Play Australia Pty Ltd v Papadimitriou
[2014] VSC 608
•11 December 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2012 2480
| PLAY AUSTRALIA PTY LTD (ACN 107 938 170) | Plaintiff |
| v | |
| JOHN PAPADIMITRIOU | First Defendant |
| AYMAN ABDOU | Second Defendant |
| 328NHF PTY LTD (ACN 144 975 986) (in liquidation) | Third Defendant |
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JUDGE: | DALY AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 1, 2 and 3 April 2014; 5, 6, 7, 12 and 19 May 2014 |
DATE OF JUDGMENT: | 11 December 2014 |
CASE MAY BE CITED AS: | Play Australia Pty Ltd v Papadimitriou |
MEDIUM NEUTRAL CITATION: | [2014] VSC 608 |
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TRADE PRACTICES – Action for damages for alleged misleading and deceptive conduct – Former business partners – Representations made regarding the capabilities and financial standing of defendants – Representations made regarding property development – No liability for misleading or deceptive conduct –Fair Trading Act 1999 (Vic) s 159 – Wrongs Act 1958 (Vic) Part IV – Proceeding dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L E P Magowan | Armytage Corporate Lawyers Pty Ltd |
| For the First and Second Defendants | Mr N Jones | Blue Rock Law |
| For the Third Defendant | No appearance |
HER HONOUR:
Introduction
In this proceeding, the plaintiff, Play Australia Pty Ltd (‘Play Australia’), brings a claim for damages against the first and second defendants, arising out of an investment made by it in the third defendant in July 2010. The first and second defendants, Mr John Papadimitriou and Mr Ayman Abdou (‘defendants’) were alleged to have engaged in misleading or deceptive conduct by making certain representations to Mr Andrew Moussi, the sole director of the plaintiff, to induce him to make an investment of $250,000 in the third defendant which in turn would invest in a multi‑unit apartment development in Frankston (‘development project’). The development project never proceeded, the third defendant went into liquidation, and the plaintiff lost its investment in its entirety.
For the reasons which follow, the plaintiff has failed to establish that the defendants, or either of them, are liable for misleading or deceptive conduct, and the proceeding shall be dismissed.
The Parties
Mr Andrew Moussi is the sole director and shareholder of the plaintiff. He is an experienced IT professional, and, through the plaintiff, has provided software testing and project management services to the ANZ Bank for a number of years. At the time of the trial he was 40 years old.
Mr Moussi’s best friend is Dr Ambrosius (Bruce) Kambouris. Dr Kambouris is, among many other things, an industrial chemist and inventor. Mr Moussi and Dr Kambouris have been friends for approximately 20 years, and have embarked upon a number of business ventures together, including an olive farm, a wine label, and a liquor store. Dr Kambouris’ inventions include, among other things, ‘Botanical Water’, a by-product of the fruit and vegetable processing industry, and ‘KeepaFresh’, a form of food packaging made from vegetable waste.
It was through the process of seeking to commercialise the inventions referred to above that Dr Kambouris, and subsequently Mr Moussi, met the defendants in early 2010. The defendants, who, among other things, claim to be experienced in raising capital for start-up ventures, offered to assist Dr Kambouris to raise capital for the commercialisation of his inventions in exchange for shareholdings in companies established for that purpose. The main focus of their activities was the commercialisation of Botanical Water. For a number of months in 2010 Dr Kambouris worked closely with the defendants on the Botanical Water project for their perceived mutual benefit. However, in around September 2010, Dr Kambouris parted company with the defendants in acrimonious circumstances, and the disputes between them resulted in hard fought litigation in this Court.[1] These disputes, and the commercial dealings between the parties leading up to these disputes, are only tangentially relevant to the issues in the current proceeding, save that they provide some background and context for the dispute which is the subject matter of this proceeding, and provided fuel for the cross examination of the parties on credit issues.
[1]See Re Botanical Water Holdings Pty Ltd [2013] VSC 96.
While the frequency and duration of his visits to Melbourne is in dispute (Dr Kambouris lives in Mildura), it appears that Dr Kambouris visited Melbourne quite frequently during 2010, sometimes for days at a time, particularly after he ceased his employment in Mildura in May 2010, and that he almost always stayed with Mr Moussi in his apartment in Southbank. It was through his friendship with Dr Kambouris, and his involvement in assisting Dr Kambouris to commercialise his inventions, that Mr Moussi met the defendants in February 2010. At first, Mr Moussi met the defendants in the company of Dr Kambouris, but Mr Moussi also had, during the course of 2010, spoken individually with Mr Papadimitriou and Mr Abdou about their other business interests, and in particular, their interests in property development.
Mr Papadimitriou and Mr Abdou are, among other things, the principals of Search Property Group Pty Ltd (‘Search’). The website for Search[2] describes its business as follows:
[2]Exhibit A.
Search Property Group have [sic] been at the forefront of Melbourne’s property market for a few years and are currently on the rise.
The business has forged a reputation in the community built on professionalism and attention to detail.
Every development, sub-division and finance is held to the strictest standard of reliability and quality to deliver the best product possible.
We work with the best professionals within the industry to provide a range of services all conducted in house to provide the best and fastest service for our clients.
and further:
At Search Property Group we always ensure projects are not only economically viable, but also environmentally sustainable and community supportive.
Our expertise covers everything from residential, retail and commercial property development to property investment and asset management and even development and construction management.
We also contain all professionals in-house to save time and money and don’t [sic] need to go external for any services.
and finally:
At Search Property Group our partners are a key part of our organisation, containing in-house:
·Builders
·Solicitors
·Accountants
·Architects
·Property Consultants
This allows us to combine all strengths across all of our partners to share resources, challenge boundaries, and bring our vision to reality.
The third defendant, 328NHF Pty Ltd (‘328NHF’), was incorporated by Mr Abdou in July 2010 as a special purpose vehicle for the purpose of purchasing and developing a substantial property at 382 Nepean Highway, Frankston (‘Frankston property’). The purchase was never completed, and 328NHF went into liquidation in 2013.
The Transaction
Turning to the subject matter of the proceeding itself, it appears that by 2010 Search and its principals were actively seeking opportunities for medium to larger scale property developments. They had embarked on a 33 apartment development at 138 Frankston-Flinders Road, Frankston South (‘138FF development’), and were actively pursuing opportunities to undertake redevelopments of various properties owned by branches of the Returned Services League (‘RSL’). In or around March 2010, they became aware of the Frankston property, which was on the market and potentially ripe for redevelopment for residential apartments (the site was occupied by a retirement village).
While the exact chronology of events and the contents of some relevant conversations are in dispute, the following is a largely uncontroversial narrative of the relevant events.
Sometime in July 2010, Mr Abdou entered into a contract of sale with O’Connor Assets Pty Ltd (‘vendor’) to purchase the Frankston property. The contract of sale for the Frankston property (‘contract of sale’) was dated 1 July 2010. The terms of the contract of sale provided for the purchaser to be Mr Abdou or his nominee, and provided for a process by which any nomination to a substitute purchaser was to be effected. The purchase price was $3.3 million, with $165,000 payable on signing, a further $165,000 payable on 1 July 2011, with the balance of the purchase price payable on 1 July 2012.
Prior to this time, in early June 2010, Mr Moussi had discussions with Mr Papadimitriou and Mr Abdou about participating in the development project. What was said, and what was agreed during these discussions, is at the heart of the dispute between the parties. However, sometime between 5 June and 11 June 2010, Mr Moussi decided that the plaintiff would advance the sum of $250,000 towards the development project. This sum (‘advance’) was to be raised by way of a loan from the Commonwealth Bank secured by an investment property in Brunswick owned by Mr Moussi. Mr Moussi’s application for finance (‘loan application’) was made through All‑States Financial Services Pty Ltd (‘All-States’), in which members of Mr Papadimitriou’s immediate family had a financial interest. Mr Papadimitriou and Mr Brett Barr, a principal of All-States, completed all of the necessary paperwork for Mr Moussi to sign the loan application on or around 11 June 2010.
On 1 July 2010, 328NHF was incorporated by Mr Abdou. A certificate was issued for 25 shares to be held by Three Point Design Pty Ltd (‘Three Point Design’), with the remaining 75 shares being held by A J Phoenix Pty Ltd (‘A J Phoenix’), a company representing the Papadimitriou and Abdou interests. Three Point Design was a special purpose vehicle established by the principals of Parker Design Pty Ltd (‘Parker Design’), an architectural and design firm which was to complete the architectural and planning documentation for the development project for submission to the Frankston City Council (‘Council’) for town planning approval, and other architectural and design works. It seems that it was intended that Three Point Design would receive equity in the development project in lieu of fees being charged by Parker Design. Mr Nicola Formichelli, who was then employed by Parker Design, was appointed as a director of 328NHF. However, at a point in time which remains unclear, but may have been as early as late July 2010, Mr Formichelli abruptly left the employ of Parker Design, but, with the assistance of another designer, Mr Charlie Di Pietta, continued to work on developing the necessary documentation for the purposes of obtaining town planning approval for the development project.
On the evening of 14 July 2010, a meeting took place between Mr Moussi, Mr Abdou, Mr Papadimitriou, and Dr Kambouris at Mr Moussi’s Southbank apartment. What was said during that meeting, and what documentation changed hands is a matter of dispute between the parties, but what is not in dispute was that on that evening, Mr Moussi provided Mr Abdou with a cheque for $250,000 drawn upon the account of the plaintiff, which was deposited into 328NHF’s bank account. On 21 July 2010, the sum of $165,000 was paid by Mr Abdou to the vendor, being the first tranche of the deposit.
In his evidence, Mr Abdou identified minutes of a meeting of the directors of 328NHF dated 15 July 2010 (’15 July minute’).[3] The 15 July minute states that both Mr Abdou and Mr Formichelli attended the meeting at an office at Chelsea from which Search and All-States operate (‘Chelsea office’). The 15 July minute, which is signed by both directors, states as follows:
Ayman Abdou advised that on behalf of the company on 14 July, 2010 he met with Andrew Moussi, in his capacity as the director of Play Australia Pty. Ltd. (“Play”), and agreed to the following:
(a)Play is to pay $250,000.00 to the company to be applied as to the amount of $15.00 as consideration for the transfer of 15 shares in the company from A J Phoenix Pty. Ltd. and as to the amount of $244,985.00 as an interest free loan to the company repayable upon the development and sale recently purchased by the company at 382 Nepean Highway, Frankston. (“the land”)
(b)The company will apply the loan monies towards the purchase of the land and the companies operating expenses.
(c)A J Phoenix Pty Ltd and 3 Point Design Pty Ltd are responsible for designing the development on the land, obtaining all necessary development approvals, letting construction contracts, doing all other necessary things to effect the development and sale of the land including arranging finance for same.
[3]Exhibit 19.
However, ASIC was not notified of the transfer of shares from A J Phoenix to Play Australia until February 2013, some months after the issue of this proceeding.
After that time there appeared to be limited communication between the parties regarding the development project, although on 13 September 2010 Mr Moussi sent Mr Papadimitriou a brief email asking for the share certificate for the plaintiff’s shares in 328NHF.[4] However, as noted above, by September 2010, there was a falling out between Dr Kambouris and Mr Moussi on the one hand, and Mr Abdou and Mr Papadimitriou on the other hand regarding the commercialisation of Botanical Water. There was no direct evidence as to the extent of Mr Moussi’s direct involvement in these issues and disputes, although, to the extent I can rely upon the judgment of Robson J in Re Botanical Water, it appears Mr Moussi was actively engaged in the dispute.
[4]Exhibit E.
On 23 September 2010, Mr Moussi sent Mr Papadimitriou an email (’23 September email’)[5] in the following terms:
[5]Exhibit E.
John, as I have not received any Share Certificates, planning documents, architecture drawings, council approvals and feasibility study etc.
I was given financial advice by yourself as consultant for ALL States Financial Consultants Pty Ltd advising me that you can refinance my home to raise the $250,000 for a property development project in which you are a part of.
You showed me the property with another person (Warren). You also advised me that you have contracts with RSL to develop all their properties and partnering with a major builder.
You also advised that you have successfully completed other projects with huge returns to investors.
I paid the $250,000 on the 14/07/2010 and still have not received my shares or other documents.
I have also done a titles search on the property concerned and it has not been transferred to 328NHF Pty Ltd.
I invested the money with the understanding that the property would be purchased and I would own 15%+. It was communicated to Commonwealth Bank by Brett Bar that the loan was for property.
I feel that what was offered has changed considerably.
I have put my trust in All States Financial Consultants Pty Ltd to give me the correct financial advice and guidance.
You have also offered Matt Harle to give me legal advice and set up a Family Trust with the understanding that he is a lawyer. I have the current understanding that he is not registered, is that correct? I would have never sought his legal advice if he was not a registered lawyer.
I request that the $250,000 payment be returned immediately not later than Friday 24th of September 2010. I have not been given what was promised and feel misled.
I have attached the company extract and extract from land title.
Later that day, Mr Papadimitriou responded as follows:[6]
[6]Exhibit G.
Dear Andrew,
I refer to your email of 22 September, 2010 and am most disappointed that you have now chosen to falsely represent what has transpired to date.
Firstly neither myself or Allstates Financial Consultants Pty Ltd at any time gave you financial advice. I simply responded to your request to seek my assistance in raising monies to enable you to make a property investment. As a consultant of Allstates, a licenced loanbroker, I assisted in satisfying your request by arranging a first mortgage loan. Neither myself or Allstates hold Financial Services Licences which would enable us to give the financial advice which you allege and are both mindful of the licence requirements as prescribed in the Corporations Act. The allegation is maliciously false and defamatory.
Secondly on the evening of 14 July, 2010 Ayman Abdou and you negotiated for you to participate in the development of land at 382 Nepean Highway, Frankston by way of loan to 328NHS Pty Ltd, the purchaser of the land, and the purchase of 15% of the shares in 328NHS Pty Ltd from another shareholder, A J Phoenix Pty. The terms of the agreement were recorded in the minutes of the Directors meeting of 328NHS Pty Ltd a copy of which is attached. Ambrosios Kambouris and I were also present.
Thirdly you were at all times aware that the contract of sale of the land was for a price of $3,300,000.00 payable by an initial deposit of $165,000.00, a further payment of $165,000.00 on 1 July, 2011 and the residue on 1 July, 2012. Your complaint that 328NHS Pty Ltd is not registered as owner of the land is unfounded. I estimate that the other shareholders of 328NHS Pty Ltd will be obliged to fund approximately $1,000,000.00 in architects and other consultants fees and the disbursements prior to commencement of construction on the land. A preliminary set of plans will be available in approximately one week.
Fourthly on 15 July, 2010 328NHS Pty Ltd recorded the transfer of 15 ordinary shares from A J Phoenix Pty Ltd to Play Australia Pty Ltd pursuant to the above minute. I attach copies of the share registry entry and share certificate No. 3 as recorded in the statutory register of 328NHS Pty Ltd. And as provided by the directors of same. I have requested that the directors of 328NHS Pty Ltd forward share certificate No. 3 to Play Australia Pty Ltd.
Fifthly your claim that you paid $250,000.00 to 328NHS Pty Ltd on 14 July, 2010 is untrue. Your cheque was handed to Ayman Abdou by you on 19 July, 2010 and paid into the bank account of 328NHS Pty Ltd on 20 July, 2010.
Sixthly your allegations that I offered Matt Harle to give you legal advice is likewise maliciously false and defamatory of both myself and Matt Harle who, I understand, is now taking legal advice concerning a damage action against you. I and several witnesses can state positively you were well aware that Matt Harle retired as a practicing lawyer over 6 years ago and has not since purported to provide legal services or advice. As you are aware Matt Harle is also qualified as an accountant and has a wealth of commercial experience and knowledge. You are also aware that, earlier this year, when your associate Ambrosios Kambouris was accused by his former employer Australian Vintage Ltd of misappropriating its intellectual property Matt Harle used his experience to collate all relevant material and arrange for Ambrosios Kambouris to be represented by both a suitably qualified practising solicitor and a suitable qualified practicing barrister. How do you reconcile this fact with your false allegation.
Seventhly your allegation that you were misled is also maliciously false and defamatory.
Eighthly I note your request that the amount of $250,000.00 be repaid to you. I have mentioned this to the directors of 328NHS Pty Ltd who believe that there are many others who would be willing [to] take up the investment opportunity given to you however this cannot occur within your nominated time limit and will take several weeks. Please advise the directors if this is what you seek. Naturally such a process would involve transfer of your shares and releases.
Finally, on 4 October 2010, Mr Moussi responded as follows:[7]
John, as per your last point on the response, I would like to get my money back.
You have stated that there are others who would be interested in taking my placed.
Can you please advise of what period of time I can expect a refund.
[7]Exhibit H.
There appears to have been no further communication between Mr Moussi and the defendants regarding the development project until 22 September 2011, when the solicitors for Mr Moussi (who are also the solicitors on the record for Play Australia in this proceeding) wrote to the defendants and 328NHF in the following terms:[8]
[8]Exhibit 2.
In July 2010 Moussi paid $250,000 (“the Contribution”) to 328NHF Pty Ltd (“328NHF”) in reliance on representations you made to him (not limited to the following):
1.The Contribution was to enable 328NHF to complete settlement on the acquisition of a property located at 382 Nepean Highway, Frankston (“the Property”).
2.328NHF would conduct a development on the property so purchased.
3.The Property had 40 existing leased dwellings generating income that would support the value of the Property pending the development.
4.Moussi was informed to expect a development profit equating to a tenfold return on the Contribution.
5.You were both experienced property developers that had conducted many successful property developments on behalf of investors and that you jointly owned a property development company that held a contract with RSL for the development of 200 RSL properties.
6.The Property and the development thereof was your most profitable project at the time, and the only reason you were seeking an investor to assist to complete acquisition was because you were stretched by the large capital demands associated with your contractual obligations in developing 200 RSL properties.
In an e-mail he sent to John Papadimitriou on 22 September 2010, Moussi communicated his feeling of having been misled in relation to the above and other matters. John Papadimitriou sent a reply e-mail to Moussi on 23 September 2010 which attached a letter. Moussi takes issue with various points raised in that letter. Further, we do not purport to address exhaustively here all of the assertions raised by John Papadimitriou in his letter. We will do so in due course.
In John Papadimitriou’s letter he asserts that Moussi was “aware that the contract of sale of the land was for a price of $3,300,000.00 payable by an initial deposit of $165,000.00, a further payment of $165,000.00 on 1 July, 2011 and the residue on 1 July, 2012.”
Moussi categorically denies this assertion. Such information was never communicated to Moussi until John Papadimitriou’s letter, and at all times Moussi acted in reliance on your representations that the Contribution was consideration for Moussi acquiring a 15% interest in the proprietor of the Property, and that completion of the purchase of the Property using available funds contributed by you and other investors was imminent.
Further, Moussi took particular additional comfort from your representation the Property was generating rental income that would support the value of the Property pending the development.
Despite paying the Contribution, Moussi has become aware and is greatly concerned that 328NHF has not acquired the Property. We attach a Title Search for the Property and note 328NHF is neither listed as the proprietor nor listed a caveator of any interest in the Property. Moussi is also concerned that he has not receive from the director of 328NHF original share certificates evidencing ownership in 328NHF and that ASIC has not been notified of any share issue to Moussi.
Moussi has also observed the Property has been publicly advertised by 328NHF to on-sell the Property with the attached development approved by Council. Such action would breach your obligations and the obligations of 328NHF to Moussi, considering the Contribution was induced from Moussi on the basis of 328NHF acquiring the Property outright and conducting a development with a view to earning a development profit, in relation to which you have represented Moussi should expect to earn tenfold on the Contribution.
Your conduct and that of 328NHF, is grossly oppressive upon Moussi, whose funds you have apparently used as payment of a deposit for the attempted purchase of the Property on a long dated settlement while you seek out a purchaser to on-sell. In the circumstances, this would afford Moussi with strong and damning grounds under the just and equitable jurisdiction of the Court to support a range of orders in favour of Moussi applying to the affairs of 328NHF and its assets.
To redress the above situation, Moussi demands repayment of his $250,000 by Friday 7 October 2011. If this is not received in cleared funds by that date, we hold instructions to commence proceedings against you and 328NHF for recovery of this amount and/or equitable orders for dealing with whatever interest is held by 328NHF in the Property.
It appears that no response was ever provided to this letter (‘September 2011 letter’), and this proceeding was issued on 1 May 2012, approximately two months prior to the date of the settlement of the sale of the Frankston property specified in the contract of sale (‘settlement date’).
Returning to the chronology of events, it seems that the development project was plagued with difficulties, in particular, difficulties in obtaining Council approval for a development of the scale and density originally contemplated by the defendants, and including, it appears, inadequate funding.
These difficulties commenced at an early stage of the development project. As earlier indicated, it was intended that Three Point Design, an entity representing the interests of Parker Design, would carry out all of the necessary design and town planning documentation in exchange for a 25% shareholding in 328NHF. However, at a time which is not entirely clear, but probably in July or August 2010, Mr Formichelli, who was the defendants’ main point of contact at Parker Design, suddenly left his employment at Parker Design. While Three Point Design remained a shareholder at 328NHF for some time (until July 2011), the connection between Parker Design and the development project was effectively severed. Because of his changed circumstances, Mr Formichelli brought in an associate to assist him with the design and town planning work, and both required payment in cash rather than by means of an equity participation in the development project. This work was carried out in the latter months of 2010.
Another investor, Mr Gregory Waddell, came on board in October 2010, for the sum of $150,000. He and an associate lent $75,000 each to 328NHF as an interest free loan, in exchange for a combined shareholding in 328NHF amounting to ten per cent. This transaction was documented by way of a formal agreement between Mr Waddell and 328NHF,[9] unlike the transaction between the plaintiff and 328NHF.
[9]Exhibit 9.
Originally it was intended that the development project would involve the construction of 86 apartments, and an application for town planning approval for a development of that scale was submitted to the Council in January 2011. However, this application was rejected on the basis that it was an overdevelopment of the site, exceeded the three storey height limit in the area, and had inadequate setbacks.
While the chain of events is a little unclear, it appears that the Council’s rejection of the town planning application for the development project marked the end of the association between the defendants and Mr Formichelli. Discussions took place between the defendants and other potential investors, including a Dr Farag, and later a Mr Aziz, and other professionals were engaged, apparently by Dr Farag, to submit a fresh town planning application to the Council. An application was made in or about May 2012 for the construction of a 32 unit development. Payment of the second tranche of the deposit was made in or about July 2011.
Sometime in 2011, the plaintiff, through its solicitor, lodged a caveat over the Frankston property, which was withdrawn in or around March 2012. This proceeding was issued on 1 May 2012.
During this time the defendants were also apparently occupied with trying to secure finance for the settlement of the purchase of the Frankston property and the completion of the development project. They were not able to do so before the settlement date, or the later settlement date agreed between Mr Abdou and the vendor. Ultimately, the vendor lost patience, the contract of sale was rescinded, and the development project was at an end. The accounts of 328NHF show that at the time of liquidation, 328NHF had the following liabilities:
(a) $148,139 owed to Mr Abdou;
(b) $249,985 owed to the plaintiff;
(c) $75,000 owed to each of Mr Waddell and G L White Pty Ltd;
(d) $600 to Search; and
(e) $4,000 to 138 FF Pty Ltd.
The Proceeding
The plaintiff issued the writ and statement of claim on 1 May 2012, claiming that the defendants (and 328NHF) had engaged in misleading and deceptive conduct on the part of the defendants and sought, among other things, damages pursuant to s 159 of the Fair Trading Act 1999 (Vic).[10]
[10]The Fair Trading Act 1999 was repealed on 1 July 2012 and replaced by the Australian Consumer Law and the Fair Trading Act 2012 (Vic).
In summary, the plaintiff alleges that the defendants induced Mr Moussi to raise funds using the equity in his only substantial asset to invest in the development project by making a number of extravagant and misleading claims about their financial standing and commercial experience, and the security and profitability of the development project. In particular, the plaintiff alleges that the defendants misled Mr Moussi into believing that they were successful business people, had engaged and were engaged in a number of lucrative property developments, and that 328NHF had an enforceable contract to purchase the Frankston property. Furthermore, the defendants represented to Mr Moussi that an investment in the development project would be risk free, and would generate substantial financial returns for the plaintiff. Mr Moussi relied upon these representations, all of which were untrue, and as a result, lost the entirety of his investment when the purchase of the Frankston property and the development project failed to proceed.
It is helpful, for the purpose of evaluating the evidence, to assign the individual representations to each of two broad categories. The first class of representation includes those that go to the capabilities and financial standing of the defendants, while the second class includes those representations relating to the property development itself.
The representations said to have been made by the defendants to the effect that they were ‘persons of substance’ include the following:
(a) the defendants were successful business persons who had access to millions of dollars of funds for property development;
(b) the defendants operated their developments through All-States and Search;
(c) the defendants (or companies associated with them) had 200-odd contracts on foot to develop RSL clubs, including but not limited to the Hawthorn and Glen Waverley RSLs;
(d) for every $150,000 that Moussi or his nominee invested with the defendants they would generate $900,000 return in two years; and
(e) Mr Abdou was a major owner of ‘Telechoice’ and possessed substantial personal wealth.
The representations were said to have been made by the defendants to Mr Moussi or in Mr Moussi’s presence at a meeting at the Chelsea office on 5 June 2010, at a meeting later that morning in a nearby café, at earlier meetings in May 2010 in a carwash and at a café in South Melbourne, and by statements made on Search’s website.
These representations were said to have been misleading or deceptive, or likely to mislead or deceive, on the basis that:
(a) the defendants were not successful business persons with access to millions of dollars of funds for property development;
(b) Mr Papadimitriou was an undischarged bankrupt, having been entered on the National Personal Insolvency Index on 1 December 2007 and removed on 2 December 2010, and was accordingly prohibited from being a director of the companies he purported to control;
(c) the defendants (or companies associated with them) did not have 200‑odd contracts on foot to develop RSL clubs;
(d) the defendants (or companies associated with them) were not successful property developers; and
(e) Mr Abdou is not an owner of Telechoice and does not possess substantial personal wealth.
The second class of representations concerned those which relate to the development project itself. These include:
(a) an investment with the defendants (or companies associated with them) was no risk because they sold everything off the plan to investors;
(b) a company owned and controlled by the defendants had a contract to purchase the Frankston property; and
(c) an investment with the defendants would be used to purchase the Frankston property such that Mr Moussi or his nominee would own part.
The above representations were said to have been made on various times during the morning of 5 June 2010, at the Chelsea office, at a meeting at a nearby café, and during a visit to the Frankston property.
Later representations said to have been made concerning the development project include:
(a) the deposit with respect to the purchase of the Frankston property had been paid by Mr Abdou;
(b) for a $250,000 investment Mr Moussi or his nominee would own 25% alternatively 15% of the Frankston property and/or the investment vehicle (later being 328NHF) that investment vehicle having and retaining the benefit of having entered into a contract to purchase the Frankston property;
(c) there were other investors ‘going in’ for 10% and the defendants themselves were investing more than 50% of the money needed to purchase the Frankston property;
(d) Mr Moussi or his nominee could use All-States to raise the $250,000;
(e) Mr Moussi or his nominee could use their ‘solicitor’, Mr Matthew Harle, to set up an appropriate structure for the investment and obtain advice in relation to the investment;
(f) Mr Moussi or his nominee would be making a 25% alternatively 15% return on a $15 million profit in relation to the investment;
(g) Mr Abdou would provide Mr Moussi with copies of the contract of sale in relation to the Frankston property, the architectural drawings, the projected financials of the property development and the like within a few days of the ‘investment’ of $250,000 on 14 July 2010.
The representations were said to be made:
(a) in the case of (a) above, in a telephone call between Mr Papadimitriou and Mr Moussi a few days after the 5 June meeting;
(b) the representations at (b) to (f) were said to be made during a meeting between Mr Moussi and the defendants during a car trip a few days after the 5 June meeting;
(c) the representation at (b) above was also made in a share transfer form executed by Mr Moussi at his Southbank apartment on 14 July 2010; and
(d) the representation at (g) was said to have been made by Mr Abdou at the Mr Moussi’s apartment on 14 July 2010.
The plaintiff alleges that the representations above were misleading or deceptive or likely to mislead or deceive on the basis that:
(a) to the knowledge of the defendants, Mr Harle did not possess a practising certificate;
(b) for its $250,000 investment the plaintiff was not given 25% or 15% ownership of the Frankston property or 328NHF, that company not having an asset being a contract to purchase the Frankston property;
(c) the Frankston property was not and is not owned by 328NHF but is and was at all material times owned by the vendor;
(d) the plaintiff was not allocated 25% alternatively 15% of the shares in 328NHF;
(e) the investment contained substantial risk rather than no risk;
(f) the investment returns promised could not and will not ever eventuate;
(g) the defendants (or companies associated with them) were not investing more than 50% of the monies needed to purchase the Frankston property; and
(h) Mr Abdou did not provide Mr Moussi with copies of the contract of sale in relation to the Frankston property, the architectural drawings, and the projected financials of the property development within a few days of the advance or at all.
The plaintiff contended that in reliance upon the representations:
(a) Mr Moussi on behalf of the plaintiff raised $250,000 through All‑States;
(b) Mr Moussi retained Mr Harle as the plaintiff’s solicitor in relation to his investment, and, as a result of his advice, invested the $250,000 through the plaintiff, being a trustee of a discretionary trust subsequently established by Mr Harle; and
(c) On 14 July 2010, the plaintiff invested $250,000 with the defendants through 328NHF.
Finally, the plaintiff claims that by reason of the defendants’ misleading or deceptive conduct, it has suffered loss and damage. Had the representations not been made, the plaintiff would not have made the advance, and the plaintiff claims $250,000 plus interest pursuant to statute from 14 July 2010.
The Amendment at Trial
On 7 May 2014, the sixth day of the trial, the plaintiff made an application to amend its statement of claim to include the following allegations (the amendments to the alleged representations are underlined):
(a) in June and July 2010 the defendants (or either of them) represented that for a $250,000 investment Mr Moussi or his nominee would own 25% alternatively 15% of the Frankston property and/or the investment vehicle (later being 328NHF), that investment vehicle having and retaining the benefit of having entered into a contract to purchase the Frankston property and paid the deposit;
(b) the representation above was said to be implied by reason that in May and June 2010 the defendants (or either of them) represented to Mr Moussi that a company controlled by them had a contract to purchase the Frankston property and that an investment with the defendants would be used to purchase the Frankston property such that Mr Moussi or his nominee would own part of the Frankston property;
(c) the representation was misleading because 328NHF did not have an asset being a contract to purchase the Frankston property, the rights under that contract having been novated, nominated to Beach Front Frankston Pty Ltd (‘Beach Front’) or otherwise transferred to Beach Front after these proceedings were commenced and on a date after 20 June 2012; and
(d) the novation, nomination or transfer is to be inferred from the fact that the contract of sale was originally entered into between the Vendor and Mr Abdou on or about 1 July 2010; on or about 15 July 2010 328NHF was nominated as the purchaser of the Frankston property; and on 3 July 2012 the vendor’s solicitors served a rescission notice under the contract of sale on Beach Front.
The application to amend was made during the course of cross-examination of Mr Abdou, and was allowed. The application was made and granted prior to Mr Chakir, the vendor’s solicitor, giving evidence. At the close of the trial, counsel for the plaintiff indicated that he would not press the amendment referred to in paragraph 43(c) above, on the basis that the evidence given by Mr Chakir did not support this allegation, as Beach Front was never formally nominated as the purchaser of the Frankston property.
The Defendants’ Position
The defendants’ defences are quite sparse, to the extent of being unenlightening. However, in response to a request for further and better particulars of paragraphs 5 and 6 of their defences, which referred to ‘various discussions’ between them and Mr Moussi, a more fulsome response was provided to the plaintiff’s allegations by the defendants (who were at that time self-represented). As these particulars are largely consistent with the manner in which the defendants put their case at trial, they are reproduced in full, as follows:[11]
[11]The particulars reproduced here are those provided by Mr Papadimitriou, but Mr Abdou’s are in largely identical terms.
(a)Papadimitriou and the Second Defendant (“Abdou”) first met Moussi in late February 2010 together with his partner and claimed business manager Kambouris. The meeting was at 55 Collins Street, Melbourne and was about a packaging invention called “KeepaFresh” claimed to have been invented by Kambouris and a waste water treatment invention subsequently called “Botanical Water” claimed to have been invented by Moussi and in particular discussed the setting up business structures to exploit the inventions which structures were to be owned by entities associated with Kambouris, Moussi, Abdou and Papadimitriou’s family. The advice previously given to Kambouris by Papadimitrou and Abdou that Papadimitriou was an undischarged bankrupt and could not be involved in the management of a corporation and could not hold equity in the proposed business structures.
(b)From late February to April, 2010 Papadimitrou and Abdou had almost daily communications, various discussions, with Kambouris representing his and Moussi’s interests and less frequent direct communications with Moussi. The communications were mostly by telephone but included two visits by Papadimitrou and Abdou to Mildura where Kambouris was based and a visit to a Patent Attorney in Adelaide with Kambouris and meetings with Kambouris and some times Moussi when Kambouris was in Melbourne at 416 Nepean Highway, Chelsea and various restaurants and coffee lounges. During this period five companies were incorporated in which entities associated with Abdou, Papadimitrou’s family, Kambouris and Moussi (including the Plaintiff), became shareholders and the invention rights were transferred. Abdou was an officer of each of the five companies. Papadimitriou was not. All of the various discussions related to the prosecution of the inventions.
(c)From the beginning of April until late April, 2010 the various discussions continued on an almost daily basis and were mainly by telephone and related to the prosecution of the inventions. In mid April Kambouris resigned from his Mildura employer and thereafter spent most of his time living with Moussi in Moussi’s apartment at Unit 1909, 80 Clarendon Street, Southbank and whilst Moussi was at his work at the ANZ Bank would spend most of his days with Abdou and Papadimitriou. The daily routine generally involved Abdou and Papadimitriou collecting Kambouris in Abdou’s car from Moussi’s apartment in Southbank and returning him later in the day. On most days Moussi also met with Abdou, Papadimitrou and Kambouris and the principal discussion point was prosecution of the inventions and, in particular, the ongoing preparation of an Information Memoranda to raise moneys from the public for the Botanical Water invention. During this time, Moussi, Kambouris, Abdou and Papadimitriou on 16 April, 2010 visited Freehills where Moussi signed various patent transfers, applications and Statutory Declarations in relation to the Botanical Water invention. Most of the meetings involving Moussi were either at Moussi’s apartment, various nearby coffee lounges and restaurants and 416 Nepean Highway, Chelsea. Abdou and Papadimitriou were also involved in assessing and syndicating various property development proposals and, consequently, Kambouris accompanied them on site inspections and meetings with agents, vendors, joint venturers and investors. In late April, 2010 Kambouris asked Abdou and Papadimitriou if he and Moussi could become involved in one of the projects.
(d)In May, 2010 the vast majority of the various discussions related to the prosecution of the inventions and, particularly, the preparation of the Information Memorandum. In the premises at 416 Nepean Highway, Chelsea, Kambouris involved himself in some of the feasibility work on potential property development projects including the possible development of a property at 382 Nepean Highway, Frankston which had been introduced to Abdou and Papadimitriou by the Estate Agent, Ray White (Carrum Downs) Pty Ltd (“the 382 project”). Abdou and Papadimitrou informed Kambouris that they intended to develop the 382 project in conjunction with a firm of architects called Parker Design and that an in principal agreement had been reached with Parker Design that it would, as its contribution to a twenty-five per cent (25%) equity in the 382 project, provide its services and all other necessary consultants’ services to obtain town planning permits for the highest and best development of the land as a high density residential precinct and, in addition, would provide the entity which would purchase the land with an interest free loan equivalent to five per cent (5%) of the purchase price. This process continued through May and into June, 2010 and Kambouris further involved himself in the feasibility process, including inspection of draft sketch plans and development cost analysis and, again, expressed interest in investing in the 382 project if the opportunity arose. Abdou and Papadimitriou wrote on a whiteboard cost estimates showing a development profit of up to $9,000,000 upon a completion of the 382 project in Kambouris’ presence. Abdou and Papadimitriou told Kambouris that they were committed to other investors who were each prepared to lend moneys to the development entity and each take a five per cent (5%) equity. In late June, 2010, Abdou and Papadimitriou had negotiated the purchase of the land for the 382 project at a price of $3,300,000.00 with a deposit of ten per cent (10%) of which half, or $165,000.00 was payable on signing the contract and the balance one year later in July, 2011 and that a company was to be formed with A J Phoenix Pty. Ltd. (“AJP”) to hold 75% of the 100 shares to be issued and that the remaining 25% of the shares would be held by 3 Point Design Pty Ltd the nominee for Parker Design. Abdou and Papadimitrou again stated that if the opportunity arose Kambouris and Moussi could become investors in the 382 project and discussed with Kambouris and Moussi that subject to approval of the other shareholders AJP was prepared to transfer 15 of its 75 shares to Moussi and Kambouris or their nominee on the basis that Moussi and Kambouris would lend $250,000 interest free to the 382 project until completion of same.
(e)The various discussions between Abdou, Papadimitriou, Kambouris and Moussi continued for most of the days of July 2010 and were conducted by telephone and face to face at Moussi’s apartment, various nearby coffee lounges and restaurants and 416 Nepean Highway, Chelsea and included all aspects of prosecution of the inventions and the 382 project including the following:
·The incorporation of the Third Defendant (“the Company”) on 1 July, 2010 with 100 issued shares of which 75 were held by AJP and 25 held by 3 Point Design Pty. Ltd. With Abdou and Nicola Formichelli as directors
·The receipt of a Contract of Sale of Land for the 382 project land showing Abdou and or nominee as purchaser
·The dispute between the partners of Parker Design resulting in the retirement of Formichelli and the decision of 3 Point Design Pty Ltd not to proceed with its role in the 382 project
·The agreement of 3 Point Design Pty Ltd to transfer its 25 shares in the Company to AJP effective from 11 July, 2011
·The offer to Kambouris and Moussi to lend $250,000 to the Company with 15 shares in the Company to be transferred from AJP
·The decision of Kambouris and Moussi to accept the 382 project offer and invest in the name of the Plaintiff
·The nomination of the Company as purchaser of the 382 project land by Abdou
·The resolutions of the Company to register the transfers of shares from 3 Point Design Pty Ltd to AJP and from AJP to the Plaintiff
·The provision on 14 July, 2010 of a cheque from the Plaintiff to the Company for $250,000
·The payment on 17 July, 2010 of a cheque to the vendor of the 382 project land for $165,000
·The ongoing consultation about preparation of town planning plans and related expert reports
·The Plaintiff was aware that the deposit had been paid because Abdou and Papadimitriou told Moussi and Kambouris
Mr Abdou filed an amended defence on 12 September 2013. Relevantly, the amended defence:
(a) included an allegation that Mr Moussi obtained the following documentation from the Chelsea office in his presence: financial projections for the development project in or about April to June 2010; architectural drawings for the development project in or about May 2010; and a copy of the contract of sale in or about August 2010; and
(b) included a claim that by reason of the matters pleaded in the statement of claim and the amended defence, the defendants are concurrent wrongdoers by reason of the operation of s 24AH of the Wrongs Act 1958 (Vic) (‘Wrongs Act’).
The defendants’ position with respect to the ‘persons of substance’ representations is that, save for the representation that the defendants operated their developments through All-States and Search, which is in substance correct, the representations were simply not made. In any event, Mr Moussi knew, or must have known, by reason of his own observations of the operations of the Chelsea office, and his visit to Mr Abdou’s home, and his close association with Dr Kambouris that the defendants, while they were experienced in business, finance, and property development, were not in possession of substantial personal wealth, did not have access to millions of dollars for property developments, and that the defendants did not have contracts on foot to develop 200 plus RSL properties, but were merely ‘pitching’ for the work.
Further, the defendants asserted that they told Mr Moussi and/or Dr Kambouris that Mr Abdou’s brothers owned Telechoice, and that Mr Papadimitriou had told Dr Kambouris at an early stage of their association that he was an undischarged bankrupt, which caused Dr Kambouris no apparent concern. As far as the defendants were concerned, Mr Papadimitriou’s bankruptcy was no secret. They denied telling Mr Moussi that for every $150,000 invested with the defendants a return of $900,000 would be generated within two years.
As for the representations alleged to have been made regarding the development project, the defendants’ position at trial was that:
(a) they denied telling Mr Moussi that any investment with them was ‘no-risk’, rather, they told him they sought to minimise risk by selling a certain proportion of the development project off the plan before approaching the bank for finance;
(b) they told Mr Moussi they ‘had the contract’ for the Frankston property, in that they had in their possession an unsigned contract of sale;
(c) it was never suggested that Mr Moussi would own part of the Frankston property, it was always understood by all parties that Mr Moussi or his nominee would own shares in the company that was established to purchase the Frankston property and undertake the development project, being 328NHF, and the plaintiff was allocated shares in 328NHF;
(d) 328NHF was nominated as the purchaser of the Frankston property, and it was always intended, until after the issue of this proceeding, that 328NHF would complete the purchase of the Frankston property;
(e) the defendants never told Mr Moussi that they were funding fifty per cent of the funds needed to purchase the Frankston property from their own resources: rather, they told Mr Moussi that shares would be transferred to other investors as they came on board (as did occur) and the remainder would be raised from a bank;
(f) Mr Moussi did in fact raise the $250,000 required for the advance through All‑States;
(g) the defendants never put Mr Harle forward as a solicitor to provide advice and to set up an appropriate structure for the investment, but identified Mr Harle as a ‘retired solicitor’, and they were not aware of any dealings between Mr Moussi and Mr Harle;
(h) they never told Mr Moussi that the plaintiff would make a 15 per cent or a 25 per cent return on a $15 million profit: the arrangement was that the plaintiff would be repaid the advance, and would receive a 15 per cent return on an estimated profit of $7 to $10 million;
(i) Mr Moussi was provided with copies of or access to all of the information requested by him, including financial feasibility analyses, share transfer forms, and architectural drawings prior to the plaintiff making the advance; and
(j) Mr Moussi knew the advance was needed to pay the deposit.
In summary, the defendants’ position was that, rather than being induced by the defendants into making the advance, Dr Kambouris approached the defendants on Mr Moussi’s behalf to inquire whether Mr Moussi might invest in the development project, and that Mr Moussi was, being a commercially astute business person, fully informed about the structure and financials of the development project.
Finally, in relation to the proposed nomination of Beach Front as the purchaser of the Frankston property (which never ultimately occurred as the sale did not proceed), this was necessary to appease the major investor in the development project, who was ‘spooked’ by the issue of the proceeding, and had the purchase of the Frankston property proceeded, the shareholdings in Beach Front would have reflected the interests of the parties in 328NHF.
The Issues and Applicable Principles
The issues for determination in the proceeding are as follows:
(a) what was the precise nature of the asset acquired by Mr Moussi upon advancing the sum of $250,000 to the company? Was it an equity investment of $250,000 in the company or the Frankston property? Alternatively, was it consideration for 15 shares in the company, as well as a loan of just short of $250,000 for the company? In any event, does the characterisation of the transaction have any real bearing upon the outcome of this proceeding?
(b) were any or all of the representations pleaded in paragraphs 5 and 6 of the statement of claim made by Mr Papadimitriou and/or Mr Abdou?
(c) if so, did the making of those representations amount to misleading or deceptive conduct within the meaning of s 9 of the Fair Trading Act?
(d) did Mr Moussi rely upon any or all of such representations when causing the plaintiff to advance $250,000 to 328NHF?
(e) if so, was there a causal connection between any representations made by the defendants and Mr Moussi’s decision to make the advance? More specifically, was Mr Moussi influenced by any misleading or deceptive conduct on the part of the defendants or either of them, or was his decision to make the advance made as a result of his own perceptions of the potential benefit of making the advance, or as a result of information and/or encouragement provided to him by Dr Kambouris, or both?
Section 9(1) of the Fair Trading Act 1999 (Vic) provides as follows:
A person must not, in trade and commerce, engage in a conduct that is misleading or deceptive or is likely to mislead or deceive.
As to what amounts to misleading or deceptive conduct, or conduct which is likely to mislead or deceive, counsel for both parties agreed that the judgment of Macaulay J in Vouzas v Bleake House Pty Ltd,[12] provides a useful and accurate summary of the relevant authorities regarding what amounts to misleading or deceptive conduct. His Honour said:
First, the conduct must induce or be capable of inducing error. Secondly, whether it does induce or is capable of inducing error is to be assessed objectively by the Court in light of all relevant surrounding circumstances. Thirdly, to undertake that task objectively requires the Court to evaluate what a reasonable person in the position of the representee would have understood the conduct to have meant.[13]
[12][2013] VSC 534 (‘Vouzas’).
[13]Ibid, [105].
Other principles relevant to the determination of whether a person is liable for misleading and deceptive conduct can be summarised as follows:
(a) silence may amount to misleading or deceptive conduct where the circumstances give rise to an obligation to disclose relevant facts. This obligation is not confined to cases where there is a special relationship (for example, a fiduciary relationship).[14] The existence of the obligation to disclose relevant facts is not negated simply by reason of the fact that enquiries could have been made which would have disclosed the true position;[15]
[14]Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546, 557 (‘Henjo’).
[15]Ibid, 558-559.
(b) where a party seeks relief in respect of representations made to identified persons, including him or herself, as opposed to a class of persons, such as consumers, identifying the character of the conduct and establishing the causal link between the conduct and the plaintiff’s loss requires analysing the particular conduct of the particular defendant in relation to the particular plaintiff:
…bearing in mind what matters of fact each know about the other as a result of the nature of their dealings and the conversations between them, or which each of them may be taken to have known.[16]
[16]Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, 604-605.
(c) in cases of representations as to future events or conduct where issues regarding the state of mind of the maker of a representation are involved, a finding of misleading or deceptive conduct can only be made where the maker of the representation did not believe what was stated or made the representation with reckless indifference as to their accuracy;[17]
[17]Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242, 247.
(d) in relation to the question of whether a party relied upon a false or misleading representation, including whether that party was induced to enter into a particular transaction, in Gould v Vagellas,[18] Wilson J restated the applicable principles as follows:
[18](1984) 157 CLR 215.
1.Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case.
2.If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation.
3.The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation.
4.The representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract.[19]
[19]Ibid, 236.
(e) the statements of Wilson[20] and Brennan JJ[21] in Gould v Vagellas to the effect that, notwithstanding the practical onus upon a defendant to adduce evidence in support of any contention that the plaintiff had not relied upon a false or misleading representation, the ultimate onus of proving reliance and/or inducement rests upon the plaintiff have been reaffirmed by the High Court in Sidhu v Van Dyke;[22]
[20]Ibid, 238-239.
[21]Ibid, 250-251.
[22](2014) 251 CLR 505.
(f) the representation need not be the sole inducement. In Henjo,[23] Lockhart J stated as follows:
[23](1988) 38 FCR 546, 558-559.
[R]ecovery under s 52 is founded by the applicant’s actual reliance upon the misleading or deceptive conduct of the respondent, although that conduct was not the only factor in the applicant’s decision to enter a particular agreement, and although the applicant did not seek to verify the representations or did so inadequately and so failed to discover their falsity.
(g) while the characterisation of conduct as either misleading or deceptive is logically anterior to whether a person has suffered loss and damage because of it, there may be some practical overlap in the resolution of these questions.[24] Determination of the causation of loss or damage might require account to be taken of subjective factors relating to a particular person’s reaction to conduct found to be misleading or deceptive or likely to mislead or deceive. A misstatement of fact may be misleading or deceptive in the sense that it would have a tendency to lead anyone into error. However, if it is actually disbelieved by the person to whom it is made, the representation or conduct concerned would not ordinarily be causative of any loss or damage flowing from the conduct of the person to whom the representation was made;[25]
[24]Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, [24] (French CJ).
[25]Ibid 320 [28]-[29].
(h) further, where it is alleged that a defendant made multiple misrepresentations, it is necessary for a plaintiff to go beyond a statement that it was induced by the representations to enter into a particular transaction. In particular, principles of causation require the plaintiff to precisely identify what aspect of the representations was influential upon its decision, to enable the Court to determine whether the aspect of the defendants’ conduct that is said to cause loss is the same aspect that is said to be misleading or deceptive;[26] and
[26]Vouzas, [95].
(i) concepts of contributory negligence or apportionment of damage have no part to play in assessing the liability to compensate a victim of misleading or deceptive conduct. In Henville v Walker,[27] Gleeson CJ stated:
It will commonly be the case that a person who is induced by a misleading or deceptive representation to undertake a course of action will have acted carelessly, or will have been otherwise at fault, in responding to the inducement. The purpose of the legislation is not restricted to the protection of the careful or the astute. Negligence on the part of the victim of a contravention is not a bar to an action under s 82 unless the conduct of the victim is such as to destroy the causal connection between the contravention and loss or damage. The respondents knew the purpose for which their representations were being relied upon by the appellants. The Full Court accepted that the making of the representations amounted to engaging in misleading or deceptive conduct in trade or commerce. There was no warrant for a conclusion that the negligence of the appellants in relation to the feasibility study was the sole cause of the decision to undertake the project.[28]
[27](2001) 206 CLR 459.
[28]Ibid, 320-321 [13]. (Emphasis added).
Considering these principles in the context of the current proceeding, it is clear that the onus is upon the plaintiff to show that the defendants made statements and/or engaged in conduct which was capable of inducing error in Mr Moussi, and did in fact lead him into error. In that light, one must have regard to Mr Moussi’s commercial experience and capabilities, as well as the actual knowledge he had of the defendants, their financial position and their experience and capabilities. It may well be that any failure by Mr Papadimitriou to disclose that he was a bankrupt might amount to misleading or deceptive conduct, if the circumstances are such that an obligation was imposed upon the defendants to disclose that matter to Mr Moussi. Furthermore, if the defendants have engaged in misleading or deceptive conduct, the fact that Mr Moussi may have failed to take care of his own interests by conducting some form of due diligence is no bar to relief.
However, the onus is upon the plaintiff to establish that it relied upon the misleading or deceptive conduct of the defendants in making the advance. Even if the plaintiff is able to demonstrate that the defendants engaged in conduct which is capable of inducing error and was calculated to induce him to make the advance, the inference that the plaintiff was induced by the conduct may be rebutted by showing that Mr Moussi possessed actual knowledge of the true facts or did not rely upon them. Of relevance here is the defendants’ contention that Mr Moussi knew, either directly or through his association with Dr Kambouris, that the defendants were not wealthy individuals, and further, that the manner in which the development project would be structured and funded was fully explained to Mr Moussi. However, if it is found that the defendants have engaged in misleading or deceptive conduct of any kind, the defendants will be liable if the plaintiff establishes that conduct played a material role in inducing Mr Moussi to make the advance, even if other matters also influenced Mr Moussi’s decision.
Finally, to the extent that the defendants are found to have made representations concerning future matters, such as the likely profitability of the development project, such statements can only be found to be misleading or deceptive if it can be shown that the defendants did not believe what was stated, or were recklessly indifferent as to their accuracy.
The Evidence
At trial, the plaintiff called Mr Moussi, Dr Kambouris, and Mr Formichelli to give evidence on its behalf. Owing to developments during the course of the trial, Mr Chakir from Maddens Lawyers, the solicitors for the vendor, was subpoenaed by the plaintiff to attend Court to give evidence and to produce his file. Both Mr Papadimitriou and Mr Abdou gave evidence on behalf of the defendants.
Each of the witnesses gave their evidence orally, and each of the main witnesses (Mr Moussi, Dr Kambouris, Mr Papadimitriou and Mr Abdou) were subject to extensive cross‑examination. Unusually for a dispute concerning a substantial commercial transaction, there were limited contemporaneous documents available to shed light on the transaction and the contentions of the parties. As such, the oral testimony of the parties was critical, and much of the cross‑examination of the witnesses focussed upon issues of credit.
Mr Moussi was the primary witness for the plaintiff. He works as an IT manager providing consultancy services to the ANZ Bank on large scale projects, including managing teams of people to test new software. During the relevant period, he was working out of ANZ’s office at 55 Collins Street (‘ANZ building’). He gave evidence that he was introduced to the defendants in February 2010 by Dr Kambouris, with whom he had been close friends for about 20 years. In February 2010 there was a series of meetings between him and Dr Kambouris and the defendants regarding the Botanical Water and KeepaFresh inventions. He gave evidence that one morning in February 2010, Mr Abdou collected him from the ANZ building to drive him (along with Mr Papadimitriou, Dr Kambouris, and a Warren Slattery) to the Chelsea office. On the way to the meeting, he overheard Mr Abdou talking to Warren Slattery about the property developments the defendants were involved in. Mr Papadimitriou told Mr Moussi that Mr Abdou was the owner of Telechoice. Mr Moussi was impressed because Telechoice was a large telecommunications company. Mr Moussi described the Chelsea office as having a formal reception area, branding for All‑States, and a professional looking boardroom. During the meeting itself the defendants described what expertise they could bring to assist Dr Kambouris and Mr Moussi with the inventions, in particular, raising funding for start-ups and property developments. Mr Papadimitriou described himself as previously working in the banking industry, and being very experienced in finance.
At some stage, Mr Moussi looked at the All-States website, which he reviewed quite thoroughly after he offered to revamp it. The website referred specifically to property development and commercial investments, not just home loan broking and finance broking. Mr Moussi also identified the Search website, which promotes Search’s expertise in property developments, and refers to Search having in‑house professionals, including in‑house architects and in‑house lawyers. Mr Abdou showed him the first version of the website, he could not recall when, but it was before September 2010. He stated:
But in regards to what Search Property Group did and the details of it, that also got covered between March and May, or in the period where I invested my money, where they have gone into a lot of detail in regards to what Search Property Group did.[29]
[29]Transcript 18.
Mr Moussi gave evidence that in May 2010 he embarked upon what he described as ‘a property trip’ to the USA. For $7,000 he embarked upon a tour organised by an Australian company which had introduced an investment scheme in the US. He had a keen interest in investing in the USA market as there were cheap properties with ‘high cash returns and capital gains’ available for purchase.
The property trip took just over a week to complete, and he returned to Melbourne at the very end of May or the very beginning of June 2010. Just after he returned he called Mr Papadimitriou and told him he had just returned from the USA, and wanted to have another meeting to discuss the progress of the capital raising for Botanical Water. Mr Papadimitriou suggested that Mr Moussi visit the Chelsea office on the morning of Saturday, 5 June 2010.
During the meeting at the Chelsea office on 5 June 2010 (‘5 June meeting’) Mr Papadimitriou told him that the defendants had won the contracts to develop all of the properties owned by the RSL. Mr Papadimitriou took Mr Moussi through architectural drawings of the first RSL property they were going to develop, being a property in Glen Waverley, an architectural drawing of the Hawthorn Club, and aerial photographs of a number of the RSL properties.
Mr Moussi said that while Mr Abdou was in the Chelsea office at the time, it was Mr Papadimitriou who showed him through the aerial photographs and architectural drawings for the RSL properties. Mr Moussi gave evidence that Mr Papadimitriou told him that Search had won the contract to develop all of the RSL properties, because the RSL was cash strapped, and it would be financially rewarding for both Search and the RSL. Mr Papadimitriou told him that when Search developed all of the RSL properties, Search would make a profit of $400 million.
Mr Moussi gave evidence that Mr Papadimitriou and Mr Abdou ‘constantly’ talked about the RSL properties in the two month period in which he got to know them. Mr Papadimitriou would talk a lot about his background in finance, he had been the youngest bank manager for Citibank. The defendants told him they would receive a lot of referrals from people with failing property developments where the defendants would put together a team and finance to assist them. Mr Moussi stated:
And I was impressed. I have to be honest with Your Honour, I was impressed. I didn’t know much about property development and it was impressive. The architecture drawings looked impressive. Everything to me looked impressive. To me I was really excited to meet people who were – I thought were like really business savvy, had all this experience and, you know, I was really impressed. I have to be honest. [30]
[30]Transcript 23.
Returning to the 5 June meeting, Mr Moussi gave evidence that Mr Papadimitriou then suggested that they go to the coffee shop just around the corner from the Chelsea office run by Mr Papadimitriou’s wife and daughters. Mr Abdou was there, as was Mr Formichelli, Search’s architect and business partner. He spent most of the time at the coffee shop talking to Mr Abdou, who said words to the effect that:
Andrew, we, you know we buy properties, we, you know we get them, we get plans designed, get the plans approved by the Council. We sell everything off the plan and with the equity we have in the properties, plus the 10% deposit and the actual contracts for sale, we’ll go to the bank and you know within two years the entire property is developed and we make money.[31]
[31]Transcript 24.
Mr Moussi told Mr Abdou about his trip to the USA, and that what had struck him about investing in the USA was that it was not a high risk because he would not be required to invest hundreds of thousands of dollars because property in the USA was so cheap. Mr Abdou’s response was as follows:
Why would you want to invest in the USA? It sounds great, obviously from what you’re saying it sounds great. Why would you want to invest in the USA? It’s on the other side of the world, if something was to go wrong, what would you do? He goes, ‘If you invest in Australia’, he goes ‘what I can do for you is because we’re all getting together with this water invention’, he goes ‘I can get you into a property. You give me $150,000. In two years I’ll turn that to $900,000’. And he goes, ‘It’s local, it’s here, it’s with us. You know us. We do this for a living’. And it made sense. To me it made sense. These are the two options that I had and it made sense to go with an option in Australia.[32]
[32]Transcript 25.
A young man called ‘Warren’ was also at the coffee shop, and John Papadimitriou wanted to show Warren what he had previously shown Mr Moussi about the RSL properties. They returned to the Chelsea office, then Mr Papadimitriou had a discussion with Warren about which properties would be developed first. Then, Mr Papadimitriou said that they had just come across this property in Frankston, and suggested they all go and have a look. So Mr Moussi, Warren and someone else, who Mr Moussi was told had a building background, travelled in Mr Papadimitriou’s four wheel drive vehicle to the Frankston property. Mr Moussi gave the following evidence about what occurred during this journey:
John was talking about, you know, they had an architect as a business partner so there’s no architecture fees in regards to developing property. He went to school with Grollo Senior’s son and they had a close relationship. He was talking about a quote that he had received from another building company for $10 million and Grollo brought it down to $6 million because of their power around building and purchasing. So they had that relationship and that was – so John was talking about how we can get these properties done. They’ve got all the logistics in place to get these done very efficiently and cost effective and very, very lucrative.[33]
[33]Transcript 27.
Mr Moussi was effusive in his description of the Frankston property. With a creek and a secluded beach at the rear, he said he thought the property was ‘absolutely beautiful’, and ‘really beautiful’.
Mr Moussi gave the following evidence regarding his conversation with Mr Papadimitriou at the Frankston property:
Does Mr Papadimitriou say anything in relation to the property?---He mentioned that they had, they had an opportunity to buy the property and within a week’s time maximum, they had to deposit – they had to give the owner the deposit for the property. So they said, ‘We need to rai - - - “. So there was an opportunity. Due to their high investment nature or due to the big responsibility of the RSL, they said they can’t obviously do 200 RSL properties and take all these other opportunities at the same time, so they were seeking other people to come on board as partners for this particular project. And within a week they needed to raise the money for the deposit and they wanted $35,000 each.
Who is the $35,000 each from?---He mentioned it to myself, to Warren and a third party, but I wasn’t certain who else. They said there were others as well. I wasn’t certain who else that would have been.
And what were you to get for your $35,000?---Ten per cent. He said, ’10 per cent and no other money would be required’, and that was qualified by – the architectural drawings would be done by their partner. Again by 10 per cent, selling everything off, everything off the plan, receiving the 10 per cent deposits and then going to the bank and getting a loan to cover the rest, rest of the bills.[34]
[34]Transcript 28-29.
Nothing further of note happened at the 5 June meeting. Mr Moussi gave evidence that a couple of days later, he received a phone call from Mr Papadimitriou during which Mr Papadimitriou told him that Mr Abdou had paid the deposit on the Frankston property and that there was no rush, no urgency to do anything that week.
Mr Moussi gave evidence that shortly after that time, Mr Papadimitriou telephoned him and said that he and Mr Abdou were on the way to the city and could meet with him. Mr Papadimitriou telephoned again and said they could not find a car park, so Mr Moussi went downstairs and was collected from outside the ANZ building by Mr Abdou, who was driving a 7 series BMW. They drove around for about 20 minutes, with Mr Abdou doing most of the talking. Mr Moussi gave evidence that Mr Abdou said:
Ayman said to me that because of – you know, ‘Andrew, we like you’, you know, they – they liked to use the terms, you know, ‘You’re now one of us. You know, we’re getting involved in business together, you’re now one of us. You know, because you’re one of us, we want to give you opportunity.[35]
[35]Transcript 31.
Later, Mr Moussi gave the following evidence:
Who said what?---Yes, so we’re in the back of the car and Ayman – as I mentioned before he would mention – because of our other business relationship they got to like me, they wanted to offer me 15 per cent of this property development, because it was a very high, lucrative property development, they won’t towel me up. They saw it as a good opportunity for me to earn revenues where I could get out of my consulting work at ANZ and seek, you now, any other aspirations, you know. They were very – they were very particular about saying to me - specifying to me that I wasn’t to tell any of the other investors – not that I knew the other investors, because they all had opportunities for 10 per cent, but I was having 15 per cent. Ayman then went on to say that they required $250,000. I responded saying, ‘I don’t have $250,000’, because initially they said 35. Shall I continue?
Yes, please?---Then John Papadimitriou said, ‘That’s not a problem.’ He asked me a couple of questions about my unit in Brunswick. I said, ‘It’s, you know, a two-bedroom unit.’ I had $70,000‑odd left to pay off the property. He said, Allstate Financial, I’ll get it re – re‑financed and we’ll get the money from the property, from my Brunswick property.
All right. What was your reaction to this, what did you say?---Look, initially, I was a little bit – you know, obviously, I was a little bit shocked when someone says, you know, from 35 to 250,000, but there was a lot of assurity from them that this is no risk. and the one thing – even when I – you know, the whole time I’ve spoken to Ayman from that café meeting, Ayman specifies no risk, we’re investing in property. You know, how can you go wrong when investing in property? There is zero risk. That was something that was really, really emphasised. So to me, Your Honour, just putting it in perspective, is it wasn’t an easy decision for me to make personally because it was my only property. You know, I had it for seven or eight years, I’d paid off a lot of it, I’d renovated it myself, but I was investing – I was told that I was investing with a group of other people, including themselves, and they were putting up around 50 per cent of the money themselves, they gave me that assurity, and we were putting in the money to buy a property. And I liked that, buying a property, that’s what I want to do. Property investment’s good.[36]
[36]Transcript 32.
Mr Moussi gave evidence that Mr Papadimitriou made reference to the defendants putting in fifty per cent of the funds required for the property development at the 5 June meeting, but that this statement was repeated during the car trip referred to above (‘car trip’).
Taking the remainder of the alleged representations in turn, there is a direct conflict of evidence between Mr Moussi and the defendants about whether the defendants told Mr Moussi that the deposit had been paid prior to the plaintiff making the advance. Mr Moussi gave evidence that a few days after the 5 June meeting Mr Papadimitriou called him and told him that Mr Abdou had paid the deposit. Further, he gave evidence that that was a significant matter in influencing him to invest in the development project. The defendants, especially Mr Abdou, denied this, because they stated that the main purpose of obtaining the advance from the plaintiff was to fund the payment of the first tranche of the deposit, and that Mr Moussi was aware of this.
This is not an example of an allegation that a representation was made which can be dismissed as inherently implausible. It is quite possible that such a representation was made. If the representation was made, it was patently false, as the deposit was not paid until after the making of the advance: in fact the advance had been used to pay the deposit. If I were to be satisfied that such a representation was made, and that it was a representation made for the purpose of inducing the plaintiff to make the advance, the inference would arise that the representation did in fact induce the plaintiff to make the advance, although that inference is capable of rebuttal by reason of the actual facts and circumstances.
There is something odd about the plaintiff’s version of events in that, according to Mr Moussi, he was being told at the 5 June meeting that the defendants needed a contribution from him of $35,000 to pay the deposit on the Frankston property, for which he would get ten per cent of the Frankston property, and only days later, be told that for an investment of $250,000, he would get a 15 per cent share of the Frankston property. Mr Moussi was unable to provide a satisfactory explanation as to how and why this shift occurred, and how it was related to the payment of the deposit.
On the other hand, the defendants’ evidence is that Mr Moussi was approached to invest in the development project because Parker Design had withdrawn, and that fact, along with the fact that the defendants needed funds to pay the deposit was known to Mr Moussi. However, the best evidence is that Parker Design had not withdrawn from the development project at the time that Mr Moussi was engaged in discussions with the defendants about investing in the development project.
There was some inconsistency in the defendants’ evidence regarding this matter. Mr Abdou was positive that he or Mr Papadimitriou had told Mr Moussi that the advance was needed to pay the deposit. Mr Papadimitriou, however said at first that he could not remember telling Mr Moussi that Mr Abdou had paid the deposit, before denying some minutes later that he had told Mr Moussi that Mr Abdou had paid the deposit.
While I accept that the defendants did explain to Mr Moussi about the development project than Mr Moussi was prepared to concede, I cannot be certain that the defendants told him that the deposit had not been paid and that is why they invited him to invest in the development project. The defendants may or may not have had an expectation that the deposit would be paid by Parker Design, although the version of events advanced by their particulars of defence suggests that they did. So it seems that at least part of the defendants’ version of events is not true, and Mr Moussi’s evidence that Mr Papadimitriou called him to tell him that there was no need to do anything urgently because the deposit had been paid has a ring of plausibility about it, notwithstanding the general caution I would exercise with respect to any uncorroborated evidence of Mr Moussi.
Mr Moussi’s evidence that at the 5 June meeting the defendants told him that they needed a $35,000 contribution from him and others to pay the deposit and secure the Frankston property was not directly disputed by the defendants, although it is inconsistent with the defendants’ evidence that Dr Kambouris approached them with a proposal that Mr Moussi invest $250,000 in the development project. Therefore, the evidence that Mr Papadimitriou called Mr Moussi to tell him that the deposit had been paid and that there was no urgency about the matter, while denied by Mr Papadimitriou, does not of itself lack credibility. But it is necessary to analyse Mr Moussi’s evidence about this question carefully, both in respect of whether the representation was in fact made, if so, what belief it engendered in Mr Moussi, how he acted on that belief, and if he changed his position in any way on that belief.
Mr Moussi gave evidence under cross‑examination that he was told at the 5 June meeting that the deposit had been paid, although that contradicted his earlier evidence that he was told this by Mr Papadimitriou a few days after the 5 June meeting. His answers to questions about whether it would have made any difference to him whether the deposit had been paid were at first non‑responsive, but he then gave evidence that it was important to him because it meant that he was putting money into a property which had been ‘locked down’ by a deposit, so it could not be sold to someone else.
The fact that there seemed to be a lesser sense of urgency about Mr Moussi’s investment in the development project is consistent with the defendants having told Mr Moussi that the deposit had been paid. After all, the advance was not made until five weeks after the 5 June meeting. However, it is also consistent with Mr Abdou’s evidence that he had some type of arrangement with the vendor’s real estate agent that he did not have to pay the deposit at the time he signed the contract of sale, and that failure to pay the deposit would simply cause the contract of sale to lapse. This evidence is not as implausible as contended for by counsel for the plaintiff.
The defendants were adamant in their evidence that they told Mr Moussi and Dr Kambouris that they needed the advance to pay the deposit because Parker Design had withdrawn from the development project. But the inconsistencies in the defendants’ evidence are such that I cannot be positively satisfied that the defendants’ version of events is correct. And, while I have some hesitation in accepting Mr Moussi’s version of events where there is a direct factual contest, his evidence that he was not aware that the advance was being used to pay the deposit is consistent with the September 2011 letter, which expresses some indignation about the advance having been used to pay the deposit.
My cautious conclusion that the defendants told Mr Moussi the deposit had been paid is consistent with the evidence of both the plaintiff and the defendants as to who approached who regarding the plaintiff’s investment in the development project. It is certainly consistent with Mr Moussi’s evidence that the defendants invited him to invest in the development project. But it is also largely consistent with the defendants’ evidence that Dr Kambouris approached them and told them that Mr Moussi wanted to invest $250,000 in the development project. Regardless of whether at one point in time the defendants thought Parker Design would fund the deposit, the reality is that by the time of making the advance, there appeared to be no other funds at the defendants’ disposal to pay the deposit.
Whilst it is not strictly necessary to determine this factual dispute for the purpose of determining whether this or any other representation was made, I do accept the defendants’ evidence that they were approached by Mr Moussi, or Dr Kambouris acting on Mr Moussi’s behalf, expressing an interest in investing in the development project, probably after their visit to Mr Abdou’s home on Mother’s Day 2010. It may well be that the defendants’ responses at that time was non‑committal, but it seems to me to be tolerably clear that by the time Mr Moussi returned from his property trip in early June 2010, Mr Moussi was interested in investing in the development project, and the defendants wanted him to invest in the development project, although the urgency of this matter may have subsided once Mr Abdou made some arrangements with the vendor to secure the Frankston property.
Therefore, the plaintiff has established that the defendants, or at least Mr Papadimitriou, conducted himself in a way that engendered in Mr Moussi an erroneous belief that the deposit had been paid. However, in order for the defendants to be liable to the plaintiff for misleading or deceptive conduct, the plaintiff must establish that that erroneous belief, caused, or at least materially contributed to, Mr Moussi to cause the plaintiff to make the advance.
Of course, when it comes to the question of reliance, the plaintiff has the benefit of the inference referred to by Wilson J in Gould v Vegellas, and more recently endorsed by the Court of Appeal in Lord Buddha. However, notwithstanding the inference in its favour, it is an inference capable of rebuttal by evidence regarding the facts and circumstances of the case, and the High Court in Sidhu has confirmed that where reliance is a necessary element of the cause of action, the onus of proving reliance remains with the plaintiff.
Mr Moussi’s evidence was that the fact that the deposit had been paid was important to him, because it meant that the defendants had secured the Frankston property, and therefore it could not be sold to someone else. However, it is clear from the evidence as a whole, including in particular Mr Moussi’s own evidence that what motivated Mr Moussi to cause the plaintiff to make the advance was not whether or not the deposit had been paid, but his own perception of the benefits of investing in the development project, in particular, the potential return that he would receive upon what for him would be a passive investment, which, depending upon what forecast is accepted, ranged between a fivefold and ninefold return upon the advance. Mr Moussi (whether encouraged by Dr Kambouris or not) was impressed by the apparent commercial acumen of the defendants. He thought the Frankston property was ‘beautiful’. He knew that the defendants planned to construct over 80 apartments on the site, and understood, if not the fine detail, the manner in which the property development was to be structured and financed. That is evident not only from his evidence, and that of the defendants, but also from his response to Mr Papadimitriou’s response to the 23 September email, which referred to the deposit being paid in two tranches, with settlement due in 2012. While the September 2011 letter denied that this was how Mr Moussi understood how the purchase of the Frankston property would proceed, this was twelve months later. One would have expected that if he did not know how the transaction had been structured prior to receiving Mr Papadimitriou’s response, then he would have responded in quite a different way, quite quickly, rather than simply requesting that the advance be returned to him with no other comment.
That the question of whether or not the deposit had been paid was not of any material significance to Mr Moussi is illustrated by the fact that, at the time of the 5 June meeting, on his own version of events, he knew that the deposit had not been paid, but was still enthusiastic about the investment, and indeed, I accept the defendants’ evidence that it was Dr Kambouris that made the original overtures to the defendants on Mr Moussi’s behalf.
The question of reliance is closely bound up with the question of causation. On the plaintiff’s case, the defendants induced in Mr Moussi an erroneous belief that the deposit had been paid on the Frankston property. However, the plaintiff must also establish that Mr Moussi changed his position by reason of this erroneous belief.[114] The plaintiff must show that if the defendants had not told him the deposit had been paid, either by remaining silent on the matter, or if they had informed him of the true position, he would have acted differently. I am not satisfied that, given the other matters which motivated Mr Moussi to invest in the development project, that he would have acted any differently. His own evidence does not bear that out.
[114]Sidhu, [55], [61].
As noted above, Mr Moussi gave evidence that the fact that the significance of being told that the deposit had been paid was because he wanted to make sure that the advance was ‘going into’ the Frankston property. That was consistent with his later conduct, after he became concerned about the bona fides of the defendants, when he conducted a title search and pressed Mr Papadimitriou for the share certificates. He gave no evidence that being told that the deposit had been paid influenced his view as to the financial resources the defendants had available to them, or his view about the level of risk involved in investing in the development project, or the potential profitability of the development project. His evidence regarding the impact upon his state of mind of having been told the deposit had been paid indicated that his particular concern was whether his opportunity to invest in the development project would be realised, because the defendants had secured the Frankston property, and it could not be sold to someone else. There was no evidence to suggest that his belief that the deposit had been paid influenced his assessment of the value of the opportunity to invest in the development project, which was primarily, if not exclusively informed by his confidence in the defendants’ expertise and experience, his belief about the potential profitability of the development project, and his own desire to invest in property. Accordingly, I do not accept that the plaintiff relied upon any representation by the defendants that the deposit had been paid.
As for the alleged representation that for a $250,000 investment Mr Moussi or his nominee would own 25%, alternatively 15% of the Frankston property and/or the investment vehicle (being 328NHF), that investment vehicle having and retaining the benefit of having entered into a contract to purchase the Frankston property, this representation needs to be broken down into its constituent parts. First, as previously noted, it was not, and could not seriously be contended that Mr Moussi or the plaintiff would be registered on the title of the Frankston property. Further, the pleading as to what proportion of the share of 328NHF would be owned by the plaintiff appears somewhat confused. This confusion appears to have arisen because of the difference between what proportion of shares the defendants told Mr Moussi the plaintiff he had in 328NHF (15%) and the instructions Mr Moussi gave to his lawyers that that he had received 250,000 one dollar shares in 328NHF. In any event, at trial, Mr Moussi agreed that he was only entitled to 15 per cent of the shares in 328NHF, and not much turns on that now that the development project did not proceed and 328NHF is in liquidation.
An issue of significance in relation to this representation which emerged at trial is whether the defendants engaged in misleading and or deceptive conduct by reason of the apparent intention on the part of Mr Abdou to nominate Beach Front, rather than 328NHF, as the purchaser of the Frankston property. That there was such an intention after 20 June 2012 is in no doubt, and Mr Abdou conceded as such. However, while the plaintiff would have a good cause of action if Beach Front had been nominated as the purchaser of the Frankston property, the purchase of the Frankston property proceeded, and Mr Abdou failed to arrange for the shareholdings in 328NHF to be reflected in the shareholdings of Beach Front, this does not mean that, at the time that the plaintiff made the advance, the defendants’ conduct in this regard was misleading or deceptive. The evidence all points to 328NHF being the intended purchaser of the Frankston property from the time of its incorporation up until the date of the incorporation of Beach Front in June 2012, or at least not long before that. The nomination form dated 15 July 2010 is in evidence. Mr Abdou gave evidence that he provided the nomination form to the vendor not long after 15 July 2010, which might explain its absence from Mr Chakir’s file. A substantial number of payments, including the payment of the deposit, were made from the bank account of 328NHF, and the value of the deposits was recorded in the balance sheet of 328NHF. The plans for the development project submitted to the Council in January 2011 have the Search logo printed on them, but also includes a reference to ‘328NHF Pty Ltd’. As such, there is no evidence that, at the time that the advance was made, the defendants intended anything other than that the development project would be conducted through 328NHF.
Of course, the proposed nomination of Beach Front after the issue of this proceeding does not reflect particularly well upon Mr Abdou. The question of whether Mr Abdou would actually do what he said he would have done (that is, give the plaintiff an equivalent interest in Beach Front that it had in 328NHF) remains untested. But in this proceeding, the most that can be made of this by the plaintiff is that their sequence of events suggests there is a propensity on the part of the defendants to engage in dubious conduct. It does not of itself amount to actionable misleading or deceptive conduct. I am also not satisfied that the proposal to nominate Beach Front as the purchaser of the Frankston property was with the intention of frustrating the processes of this Court.
Again, the representation that there were other investors ‘going in’ for ten per cent of 328NHF, and that the defendants themselves were investing more than fifty per cent of the money needed for the development project needs to be broken down into its constituent parts. First, the defendants agreed that they told Mr Moussi that other investors would be ‘going in’ for ten per cent, because that was the business model used by the defendants: that is, the shares in the investment vehicles would be sold off to investors who came on board to fund the development project, and that is what in fact occurred, with Gregory Waddell and an associate investing $150,000 in October 2010 in exchange for ten per cent of the shares in 328NHF.
The defendants denied telling Mr Moussi that they would be funding fifty per cent of the costs of the acquisition of the Frankston property themselves. Mr Abdou’s evidence that if he was in fact in a position to make an investment of that size he would not need other investors, but would have obtained the town planning approvals himself, seems perfectly plausible. He and Mr Papadimitriou were adamant that Mr Moussi well understood how the development project was to be funded, and I accept, substantially on the basis of Mr Moussi’s own evidence, that he did.
As for the representation that Mr Moussi or his nominee would make a 25% or alternatively 15% return on a profit of $15 million, I would repeat my earlier observations regarding the confusion about whether the plaintiff held a 15 per cent on a 25 per cent interest in 328NHF. As for the question of the size of the potential profit, there are in evidence a range of different profit forecasts. They include the $15 million referred to by the plaintiff in the statement of claim. The further and better particulars relied upon by the defendants make reference to them writing up on a whiteboard and showing to Dr Kambouris cost estimates for the development project which showed a forecast profit of $9 million. Mr Moussi gave evidence that Mr Abdou told him that $10 million would be the profit if the market was bad. In October 2010, the forecast profit was $12.5 million, as shown by the spreadsheet in evidence, and a profit of between $7 to $10 million was referred to by Mr Papadimitriou in his evidence, although the latter range appears to have been calculated on a development of 32 apartments rather than 86 apartments.
The defendants accepted, or at least Mr Papadimitriou accepted, that they had given Mr Moussi an estimated profit for the development project. While Mr Papadimitriou’s evidence was that he had given Mr Moussi a lower estimate, I consider that it is more likely that the defendants told Mr Moussi that the expected profit would be in the range of $10 to $15 million, given that at the time the defendants believed that 86 apartments could be constructed on the Frankston property, and that the cash flow analysis in the October 2010 spreadsheet which is in evidence shows a profit forecast of $12.5 million.
Given that it is accepted that a representation regarding the potential profitability of the development project was made, and it was a representation as to a future matter, the onus shifts to the defendants to establish that it was made honestly and that there was a reasonable basis for making the representation. I accept that, at the time they made the representations about the potential profitability of the development project, the defendants genuinely and reasonably believed that if the development project proceeded as planned, an outcome within the range of figures referred to in the pleadings and the evidence was capable of being achieved.
On the defendants’ expectations, had the development project proceeded, which was what they wanted to occur and what they worked towards to achieve, the plaintiff would have been repaid his loan of approximately $250,000, and received between $1.05 million and $2.25 million by way of profit share, that is, somewhere between a fivefold and a ninefold return on the advance. While there was no documentary evidence of any cash flow analysis having been carried out in or around June or July 2010, there is no reason to suggest that the defendants did not believe a profit of those dimensions could be achieved. They had been informed by Mr Formichelli that an 86 unit development would be able to be constructed at the Frankston property. While this turned out not to be the case, it hardly seems unreasonable for the defendants to rely upon Mr Formichelli, given his expertise, in relation to such matters. As stated by Mr Papadimitriou in his evidence, they knew the costs of construction and finance, and, as at June 2010, believed that the architectural and town planning services would be provided to them in exchange for equity, so the cash demands upon them would be relatively limited.
I consider that the differences between the various profit figures referred to in the evidence and the pleadings are of no great significance in determining whether the defendants have engaged in misleading or deceptive conduct. It is apparent that at the time of the making of the advance, all of the parties concerned genuinely believed that the development project would be very profitable, given at the lower end of the range, $7 million, the plaintiff stood to receive approximately $1.3 million, or a fivefold return on the advance, increasing to a ninefold return on an estimate of $15 million.
I have no doubt that Mr Moussi was induced to make the advance by the prospect of making an extremely substantial profit within a relatively short period of time, whether it be two, three or four years. However, I doubt whether the exact amount of the profit would have made a great deal of difference to his decision making, once in the range that was in evidence in this case. Mr Moussi gave at least two versions of how he became aware of the forecast profit for the development project: first, that he was told by Mr Abdou that the development project would make a profit of $15 million, perhaps only $10 million if the market was bad, and secondly, he extrapolated the return he was told by the defendants that they could make generating ($900,000 for every $150,000 invested with them) to make an estimate of the profitability of the development project, given that he had been told by the defendants it was their most profitable project. Indeed, the confusion in the pleadings regarding what proportion of 328NHF the plaintiff owned, and as such, the actual dollar value of the forecast profits, suggests that the exact forecast return was not of great significance to Mr Moussi. The defendants have discharged the onus upon them to establish that any representations made by them regarding the profitability of the development project were honestly made and reasonably based.
Further, while I doubt much turns upon this in the end, I accept the defendants’ contention that the advance was characterised in the manner contended for by them and recorded in the 15 July minute, that is, the plaintiff made an interest free loan to 328NHF of $249,485, and paid $15 to obtain 15 per cent of the shares in 328NHF. While Mr Moussi disputes that this was not the nature of the transaction (for reasons which are not entirely clear), the evidence all points to the transaction being structured in that way. First, there is no reason to believe that the 15 July minute is a fabrication. Mr Formichelli confirmed in his evidence that he signed the 15 July minute. While he may not have had close regard to its contents, it is inherently unlikely that, given Mr Formichelli’s role as representing another shareholder of 328NHF, Mr Abdou would put before Mr Formichelli a document that was a blatant misrepresentation of the true position. Secondly, the structure of the transaction was consistent with the arrangements between 328NHF and a subsequent investor, Gregory Waddell. Thirdly, the evidence of Mr Moussi that he signed a share transfer form in which he accepted 250,000 one dollar shares, a document he could not find, was quite implausible. There were never 250,000 one dollar shares to transfer, and it is a document that Mr Moussi would be unlikely to lose in his small apartment. In any event, given that Mr Papadimitriou described the structure of the transaction in his response to the 23 September email, one would expect that Mr Moussi would have taken issue with that had he genuinely believed that he held 250,000 shares.
Finally, as for the representation that Mr Abdou would provide Mr Moussi with copies of the contract of sale, the architectural drawings, the projected financials and the like within a few days of making the advance, evidence to that effect was given by both Mr Moussi and Dr Kambouris. Mr Papadimitriou’s evidence was that Dr Kambouris had access to all of the documents concerning the development project while he was visiting the Chelsea office. Mr Abdou’s evidence was that he did not believe he showed Mr Moussi a copy of the contract of sale, he had taken Mr Moussi through the ‘fundamentals’ of the development project prior to Mr Moussi making the advance.
As earlier indicated, I do not consider the defendants’ evidence regarding what documentation the defendants gave Mr Moussi prior to the plaintiff making the advance was particularly satisfactory. In particular, the suggestion that Mr Moussi had access to all relevant documents because he could visit the Chelsea office at any time, or because Dr Kambouris could photocopy them at the Chelsea office is a little absurd.
However, it is difficult to see how the defendants’ failure to provide these documents after the advance was made caused him any loss. I accept the submissions advanced on behalf of the defendants that, at the time of making the advance, Mr Moussi was aware of the key features of the development project, at least for the purposes of determining whether to make the advance. I accept the evidence of the defendants that they explained the structure and financing of the development project to Mr Moussi, including Mr Abdou’s evidence that he took Mr Moussi through the feasibility analysis on the computer at the Chelsea office. In my view, this evidence is consistent with the failure of Mr Moussi to take any steps to obtain these documents until at least six weeks after making the advance, and that seemed to be spurred more by the broader falling out between Dr Kambouris and the defendants, and his concerns about whether he had his shares in 328NHF, rather than for the purposes of perusing the financial forecasts and architectural drawings. Indeed, Mr Moussi gave evidence that by that time, he was not really concerned about the performance of the development project, as he had lost faith in the defendants and simply wanted his money back.
To summarise, in regard to the ‘persons of substance’ representation, I have found that the defendants have not acted in a manner which induced any erroneous belief on the part of Mr Moussi regarding their commercial experience or financial standing. In relation to the representations regarding the development project itself, I have found that the defendants made certain representations regarding the investment vehicle which would complete the purchase of the Frankston property, and the forecast profitability of the development project, but that these representations were honestly made and reasonably based at the time they were made. I am not satisfied that the defendants represented to the plaintiff that an investment in the development project was ‘no risk’, or that the defendants would be contributing at least fifty per cent of the funds required to purchase the Frankston property. I consider that it is more likely than not that they told Mr Moussi that the deposit on the Frankston property had been paid, but I do not consider that Mr Moussi would have acted any differently had the defendants not told him this, or if he was appraised of the true position.
Having not found that the defendants are liable to pay damages for any misleading or deceptive conduct, it is not strictly necessary for me to consider the issue of apportionment raised by Mr Abdou’s amended defence. However, in the event that it becomes relevant, I would make a number of observations regarding the apportionment issue.
First, I accept the submissions advanced by counsel for the plaintiff that Mr Abdou’s pleading in relation to Part IVAA of the Wrongs Act 1958 (Vic) (‘apportionment provisions’) is deficient, in that it lacks sufficient particularity. However, I accept that the question of what is a sufficient pleading of a defence based upon Part IV of the Wrongs Act remains somewhat unsettled, at least in Victoria.
The apportionment provisions relate to claims which arise out of a ‘failure to take reasonable care’. In Dartberg v Wealthcare,[115] Middleton J stated that a party seeking to rely upon the apportionment provisions must plead and prove each of the statutory elements of Part IVAA, including the failure to take reasonable care, and that it would be desirable that at an early stage of the proceeding for a respondent to put forward the facts upon which it relies in support of the allocation of responsibility it contends.[116]
[115](2007) 244 ALR 552.
[116]Ibid 559-560.
The statement of Middleton J in Dartberg has been endorsed by this Court in Wheelahan v City of Casey,[117] and Main Road Property Group Pty Ltd v Pelligra and Sons Pty Ltd.[118] However, in Wealthcare Planning Pty Ltd v Financial Industries Complaints Service Ltd,[119] Cavanough J, while expressing general agreement with the reasoning of Middleton J in Dartberg, stated that:
I should nevertheless not be taken to have formed a concluded view as to whether it is the pleadings or the facts that should be regarded as the principal determinant of whether or not a claim is an apportionable claim.[120]
[117][2013] VSC 316.
[118][2010] VSC 167.
[119](2009) 69 ACSR 418.
[120]Ibid [42].
However, even if the position is that Mr Abdou is not shut out by the lack of specificity in his pleading, he could only rely upon the apportionment provisions to claims involving a ‘failure to take reasonable care’. In my view, the only representations said to be made by the defendants which could be said to arise out of a failure to take reasonable care would be the representations said to have been made as to the future profitability of the development project.
Accordingly, even if Mr Abdou is able to rely upon the apportionment provisions, which is doubtful, the extent to which any damages payable by him would be reduced would depend upon which representations the plaintiff was successful in establishing amounted to misleading or deceptive conduct. For, while the defendants clearly work closely in concert, Mr Moussi’s evidence, while generally referring to the defendants collectively, also attributes responsibility for different representations to only one of the defendants. By way of example, the plaintiff pleaded and Mr Moussi gave evidence that Mr Papadimitriou first told him that Mr Abdou was an owner of Telechoice, but gave evidence that later Mr Abdou told him that as well. Mr Moussi said he relied upon what Mr Abdou told him about investing $30 to $40 million of his own money in KeepaFresh to draw the conclusion that Mr Abdou had considerable wealth, and Mr Abdou was the one said to have made the statements that every $150,000 invested with the defendants would generate a return of $900,000, and that the development project was likely to generate a profit of $15 million. However, while Mr Abdou was present at the Chelsea office at the time, Mr Moussi said that it was Mr Papadimitriou that told him that the defendants had the contracts for the RSL properties. Further, Mr Moussi’s evidence was that Mr Papadimitriou telephoned him to tell him that Mr Abdou had paid the deposit. Other representations were said to be made by the defendants jointly, or the evidence is unclear as to which of the defendants was said to have made the representations.
Accordingly, if it were necessary to determine whether Mr Abdou is entitled to rely upon the apportionment provisions, including the issue of whether Mr Abdou was entitled to rely upon the apportionment provisions by reason of s 24AM of the Wrongs Act, which precludes a party against whom a finding of fraud is made from relying upon the apportionment provisions, it would be necessary to do so having regard to which of the representations the defendants, or either of them were to be found liable. Given that I have found that the defendants are not liable in respect of any of the alleged representations, it is not appropriate to embark upon any such enquiry in the course of these reasons.
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