“BLE”) regarding, touching or concerning, under, or ancillary or incidental to:

I.    Deed of Loan dated 1 February 2013 between BLE, the Principal and James Edward Spencer;

II.    General Security Agreement dated 1 February 2013 between BLE as Grantor and the Principal as Secured Party;

III.    Associated PPSR Documents Rn. No. 2013 051 300 0068 with start time of 13 May 2013 and end date of 13 May 2038;

IV.    Redhill Estate Developments Pty Ltd A.C.N. 118 520 755 ATF The Red Hill Trust Partnership and in its personal capacity (“RED”) with respect to Mortgage Rd. No. AF 168070Y, any land or lots mortgaged thereby, the associated Deed of Loan dated 27 June 2007 between RED as the Mortgagor and any existing of past Mortgagee, and any associated marketing, sale or other realisation and security over the land or lots;

V.    Any Administration, Liquidation, Affairs and/or litigation or claims to which BLE and/or RED may be privy, may maintain or prosecute or be affected by;

VI.    Any disputes or claims concerning BLE and/or RED and any associated debts or liabilities, securities or trusts and priorities;

(b)    Griffith Estates Pty Limited (Administrators Appointed) A.C.N. 160 796 672 (“GEP”) touching, concerning or affecting or under or ancillary or incidental to:

I.    Any land or lots owned now or previously by GEP;

II.    Any realisation, sale or disposition of any existing or former land or lots of GEP;

III.    Any debt or liability, security or trust interest held by any creditor or beneficiary of GEP;

IV.    Any Administration, Liquidation, Affairs and/or litigation or claims to which GEP may be privy, or maintain or prosecute or be affected by;

V.    Any disputes or claims concerning GEP and any associated debts or liabilities, securities or trusts or priorities.” ^[67]

67. Exhibit 2, p 5.

74. Clause 3 of the Power of Attorney provided:

“I place the following limits and/or conditions on the authority of my attorney/s:

My attorneys shall not be obliged to take any action, step or proceeding, nor to execute any document deed or instrument in the absence of suiteable [sic] indemnification as may be agreed in writing from time to time by the principal and the attorneys.”

75. Clause 6 provided:

“6. Attorney responsibilities

Your attorney must do the following:

(a)    Keep your money and property separate from the attorney’s money and property.

(b)    Keep reasonable accounts and records of your money and property.

(c)    Not benefit from being an attorney, unless expressly authorised by you.

(d)    Always act in your best interests.

(e)    Always act honestly in all matters concerning your legal and financial affairs.” ^[68]

68. Exhibit 2, p 6.

76. The preamble to the Power of Attorney stated:

“An attorney must always act in your best interest. If your attorney does not follow your directions, or does not act in your best interest, you should revoke the power of attorney.”

77. The Power of Attorney was registered on 20 September 2017 (Bk 4732 No. 617).

78. On 9 May 2016, Mr Dean also signed the IAD in his capacity as sole director of BAD Nominees as trustee for the Dean Super Fund. The IAD was addressed to Mr Smits, Mr Mahommed and Vestecorp and stated: ^[69]

“In consideration of your undertaking to execute forthwith the agreed Forms of Power of Attorney and Consultancy Agreement at the request of Mr Brian Dean, as Sole Director of BAD Nominees Pty Ltd ACN 129 899 716 (‘BAD’) ATF The Dean Superannuation Fund on 8 May 2016, time being of the strictest essence, BAD hereby:

1.   Authorises and Directs irrevocably you and/or the Administrators of Griffith Estates Pty Limited (Administrators Appointed) (ACN 106 796 672) (‘GEP’) and of Beechworth Land Estates Pty Ltd (Administrators Appointed) (ACN 160 796 672) (‘BLE’) to pay 25% of all moneys damages interest and costs due, owing or payable to BAD in respect of any Griffith Lots referred to in current Legal Proceeding as directed in writing by you and for your absolute benefit and the balance of 75% thereof shall be paid to BAD.”

69. Exhibit 2, p 6.

79. The remaining clauses of the IAD set out the following acknowledgements by BAD Nominees: ^[70]

“2.    Acknowledges that it has obtained and/or has had ample opportunity to obtain independent advice in relation to those Forms and the Affairs of BAD, that BAD is in serious risk or jeopardy of being unable to recover any moneys from the Administrators in the events which have happened and due to in-action since their Appointments and that BAD is impecunious.

3.    Without your input and assistance, BAD would be unable to marshal or engage the requisite expertise and resources to deal with the enforcement of its alleged loan securities and associated rights or to make or resist any legal challenges against or from the Administrators of or any Liquidators or Receivers or Trustees (if appointed) to BLE, GEP, and associated wrongdoers and that, BAD carries the risk of payment of all related legal costs, for which BAD undertakes that you will be fully indemnified by BAD.

4.    Acknowledge that you will be at substantial risk for non-payment for provision of your services in the event that you are unsuccessful in recovering moneys for BAD from the Administrators.

5.    Acknowledge that BAD holds no executed or registrable loan securities from GEP and that the associated rights and interests claimed by it are likely to be void or voidable as against Liquidators of GEP, whose appointment is imminent and that the evidence of the alleged payments and documentation with respect to acquisition of the original loan securities is held by un-cooperative third party wrongdoers and not by BAD.” ^[71]

70. Exhibit 2, p 6.

71. Exhibit 2, p 6.

80. The Consultancy Agreement was entered into between BAD Nominees as trustee for the Dean Super Fund (as “Principal”) and Vestecorp and Mr Smits (as “Consultants”). Mr Mahommed is named as one of the Consultants’ representatives. ^[72]

    72. Exhibit 2, pp 7-16.

81. The services to be provided by the Consultants were described in item 1 of the “Services and Agreement Information” as:

“Power of Attorney of 8 May 2016

All services, functions and powers, all matters referred to in the Power of Attorney, all related and ancillary and incidental powers.”

82. It was not in dispute that this was a reference to the Power of Attorney that was executed at the same time as the IAD and Consultancy Agreement on 9 May 2016.

83. The list of services then refers to various activities under the headings “Planning” and “Operational”, including briefing legal advisors.

84. Clause 5 of the Consultancy Agreement and item 4 of the “Services and Agreement Information” provided that the fees payable to Mr Smits and Vestecorp were to be charged at hourly rates of $250 for Mr Mahommed and $500 for Mr Smits (plus GST).

85. The suite of documents executed on 9 May 2016 also included deeds assigning to BAD Nominees certain debts allegedly owed by Vangory Holdings and a handwritten undertaking signed by Messrs Smits and Mahommed that they would not “seek any personal recourse against Brian Arthur Dean or his residential property”. ^[73]

    73. Exhibit 4, p 429.

86. Messrs Smits and Mahommed and Vestecorp plead that it was “a real, predominant and legitimate purpose or object” of the Power of Attorney, the Consultancy Agreement and the IAD: ^[74]

“to enable or facilitate:

(i)    realization of the interests of BAD under the BLE Loan    Securities;

(ii)    protection, enforcement and effectuation of any lawful rights    and    interests of Mahommed, Vestecorp and/or Smits under    the CSA and IAD and of any DSF Trust Creditors, including the    Commonwealth, as represented by the Commissioner of    Taxation and any Lawyers engaged by BAD and/or either one    of the Attorneys for BAD;

(iii) establish the true DSF Trust Liabilities of BAD and to apply any secured debt recovered from BLE in admin. In or towards satisfaction of first, the costs, charges or expenses of realizations, after due regard was had to the priorities provided for in the MIP Agency Deed of 06 NOV 14, any BLE Loan Securities, Section 77 of the TLA, Sections 442C and 443D- 443F of the Corporations Act and the relevant PPSA sections as pleaded in the First Cross Claim filed on 30 AUG 19 (FXC), [12]-[14], payment of any Income Tax owing by BAD ATF the DSF and thence to pay any residual recovery to BAD;”

74. 2FAD, paragraph 22(h).

87. The Power of Attorney, Consultancy Agreement and IAD were executed contemporaneously. The Power of Attorney confers specified authority on Messrs Smits and Mahommed as attorneys and the Consultancy Agreement engages Mr Smits and Vestecorp as consultants to perform the services, functions and powers under the Power of Attorney. The IAD is expressed to be given in consideration for the execution of the Power of Attorney and Consultancy Agreement. I will use the short-hand expression the 9 May 2016 documents to refer to the Power of Attorney, Consultancy Agreement and IAD in these reasons on occasions where it is not necessary to distinguish between them.

88. In proceedings commenced in this Court in 2017, to which I refer in greater detail later in these reasons, Brereton J (as his Honour then was) held that the Power of Attorney was irrevocable for the period of three years for which it was given and that it was part of one single arrangement comprising the Power of Attorney, the IAD and the Consultancy Agreement, with each being consideration for the other. ^[75]

    75. In the matter of Beechworth Land Estates Pty Ltd [2018] NSWSC 1630 at [31]-[33].

89. In relation to the Power of Attorney, Brereton J said: ^[76]

“The contractual context to which I have already referred makes clear that the purpose of the grant was to give Messrs Mahommed and Smits full power and authority to deal with the subject matter, so that they could earn their fee and thereby earn three times that for their principal. It is not necessary to define the extent of any residual authority that Mr Dean might have had as a sole director. … what, in my view, on a proper construction of the power of attorney and surrounding documentation, he plainly cannot do, is effectively in derogation of the grant – and in order to frustrate the very purpose of the contractual arrangements and the power of attorney – interfere with [the attorneys’] exercise of their authority, including their appointment of a solicitor to act on behalf of [BAD Nominees] in proceedings which concern the subject matter of the power of attorney.”

76. [2018] NSWSC 1630 at [42].

90. It is common ground that Messrs Smits and Mahommed, as attorneys appointed under the Power of Attorney, were obliged to act honestly in all matters concerning BAD Nominees’ legal and financial affairs. ^[77]

    77. 3FASOC, paragraph 54(f); 2FAD, paragraph 54(j).

91. There is a dispute between the parties about whether the terms of the Power of Attorney required Messrs Smits and Mahommed to act in the interests of BAD Nominees and whether they were precluded from benefitting from the Power of Attorney (including by using the Power of Attorney to enter into agreements on behalf of BAD Nominees with themselves and by authorising payment of money from BAD Nominees to themselves or Vestecorp) unless expressly authorised by BAD Nominees to receive such benefits. ^[78]

    78. 3FASOC, paragraphs 54(d) and (e), 55(a)-(c); 2FAD, paragraphs 54(d) and (f)-(i), 55(a)-(c).

92. There is also a dispute between the parties as to whether the Power of Attorney, the Consultancy Agreement and/or the IAD included implied terms to the following effect: ^[79]

    79. 3FASOC, paragraphs 53(c) and 58; 2FAD, paragraph 58.

1. Mr Smits, Mr Mahommed and Vestecorp would not act in circumstances of conflict between their own interests and the interests of BAD Nominees;

2. Mr Smits, Mr Mahommed and Vestecorp would act in the best interests of BAD Nominees;

3. Mr Smits and Vestecorp would only be paid if and when Mr Smits and Vestecorp were the cause of money being recovered from BLE;

1. the Power of Attorney was only to be used for the purpose of providing the services pursuant to the Consultancy Services Agreement;

2. all fees charged, including under the Consultancy Agreement, would be fair, reasonable and proportionate and could be substantiated and readily ascertained to be fair, reasonable and proportionate from any invoice;

3. Mr Smits and Vestecorp (to the extent that Vestecorp engaged in legal practice by assisting Mr Smits) would charge in accordance with the term implied by s 172 of the Legal Profession Uniform Law (NSW) to the effect that charges would be fair, reasonable and proportionate to the circumstances;

4. Mr Smits and Vestecorp (to the extent that Vestecorp engaged in legal practice by assisting Mr Smits) would charge in accordance with the term implied by s 173 of the Legal Profession Uniform Law (NSW) to the effect that they would not act in any way which would unnecessarily increase legal costs; and

5. Mr Smits and Vestecorp (to the extent that Vestecorp engaged in legal practice by assisting Mr Smits) would render invoices in a form that permitted substantiation and assessment of the fees charged pursuant to the Legal Profession Uniform Law (NSW) and Legal Profession Uniform Law Application Act (NSW).

93. The plaintiffs contend that neither the Power of Attorney, the Consultancy Agreement nor the IAD authorised Messrs Smits and Mahommed to: ^[80]

    80. 3FASOC, paragraph 55(d)-(i).

1. assign property of BAD Nominees;

2. compromise claims made by Mr Smits or Mr Mahommed that BAD Nominees owed money to them;

3. sell or otherwise deal with any land recovered from BLE;

4. charge BAD Nominees for the cost of litigation with BAD Nominees;

5. charge BAD Nominees for legal costs for the benefit of third parties or for the benefit of Mr Smits and Mr Mahommed as attorneys; and

6. charge BAD Nominees the costs of recovering fees said to be due and owing to Mr Smits and Vestecorp by BAD Nominees.

94. Messrs Smits and Mahommed dispute this and maintain that they were entitled to do all of these things, including dealing with the nine lots of the Beechworth land that the administrators of BLE agreed to transfer to BAD Nominees under a contract entered into on 2 August 2017. ^[81]

    81. 2FAD, paragraph 55.

95. There is also dispute between the parties as to whether clause 1 of the IAD referred to at [78] above entitled Messrs Smits, Mahommed and Vestecorp to receive 25 per cent of moneys payable to BAD Nominees in respect of the “Griffith Lots” only (as the plaintiffs contend) or also in respect of assets of BLE (as the defendants contend). ^[82]

    82. Plaintiffs’ opening submissions at T7-8; defendants’ opening submissions at T29-32.

96. As I have mentioned at [85] above, the suite of documents executed on 9 May 2016 included three deeds assigning to BAD Nominees the following alleged debts:

1. a debt of $20,000 allegedly owing by Vangory Holdings to Mr Mahommed under an advance said to have been made on 8 July 2011; ^[83]

2. a debt of $28,250 allegedly owing by Vangory Holdings to Mr Mahommed under an advance said to have been made on 22 July 2011; ^[84] and

3. a debt of $28,250 allegedly owing by Vangory Holdings to A & K Harvey Power Consultants under an advance said to have been made on 22 July 2011. ^[85]

   83. Exhibit 20, pp 447-452.

   84. Exhibit 20, pp 443-446.

   85. Exhibit 20, pp 453-455.

97. In the judgment to which I have referred at [87] above, Brereton J described these documents in the following terms: ^[86]

“The deeds, notices of assignment and demands to Vangory Holdings reflected an arrangement procured by Mr Mahommed to obtain and assign to BAD debts owed by Vangory Holdings which would offset the debts claimed by Vangory Holdings in its creditors statutory demand and thus provide, presumably, a defence to Vangory Holdings’ claim”

86. [2018] NSWSC 1630 at [11].

98. As will become apparent later in these reasons, there is a dispute between the parties to these proceedings about whether the amounts referred to in these three deeds of assignment were in fact owed by Vangory Holdings to Mr Mahommed and A & K Harvey Power Consultants and about whether BAD Nominees is liable to pay Mr Mahommed the face value of the amounts referred to in the deeds in consideration for the assignments. ^[87]

Whether execution of the 9 May 2016 documents involved breach of fiduciary duties by Messrs Smits and Mahommed and Vestecorp

87. Affidavit of Mr Huxley sworn on 21 April 2020; Items 1-3 in Schedule B of the Cross-Claim.

99. The plaintiffs plead that, at the time that the Power of Attorney, Consultancy Agreement and IAD were executed, Messrs Smits and Mahommed told Mr Dean that he should sign the documents straight away as there was no time to delay, and that the documents were for the benefit of Mr Dean and BAD Nominees and would facilitate Messrs Smits and Mahommed to act in the best interests of Mr Dean and BAD Nominees when collecting the debt owed by BLE. The plaintiffs also plead that Mr Smits told Mr Dean that the Power of Attorney was for Mr Dean’s convenience so that Messrs Smits and Mahommed did not have make repetitive, time-wasting trips to have Mr Dean execute documents. ^[88]

    88. 3FASOC, paragraphs 43-44.

100. Messrs Smits and Mahommed deny that these things were said to Mr Dean and maintain that Mr Dean relied on his independent advisers and had ample opportunity to seek and obtain independent legal advice and that he in fact did so. ^[89]

     89. 2FAD, paragraphs 43-44.

101. The plaintiffs allege that:

1. Messrs Smits and Mahommed and Vestecorp expected Mr Dean to execute the Power of Attorney, IAD and Consultancy Agreement on behalf of BAD Nominees due to the encouragement of Mr Smits, as a purported Australian legal practitioner; ^[90]

   90. 3FASOC, paragraph 48.

2. at the time those documents were executed, there was a conflict between the interests of Mr Dean and BAD Nominees on the one hand, and the interests of Messrs Smits and Mahommed on the other hand, because: ^[91]

   91. 3FASOC, paragraph 45.

1. BAD Nominees had an interest in knowing that Mr Smits was not an Australian legal practitioner and in being told that it should consider retaining an Australian legal practitioner;

2. Messrs Smits and Mahommed were acting solely in their own interests to obtain a bargain that was detrimental to Mr Dean and BAD Nominees and to further the Attorney conspiracy, whereas Mr Dean and BAD Nominees had an interest in the bargain being fair and reasonable;

3. Messrs Smits and Mahommed had an interest in not disclosing their anticipated fees, whereas BAD Nominees had an interest in having an honest and reliable estimate of those fees;

4. Messrs Smits and Mahommed wanted a power of attorney and BAD Nominees had an interest in knowing that any agreement struck with Messrs Smits and Mahommed could be performed without a power of attorney and also that a power of attorney was open to abuse by attorneys;

5. Messrs Smits and Mahommed had an interest in having an irrevocable power of attorney, whereas BAD Nominees had an interest in the power of attorney being revocable;

6. Messrs Smits and Mahommed wanted a power of attorney to secure their fees because they intended to use it to pay themselves, and BAD Nominees had an interest in knowing that this was their purpose;

7. Messrs Smits and Mahommed had an interest in being able to act as if they were BAD Nominees without having to inform Mr Dean of what they were doing and without Mr Dean having to approve of what they were doing, whereas BAD Nominees had an interest in knowing that an agreement with Messrs Smits and Mahommed for the recovery of moneys from BLE could be performed without a power of attorney; and

8. Messrs Smits and Mahommed had an interest in not giving full disclosure, whereas BAD Nominees had an interest in receiving full disclosure;

3. Messrs Smits and Mahommed failed to inform Mr Dean of the following matters prior to execution of the Power of Attorney, IAD and Consultancy Agreement: ^[92]

   92. 3FASOC, paragraph 46.

1. Mr Smits was not an Australian legal practitioner;

2. a power of attorney was not essential to the performance of any agreement for the recovery of money from BLE;

3. a power of attorney was open to abuse as it enabled the attorneys to act as if they were BAD Nominees;

4. the Power of Attorney, as interpreted by Messrs Smits and Mahommed, permitted them to act without the instructions of Mr Dean and, indeed, contrary to the instructions of Mr Dean;

5. the Power of Attorney, as interpreted by Messrs Smits and Mahommed, permitted them to determine how and how much they could charge for fees and how and when those fees were to be paid, without the consent of Mr Dean;

6. the Power of Attorney could not be revoked for three years;

7. that, so long as Messrs Smits and Mahommed were using the Power of Attorney, they would charge fees to BAD Nominees;

8. that Messrs Smits and Mahommed would use the Power of Attorney to further the Attorney conspiracy;

9. the amount of fees that BAD Nominees may be liable to pay and how the fees would be charged, being information that Mr Dean required in order to substantiate the charges; and

10. that Mr Dean should obtain independent legal advice due to the nature and scope of the obligations and risks being undertaken by BAD Nominees in executing the Power of Attorney, IAD and Consultancy Agreement.

102. The plaintiffs allege that, in the circumstances referred to at [99]-[101] above, Messrs Smits and Mahommed and Vestecorp breached their fiduciary duties owed to Mr Dean and BAD Nominees. Alternatively, if Mr Mahommed and Vestecorp are found not to have owed a fiduciary duty to Mr Dean and BAD Nominees, the plaintiffs allege that they procured and participated in the breach of fiduciary duties by Mr Smits. ^[93]

     93. 3FASOC, paragraphs 47-50.

103. The plaintiffs claim that, in the circumstances, the Power of Attorney, Consultancy Agreement and IAD are “void, voidable and rescinded”. At the hearing, the plaintiffs abandoned the contention that these documents were void or voidable and limited their claim to a declaration that they have been rescinded, or are rescinded, ab initio. ^[94] The plaintiffs also claim that it would follow from rescission of those documents that any document entered into by Messrs Smits and Mahommed on behalf of BAD Nominees using the Power of Attorney has been, or should be, the subject of an order for rescission. ^[95]

     94. Plaintiff’s written submission dated 16 June 2020, paragraph 223; T549.1-549.35.

     95. 3FASOC, paragraphs 51-52.

104. Messrs Smits and Mahommed and Vestecorp deny that they expected Mr Dean to execute the Power of Attorney, IAD and Consultancy Agreement on the encouragement of Mr Smits as a purported Australian legal practitioner. They maintain that Mr Dean was informed during the negotiations in May 2016 that Mr Smits was a bankrupt and was not a practising solicitor and was not in a position to provide legal advice to Mr Dean and BAD Nominees. They reiterate their contentions referred to above that Mr Dean relied on Mr Cohen and other legal advisers. ^[96]

     96. 2FAD, paragraph 48.

105. Messrs Smits and Mahommed deny the conflict of interest alleged by the plaintiffs as referred to at [101] above. Specifically, Messrs Smits and Mahommed: ^[97]

     97. 2FAD, paragraph 45.

1. reiterate that Mr Dean was informed that Mr Smits was a bankrupt and was not a practising solicitor, and that Mr Smits told Mr Dean to obtain independent legal advice for himself and for BAD Nominees;

2. deny acting solely in their own interests to obtain a bargain that was detrimental to Mr Dean and BAD Nominees and to further the alleged Attorney conspiracy (which is denied), and say that the bargain was in fact fair and reasonable having regard to the acknowledgements recorded in the Consultancy Agreement and IAD, the complex and protracted 2014 proceedings then on foot and the fact that Mr Dean did not undertake any obligations under the Consultancy Agreement in his personal capacity;

3. deny that they had any interest in not disclosing their anticipated fees, and say that it was not possible in the circumstances to provide a reliable estimate for a period of up to three years, noting that Mr Dean told them that he had been engaged in attempting to recovery money from the administrators of BLE for two years without success;

4. say that it was agreed that the Power of Attorney was a necessary or reasonable form of protection of their interests as the attorneys and the interests of Mr Smits and Vestecorp as consultants and that it should not be presumed that a power of attorney is necessarily open to abuse;

5. claim that they told Mr Dean, and it was clear from the proposed terms of the Power of Attorney, that the Power of Attorney would be irrevocable;

6. claim that they also told Mr Dean, and it was clear from the proposed terms of the Power of Attorney, that, even if the Consultancy Agreement were terminated, the Power of Attorney could be used:

1. to enforce the February 2013 security (and the underlying securities, including the registered mortgage over the Beechworth land);

2. to protect their “accrued rights and interests” under the Consultancy Agreement and the IAD;

3. to protect accrued rights and interests under retainer agreements between Mr Smits as a solicitor and BAD Nominees (although I note that no such retainer agreements were entered into until 14 September 2017 and, at the time of the execution of the Power of Attorney, IAD and Consultancy Agreement, Mr Smits was not a practising solicitor and, on his version of events, he disclosed this to Mr Dean and did not profess to have any intention to recommence practising as a solicitor in the future);

4. to protect the accrued rights and interests of creditors of the Dean Super Fund;

5. to recover the balance of any moneys secured under the February 2013 security (by enforcing the underlying securities) on account of enforcement and recovery costs, including costs of realising assets, performance of the contract entered into between BAD Nominees and the administrators of BLE on 2 August 2017 and associated legal proceedings (although I note that the 2 August 2017 contract was not even under negotiation as at 9 May 2016 and the associated legal proceedings commenced in 2017 and were not in contemplation as at 9 May 2016); and

7. deny that they wanted or intended to use the Power of Attorney to pay themselves, but admit that they had the power to do so if necessary to ensure or secure payment of creditors of the Dean Super Fund.

106. In relation to the plaintiffs’ allegations that they failed to inform Mr Dean of the matters referred to at [101(3)] above, Messrs Smits and Mahommed: ^[98]

     98. 2FAD, paragraphs 45(i), 46.

1. say that they “provided adequate or substantial disclosures” to Mr Dean;

2. say that Mr Smits informed Mr Dean in the period between 5 and 9 May 2016 that he was not a practising solicitor because he was a bankrupt;

3. say that the Power of Attorney was agreed upon as a necessary or reasonable form of protection for Mr Smits and Vestecorp as consultants and for Messrs Smits and Mahommed as attorneys;

4. say that it was clear from the Power of Attorney that it was irrevocable for three years, and it was clear from the terms of the IAD that it was irrevocable and therefore capable of being used after any termination of the Consultancy Agreement;

5. say that there should be no presumption of exposure to abuse of a power of attorney;

6. say that it was clear from the terms of the Power of Attorney that an attorney could act if necessary or appropriate without instructions from Mr Dean, or contrary to instructions from Mr Dean in appropriate circumstances such as Mr Dean’s alleged “refusal to act or be silent in respect of, in or towards effectuation, participating in or furtherance of illegal matters, or the use of unlawful means”;

7. say that the Power of Attorney operated subject to the contractual obligations of BAD Nominees and for the purposes of the Consultancy Agreement, the IAD, the performance of the contract subsequently entered into on 2 August 2017 and the enforcement of the February 2013 security and the underlying security interests of BLE;

8. deny that, as attorneys, they could determine capriciously or arbitrarily how and how much the consultants would charge for fees and how and when such fees would be paid, and say that those fees were governed by the applicable contractual rights and obligations;

9. say that, as attorneys, they were empowered to incur and pay legal debts incurred by them for BAD Nominees in connection with the February 2013 security and the underlying security interests of BLE;

10. say that Mr Dean was provided with a copy of the Consultancy Agreement on 9 May 2016 which set out the charge out rates of Mr Smits and Vestecorp as consultants, and was subsequently provided with a copy of the retainer agreement between BAD Nominees and Mr Smits (as a solicitor) dated 14 September 2017 which set out Mr Smits’ charge out rates as a solicitor;

11. deny the existence of the alleged Attorney conspiracy and deny that they intended to use the Power of Attorney in furtherance of any such Attorney conspiracy;

12. say that Mr Dean was a sophisticated client who frequently used legal services and engaged lawyers independently of the attorneys, including Mr Cohen throughout May 2016, Mr Orlizki during the period from 10 May to 10 August 2016, and other lawyers for the purpose of the 2017 proceedings;

13. say that Mr Dean was advised to obtain independent legal advice, and was given ample opportunity to do so and to negotiate changes to the terms of the proposed Power of Attorney, IAD and Consultancy Agreement, and the only change that he elected to negotiate was to limit his personal liability and preclude any recourse to his residential property; and

14. say that the obligations and risks assumed by BAD Nominees under the Power of Attorney, the Consultancy Agreement and the IAD must be viewed in the context of the circumstances recorded in the Consultancy Agreement and the IAD and the status and complexity of the 2014 proceedings and the administrations of BLE and GEP.

107. Messrs Smits and Mahommed and Vestecorp plead that Mr Dean executed the Power of Attorney, IAD, Consultancy Agreement, and other documents signed on 9 May 2016 after consulting with his independent advisers, and in the presence of those advisers and witnesses. ^[99]

     99. 2FAD, paragraph 47.

108. Messrs Smits and Mahommed and Vestecorp deny that they breached any fiduciary duty. ^[100]

     100. 2FAD, paragraph 49.

109. Mr Mahommed and Vestecorp deny that they procured or participated in any alleged breach of fiduciary duty by Mr Smits and complain that this allegation is not adequately pleaded or particularised. ^[101]

     101. 2FAD, paragraph 49.

110. Messrs Smits and Mahommed and Vestecorp deny that Overdean has standing to sue in respect of any avoidance or rescission of the Power of Attorney, Consultancy Agreement and IAD merely because it became the trustee of the Dean Super Fund with effect from 5 September 2018. ^[102]

     102. 2FAD, paragraph 49(i).

111. In any event, Messrs Smits and Mahommed and Vestecorp deny that the Power of Attorney is void or voidable and has been or should be rescinded, and deny that BAD Nominees is entitled to rescind (or to an order for rescission of) any document entered into by Messrs Smits and Mahommed using the Power of Attorney, ^[103] noting that the documents entered into using the Power of Attorney include:

1. the 2 August 2017 contract in respect of which Gleeson JA made a declaration in other proceedings, with the consent of Mr Dean, confirming that the contract had been entered into as referred to at [176]-[193] below; ^[104] and

2. the retainer agreement between Mr Smits and BAD Nominees dated 14 September 2017, which was in the subject of a judgment delivered by Brereton J (as his Honour then was) in those other proceedings on 23 February 2018 referred to at [199]–[216] below. ^[105]

   103. 2FAD, paragraphs 51-52.

   104. 2FAD, paragraph 52(d); In the matter of Beechworth Land Estates Pty Ltd (administrators apptd) [2017] NSWSC 1447.

   105. 2FAD, paragraph 52(e).

830. For those reasons, BAD Nominees is not indebted to Mr Smits in respect of the amounts in items 22, 23 and 25 of Schedule B in the Further Amended Cross-Claim. Contrary to the defendants/cross-claimants’ contentions, ^[721] it is simply not to the point that Mr Mahommed approved Mr Smits’ invoices. I therefore do not find it necessary to address the issues raised by the plaintiffs/cross-defendants as to whether Mr Mahommed breached his fiduciary duties in doing so. ^[722] My conclusion that the invoiced amounts are not owing because the invoices were issued under retainers that are void ab initio also renders it unnecessary to address the many other issues raised by the plaintiffs/cross-defendants in relation to Mr Smits’ invoices, and the defendants/cross-claimants’ responses to those issues. ^[723]

     721. See [441] above.

     722. See [429]–[430] above.

     723. See [428]–[436], [439]–[441] and [445] above.

Remaining fees charged by Vestecorp

833. The remaining fees of Vestecorp that are the subject of the Cross-Claim are:

1. item 13 of Schedule B, being Vestecorp’s invoice dated 4 September 2018 in the amount of $35,186.25 for fees said to be payable by BAD Nominees for work described as having been performed by Mr Mahommed during the period from 1 January 2018 to 31 August 2018; ^[724]

2. item 14 of Schedule B, being Vestecorp’s invoice dated 4 October 2018 in the amount of $14,694.17 for fees said to be payable by BAD Nominees for work described as having been performed by Mr Mahommed during the month of September 2018; ^[725]

3. item 17 of Schedule B, being Vestecorp’s invoice dated 5 November 2018 in the amount of $50,719.17 for fees said to be payable by BAD Nominees for work described as having been performed by Mr Mahommed during the month of October 2018; ^[726]

4. item 21 of Schedule B, being Vestecorp’s invoice dated 7 December 2018 in the amount of $32,262.08 for fees said to be payable by BAD Nominees for work described as having been performed by Mr Mahommed during the month of November 2018; ^[727] and

5. item 24 of Schedule B, being Vestecorp’s invoice erroneously dated 13 December 2016 in the amount of $35,841.67 for fees said to be payable by BAD Nominees for work described as having been performed by Mr Mahommed during the period from 1 December to 12 December 2018. ^[728]

   724. Exhibit 2, pp 132-137; Mr Mahommed’s affidavit affirmed on 8 March 2019, paragraph 35.2.

   725. Exhibit 2, pp 145-148; Mr Mahommed’s affidavit affirmed on 8 March 2019, paragraph 35.2.

   726. Exhibit 2, pp 149-156; Mr Mahommed’s affidavit affirmed on 8 March 2019, paragraph 35.2.

   727. Exhibit 2, pp 157-161; Mr Mahommed’s affidavit affirmed on 8 March 2019, paragraph 35.2.

   728. Exhibit 2, pp 129-131; Mr Mahommed’s affidavit affirmed on 8 March 2019, paragraph 35.2.

834. To the extent that Vestecorp’s invoice dated 4 September 2018 relates to the period from 1 January 2018 to 20 March 2018, it contains a large number of entries for work described in terms that, understood in the context of the ongoing 2014 proceedings and matters in issue in the hearing before Brereton J in the 2017 proceedings, refer to activities that constitute engaging in legal practice within the meaning of s 10 of the Uniform Law. For example, the invoice includes entries for preparation of a court book, drafting a chronology, reviewing lists of authorities, drafting “examination questions” for Messrs Dean, Conlon and Armstrong, and reviewing and discussing with Mr Smits submissions prepared on behalf of Mr Dean. Vestecorp is precluded by s 10(2) of the Uniform Law from recovering any payment from BAD Nominees for these kinds of work.

835. Whilst the entries for the period 1 January 2018 to 20 March 2018 do include some matters that appear to be work of a non-legal nature, the invoice is not presented in a manner that permits these items to be separated from the legal practice referred to above. Nor is there any evidence that would facilitate quantification of fees in respect that work, assuming for present purposes that the work was in fact done.

836. For those reasons, the defendants/cross-claimants have failed to establish that BAD Nominees is indebted to Vestecorp in respect of the charges in its invoice dated 4 September 2018 that relate to the period from 1 January 2018 to 20 March 2018.

837. I accept the plaintiffs’/cross-defendants’ contention that BAD Nominees is not indebted to Vestecorp in respect of the remaining charges in the invoice dated 4 September 2018 or any of the charges in the other invoices referred to at [833] above because, if and to the extent that the work was performed, it was performed for the benefit of Garslev and not for the benefit of BAD Nominees. As I have explained above, Messrs Smits and Mahommed were appointed under the Power of Attorney to act on behalf of BAD Nominees to exercise its rights in relation to BLE and GEP. ^[729] Mr Smits and Vestecorp were appointed under the Consultancy Agreement to provide services, functions and powers under the Power of Attorney. ^[730] Once BAD Nominees’ rights had been assigned to Garslev under the 20 March 2018 deed, there was nothing further for Messrs Smits and Mahommed to do on behalf of BAD Nominees in relation to BLE and GEP under the Power of Attorney and anything that they did do in the name of BAD Nominees was for the benefit of Garslev rather than for the benefit of BAD Nominees. It follows that there were no “Services” that Vestecorp was obliged to perform and entitled receive payment for under the Consultancy Agreement from 20 March 2018. ^[731]

     729. See [572]-[577] above.

     730. Clause 2.1 and item 1 in the “Services and Agreement” schedule at Exhibit 2, pp 9 and 15.

     731. See [649] and [669]-[673] above.

838. In coming to the conclusion above, it has not been necessary for me to determine whether or not Mr Mahommed in fact performed the work described in Vestecorp’s invoices. My conclusion makes it unnecessary to address that issue or the numerous other issues raised by the plaintiffs/cross-defendants in relation to Vestecorp’s invoices. ^[732]

     732. See [428]–[436] and [442]–[445] above.

839. For those reasons, BAD Nominees is not indebted to Vestecorp in the amounts set out in items 13, 14, 17, 21 and 24 of Schedule B in the Further Amended Cross-Claim.

Claimed fee of $250,000 under the IAD

840. Item 19 of Schedule B is the fee that Messrs Smits and Mahommed and Vestecorp claim BAD Nominees is obliged to pay to them under clause 1 of the IAD. ^[733]

     733. Mr Mahommed’s affidavit affirmed on 8 March 2019, paragraph 35.6.

841. For the reasons explained at [602] above, clause 1 of the IAD, properly construed, entitles Messrs Smits and Mahommed and Vestecorp to 25 per cent of recoveries achieved by their efforts.

842. As I have explained at [158]-[163] above, BAD Nominees’ right to the transfer of the nine lots arose from the administrators’ acceptance of an offer made by Mr Cohen (purportedly acting on behalf of BAD Nominees on the instructions of Mr Dean) on 2 August 2017. That offer accepted by the administrators had its genesis in negotiations with the administrators initiated by Mr Orlizki (purportedly acting for BAD Nominees on instructions from Mr Dean and also acting for MAFA). There is no evidence that Messrs Smits and Mahommed (or Vestecorp) had anything to do with the 2 August 2017 contract, save that they attempted (unsuccessfully) to insert themselves into the negotiations when they became aware of the administrators’ first offer made on 13 June 2017. Mr Mahommed acknowledged in cross-examination that he had no knowledge of the negotiations that elicited the administrators’ first offer. ^[734] Indeed, for the reasons explained at [808]-[811] above, I have found that Messrs Smits and Mahommed (and Vestecorp) did no work on behalf of BAD Nominees for approximately one year before that first offer was received from the administrators.

     734. T504.25-504.36.

843. For those reasons, Messrs Smits and Mahommed and Vestecorp are not entitled to recover from BAD Nominees the amount of $250,000 claimed in item 19 of Schedule B of the Further Amended Cross-Claim.

Consideration of other aspects of Schedule B of the Cross-Claim

844. Items 1, 2 and 3 in Schedule B are the face value of the debts allegedly owing by Vangory Holdings to Mr Mahommed and A & K Harvey Power Consultants that were assigned to BAD Nominees under three deeds of assignment executed on 9 May 2016. ^[735] The recitals to each deed of assignment refer to BAD Nominees having offered to “purchase” the relevant debt from the relevant assignor and each deed contains an operative provision whereby the assignor “hereby assigns for valuable consideration” the assignor’s right, title and interest in respect of the debt. ^[736] However, the deeds do not specify an amount of consideration. In explaining items 1, 2 and 3 of Schedule B in his affidavit affirmed on 8 March 2019, Mr Mahommed gave no evidence about any amount of consideration having been agreed for the assignment of the debts. Mr Mahommed’s evidence impliedly asserted that the consideration was the face value of the debts. Mr Smits gave evidence that he could not recall any discussion about the consideration at the meeting with Mr Dean on 9 May 2016. ^[737] Assuming (without deciding) that each of the three debts was due and payable to the relevant assignor as at 9 May 2016, the cross‑claimants have not proved on the balance of probabilities that the amounts claimed in items 1, 2 and 3 of Schedule B were payable by BAD Nominees to the assignors in consideration for the assignments of the five year old debts.

     735. See [96]-[98] above; Mr Mahommed’s affidavit affirmed on 8 March 2019, paragraph 35.1.

     736. Exhibit 20, pp 443-444, 448-449 and 453-455.

     737. T288.21-288.50.

845. Items 11 and 12 in Schedule B are stamp duty and registration costs incurred by Garslev in order to become the registered proprietor of the nine lots. ^[738] They are not expenses incurred by the defendants/cross-claimants on behalf of or for the benefit of BAD Nominees. It follows that BAD Nominees is not indebted to the defendants/cross-claimants in respect of the amounts of $55,000 and $2,800 referred to in items 11 and 12 of Schedule B. For completeness, I note that these costs have been taken into account in quantifying the benefit derived by Garslev from its knowing assistance in the breaches of fiduciary duty for which Garslev is required to account to BAD Nominees. ^[739]

     738. Mr Mahommed’s affidavit affirmed on 8 March 2019, paragraph 35.3.

     739. See [749] above.

846. Item 16 of Schedule B relates to the amount of $50,000 for security costs that was the subject of an und that Messrs Smits and Mahommed caused BAD Nominees and Garslev to give to the Court in the 2014 proceedings and the 2018 proceedings. The undertaking was given after 20 March 2018, when those proceedings were been conducted in the name of BAD Nominees but for the benefit of Garslev. The terms of the undertaking were to cause the $50,000 security to be paid from the proceeds of sale of the nine lots. ^[740] As I have referred to earlier in these reasons, Messrs Smits and Mahommed purported to allocate $50,000 of the monies paid into court by Garslev pursuant to the orders made in these proceedings on 1 February 2019 to the security for costs in order to comply with that undertaking. ^[741] The $50,000 sum in item 16 of Schedule B of the Further Amended Cross-Claim is not a debt payable by BAD Nominees to Garslev. On the contrary, it represents an amount by which the value of the constructive trust in favour of Overdean in respect of the monies paid into Court under the 1 February 2019 orders has been diminished but for which Garslev remains liable to account for and which may be recovered under the award of equitable compensation in favour of Overdean. ^[742]

     740. Undertaking noted by Black J on 15 October 2018 at Exhibit 20, p 986, as referred to at [291]-[292] above.

     741. See [759] above.

     742. See [762] above.

847. Item 18 of Schedule B ($85,000 described as “ATO”) is not an expense incurred by Mr Smits, Mr Mahommed or Vestecorp at all. In paragraph 35.5 of his affidavit affirmed on 8 March 2019, Mr Mahommed describes item 18 as an “allowance or provision … made for GST payable to the Australian Taxation Office … in respect of the Supply made by BAD under the [20 March 2018 deed]”. There is no evidence that any such payment was made. It follows that BAD Nominees is not indebted to the defendants/cross-claimants in respect of the $85,000 amount referred to in item 18 of Schedule B in the Further Amended Cross-Claim.

848. Item 20 of Schedule B relates to legal expenses paid by Garslev to the solicitors whom Messrs Smits and Mahommed purported to instruct to act for BAD Nominees and Garslev on the transfer of the nine lots and whose legal services were provided for the benefit of Garslev rather than BAD Nominees once Garslev was nominated as the transferee of the nine lots. ^[743] For those reasons, BAD Nominees is not indebted to the defendants/cross-claimants in respect of the legal fees of $9,621.02 referred to in item 20 of Schedule B in the Further Amended Cross-Claim. For completeness, I note that those legal fees paid by Garslev have been taken into account in quantifying the benefit that it derived from its knowing assistance in the breaches of fiduciary duty for which it is required to account to BAD Nominees. ^[744]

     743. Mr Mahommed’s affidavit affirmed on 8 March 2019, paragraph 35.7; see also [196]-[197] and [268] above; Exhibit 20, pp 1280-1283.

     744. See [749] above.

Conclusion in relation to cross-claimants’ first and second causes of action

849. For the reasons explained at [770]-[848] above, what are described in the Further Amended Cross-Claim as the cross-claimants’ first and second causes of action (being claims to recover from BAD Nominees the amounts in Schedule B as debts and to recover those same amounts from Mr Dean under s 197 of the Corporations Act) fail.

Consideration of other aspects of the Cross-Claim

850. I now turn to consider the third, fourth and fifth causes of action pleaded in the Further Amended Cross-Claim.

Cross-claimants’ third cause of action: Inducing breach of contract

851. The defendants/cross-claimants allege that Mr Dean induced or procured:

1. breaches by BAD Nominees of its alleged obligations under the 9 May 2016 documents (specifically, obligations to pay fees to Mr Smits and Vestecorp and obligations to cooperate with Messrs Smits and Mahommed and Vestecorp); and

2. breaches by BAD Nominees of its alleged obligations under the 20 March 2018 deed and the Garslev deeds.

852. Orders are to be made rescinding the 20 March 2018 deed and the Garslev deeds. Rescission takes effect ab initio. The second aspect of the cross-claimants’ third cause of action therefore fails.

853. The first aspect also fails because:

1. the cross-claimants have not established any entitlement to the fees claimed for the reasons explained in detail above in relation to the cross-claimants’ first cause of action;

2. to the extent that the cross-claimants rely on Mr Dean’s conduct in asserting that BAD Nominees rights in relation to BLE had been assigned to MAFA, the cross-claimants have embraced that same position in those proceedings, as referred to at [151], [480] and [567] above;

3. to the extent that the cross-claimants rely on Mr Deans alleged failure to account to Messrs Smits and Mahommed for money allegedly payable to BAD Nominees and received by Mr Dean, I repeat [555] above; and

4. to the extent that the cross-claimants rely on Mr Deans’ alleged refusal or failure to provide information to Messrs Smits and Mahommed, I repeat [557] above.

Cross-claimants’ fourth cause of action: Claim for damages under s 68

854. The cross-claimants’ fourth cause of action is misconceived. The cross-claimants have not sought or established a basis for an injunction restraining any breach of contract or an order for specific performance of any contract. The Court’s power to award damages under s 68 of the Supreme Court Act is not in play.

Cross-claimants’ fifth cause of action: Alleged contraventions of Schedule 2 to the Legal Profession Uniform Application Act 2014 (NSW)

855. The plaintiffs’ claims have succeeded. I reject the defendants’ allegation that the certification and filing of the third further amended statement of claim on 7 November 2019 contravened clause 2 of Schedule 2 of the Legal Profession Uniform Law Application Act: see [413] above. The cross-claimants’ fifth cause of action fails.

1. CONCLUSIONS AND ORDERS

856. For all of the reasons above, I make the following orders and notations:

1. Order that the deed of assignment dated 20 March 2018 between BAD Nominees (as assignor) and Garslev Holdings (as assignee) is rescinded ab initio.

2. Order that the deed of assignment dated 5 November 2018 between BAD Nominees, Garslev Holdings, Peter Mahommed and Leonardus Smits is rescinded ab initio.

3. Order that the deed of settlement dated 5 November 2018 between BAD Nominees, Garslev Holdings, Peter Mahommed, Vestecorp and Leonardus Smits is rescinded ab initio.

4. Order that Garslev account to Overdean (as trustee of the Dean Super Fund) for the net proceeds of sale of the following land that was the subject of the declaration made by this Court on 23 October 2017 in proceeding 2017/279755 that Beechworth Land Estates was authorised to sell the land to BAD Nominees (being an amount of $1,058,579 referred to at [749] of these reasons for judgment):

Plan	Lot	Folio	Address
616587E	16	11449/456	17 Braunthal Avenue, Beechworth
616587E	17	11449/457	19 Braunthal Avenue, Beechworth
616587E	18	11449/458	21 Braunthal Avenue, Beechworth
616587E	30	11449/484	28 Hayes Drive, Beechworth
616587E	47	11449/465	29 Hayes Drive, Beechworth
616587E	48	11449/466	27 Hayes Drive, Beechworth
616587E	49	11449/467	25 Hayes Drive, Beechworth
611593M	73	11655/777	Mossgrove Way, Beechworth
611593M	74	11655/778	Mossgrove Way, Beechworth

5. Declare that the monies paid into court during the period since February 2019 representing the net proceeds of sale of the land referred to in order 4 above, less the sum of $50,000, are impressed with a constructive trust for the benefit of Overdean (as trustee of the Dean Super Fund).

6. Order that the monies held in court that are impressed with the trust in order 5 above be paid to Overdean (as trustee of the Dean Super Fund).

7. Order that Peter Mahommed and Leonardus Smits pay equitable compensation to Overdean (as trustee of the Dean Super Fund) in the amount of $1,058,579 plus interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) for the period from 30 April 2019 until the date of these orders, such interest to be payable at the rate of 4 per cent above the cash rate last published by the Reserve Bank of Australia in respect of each 6 month period from 1 January to 30 June and from 1 July to 31 December within the period from 30 March 2019 until the date of these orders.

8. Order that the plaintiffs’ claims for relief in the Third Further Amended Statement of Claim otherwise be dismissed, save for the question of costs which is reserved for determination on the papers.

9. Order that the Further Amended Cross-Claim be dismissed, save for the question of costs which is reserved for determination on the papers.

10. Note that, in these orders:

1. Brian Dean means the second plaintiff/second cross-defendant in these proceedings, Mr Brian Arthur Dean;

2. BAD Nominees means the third plaintiff/third cross-defendant in these proceedings, BAD Nominees (NSW) Pty Limited ACN 129 899 716;

3. Beechworth Land Estates means Beechworth Land Estates Pty Ltd;

4. Dean Super Fund means the superannuation fund established by Brian Dean in or about December 2012;

5. Garslev Holdings means the first defendant/first cross-claimant in these proceedings, Garslev Holdings Pty Ltd ACN 003 312 383;

1. Leonardus Smits means the third defendant/third cross-claimant in these proceedings, Mr Leonardus Gerardus Smits;

2. Overdean means the first plaintiff/first cross-defendant in these proceedings, Overdean Developments Pty Ltd ACN 109 387 457;

3. Peter Mahommed means the fourth defendant/fourth cross-claimant in in these proceedings, Mr Peter Shah Mahommed; and

4. Vestecorp means the fifth defendant/fifth cross-claimant in these proceedings, Vestecorp Financial Services Pty Ltd (CAN 003 856 442).

857. I will hear the parties in relation to costs. I am not aware of any reason why costs cannot be determined on the papers. I make the following directions:

1. By 5pm on 1 December 2021, the plaintiffs/cross-defendants are to file and serve written submissions of no more than five pages specifying the costs orders they seek and setting out their submissions in support of those costs orders.

2. By 5pm on 1 December 2021, the defendants/cross-claimants are to file and serve written submissions of no more than five pages specifying the costs orders they seek and setting out their submissions in support of those costs orders.

3. By 5pm on 8 December 2021, the plaintiffs/cross-defendants are to file and serve written submissions of no more than three pages in response to the defendants/-claimants’ submissions in relation to costs.

4. By 5pm on 8 December 2021, the defendants/cross-claimants are to file and serve written submissions of no more than three pages in response to the plaintiffs’ cross-defendants submissions in relation to costs.

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Endnotes

Amendments

20 January 2022 - Amendment to paragraphs:

452. [391]-[393]

750. [390]-[393]

Decision last updated: 20 January 2022