Reliance Financial Services Pty Ltd v Antalija Developments No 4 Pty Ltd

[2022] NSWSC 519

Supreme Court

New South Wales

Medium Neutral Citation:

Reliance Financial Services Pty Ltd v Antalija Developments No 4 Pty Ltd [2022] NSWSC 519

Hearing dates:

14 – 18, 25 February, 2 – 3 March 2022

Decision date:

02 May 2022

Jurisdiction:

Equity

Before:

Robb J

Decision:

The parties should confer for the purpose of preparing short minutes of order to give effect to these reasons and they should include case management orders to deal with all outstanding issues

Catchwords:

CONTRACTS — misleading conduct under statute — misleading or deceptive conduct — third and fourth defendants operate residential development business through second defendant — second plaintiff through her agent arranges for residential development project with third and fifth defendants — first defendant incorporated to purchase land on unit trust for second plaintiff, third defendant and fifth defendant themselves as trustees of separate discretionary trusts — plaintiffs claim enforcement of contract between unit holders containing clause giving rise to breach of contract by third defendant and liability of first defendant to second plaintiff for loan at substantial interest rate — whether particular clause of contract void for misleading or deceptive conduct by agent of second plaintiff — development arrangements made in quasi-familial context — request by third defendant of agent of second plaintiff whether legal or financial advice required in respect of contract — response by agent of second plaintiff that contract contained ‘standard’ or ‘simple’ terms — failure by agent of second plaintiff to bring third defendant’s attention to unusual term — declaration that particular clause void ab initio

EQUITY — trusts and trustees — breaches of trust — plaintiffs claim that first defendant as corporate trustee breached its duties by securing loan over trust property to pay other corporate vehicle of third and fourth defendants — plaintiffs claim that first defendant breached its duties by making unauthorised repayment of third and fifth plaintiffs’ contribution to development arrangement — plaintiffs claim that first defendant breached its duties by entering into costs agreement with defendants’ solicitors — plaintiffs seek replacement of first defendant as trustee of unit trust — plaintiffs seek account of unit trust

AGENCY — liability of principal — relations between principals and third parties — second plaintiff bound by misleading or deceptive conduct of agent in respect of third defendant

Legislation Cited:

Australian Consumer Law, ss 18, 237, 243

Fair Trading Act 1987 (NSW), s 28

Competition and Consumer Act 2010 (Cth), Sch 2

Trustee Act 1925 (NSW), s 70

Cases Cited:

Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; [1990] HCA 17

L’Estrange v F Graucob Ltd [1934] 2 KB 394

Manning v Commissioner of Taxation (1928) 40 CLR 506

Nadinic v Cheryl Drinkwater as Trustee for the Cheryl Drinkwater Trust [2020] NSWCA 2

Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 22 ALR 621

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52

Texts Cited:

JD Heydon and MJ Leeming, Jacobs’ Law of Trust in Australia (8th ed, 2016, LexisNexis Butterworths)

Category:

Principal judgment

Parties:

Reliance Financial Services Pty Ltd (First Plaintiff)
Nancy Morvillo (Second Plaintiff)
Marginata Securities Pty Ltd (Third Plaintiff)
Accolade Advisory Pty Ltd (Fourth Plaintiff)
Antalija Developments No 4 Pty Ltd (First Defendant)
Antalija Constructions Pty Ltd (Second Defendant)
Dennis Katavic (Third Defendant)
Jocelyn Katavic (Fourth Defendant)
Sue Price-Arcidiacono (Fifth Defendant)

Representation:

Counsel:
M Ashhurst SC & D Allen (Plaintiffs)
P Greenwood SC & A Oakes (First to Fourth Defendants)

Solicitors:
McEvoy Legal (Plaintiffs)
Kamy Saeedi Law (First to Fourth Defendants)

File Number(s):

2019/00372019

Publication restriction:

Nil

Judgment

1. These proceedings were commenced on 26 November 2019 by the filing of the plaintiffs’ summons in court by leave granted by Kunc J, sitting as the duty judge.

The parties

2. The plaintiffs are Reliance Financial Services Pty Ltd (Reliance), Nancy Morvillo, Marginata Securities Pty Ltd (Marginata) and Accolade Advisory Pty Ltd (Accolade).

3. The defendants are Antalija Developments No 4 Pty Ltd (Antalija No 4), Antalija Constructions Pty Ltd (Antalija Constructions), Dennis Katavic, Jocelyn Katavic and Sue Price-Arcidiacono (who I will call, as did the parties, Ms Price). Westpac Banking Corporation (Westpac) was formerly a defendant. There are other defendants against whom the plaintiffs have made claims that are not relevant to the issues dealt with in these reasons.

4. These reasons for judgment concern the hearing of a claim by the plaintiffs against the first four defendants. The claim against Ms Price will proceed separately. I will not refer in detail to the circumstances of the claim against Ms Price unless they are relevant to the claims made against the first four defendants.

5. It will be convenient to refer to the first four defendants simply as the defendants and to refer to Ms Price separately.

The proceedings

6. The proceedings arose out of the development by Antalija No 4, in its capacity as trustee of the Antalija No 4 Unit Trust (Unit Trust), of land at Moncrieff in the Australian Capital Territory (Moncrieff land) by the construction of 40 townhouses.

7. The final relief sought in the summons included a declaration that Reliance had an equitable mortgage over the assets of the defendants other than Westpac, a declaration that the proceeds of sale of the townhouses on the Moncrieff land were charged with all of the plaintiffs’ interests, and other relief arising out of alleged breaches of trust involving Antalija No 4, Mr Katavic and Ms Price.

8. The primary interlocutory relief sought consisted of asset preservation orders against the defendants in the terms contained in Practice Note SC Gen No 14. The orders would prohibit the defendants from removing from Australia or in any way disposing of the defendants’ assets up to an unencumbered value of $8,874,928.03. That order obviously was not sought against Westpac.

9. The complex issues that have arisen in these proceedings are not readily summarised. In essence, the plaintiffs seek to enforce rights that they claim to exist under agreements reached between them and one or more of the defendants concerning the development of the Moncrieff land. There are issues as to the existence and terms of any such agreements, and whether one agreement was induced by misleading and deceptive conduct. The parties established a trust vehicle for the purpose of the development and there are issues as to whether breaches of trust have been committed, and if so what the consequences of those breaches should be.

10. I will soon consider the circumstances in which the plaintiffs obtained interlocutory relief against the defendants. That is because, after these reasons for judgment are delivered, an issue will remain outstanding concerning the continuation of the asset preservation orders. Furthermore, as will be seen, the plaintiffs obtained interlocutory relief on grounds that have not been sustained, and in some cases were not sustainable. The manner in which the plaintiffs obtained interlocutory relief is material to the general credibility of the case that they prosecuted at the hearing.

11. I will also analyse the pleadings in this matter in some detail. That is necessary to determine with precision the issues that require determination in these reasons. The manner in which the plaintiffs have pleaded and revised their claims, which has involved the substantial abandonment and revision of particular claims, is also relevant to the general credibility of the plaintiffs’ case. It will be necessary for the Court to deal with relevant aspects of the pleadings at a level of detail that will have the unfortunate result that the reasons will be opaque to the reader. It may be necessary for the reader to suspend understanding of the issues raised by the pleadings until the analysis of the evidence that follows will hopefully make the commentary on the pleadings more transparent. An attempt artificially to simplify the pleadings and the issues raised by them would be unhelpful.

12. At the end of the hearing, after the agitation of a number of matters that ultimately ceased to be relevant, three broad issues remained for determination that are summarised below at [339] of these reasons.

Evidence in support of interlocutory relief

13. The summons was supported by an affidavit of Sam Peter Cassaniti sworn on 26 November 2019. Mr Cassaniti claimed to be authorised to make the affidavit on behalf of each of the plaintiffs. Mr Cassaniti said that he was Ms Morvillo’s brother.

14. Mr Cassaniti said that, for the purpose of the urgent application, Reliance claimed an interest in the proceeds of sale of the Moncrieff land as a secured creditor of Antalija No 4, Ms Morvillo claimed an interest in the proceeds as a 25% unit holder in the Unit Trust, Marginata claimed an interest in the proceeds as a secured creditor of Ms Price’s 25% unit holding in the Unit Trust, and Accolade claimed an interest as a secured creditor arising out of the provision of accountancy and advisory services.

15. Mr Cassaniti exhibited to his affidavit an undated Unit Holders Agreement (Unit Holders Agreement) between Antalija No 4 and the unit holders of the Unit Trust, a so-called Development Funding Agreement dated 11 May 2017 between Antalija No 4, Mr Katavic and Reliance, and an agreement amending that agreement. Mr Cassaniti said that, under the Development Funding Agreement as amended (Amended Development Funding Agreement), Reliance paid Antalija No 4 $2,250,000, comprised of a loan of about $1.16 million and the payment of Ms Morvillo’s capital contribution under the Unit Holders Agreement. Of the total amount of $8,574,928.03 sought to be protected by the asset preservation orders, $4,389,076.76 was attributed by Mr Cassaniti to the amount owed by Antalija No 4 under the Amended Development Funding Agreement with Reliance. The balance was comprised of an amount of $1,869,601.27, said to be the amount owed by Ms Price to Marginata secured by her interest in the Unit Trust, and $2,316,250, being what Mr Cassaniti claimed was the value of Ms Morvillo’s interest in the Unit Trust.

16. Mr Cassaniti gave evidence in his affidavit of a number of matters that caused Mr Cassaniti to fear that Mr Katavic would cause Antalija No 4 to misappropriate the net proceeds of sale of the Moncrieff land. Those matters included that Antalija No 4 had not repaid any of the amount owed to Reliance under the Amended Development Funding Agreement, that Mr Katavic had caused Antalija No 4 to enter into a construction contract with Mr Katavic’s building company, Antalija Constructions, without any notice to or consultation with Reliance or Ms Morvillo, and that Mr and Ms Katavic had redeveloped their home, which is in Ms Katavic’s name, when the only way they could have afforded the redevelopment is if a substantial portion of the funds of the Unit Trust had been directed towards the construction costs, and materials purchased for the redevelopment had been charged as materials costs under the contract for the development of the Moncrieff land.

Asset preservation orders

17. Based on this evidence, Kunc J made ex parte asset preservation orders substantially as sought by the plaintiffs until 28 November 2019. His Honour also made an order that the first to fifth defendants be restrained until further order from disbursing, disposing of or dealing with any of the proceeds of sale of the Moncrieff land.

18. As will be seen, however, the plaintiffs ultimately did not, at the hearing, pursue their attempt to prove the validity of the Amended Development Funding Agreement. As will also be seen, the Unit Holders Agreement specifically authorised Antalija No 4 to enter into a construction contract with Antalija Constructions. There has been no attempt at all by the plaintiffs to make good their claim that Mr and Ms Katavic have misused the funds of the Unit Trust in the redevelopment of their home.

19. In retrospect, the plaintiffs appear to have misled Kunc J on the grounds that they put forward ex parte that persuaded his Honour to make the asset preservation orders.

20. On 29 November 2019, Kunc J by consent made certain amendments to the orders made ex parte on 26 November 2019. Putting aside the orders made against Ms Price, the most relevant amendments were:

• The asset preservation orders against Ms Katavic were discharged.

• Ms Katavic was ordered not to further encumber or otherwise deal with her residential property.

• Westpac was ordered to pay into court the funds held in the St George Bank account in the name of Antalija No 4.

• The plaintiffs were given leave to discontinue the proceedings against Westpac.

21. On 5 December 2019, Pembroke J made an order that the matter proceed on pleadings.

22. On 13 December 2019, Pembroke J made a number of orders that varied the orders then in place, the most relevant being:

• An amount of $1,925,000 from the sum paid into court by Westpac was ordered to be paid out to Reliance. The payment was net of an amount of $325,000 of GST refunds made to Antalija No 4 by the Australian Taxation Office (ATO) that had been retained by Accolade. The practical effect is that Reliance has been repaid its advance (without the interest and Establishment Fee originally claimed under the Amended Development Funding Agreement) and Ms Morvillo has been repaid her capital contribution to the Unit Trust.

• The remainder of the money paid into court by Westpac was ordered to remain there until further order.

• The asset preservation orders were discharged as against Mr and Ms Katavic.

• Ms Katavic was ordered not to further encumber, dispose of or otherwise deal with her residential property without giving the plaintiffs 14 days’ written notice.

• The asset preservation orders made against Antalija Constructions were varied by reducing the sum to $1,000,000 and by permitting that company to pay its reasonable legal expenses.

23. It will be convenient to note that the plaintiffs did not attempt to prove at the hearing that Antalija Constructions has any liability to any of them.

Initial statement of claim

24. The plaintiffs filed their statement of claim on 17 December 2019. As the statement of claim has been amended on a number of occasions, it is only necessary to note a number of aspects that have some significance to the plaintiffs’ case as ultimately presented at the hearing, as follows:

• Reliance claimed judgment in the sum of $4,415,407.47 against Antalija No 4 and Mr Katavic and declarations that the proceeds of sale of the Moncrieff land and monies payable by Antalija No 4 to Mr Katavic were charged in favour of Reliance pursuant to the Amended Development Funding Agreement.

• Reliance claimed judgment in the sum of $4,932,388.99 against Ms Katavic.

• Ms Morvillo sought an order for the replacement of Antalija No 4 as trustee of the Unit Trust and related orders, including an order that Antalija No 4 provide an account within 14 days.

• Ms Morvillo sought a declaration against Antalija Constructions that the construction contract with Antalija No 4 was rescinded, and that Antalija Constructions holds the $9,134,304 paid under the construction contract on a constructive trust for the trustee of the Unit Trust, and a judgment for $9,134,304 plus interest.

• Ms Morvillo claimed relief against Mr Katavic in order to restore alleged misappropriations of trust property committed by Mr Katavic, and that any property purchased with the money of the Unit Trust be held on trust for the trustee.

• Ms Morvillo claimed against Ms Katavic an account and consequential relief in relation to receipts from Antalija No 4.

• Accolade claimed judgment against Ms Katavic in the sum of $1,107,529.61 plus interest.

25. I have already mentioned that the plaintiffs did not pursue the claim based upon the Amended Development Funding Agreement. Ms Morvillo did not attempt at the hearing to prove that Mr Katavic misappropriated property of the Unit Trust. The plaintiffs also abandoned their claims against Ms Katavic personally and the relief sought against Antalija Constructions. Of the foregoing prayers for relief, the plaintiffs prosecuted at the hearing their claim for an order replacing Antalija No 4 as trustee of the Unit Trust and an order requiring Antalija No 4 to provide an account to the new trustee.

26. The following allegations of fact made by the plaintiffs in the initial statement of claim also have some continuing relevance for the purposes of these reasons:

• The plaintiffs pleaded that Mr Katavic informed Mr Cassaniti during negotiations in November 2016 “that Katavic and his companies had no money and no work”. This is an important background fact which the defendants partially disputed at the hearing, in that they accepted that they did not have cash available for immediate investment, but they denied that they had no work. This is relevant to whether the substance of the agreement between the parties to the Unit Holders Agreement was as alleged by the plaintiffs or the defendants.

• The statement of claim contained an allegation that, on 11 May 2017, Reliance, Antalija No 4 and Mr Katavic executed the Development Funding Agreement under which Reliance advanced the sum of $1,159,691.25 to Antalija No 4. It was alleged that the amount advanced was used to pay the purchase price for the Moncrieff land and that the advance was a charge on that land. It was alleged that the Moncrieff land was purchased by Antalija No 4 as trustee for the Unit Trust.

• Further, it was alleged that, on 23 July 2018, Reliance, Antalija No 4 and Mr Katavic executed an amendment to the Development Funding Agreement.

• The statement of claim contained allegations concerning the constitution and terms of the Unit Trust, including that distributions of income and returns of capital were not permitted prior to the termination of the trust. There were allegations that Ms Price had provided $740,000 in capital, rather than the $1,090,308.75 that was required, and Mr Katavic had provided $2,180,617.50 in capital.

• Ms Morvillo alleged that Antalija No 4 had breached its obligations as trustee of the Unit Trust in three ways: namely (1) by borrowing $2,075,000 on 1 June 2017 from the St George Bank on the security of the Moncrieff land and paying that amount to Antalija Developments No 2 Pty Ltd (Antalija No 2); (2) by entering into a construction contract with Antalija Constructions on 24 April 2018 and paying $9,134,304 to Antalija Constructions; and (3) by returning Ms Price’s capital of $740,000 to Ms Price.

• The statement of claim also contained allegations of knowing participation in Antalija No 4’s breaches of trust against Mr and Ms Katavic, Antalija Constructions and Antalija No 2 (even though the last-mentioned company was not a party to the proceedings).

27. As already noted, Ms Morvillo abandoned ground (2) of her breach of trust claim against Antalija No 4.

28. It is not necessary for the purpose of these reasons to trace the complete history of the pleadings.

Second further amended statement of claim

29. On 10 February 2022, at a directions hearing before the hearing of the claim commenced on 14 February 2022, the plaintiffs were given leave to file a second further amended statement of claim.

30. Relevantly to the claim against the defendants, Ms Morvillo added a claim for an order that Antalija No 4, as trustee of the Unit Trust, pay to her such money as was properly payable upon the taking and giving of the account.

31. Ms Morvillo also claimed declarations that Ms Morvillo was entitled to be paid interest on the excess of her proportionate contribution to the capital of the Unit Trust, being interest of $471,920.22 as at 31 January 2022, and that she was entitled to a return of any outstanding contributions of her capital. Ms Morvillo added a claim against Mr Katavic that he pay damages for breach of contract to Antalija No 4, being the amount of interest payable to Ms Morvillo of $471,920.22.

29. The basis of this new claim was pleaded in pars 99A to 99D. As I have noted above, the plaintiffs pleaded in the initial statement of claim that Mr Katavic had contributed capital of $2,180,617.50 to the Unit Trust. The defendants responded by pleading that the payment attributed to Mr Katavic by the plaintiffs was not a capital payment by Mr Katavic but was an amount borrowed from the St George Bank. That was consistent with the defendants’ case that 50% of the capital needed to buy the Moncrieff land would be paid to Antalija No 4 by Ms Morvillo and Ms Price and the remaining 50% would be borrowed by Antalija No 4. This new claim by Ms Morvillo appears to be a response to this claim by the defendants. Ms Morvillo alleged that clause 9 of the Unit Holders Agreement obliged each unit holder to contribute a proportionate share of the costs and expenses towards the purchase of the Moncrieff land and its development by way of payment of capital to Antalija No 4. That proportionate share was 50% by Mr Katavic, 25% by Ms Morvillo and 25% by Ms Price. That was because the number of units held by those unit holders were respectively 50, 25 and 25. The plaintiffs alleged Mr Katavic breached clause 9 by not contributing his proportionate share of the capital. The amount of the default was alleged to be $1,143,117.50, being 50% of the purchase price and stamp duty for the Moncrieff land of $4,361,235, less the amount of the $2,075,000 loan from the St George Bank. Ms Morvillo alleged that, pursuant to clause 9, Antalija No 4 is obliged to pay compound interest at 8.5% per annum to Ms Morvillo.

Third further amended statement of claim

33. The final version of the plaintiffs’ statement of claim was the third further amended statement of claim filed in court on 17 February 2022 by leave given by me on that date. That amendment to the statement of claim occurred during the course of the cross-examination of Mr Cassaniti.

34. So far as the amendments are relevant to the claims made against the defendants, the material changes were:

• Reliance abandoned all of its claims, but it introduced a new claim against Antalija No 4 for $1,159,691.25, as an alternative to the existing claim made by Ms Morvillo against Antalija No 4 for breach of trust. The basis of this claim is obscure, and I do not understand Reliance to have pursued it in final submissions.

• Ms Morvillo abandoned her claim for a declaration that the construction contract between Antalija No 4 and Antalija Constructions was rescinded, and that Antalija Constructions pay $9,134,304 to the new trustee of the Unit Trust.

• Ms Morvillo added a claim against Mr Katavic that he indemnify the Unit Trust for any legal fees incurred by Antalija No 4 in the defence of these proceedings.

• The plaintiffs deleted all of the allegations concerning the making and performance of the alleged Development Funding Agreement and the amendment of that agreement, and consequently they abandoned Reliance’s claim against Antalija No 4 for breach of that agreement and the related equitable claims against Antalija No 4 and Mr Katavic.

• Ms Morvillo added a further claim of breach of trust against Antalija No 4. That claim was based upon the fact that, under the original asset preservation orders, Antalija No 4 was restrained from diminishing the value of its assets below the unencumbered value of $8,574,928.03. Ms Morvillo alleged that, at the date the asset preservation orders were made, the only assets held by Antalija No 4 were the $3,613,856.70 that was paid by Westpac into court and an amount of $415,000 held by the defendants’ solicitors. Ms Morvillo alleged that, after the date the asset preservation orders were made, Mr Katavic caused Antalija No 4 to incur legal costs in defending and prosecuting these proceedings under a costs agreement with the solicitors for the defendants dated 27 November 2019. Ms Morvillo alleged that this conduct by Antalija No 4 constituted a breach of the Unit Trust and that Mr Katavic was a party knowingly concerned in the breach.

35. It will be convenient to note that the defendants’ response to this last new claim was to inform the Court that, although Antalija No 4 was a joint party to the costs agreement, it had not used any of the funds of the Unit Trust to pay any legal fees and would not do so unless and until authorised by the Court.

36. Further, the plaintiffs gave as a particular to par 108I of the new breach of trust claim that: “1. The acts constituted a contempt of Court”. I record that, during the course of the hearing, the plaintiffs advised the Court that they abandoned the claim that the alleged conduct by Antalija No 4 and Mr Katavic constituted a contempt of the asset preservation orders.

Defence to the third further amended statement of claim

37. The operative defence of the defendants is their defence to the third further amended statement of claim. The most significant aspects of that defence are:

• The defendants did not admit the plaintiffs’ allegation that Mr Cassaniti acted as their agent. They therefore put the plaintiffs to proof of the agency.

• The defendants specifically denied the plaintiffs’ allegation that in November 2016, when Mr Cassaniti negotiated with Mr Katavic as to the form and funding of the proposed venture, Mr Katavic informed Mr Cassaniti that Mr Katavic and his companies had no money and no work.

• The defendants pleaded in par 7 that the terms of the agreement reached in about November 2016 between Mr Katavic and Mr Cassaniti were that, if the property development were to occur:

a   it would be done through a trust company formed for that specific purpose;

b   50% of the purchase price of the property would be funded by a bank loan and the remainder by contributions made by Mr Cassaniti and Ms Price and Mr Arcidiacono;

c   Mr Katavic would, at a later date, also make contributions towards the cost of the development;

d   construction of the development would be carried out by Mr Katavic (through Antalija Constructions);

e   in order to have control, Mr Katavic would have a 50% interest in the development and the remaining 50% would be shared between Mr Cassaniti and Ms Price and Mr Arcidiacono.

• The defendants did not admit that on 11 May 2017 Reliance advanced the sum of $1,159,691.25 to Antalija No 4. They alleged instead that Antalija No 4 received $2,250,000 from Accolade on 11 May 2017, and that the deposit was recorded as a deposit by Mr Cassaniti in accordance with the agreement pleaded by the defendants in par 7.

• The defendants denied that the alleged advance of $1,159,691.25 constituted a “further contribution” in accordance with clauses 9(e) and 9(f) of the Unit Holders Agreement.

• The defendants admitted that Antalija No 4 paid $740,000 to Ms Price on 18 November 2019.

• The defendants pleaded that Mr Katavic made contributions to the development of the Moncrieff land through Antalija Constructions in the total amount of $1,390,000. The defendants said that on 18 November 2019, Antalija No 4 paid $1,500,000 to Antalija Constructions in reimbursement of the contribution and admitted that this payment involved an overpayment of $110,000. The defendants pleaded that on 19 November 2018, $70,000 of the overpayment was repaid to Antalija No 4.

• The defendants denied an allegation by the plaintiffs that the terms of the Unit Trust did not permit Antalija No 4 to distribute income and return capital to unit holders prior to the termination of the trust.

• The defendants admitted that Mr Katavic and Ms Price executed the Unit Holders Agreement on or around 10 May 2017 (rather than the 11 May 2017 date alleged by the plaintiffs).

• The defendants denied the allegation that it was a term of the Unit Holders Agreement that each Unit Holder would provide capital in proportion to the units held.

• In response to allegations made by the plaintiffs that Ms Morvillo provided Antalija No 4 with $1,090,308.75 as capital, and that Ms Price only provided $740,000 instead of $1,090,308.75, the defendants simply said that Accolade paid $2,250,000 and Ms Price paid $740,000 to Antalija No 4.

• In response to an allegation made by the plaintiffs that Mr Katavic initially provided $2,180,617.50 in capital, the defendants replied that Mr Katavic made contributions of $1,390,000 through Antalija Constructions, and then alleged in par 40:

a   in about April 2017 funding of $2,075,000 was sought from the St George Bank by Antalija No 4 in order to fund the purchase of the Moncrieff land,

b   due to delays caused by St George Bank, the funds were not approved in time for completion of the purchase of the Moncrieff land on 12 May 2017;

c   in order to complete the purchase of the Moncrieff land, St George Bank caused Antalija No 2 to draw down on a facility it had with St George Bank and loan Antalija No 4 the sum of $2,075,000;

d   funding was obtained by Antalija No 4 from St George Bank in June 2017 in order to repay the loan from Antalija No 2.

• In essence, the defendants responded to the plaintiffs’ claim that Mr Katavic had initially contributed $2,180,617.50 in capital to enable the purchase of the Moncrieff land, and then caused Antalija No 4 to borrow that amount from St George Bank on the security of the Moncrieff land and then pay that amount to Antalija No 2, by alleging that it was a term of the real agreement that Antalija No 4 would borrow half the purchase price, St George Bank wrongly used a loan facility granted to Antalija No 2 to fund that amount, and eventually the amount was repaid by Antalija No 4 to Antalija No 2 when the former was able to establish its own loan facility with the St George Bank. The defendants accordingly denied that these events involved a breach of trust by Antalija No 4 or that it preferred the interests of Mr Katavic over those of the other unit holders.

• In response to the plaintiffs’ claim based upon clause 9 of the Unit Holders Agreement, the defendants alleged (1) that the Unit Holders Agreement was not legally enforceable, (2) if it was, it did not have the operation pleaded by the plaintiffs, and (3) the defendants relied upon their cross claim for an order declaring the Unit Holders Agreement to be void or varied.

• Finally, the defendants in effect denied that the payment of the $740,000 to Ms Price or any consequence of the defendants entering into the costs agreement with their solicitors involved a breach of trust by Antalija No 4.

Further amended cross claim

38. Antalija No 4 and Mr Katavic filed a further amended statement of cross claim on 22 March 2022.

39. Initially, there was an issue as to whether Accolade had misappropriated GST repayments received on behalf of Antalija No 4 from the ATO in a total amount of $325,594.11. That, as I understand it, is no longer an issue because the $1,925,000 paid to Reliance out of the money paid into court by Westpac was net of the amount of $325,594.11. Effectively, that amount is now available to be repaid to Antalija No 4.

40. For the purpose of these reasons, the most significant issue raised by the cross claim is pleaded in the alternative to the defendants’ allegation that the Unit Holders Agreement is of no legal effect. If it is found to be effective, Antalija No 4 and Mr Katavic allege that the Unit Holders Agreement was entered into by them as a result of misleading or deceptive conduct by Mr Cassaniti, as the agent of Ms Morvillo, with the result that Antalija No 4 and Mr Katavic are entitled to an order that the Unit Holders Agreement is void or that it be varied in a manner in which Ms Morvillo would cease to be entitled to maintain the debt claim based upon clause 9 of the Unit Holders Agreement. The essence of this claim is that the real agreement for the funding of the Moncrieff land development was as pleaded in par 7 of the defence to the third further amended statement of claim. The cross claim alleges that Mr Katavic informed Mr Cassaniti that he did not have enough money at the time to contribute capital to the development, and that Mr Cassaniti agreed that Mr Cassaniti could contribute around $2 million. The cross claim further alleges that, on around 10 May 2017, when the Unit Holders Agreement was signed, Mr Katavic asked whether he needed to get his “team” (meaning his solicitor and accountant) to look over anything and was advised by Mr Cassaniti that he did not, as “it’s all just standard contracts”. The cross claim alleges that Mr Katavic had a reasonable expectation that, if the Unit Holders Agreement contained terms with the effect of clause 9, that would have been disclosed to Mr Katavic. It further alleges that Mr Cassaniti represented to Mr Katavic that the terms of the Unit Holders Agreement reflected the agreement alleged in par 7 of the defence. The cross claim alleges that Mr Cassaniti’s conduct was a contravention of s 18 of the Australian Consumer Law (Competition and Consumer Act 2010 (Cth), Sch 2; Fair Trading Act 1987 (NSW), s 28(1)) and that it was engaged in as agent of Ms Morvillo and within the scope of his actual or apparent authority granted by Ms Morvillo.

41. The defendants to the cross claim denied the allegations made in it. Interestingly, in par 25L of the defence, Mr Cassaniti and Ms Morvillo deny that the former was the agent of the latter or held out by the latter as her agent and say that Mr Cassaniti’s only authority was to formally bind the unit holders to the terms of the Unit Holders Agreement. Both sides of this dispute allege that Mr Cassaniti was and was not the agent of Ms Morvillo when it suits their cases.

42. It is not necessary at this stage to analyse the defence to the cross claim in detail.

Order for an account of 31 March 2020

43. On 31 March 2020, Ward CJ in Eq (as her Honour then was) made the following order:

1.Without admission of liability, the trustee of the Antalija Unit Trust to provide an account to the Second Plaintiff as a beneficiary of the trust by 27 April 2020.

44. As I understand matters, it is not controversial that Antalija No 4 has not complied with this order in the sense of preparing and delivering to the unit holders a conventional account of its activities as trustee of the Unit Trust on a line-by-line basis identifying all receipts and expenditures and providing supporting vouchers to prove each entry. Antalija No 4 apparently provided some information to the plaintiffs that fell short of a conventional account.

45. As I have explained above, one of the issues in these proceedings that remains alive is Ms Morvillo's claim that Antalija No 4 be ordered to provide an account to her as trustee of the Unit Trust. I will deal with this claim below.

Factual background

46. As the claims made by Reliance have been abandoned or not prosecuted, it is not necessary to refer further to the circumstances of that company.

47. It is also not necessary to consider the involvement of Marginata, as that company's claim is against Ms Price.

Mr Cassaniti

48. Accolade is a company that provides accountancy and other services to its clients. At relevant times, Mr Cassaniti was employed by Accolade as a consultant. Accolade's business was a continuation of an accountancy business of which Mr Cassaniti was formally a principal. It appears that Mr Cassaniti ceased to be a principal as a result of Mr Cassaniti having been declared bankrupt in April 2007, with his bankruptcy lasting 10 years. Mr Cassaniti continued his association with Accolade as a consultant.

49. As mentioned, Mr Cassaniti is Ms Morvillo's brother. It is clear from the whole of the evidence that Ms Morvillo agreed to become a unit holder in the Unit Trust as a trustee for the Cassaniti Discretionary Trust. Mr Cassaniti's mother is the principal beneficiary of that trust. In practical terms, Ms Morvillo acted as Mr Cassaniti's nominee, and Mr Cassaniti negotiated Ms Morvillo's involvement in the Unit Trust as if he had her plenary authority.

50. Although Mr Cassaniti's authority to act for and bind Ms Morvillo was not specifically proven, I am satisfied I should infer that Mr Cassaniti had Ms Morvillo's authority to act for her in relation to all aspects of her participation in the Unit Trust and the redevelopment of the Moncrieff land.

51. Accordingly, if Mr Cassaniti induced Antalija No 4 and Mr Katavic to execute the Unit Holders Agreement by engaging in misleading or deceptive conduct, his conduct bound Ms Morvillo.

52. Mr Cassaniti accepted in evidence that on 30 September 2005 he was convicted of 23 criminal charges involving acts defrauding the Commonwealth in respect of what were found to be false claims for tax deductions by Mr Cassaniti's accounting clients. Mr Cassaniti agreed that he was sentenced to a term of two years and nine months imprisonment. Mr Cassaniti maintained in cross-examination that he had done nothing wrong in relation to any of the charges.

Mr and Ms Katavic

53. Mr and Ms Katavic married in October 2005.

54. At the beginning of that year, Mr Katavic completed a Certificate IV in building at TAFE and obtained his builder's licence. Mr Katavic started building homes for he and Ms Katavic to live in and then sell. Over the next few years, Mr Katavic engaged in employment that gave him further experience in the building industry.

55. Mr Katavic registered Antalija Constructions in November 2008, and in 2009 that company was granted a builder's licence. After that, Mr Katavic conducted his building business through Antalija Constructions.

56. Ms Katavic looked after paying the company's bills and they had an accountant and solicitor giving them advice.

57. Mr Katavic gave evidence that, after he had gained some experience with residential building projects with Antalija Constructions, he was given advice that the best way for him to do large scale developments was to have separate development and building companies. He was told that the developments should be in a trust name with the development company as trustee. Each project would have a separate company and trust. Mr Katavic said that he was not familiar with trusts but accepted the advice and left it to the accountant to organise the necessary paperwork.

58. Mr Katavic gave evidence of undertaking residential developments starting in mid-2014 through three separate development companies, which I will call, as abbreviations of their names, Antalija No 1, Antalija No 2 and Antalija No 3.

59. Antalija No 1 purchased a block of land for $1.75 million in October 2014 to build 15 units. The purchase was partly financed by a bank loan of $1 million. Antalija No 1 contracted with Antalija Constructions to do the work. The work on site started in October 2015 and was successfully completed in April 2017.

60. Antalija No 2 purchased a development site for $4.85 million in March 2015 to build 52 apartments. A bank loan of $2.8 million was obtained. The development was completed under a contract between Antalija No 2 and Antalija Constructions. Work on the site started in July 2016 and was successfully completed in November 2017.

61. In August 2015, Antalija No 3 was registered with Mr Katavic as a 60% shareholder and another investor with 40%. In May 2016, Antalija No 3 purchased a development site at Moncrieff for $5.025 million for the development of 54 residential apartments. On that occasion, a loan of $2.5 million for the purchase was arranged through the St George Bank. Antalija No 3 contracted with Antalija Constructions to do the work.

62. Mr Katavic's evidence was that in the case of each of the three developments the development company became the trustee of a discretionary trust.

63. Also, in each case, construction funding was arranged through a bank.

64. As I will shortly consider, the agreement to develop the Moncrieff land arose out of an initial discussion between Mr Katavic, Mr Cassaniti and Mr Arcidiacono, Ms Price’s husband, that took place in November 2016. As at November 2016, the work on Antalija No 1's project had been proceeding for a little over a year but was still about five months away from completion. At that time, work on Antalija No 2's development had been proceeding since July of that year but still had a further 12 months to complete. Antalija No 3 had purchased its development site in May 2016 but work on the site would not start until June 2017.

53. By November 2016, Mr Katavic, through Antalija Constructions and the special purpose development companies, had established a successful reasonably large scale residential development business, albeit that it had only recently been established. Each development project appears to have been funded by the initial capital available to Mr Katavic and then his use of the proceeds of sale of completed apartments to fund or secure borrowing for further developments.

54. The evidence given by Mr Katavic about the development projects conducted by Antalija No 1, No 2 and No 3 was not challenged by the plaintiffs.

55. As of November 2016, Mr Katavic, through Antalija Constructions, had a substantial amount of work ongoing, in that two development projects were under construction, and one was being made ready for the commencement of work.

56. It is also highly probable that the capital available to Mr Katavic for engaging in any new development project was limited, as all three existing development projects were continuing, and even the first project undertaken by Antalija No 1 would not be completed for a further five months. Capital would not become available to Mr Katavic to provide his share of equity in any new development project until the sale prices for the apartments in Antalija No 1's development project became available upon completion of contracts for the sale of apartments in that development following the end of construction.

57. As I have mentioned above, the plaintiffs pleaded that Mr Katavic told Mr Cassaniti in November 2016 that he and his companies had no money and no work. The defendants accepted that Mr Katavic said that he and his companies had no money, but they denied they had no work.

58. The objective evidence supports a finding that the reality of the circumstances of Mr Katavic and his companies was consistent with the version of the event asserted by the defendants.

59. Furthermore, for commercial reasons, it is improbable that Mr Katavic agreed to fund half of the purchase price of the land for a new development project in respect of which settlement of the purchase could be expected to take place in about May 2017 from his own capital resources. That conclusion is justified notwithstanding the absence of comprehensive evidence concerning the financial position of Mr Katavic and his companies. As I have noted above, for the purposes of their interlocutory application the plaintiffs alleged that the only way Ms Katavic could have redeveloped the home owned by her was by misappropriation of the funds of the Unit Trust. Furthermore, as will be explained below, Mr Cassaniti gave evidence that Mr Katavic told him that Mr Katavic’s financial circumstances were that he would have to lay off his staff if the development of the Moncrieff land did not proceed (a claim that Mr Katavic denied). I would not infer that Mr Katavic had the capital to fund his participation in any number of additional development projects, given his commitment to the existing uncompleted projects. As at November 2016, Mr Katavic could not be confident that the completion of the development project being undertaken by Antalija No 1 would generate sufficient funds in time.

Ms Price and Mr Arcidiacono

72. Ms Price is Ms Katavic's mother. As of November 2016, Ms Price was married to Mr Arcidiacono. Mr Arcidiacono has since died.

73. Ms Price and Mr Arcidiacono had for many years conducted businesses in the Australian Capital Territory through a number of companies, which were principally engaged in providing building cleaning services to their customers.

Financial circumstances of Ms Price and Mr Arcidiacono

74. On 22 July 2016, the Deputy Commissioner of Taxation commenced proceedings in the Supreme Court of the Australian Capital Territory against Mr Arcidiacono to recover the sum of $308,208.99, plus a general interest charge.

75. It is not necessary to explain the evidence in detail, but it is clear that Ms Price and Mr Arcidiacono were under enormous financial pressure caused by actions taken by the ATO and the revenue authorities of the Australian Capital Territory to recover unpaid tax and payroll tax that was alleged to be owing as a result of the activities of the couple and the companies through which they conducted their businesses. Those actions included the service of garnishee orders against the clients of the couple’s businesses.

76. The genesis of the transaction involving the purchase and development of the Moncrieff land was the urgent need of Ms Price and Mr Arcidiacono to raise funds.

77. The only asset available to the couple that was not subject to restraint was a sum of $740,000 in Ms Price’s superannuation fund.

Relationship between Mr and Ms Katavic, Ms Price and Mr Cassaniti

78. Ms Price and Mr Arcidiacono used an accountant called David Cassaniti at what was then called CAP Accounting, which later, as I understand it, became Accolade. David Cassaniti was Mr Cassaniti's cousin. There was evidence that Mr Cassaniti came to provide consultancy services to Ms Price and Mr Arcidiacono, particularly in relation to the consequences of the actions taken by the revenue authorities against them.

79. Mr Katavic said that he first met Mr Cassaniti at the 2015 Christmas party held by CAP Accounting at The Star in Sydney. Mr Katavic said that Mr Cassaniti appeared to have a close personal relationship with Ms Price and Mr Arcidiacono and was friendly and engaging.

80. Mr Katavic said that he became aware at some stage that Mr Cassaniti had been in jail, but when he raised it with Mr Cassaniti, he claimed that he had done nothing wrong, that he was not guilty, and that the tax office "came after me".

81. Mr Katavic said that Mr Cassaniti presented as a very successful accountant who drove new expensive vehicles and dressed smartly.

82. During 2016, Mr Cassaniti formed a close relationship with the Katavic family and, in particular, a close bond with Mr and Ms Katavic's daughter. Mr Katavic said that Mr Cassaniti often used the phrase 'we are family' in reference to him, Mr Katavic's immediate family and his in-laws. Mr Katavic said that he grew to be familiar with Mr Cassaniti and trusted him. The friendship was, however, a friendship through Ms Price and Mr Arcidiacono, who would always be present at social functions with Mr Cassaniti.

The November 2016 arrangement

83. The ascertainment of the terms of any arrangement that was made between Mr Katavic, Mr Cassaniti and Mr Arcidiacono in November 2016 is critical to the determination of the present dispute, as it would establish the parameters of the expectations of the parties concerning their involvement in the development of the Moncrieff land.

84. It will be convenient to note that a primary aspect of the plaintiffs' case was that no agreement was reached between the three men in November 2016, and that the first and only binding agreement consisted of the Unit Holders Agreement that was signed on 10 May 2017. The plaintiffs' case was put on the basis that there were only two possibilities: (1) there was a complete and binding agreement made in November 2016, and the Unit Holders Agreement was a manifestation of the initial agreement; or (2) there was no agreement at all until the only binding agreement was made by the Unit Holders Agreement. I note briefly at this stage that this approach is an oversimplification of the relationship between the relevant parties. It excludes a third possibility, being that because of the close interpersonal relationship between the parties and the high level of trust, an agreement in principle was made in November 2016 that dealt with the major issues, but the parties did not attend to the detail and proceeded upon the basis that, over time, all parties would act in the common interest and that details would be agreed, if needed, consistently with the original plan.

85. The relevant conversation happened before a dinner in November 2016 at the QT Hotel in Canberra attended by Mr and Ms Katavic and their two children, Ms Price, Mr Arcidiacono and Mr Cassaniti.

86. The conversation took place at the bar between the three men before the dinner began. The men had a number of drinks while they were chatting. Obviously, in the circumstances, no note was taken of the agreement.

87. Mr Cassaniti gave the following evidence of the substance of the conversation:

Cassaniti:    I’ve spoken a lot with Phil and Sue. They said you were happy for them to speak for you, but I want to make sure we’re on the same page. As I understand it, the deal is broadly that if we can find a suitable block of land for development, around $4 million, we'll buy it, get finance to do the build and sell for profit. You put in 50% (however you want to structure it), Phil and Sue 25% and us 25%. Your building company can do the build. Sound right?

Katavic:   Yes, champ.

Cassaniti:    Obviously we’ll each have our own legal structures for it all. I can help with the trust side of things. I don't want to be taking the risk here. Our side is only going to put in money if everyone else has put in their share. If we can agree on a project, I'd only be arranging money on our side to complete the purchase.

Katavic:   That's all fine. We can really make this work, I promise you.

Cassaniti:    If money is going to be put in, there's going to have to be a control on construction costs. It can't just be a big win for you. Otherwise you'd be taking the benefit and us all the risk.

Katavic:    Antalija Constructions doesn't have much work on at the moment. If it can't give (sic) involved in the construction, I’m going to have to let go my workers.

Cassaniti:   Yes, Phil mentioned about that.

Katavic:   How about if I do that construction as a 4% margin on costs?

Cassaniti:    But what are costs? You might be paying yourself and Jocelyn a lot and then adding your margin. If this is going to be of interest, you only get to pay yourself $300 per day for the build and Jocelyn $60 per hour for any bookkeeping. Your upside would have to come out of sharing in the profits at the end?

Katavic:    Ok, fine, I need to get this done. We can find a great property and it'll be a win for all of us.

88. Mr Katavic gave the following affidavit evidence of the conversation in the bar area before dinner at the QT Hotel:

Arcidiacono:    Dennis, we want to invest with you in a build to make some money.

Katavic:    Why do you want to invest with me?

Cassaniti:    Phil has spoken very highly of you. He told me about the projects you've done and the money you're making and I want a piece of the pie.

Katavic:    I'd love to do this to help out Phil and Sue, but I've got no cash. My money is tied up in other projects.

Cassaniti:    Don't worry about that. I will look after that part, as long as you can make me money. How do you go about acquiring land?

Katavic:    I purchase the land at land auctions. When you purchase on the day, you need a 10% deposit.

Cassaniti:    What type of land is it and what can you do with it?

Katavic:    I prefer to go for 40 unit sites – they are more manageable and pre-sales are lower so less funding is required. But if I go to auction, I need a deposit. Without money in the bank, it's not worth showing up.

Cassaniti:    Don't worry about it. Phil and Sue can get money from their super.

Katavic:    How do you get money from super?

Cassaniti:    You can invest super as long as you return the money to the super account.

Katavic:    OK. Well, once we acquire a block, to get settlement on the land, the bank will fund 50% of the land value which is determined by a valuer. You will need to fund the other 50% of the land purchase price.

Cassaniti:    Don't stress about the money, I'll have that part sorted.

Katavic:    OK. What happens next is that, once I buy a block, I engage an architect to give us a sketch drawing to see what we can build on the block. From there, I will contact the bank to tell them what I think my sales and costs will be. I will then engage a QS to do a full breakdown of costs and a valuer. Then a build contract between my construction company and the development company gets submitted to the bank to proceed with construction funding. The contract would be based on the QS report, valuation, and my break down. I wouldn't be able to just put my own price on it.

Cassaniti:    I understand the process.

Katavic:    If we do something, then I won't be able to put any money in until we are closer to the start of construction. I should have money from settlements free by that time. The project will need additional cash. In addition to bank funding to deal with cash flow.

89. Mr Katavic also said that Mr Cassaniti agreed with the statement made by Mr Katavic as follows: "We can do this as long as I'm in control. I will be doing the build so it needs to be done my way. I will be a 50% shareholder. You guys can share the remaining 50% share”.

90. Mr Katavic said that the conversation lasted about half an hour, and the men had a few beers each. At the end of the conversation, the men shook hands and returned to the table with the rest of the family. Mr Katavic said there was some general discussion about the proposed project with Ms Katavic and Ms Price.

91. Mr Katavic denied that he agreed he would pay for 50% of the cost of the land, as he did not have $2 million available at the time to do so. He also denied that he told Mr Cassaniti that Antalija Constructions did not have much work on at the moment. Finally, Mr Katavic said that there was no discussion at the time about a 4% margin on costs or that he would only be paid $300 per day and Ms Katavic $60 per hour. He said the conversation at the QT Hotel did not go into that kind of detail.

92. In an affidavit in reply, Mr Cassaniti denied that there was any discussion about Ms Price's and Mr Arcidiacono's access to their superannuation fund. He denied that Mr Katavic said that the bank would fund 50% of the land value and that Mr Cassaniti would have to fund the other 50% of the land purchase price. He also denied that Mr Katavic said that he would not be able to put in any money until closer to the start of construction or that Mr Katavic said that he could do the project as long as he was in control.

93. Mr Cassaniti agreed that the conversation at the bar lasted about 25 to 30 minutes, but he said there was no handshake, as described by Mr Katavic.

94. Both Mr Cassaniti and Mr Katavic adhered in cross-examination to their versions of the conversation at the bar of the QT Hotel.

95. Ms Price made one observation in her cross-examination that tends to support the evidence given by Mr Katavic when she said that she disagreed that it would be pretty unusual for Mr Katavic to be entitled to 50% of the profit without an obligation to put in 50% of the money, saying [T 212.20-212.21]: “No, it’s my understanding that myself and Mr Cassaniti had to put in and they were to borrow the rest from the bank.”

96. Ms Katavic said in cross-examination [T 337.8-337.10] that in the car going home after the dinner she asked Mr Katavic why he had agreed to do the development “because I didn’t think we needed to be doing any more. We had several sites going at the time.” Mr Katavic replied that he was happy to help out Ms Katavic’s parents.

97. I will return to the consideration of what was agreed at the November 2016 meeting after I have dealt with the evidence of later events relevant to the credibility that should be assigned to the evidence given by Mr Cassaniti and Mr Katavic.

98. However, at this stage, the following observations should be made about the objective significance of the evidence. First, the conversation was brief and did not deal with the terms of the proposed venture in detail. Secondly, the conversation took place in an informal, ‘family’ context. Thirdly, the discussion was probably convivial, and all participants consumed a number of alcoholic drinks. It seems, fourthly, that the conversation was relatively spontaneous in that none of the participants had had the opportunity to consider the terms of the proposed venture in any detail. Fifthly, Mr Katavic and Mr Cassaniti were motivated to participate in the proposed venture to alleviate the financial difficulties faced by Ms Price and Mr Arcidiacono, as well as to make the profits that might flow from their own participation. Finally, it may be that the participants in the conversation did not really listen to what the others said, and there is a chance that they have remembered the conversation through the prism of their own self-interest, retrospectively assuming that the terms of the conversation reflected the commercial needs of the particular participants.

99. That said, it remains objectively the case that Mr Katavic and Antalija Constructions did not need more work, and there was no apparent risk that Antalija Constructions would have to lay off its employees if the proposed venture did not go ahead. Further, it is improbable that Mr Katavic agreed to provide half of the price of the development site from his own financial resources, as the progress of his other developments was inconsistent with funds of the necessary magnitude becoming available by the time of settlement of the proposed purchase.

Incorporation of Antalija No 4

100. On 22 November 2016, Mr Katavic asked his accountant, Dominic Bartone, to incorporate Antalija No 4 and the company was incorporated on 29 November 2016.

Unit Trust Deed

101. The Unit Trust was created by deed of trust (Unit Trust Deed), bearing the date 29 November 2016, between Charlie Duardo, as Settlor, and Antalija No 4, as Trustee. Mr Duardo was apparently the principal of Accolade.

102. Clause 1(a) defined "Commencement Date" as the date of the deed.

103. Recital D stated that the Unit Trust Deed was made with the intention that each Registered Unit Holder (as afterwards defined) shall take and hold Units upon the terms and conditions of the Deed. Clause 1(c) defined "Fund" and "Trust Fund" as meaning all the property held by the Trustee upon the trusts of the Unit Trust Deed, including the original settlement sum of $100 and "all other monies and property paid or transferred to vested in and accepted by the Trustee as additional to the Fund, including amounts received by the Trustee by way of subscription for Units and the monies and investments for the time being representing the same".

104. "Registered Unit Holder" was defined in clause 1(e) as meaning "the person for the time being registered under the provisions of this Deed as the holder of a Unit and includes persons so registered".

105. By clause 2(b) the Fund included:

With the consent of the Trustee other monies and property may be paid or transferred to vested in and accepted by the Trustee as additions to the Trust Fund and to be held by the Trustee as part of the Trust Fund."

106. Clause 4(a)(ii) had the effect that the Vesting Day, being the date of termination of the Unit Trust, could be any date which the Trustee in its absolute discretion appointed as the Vesting Date. By clause 4(b), upon the termination of the Unit Trust, the Fund was required to be realised and the proceeds of the realisation and other available cash distributed among the Registered Unit Holders in proportion to the number of Units held by them.

107. Clause 5(d) provided:

The beneficial interest in the Fund as originally constituted by the payment to the Trustee of the sum of One Hundred Dollars ($100.00) as referred to in Recital C hereof shall be divided into One Hundred (100) Units having an initial value of one dollar ($1.00) each. The said Units shall be held subject to this Deed by the following person as the Registered Unit Holder of those Units:

Dennis Katavic ATF The Katavic Discretionary Trust 50 Units.

Susan Price ATF The Price-Arcidiacono Discretionary Trust 25 Units.

Nancy Morvillo ATF The Cassaniti Discretionary Trust 25 Units.

108. Clause 5(e) had the effect that, when any addition was made to the Fund, additional Units were required to be created and issued by the Trustee, having regard to the value of the Units in existence immediately before the addition to the Fund.

108. It appears that Antalija No 4 did not maintain a formal register of unit holders as required by the Unit Trust Deed. Nor did Antalija No 4 issue new units in response to the receipt of capital payments from any of the unit holders. As will be seen, when the financial statements of the Unit Trust were prepared for Antalija No 4 by Accolade, the capital contributions were treated as secured debts owed by Antalija No 4 to the unit holders. That accounting treatment may or may not have been correct. The issue apparently does not matter, as the parties proceeded upon the basis that Mr Katavic, Ms Morvillo and Ms Price held 50, 25 and 25 units in the Unit Trust respectively. Clause 5(d) took effect notwithstanding the non-compliance with the terms of the Unit Trust Deed concerning the issue of new units and the maintenance of a register of unit holders.

109. Clause 9(a) entitled a Registered Unit Holder "by notice in writing to the Trustee [to] request redemption of the Units specified in such request or request the return of the capital or part thereof, paid on the Units specified in such request.” Clause 9(b) gave the Trustee a discretion to refuse or consent to any such request on such terms and conditions as the Trustee may consider appropriate, "having regard to the interests of all Registered Unit Holders".

110. Although clause 9 provides for a written request, it is significant that it gives the Trustee a discretion to return capital to unit holders on request. This term is relevant to the claim made by the plaintiffs that Antalija No 4 was only authorised to return the unit holders’ capital upon the determination of the Unit Trust after all creditors had been repaid.

111. Clause 10 required the Trustee to keep and maintain an up-to-date register of Registered Unit Holders.

112. Clause 11 of the Unit Trust Deed provided for very wide powers of investment of the Fund by the Trustee.

113. Clause 12.1 empowered the Trustee to pay out of the Trust Fund or the income thereof any legal fees incurred in the maintenance of the trusts declared by the Unit Trust Deed "and, in respect of the supervision, management, acquisition, development, disposal or otherwise dealing in any of the investments of the Trust Fund…"

114. Clause 15 provided that the Trustee "may, with the approval of the majority of the Registered Unit Holders be … removed…"

115. The Unit Trust Deed was not executed by Mr Duardo or by Antalija No 4.

116. The Unit Certificates for each of the proposed unit holders were not executed by the unit holders or Antalija No 4.

117. A paralegal at Accolade sent a draft of the Unit Trust Deed to Ms Katavic on 15 February 2017.

Unit holders’ discretionary trusts

119. By deeds bearing the same type-written date as the Unit Trust Deed, Mr Duardo also settled $10 on Ms Morvillo as trustee for the Cassaniti Discretionary Trust, on Ms Price as trustee for the Price-Arcidiacono Discretionary Trust, and on Mr Katavic as trustee for the Katavic Discretionary Trust. Each of these deeds appears to have been executed by the Settlor and the Trustee.

120. Thus, the arrangement was that each unit holder would hold the relevant units in the Unit Trust as trustee of a separate discretionary trust in accordance with clause 5(d) of the Unit Trust Deed.

Evidence of execution of deeds

121. As I understand it, the defendants do not challenge the validity of the Unit Trust Deed or the three discretionary trust deeds that all bear the type-written date 29 November 2016.

122. However, there was a subsidiary dispute about when the deeds were executed that is relevant to the credibility of Mr Cassaniti’s evidence generally.

123. Mr Cassaniti said in his affidavit evidence that in preparation for the development project he asked Mr Duardo to prepare the four deeds and that, in or around late November 2016, he met with Mr Katavic at Mr Katavic’s office. To the best of Mr Cassaniti’s memory, this meeting took place on 29 November 2016 “as the documents were prepared with that date”. Mr Cassaniti gave evidence of witnessing Mr Katavic executing the Unit Trust Deed and the deed creating the Katavic Discretionary Trust.

124. Mr Katavic denied that evidence and said that he only had one meeting with Mr Cassaniti at which he signed documents, which occurred on 10 May 2017.

125. In cross-examination, Mr Cassaniti accepted that he had given evidence that the documents were signed on 29 November 2016 because that was the day typed on the documents. He acknowledged that in his reply to Mr Katavic’s affidavit he had not specifically challenged Mr Katavic’s evidence that he had only signed documents with Mr Cassaniti on 10 May 2017.

126. The day before the relevant part of his cross-examination, Mr Cassaniti swore an affidavit that the meeting was not on 29 November 2016, because Mr Cassaniti had realised that he was not in Canberra on that day. Mr Cassaniti said in his affidavit that the deeds were signed on 9 or 10 December 2016, as he was able to identify the correct approximate dates from photos on his phone.

127. Mr Cassaniti said that he could remember having the deeds signed because he brought them back to Sydney to be stamped by his staff. However, he conceded that his staff had not caused the documents to be stamped.

128. At this point it only need be said that Mr Cassaniti’s evidence concerning the date and circumstances of the execution of the Unit Trust Deed and the deed creating the Katavic Discretionary Trust was not persuasive.

Payroll tax claim against Mr Arcidiacono

129. On 29 November 2016, a Delegate of the Commissioner for ACT Revenue made a claim on Mr Arcidiacono trading as Rose Cleaning Service for an outstanding ACT payroll tax liability from 1 July 2009. The amount claimed was $4,612,887.59.

Antalija Developments Property Trust

130. On 21 December 2016, Mr Bartone, as Settlor, paid $10 to Antalija No 4 as Trustee under a trust deed of that date to establish the Antalija Developments Property Trust No. 4. Mr Katavic was the principal beneficiary under that discretionary trust. Mr Bartone was Mr and Ms Katavic’s usual accountant.

131. The evidence is not clear as to why the Antalija Developments Property Trust No 4 was created, with Antalija No 4 being the trustee of that discretionary trust as well as of the Unit Trust. The first-mentioned trust was created by Mr Bartone. The Unit Trust was created by Mr Duardo, the principal of Accolade. There was evidence that it was the practice of Mr and Ms Katavic to incorporate a new company to conduct each real property development in which they were engaged (hence Antalija No 1, No 2, No 3 and No 4) and that the company operated as the trustee of a discretionary trust. It may be that Mr Bartone created the Antalija Developments Property Trust No 4 as an extension of Mr and Ms Katavic’s general practice. As will be seen, the existence of two trusts with the same trustee in Antalija No 4 caused confusion as to the trust for whom Antalija No 4 was developing the Moncrieff land. As Mr Duardo created the Katavic Discretionary Trust with Mr Katavic as trustee to hold the 50 units in the Unit Trust, it may be that the creation of the Antalija Developments Property Trust No 4 was superfluous. This issue does not matter save for the fact of the confusion that it apparently caused.

Late-January 2017 meeting

132. Mr Katavic gave evidence that in late-January 2017 he had a conversation with Mr Cassaniti and Mr Arcidiacono in which he advised them that he had found two suitable sites for the proposed development, and they both agreed to continue. Mr Katavic said the conversation included:

Katavic:   Make sure you have your money for settlement because I have none.

Cassaniti:   I’ve got it sorted. Don’t stress.

133. Mr Cassaniti’s version of this conversation, which he said occurred in or around mid-January 2017, was that after Mr Katavic had told him that he had found a suitable property at Moncrieff, Mr Cassaniti said: “Dennis, I do not know whether I will go into this investment but I will look into any proposal you have to see if it stacks up.”

134. In cross-examination, Mr Cassaniti admitted that he had a conversation with Mr Katavic in which he was told about the sites that Mr Katavic had identified and that they would cost about $4 million, and that $400,000 would be necessary for the deposit plus stamp duty. Mr Cassaniti accepted that he said to Mr Katavic words to the effect [T 74.49]: “We’re happy to commit”. Mr Cassaniti then qualified his answer by saying that he did not say that he had committed to anything at that point. He said that there was no way that Mr Katavic said [T 75.13-75.15]: “Make sure you have your money for settlement because I have none”, or that Mr Cassaniti said [T 75.17-75.19]: “I’ve got it sorted, don’t stress”. Mr Cassaniti said that there was no way that he would have said that because he did not have it sorted.

Purchase of the Moncrieff land

135. On 17 February 2017, Mr Duardo advised Mr Katavic that the entity to purchase the Moncrieff land was Antalija No 4 as trustee for the Unit Trust.

136. Antalija No 4 entered into a contract with the ACT Land Development Agency on 22 February 2017 to purchase the Moncrieff land for a price of $4,150,000 and a deposit of $415,000. The date for completion was 12 May 2017.

Ms Price’s capital contribution

137. The deposit for the Moncrieff land was paid out of the capital contribution of $740,000 paid by Ms Price to Antalija No 4 from her self-managed super fund on 21 February 2017.

Alleged conversation in early March 2017

138. Mr Cassaniti gave affidavit evidence of a conversation with Mr Katavic that he said occurred on a date in March 2017 before the 14^th of that month. According to Mr Cassaniti, the conversation was in the following terms:

Katavic:    If we are going to be able to settle on the property, we’re going to need over $2 million.

Cassaniti:    You’ve gone into this without you and Sue having your money lined up. Nancy doesn’t have to put in if you and Sue aren’t putting in your share.

Katavic:    Look, I know. Please, champ.

Cassaniti:    Sue’s worried about losing her deposit.

Katavic:    I am worried about that, too. I am worried about myself as well.

Cassaniti:    I told you before, I am not doing this if you’re going to treat this as a big pay day for Antalija Constructions. You agree that it’s a 4% margin on costs with the caps we discussed before?

Katavic:    Yes, mate. I am not going to do over my own in-laws, am I? Antalija Constructions doesn’t have much work on at the moment. If I can’t get involved in the construction, I’m going to have to let go my workers. How about if I do it as a 4% margin on costs?

Cassaniti:    You only get to pay yourself $300 per day for the build. I will need to control all expenses. Your upside would have to come out of sharing in the profits at the end?

Katavic:    Yes, fine. I need to get this done.

Cassaniti:    Nancy will put in her contribution, and the rest will be a loan from Reliance. It’ll have a high interest rate because of the risk and I need it secured on the property with a guarantee too.

Katavic:    Whatever you want, I need this money. If Reliance is going to be lending the rest, I should be able to make up the rest of the contributions and pay it back quickly, anyway. I have some units being sold on another project.

Cassaniti:   I need you to send me a full breakdown of costs for what you need. I’ll look at it. But if I decide to move ahead, we’re agreed on this?

Katavic:    Yes. This project can make a lot of profit.

Cassaniti:   I’ll need a couple of weeks to see if I can make this work. I need to discuss it with David [my cousin]. I’ll be in touch.

139. In his affidavit evidence, Mr Katavic denied this conversation took place and in particular denied that he had any conversation with Mr Cassaniti concerning a loan to be made by Reliance at a high rate of interest.

140. Mr Cassaniti denied the suggestion put to him in cross-examination that his evidence of this conversation was a complete fabrication. Mr Katavic was not cross-examined on the issue.

Mr Katavic’s 14 March 2017 email

141. On 14 March 2017, Mr Katavic sent an email to Mr Cassaniti, that was copied to Ms Katavic and Ms Price, on the subject: "Cash required Moncrieff". The email stated:

Sam

Land Purchase $4,150,000

Cash required by 15th of may $2,075,000

Stamp duty $211,235

Deposite (sic) bond $415,000

DA fees to lodge plans $26,000

Plans $83,435

Access report $1,650

Acoustic reprot (sic) $3,025

Temp power $1,500

Temp fencing $5,500

Interior design $17,500

Electrical engineer $7,600

Marketing $37,000

Display Shed $30,000

Web site $15,000

What we need by the 15th of may is $2,701,235. We already put in $415,000 so we only need $2,286,235

While this is all taking shape we also need the other money to push the project along so another total of aprox $250k will be required

The bank looks at this as cash into the project, so once the QS dose (sic) his report this is all taken into consideration.

Construction cash in will also be around the $2,000,000 mark, but this is about 12months (sic) away

I will have my cash available by the end of may, as discussed earlier you will have to put the cash up until I have mine back for a few weeks

So by the 15th of May we will need around 2.3m in the account

We (sic) currently doing the plans and will hopefully submit the DA in about 4 weeks

Once I have these I will then have a strong indication of what our sale prices will be and what our aprox construction costs will be, so then I will be in a good position to let you know what your return on investment will be

If you have any questions please call me

142. In the original email, the second to fourth items in the list of sums and the amount needed of $2,286,235 were in red type, apparently for emphasis.

143. The $2,701,235 is the total of the $2,075,000 cash required plus the stamp duty and the deposit bond. The reference to 15 May 2017 is an error as settlement was to take place on 12 May 2017. The statement that only $2,286,235 was needed allows for the credit of the deposit already paid. The statement that $2,075,000 cash was required by 15 May 2017 implies that the other half of the purchase price had already been arranged. The only possibilities from Mr Cassaniti’s perspective were either that Mr Katavic had the cash to pay the balance of the purchase price or that an arrangement had been made to borrow the money.

144. The email does not make clear what Mr Katavic was referring to when he said that he would have his cash available by the end of May. The plaintiffs say that the reference was to the 50% Proportionate Share that Mr Katavic, as a 50%-unit holder, had to meet of the purchase price of the Moncrieff land. The reference to “Proportionate Share” will be explained when I consider the relevant terms of the Unit Holders Agreement. Mr Katavic says that he only meant his share of the additional $250,000 that would be needed "to push the project along."

145. In fact, Mr Katavic had arranged with the St George Bank to borrow $2,075,000 to pay half of the purchase price for the Moncrieff land. I will explain the events related to that borrowing below.

146. On that basis, I understand Mr Katavic’s email to have the following meaning:

Capital required   $4,150,000   Purchase price

$211,235   Stamp duty

$415,000   Deposit bond

$250,000   Initial expenses

Total         $5,026,235

Available capital   $2,075,000   Borrowing from St George

$1,037,500   Cassaniti contribution

$740,000   Price contribution

Total         $3,852,500

Shortfall      $1,173,735   Required to be paid by Cassaniti

147. What I have called the “Cassaniti contribution” is the amount payable on behalf of Ms Morvillo as the holder of 25 units in the Unit Trust and as trustee of the Cassaniti Discretionary Trust.

148. The shortfall is equivalent to the amounts required to pay stamp duty, deposit bond, initial expenses and the unpaid contribution of Ms Price of $297,500. When the shortfall is added to Mr Cassaniti’s required contribution of $1,037,500, the total is $2,211,235, which was rounded up to $2,250,000 when Accolade actually made the payment on behalf of Ms Morvillo and Ms Price to Antalija No 4.

149. The email included advice that around $2 million would be required as construction cash in about 12 months. The defendants’ case was that Mr Katavic expected to pay whatever additional construction cash was required during the course of the construction of the Moncrieff land development when that cash was needed. Although Mr and Ms Katavic did not have cash to invest at the date that settlement of the contract to purchase the Moncrieff land took place, their case was that they expected to be able to raise cash from the sale of units in another development in the Australian Capital Territory that a company owned by Mr Katavic was in the course of developing.

150. Mr Cassaniti did not reply to this email.

151. The plaintiffs made a submission that it is significant that Mr Katavic did not refer specifically in this email to the existence of an agreement made in November 2016. I do not accept this submission, as the terms of the email are equally consistent with an assumption that there was an existing agreement, whether or not formally binding, and that, as Mr Katavic and Mr Cassaniti were already familiar with its terms, they could be assumed for the purposes of the email, and it was not necessary to make specific reference to them. The making of such an assumption was the more likely because of the interpersonal relationship between the parties.

Certification of Unit Trust Deed

152. On 17 February 2017, Mr Katavic certified a copy of the Unit Trust Deed as a true copy of the original document for the benefit of the Commonwealth Bank of Australia at which Antalija No 4 opened a bank account. Mr Katavic’s signature appears on the document on behalf of Antalija No 4. His signature was witnessed by one of his employees Adam Dukic. Emails that were in evidence dated 15 and 16 February 2017 suggest that the copy of the Unit Trust Deed that had been provided to Mr and Ms Katavic as of those dates was unsigned.

Loan of $2,075,000 by St George Bank

153. Mr Katavic initiated steps to borrow half of the purchase price from the St George Bank by an email in which he informed the bank that he had bought a new property. I attribute little significance to Mr Katavic not having informed the Bank that the purchaser would be Antalija No 4 as trustee for the Unit Trust at this initial stage. It is simply the informal language that I consider Mr Katavic would have used.

154. On 11 April 2017, Mr Katavic sent an email to Mr Claudianos at St George Bank asking: "How are we travelling with block settlement, date is sneaking up on us fast, 3 weeks to go".

155. Subsequently, Mr Katavic followed up Mr Claudianos in a series of text messages.

156. Mr Katavic said in his affidavit evidence that on 8 May 2017 he had a meeting with Mr Claudianos in which he was told that the Bank was not quite ready for settlement. The loan application was not ready, but Mr Katavic said that Mr Claudianos replied: “but you will have your money for settlement.” Mr Katavic said that he replied: “Jason, I don’t care what you’ve got to do, just get the money.”

157. There was no direct documentary evidence of the steps taken by the St George Bank to lend to Antalija No 4 the amount of $2,075,000 on 11 May 2017 to enable settlement of the contract to purchase the Moncrieff land. The Bank did, however, pay that amount to Antalija No 4 to fund the settlement.

Birthday party on 17 April 2017

158. Mr Katavic gave evidence of a conversation with Mr Cassaniti at a party held for Mr Katavic’s 40^th birthday on 29 April 2017. The most relevant aspect of that evidence is a statement made by Mr Katavic to Mr Cassaniti in response to a question as to how things were progressing, where Mr Katavic claims to have said: “Progressing well. The finance is being approved for the purchase of the land…”

159. Mr Cassaniti responded by denying the conversation and saying that he only exchanged pleasantries with Mr Katavic.

Enforceability of clause 9 of the Unit Holders Agreement

379. Logically, the first issue to address is the defendants' claim that the Unit Holders Agreement is not a valid agreement at all.

380. The defendants have not explained in their submissions why the Court should find that the Unit Holders Agreement is entirely invalid.

381. As I have explained above at [179], there are a number of significant terms of the Unit Holders Agreement that had no meaningful application to the actual purchase and development of the Moncrieff land or were not implemented in any way by the parties. However, it does not follow from the fact that a written agreement may include meaningless terms that the entire agreement is invalid.

382. It is clear from Mr Katavic's evidence that he executed the Unit Holders Agreement that was proffered to him by Mr Cassaniti on 10 May 2017 on behalf of himself and Antalija No 4, understanding that it was intended by Mr Cassaniti to be an agreement that took effect for the purpose of the development by Antalija No 4 as trustee of the Unit Trust of the Moncrieff land. I would infer that Ms Price executed the document on the same basis.

383. It is a well-established legal principle that a party who executes a written document understanding it to be an agreement intended to create legal obligations that bind the person is bound by its terms, notwithstanding that the person has not sufficiently read the document or understood its legal effect: see L'Estrange v F Graucob Ltd [1934] 2 KB 394 at 403 (Scrutton LJ) and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 180-2; [2004] HCA 52 at [44]-[46] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ). That will be the legal result unless the agreement is vitiated by application of some relevant principle of law.

384. In my view, the real issue on this aspect of the case is whether clause 9 of the Unit Holders Agreement is not binding on Antalija No 4 or Mr Katavic because Mr Katavic was induced to execute the agreement in the belief that it did not include a term with the effect of clause 9 by reason of the misleading or deceptive conduct of Mr Cassaniti on behalf of Ms Morvillo.

385. As I understand the plaintiffs' submissions, they have not challenged the defendants' submission that the alleged representations made by Mr Cassaniti at the time of execution of the Unit Holders Agreement were made in trade or commerce for the purposes of s 18 of the Australian Consumer Law. I am satisfied that the representations did have that quality. In Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 604; [1990] HCA 17, Mason CJ, Deane, Dawson and Gaudron JJ considered that conduct ‘in trade or commerce’ concerned "activities or transactions which, of their nature, bear a trading or commercial character". Further, Deane J observed in Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 22 ALR 621 at 648-649 that the words 'trade' and 'commerce’ are "clearly of the widest import". His Honour added at 649:

They are not restricted to dealings or communications which can properly be described as being at arm's length in the sense that they are within open markets or between strangers or have a dominant objective of profit-making.

386. Although I have concluded that there was a 'quasi-family' quality to the conduct of the parties to the Unit Holders Agreement, that was only to explain the lack of formality and independent professional advice involved in the transaction, together with an enhanced level of trust reposed by each party in the others. The development of the Moncrieff land was clearly a commercial activity engaged in for profit and the representations made by Mr Cassaniti were made in trade or commerce. Even though Mr Cassaniti was not formally a party to the Unit Holders Agreement, Ms Morvillo held her units as the de facto nominee of Mr Cassaniti, and he acted for her in respect of her participation in the venture.

387. The starting point for determining this issue is the finding made above that the parties to the November 2016 agreement at the QT Hotel entered into the agreement in an informal way in a quasi-family context in which they relied upon trust in each other rather than formal legal advice and documentation.

388. A party to such an agreement is likely to be significantly more susceptible to misleading or deceptive conduct by another party because their guard will be down, and they are unlikely to adopt a self-defensive approach.

389. Mr Cassaniti must have understood that Mr Katavic was a builder by occupation who was not experienced in the complexities of commercial transactions and ordinarily relied upon accounting and legal advice. Mr Katavic informed Mr Cassaniti of his usual reliance upon professional advice at the time the Unit Holders Agreement was signed.

390. Both the Unit Holders Agreement (see [179] above) and the Unit Trust Deed (see [108]-[109]) contain terms that were either meaningless or not relevant to the implementation of the real agreement between the parties. That would naturally cause confusion to an inexperienced person in Mr Katavic's position who attempted to gain some understanding of the meaning of the draft Unit Holders Agreement by leafing through the pages. The creation of confusion may not be equivalent to misleading or deceptive conduct but conduct capable of having that effect is more likely actually to mislead or deceive in a context where the subject of the conduct is confused to begin with.

391. As found above, there was no actual agreement that Antalija No 4 would pay interest at 8.5% per annum compounding annually to unit holders who contributed more than their Proportionate Share.

392. As also found above, the effect of clause 9 of the Unit Holders Agreement was neither "standard" nor "simple".

393. I respectfully accept the correctness of the observation made by Barrett AJA (Meagher and Leeming JJA agreeing at [1] and [2] respectively) in Nadinic v Cheryl Drinkwater as Trustee for the Cheryl Drinkwater Trust [2020] NSWCA 2 at [40] that: "Silence is itself a fact that must be assessed like any other and, unless the circumstances as a whole are such as to give rise to a reasonable expectation of disclosure of some relevant fact known to exist but not communicated, there is no basis on which silence of itself can warrant an inference of a representation that the fact does not exist."

394. This is not a case of misleading or deceptive conduct by mere silence, although it is true that Mr Cassaniti did not draw Mr Katavic's attention to the inclusion or effect of clause 9 in the Unit Holders Agreement.

395. Rather, Mr Katavic specifically asked Mr Cassaniti whether there was any reason that Mr Katavic should only sign the draft Unit Holders Agreement after he received accounting and legal advice from his usual professional advisors. Mr Katavic should have been told to obtain independent advice, but instead he was led to believe that the draft Unit Holders Agreement embodied the terms of the true agreement between the parties, by reason of being told that it only contained "standard" or perhaps "simple" terms.

396. Mr Cassaniti's evidence was that the draft Unit Holders Agreement was prepared by a solicitor employed by Accolade. While that solicitor was not retained by Mr Katavic, Mr Cassaniti had accepted the task of arranging for the legal work relevant to the Moncrieff land venture to be done through Accolade. The likelihood that Mr Katavic would be misled or deceived by Mr Cassaniti's conduct was therefore enhanced by the fact that Mr Katavic was relying upon the lawyer chosen by Mr Cassaniti to draft the Unit Holders Agreement in a way that included the terms agreed between the parties and did not insert any other significant terms that were not brought to Mr Katavic's attention.

397. It was in my view misleading or deceptive for Mr Cassaniti to respond to Mr Katavic’s question as to whether he should arrange for his solicitor and accountant to look at the draft Unit Holders Agreement by saying that it only contained ‘standard’ or ‘simple’ terms. It was misleading or deceptive for Mr Cassaniti to fail to specifically bring to Mr Katavic’s attention that the draft contained clause 9 that imposed new obligations on the unit holders.

398. The misleading or deceptive nature of the conduct was enhanced by the fact that Mr Cassaniti himself had not read the draft Unit Holders Agreement and did not know all of the terms contained in it. Mr Cassaniti's own evidence of the conversation that he said took place in early March 2017 in which Mr Cassaniti claimed that he informed Mr Katavic of the loan to be made by Reliance supports the conclusion that Mr Cassaniti also was unaware of the effect of clause 9.

399. Had it been necessary to do so, I would have found that Mr Cassaniti's mere failure to inform Mr Katavic that the draft Unit Holders Agreement included clause 9, and of the broad effect of that term, was misleading or deceptive. I am satisfied on the basis of the evidence of how the Unit Holders Agreement was executed that Mr Cassaniti was aware that Mr Katavic was relying upon him to advise whether there was any unusual term that warranted Mr Katavic obtaining independent accounting and legal advice.

400. I am satisfied that Mr Katavic would not have signed the Unit Holders Agreement anyway if Mr Cassaniti had explained to him the effect of clause 9. I have already explained above why I consider that Mr Katavic’s acknowledgement that he had to sign the agreement if he wanted Mr Cassaniti to cause the $2,250,000 to be paid to Antalija No 4 did not mean that he would have signed the Unit Holders Agreement come what may: see [204]-[206]. Having seen Mr Katavic in the witness box, I consider that it would have been out of character for him to have submitted to commercial blackmail by Mr Cassaniti. It is a matter for speculation what would have happened if the real effect of the Unit Holders Agreement had been explained to Mr Katavic. Mr Katavic and Ms Price may have had to accept some compromise arrangement with Mr Cassaniti, but I do not accept that the fact that the deposit under the contract for the purchase of the Moncrieff land was at risk would have been sufficient to cause Mr Katavic to capitulate. It is not possible on the evidence to make a comprehensive finding as to the alternative course of events that would have occurred in the absence of Mr Cassaniti’s misleading or deceptive conduct.

401. I am satisfied in these circumstances that the Court should exercise its power under ss 237(1)(a)(i) and 243(a)(ii) of the Australian Consumer Law to make an order declaring clause 9(e) and (f) of the Unit Holders Agreement to be void ab initio.

402. That is a proper remedy, even though the effect will be that Ms Morvillo will lose any right to receive any interest on any contribution made by her above her Proportionate Share. In fact, the loss will fall on whichever party associated with Mr Cassaniti actually advanced the funds, as Ms Morvillo was only a nominal unit holder. The making of the declaration will have the effect that the Unit Holders Agreement will conform with the real agreement between the parties to that document.

403. It would not be appropriate for the Court to make an order that entitled Ms Morvillo to some amount of interest less than the 8.5% per annum compounding annually provided for in clause 9(f). The actual agreement made between the parties was a complex one that is not capable of transparent analysis, and it would not be just for the Court to impose upon Antalija No 4 or the other unit holders an interest obligation for which they did not bargain.

Claim that Antalija No 4 has breached its duties as trustee

404. Three claims by the plaintiffs that Antalija No 4 has breached its duties as trustee of the Unit Trust have survived. They are:

• Antalija No 4 borrowed $2,075,000 on 1 June 2017 from the St George Bank on the security of the Moncrieff land and paid that amount to Antalija No 2 in effective repayment of Mr Katavic's contribution to the capital of the Unit Trust.

• Antalija No 4 repaid the capital contributed by Mr Katavic and Ms Price to the Unit Trust on about 18 November 2019 in circumstances where there was no repayment of the capital contributed by Ms Morvillo, Antalija No 4 had not yet repaid all of the creditors of the Unit Trust and the repayments were made before the occurrence of the Vesting Date. The amount repaid to Ms Price was $740,000 and the net amount of $1,430,000 paid to Mr Katavic was on any view an overpayment of $40,000.

• Antalija No 4 breached its duties as trustee of the Unit Trust by entering into the costs agreement with the solicitors for the defendants dated 27 November 2019 jointly with the other defendants, thereby pledging the assets of the Unit Trust to repay the costs of these proceedings.

Repayment of $2,075,000 to Antalija No 2

405. The success of this claim by the plaintiffs depends upon them establishing that the $2,075,000 paid into Antalija No 4’s bank account on 11 May 2017 became an asset of the Unit Trust, and that the Unit Trust Deed did not authorise Antalija No 4 to borrow the same amount on the security of the Moncrieff land to fund the repayment to Antalija No 2.

406. Clause 2(b) of the Unit Trust Deed is set out above at [105]. It has the effect that money paid to the trustee with the consent of the trustee and accepted by the trustee as an addition to the Trust Fund is to be incorporated into the Trust Fund.

407. It follows from the evidence that I have accepted above, on the balance of probabilities, to the effect that the St George Bank advanced the $2,075,000 to Antalija No 4 out of an existing facility of Antalija No 2, without the specific knowledge or authority of Mr Katavic, that Antalija No 4 did not accept the money advanced as an asset of the Unit Trust. Mr Katavic understood that the advance was a new one made to Antalija No 4 in its own capacity and did not learn of the mistake until the St George Bank failed to pay a progress claim made by Antalija Constructions on Antalija No 2.

408. The advance thus received by mistake was not an asset of the Unit Trust and the steps taken by Mr Katavic to cause the advance mistakenly received to be repaid to Antalija No 2 was not a breach of trust.

409. The question whether it was separately a breach of trust for Mr Katavic to cause Antalija No 4 to borrow the $2,075,000 on 1 June 2017 on the security of the Moncrieff land, as the effective contribution of Mr Katavic's share of the capital of the Unit Trust, depends upon the true agreement between Antalija No 4 and the unit holders. I have found above that the obligations of the unit holders to contribute capital to the Unit Trust was not governed by clause 9(e) and (f) of the Unit Holders Agreement. It was governed by the more inchoate informal agreement that was primarily made in November 2016 at the QT Hotel.

410. Notwithstanding the indefinite nature of the agreement, it at least allowed Mr Katavic to arrange a bank loan to cover half of the purchase price of the Moncrieff land. That was in circumstances where Mr Katavic specifically advised Mr Cassaniti that he did not have the funds at the time to contribute the capital himself. The basis upon which Mr Katavic would raise the bank loan and secure repayment was left open.

411. I am not satisfied that the plaintiffs have proved that the terms upon which Antalija No 4 borrowed the $2,075,000 from the St George Bank on the security of the Moncrieff land was a breach of trust by Antalija No 4, given the terms of the underlying agreement. I infer that the St George Bank would not have advanced the money to either Mr Katavic or Antalija No 4 without being given security over the Moncrieff land. There is no evidence that Mr and Ms Katavic had any other means of borrowing the money, and the venture would not have gone ahead without a bank loan being raised for half of the purchase price of the Moncrieff land.

412. In any event, as I have explained above, in the course of Antalija No 4 entering into the facility to borrow the construction finance for the Moncrieff land development, Mr Cassaniti became aware of the $2,075,000 debt owed by Antalija No 4 to the St George Bank and acquiesced in that debt being refinanced under the Facility Offer dated 1 August 2018 (see [285] above).

Repayment of capital contributions to Ms Price and Mr Katavic

413. Although clause 4 of the Unit Trust Deed required Antalija No 4 to realise the net assets of the Unit Trust and distribute them among the unit holders on the Vesting Date, which could be chosen at Antalija No 4's absolute discretion (see [106] above), clause 9 empowered Antalija No 4 to accept the request by a unit holder to return that unit holder's capital (see [110]-[111]). Clause 9(b) gave Antalija No 4 a discretion to refuse or consent to any such request.

414. As I have noted above at [337], Antalija No 4 returned Ms Price's capital contribution of $740,000 in response to a written request made by her solicitors on 14 November 2019.

415. Mr Katavic did not make a written request for the return of the $1,390,000 contributed by Antalija Constructions during the construction phase of the Moncrieff land development. Although the payments by Antalija Constructions to Antalija No 4 were in practical terms a contribution to the capital of the Unit Trust, Antalija Constructions was not a unit holder. There is scope for argument about whether Mr Katavic was obliged to contribute capital to the Unit Trust in addition to organising the $2,075,000 loan by the St George Bank to Antalija No 4. The agreement reached in November 2016 at the QT Hotel whereby Mr Katavic said that he would contribute funds to the proposed development nearer to the time of construction was indefinite as to the form in which the capital contribution would be made. As appears from the revised draft financial statements for Antalija No 4 prepared by Accolade, the additional capital contribution made by Antalija Constructions on behalf of Mr Katavic to 30 June 2018 was treated as: “Loan – Dennis Katavic 230,000” (see [283] above). Indeed, the contributions by all unit holders were treated as being secured loans. If the repayment that Ms Katavic caused to be made to Antalija Constructions is properly characterised as the repayment of the debt, then it would not be a breach of the Unit Trust Deed, except to the extent of the overpayment.

416. Even if the contributions by Antalija Constructions should be treated as capital payments to the Unit Trust by Mr Katavic, I do not think that the existence of a written request is a mandatory term of the Unit Trust Deed. Such a request was not as a practical matter necessary as Mr Katavic was the unit holder and he was the director of Antalija No 4.

417. To the extent that on 18 November 2019 Ms Katavic caused an overpayment of $110,000 to be made to Antalija Constructions on behalf of Mr Katavic, that was a breach of the Unit Trust Deed. The recording of a debt of $40,000 in the accounts of the Unit Trust after Antalija Constructions repaid $70,000 represents a continuing breach.

418. It does not follow from the fact that clause 9 of the Unit Trust Deed authorised Antalija No 4 to accede to redemption requests made by unit holders that the repayments made by Antalija No 4 on 18 November 2019 did not involve breaches of trust. Antalija No 4 was required to exercise its discretion in the interests of the unit holders as a whole, and there could be commercial circumstances in which it was imprudent for Antalija No 4 to return the capital contributions of some unit holders and not others. That would be particularly so if the return of capital contributions jeopardised Antalija No 4's ability to repay all creditors of the Unit Trust in a manner that would permit proportionate equality of return of capital to all unit holders.

419. The Court is aware that Antalija No 4 is indebted to the ATO for a substantial amount of GST in respect of the sale of townhouses in the Moncrieff land development. That debt is outstanding.

413. I am not aware of any current comprehensive balance sheet for the Unit Trust that is sufficient to enable the Court to make a judgment about whether the payments made to Ms Price and to Antalija Constructions involved a breach of trust by Antalija No 4.

Entry by Antalija No 4 into the costs agreement

421. Clause 12.1 of the Unit Trust Deed empowered Antalija No 4 to pay out of the assets of the Unit Trust or its income any legal fees incurred in the management of the Unit Trust (see [114] above).

422. It was therefore not in principle a breach of trust by Antalija No 4 to execute the costs agreement jointly with the other defendants.

423. As noted above, the Court was informed that Antalija No 4 has not paid any assets of the Unit Trust to the solicitors for the defendants under the costs agreement, and it will not do so unless and until authorised by the Court.

424. The circumstances in which it will be proper for Antalija No 4 to pay the costs of these proceedings out of the assets of the Unit Trust, and the amount of any payment that is justified, are not yet known. It is therefore premature for the Court to examine the question whether it was a breach of trust for Antalija No 4 to enter into the costs agreement with the other defendants.

Replacement of Antalija No 4 as trustee

425. Section 70 of the Trustee Act 1925 (NSW) relevantly provides:

(1)    The Court may make an order for the appointment of a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.

(2)    The appointment may be made whenever it is expedient to appoint a new trustee or new trustees, and it is inexpedient difficult or impracticable so to do without the assistance of the Court.

426. Additionally, the Court has an inherent jurisdiction to remove and replace an existing trustee in certain circumstances: see JD Heydon and MJ Leeming, Jacobs’ Law of Trust in Australia (8^th ed, 2016, LexisNexis Butterworths) at [15-85].

427. As appears from my consideration of the plaintiffs’ claims that Antalija No 4 has already breached its duties as trustee of the Unit Trust, I am not yet satisfied that any breaches have been established, other than the initial overpayment of $110,000 when Ms Katavic caused $1,500,000 to be repaid to Antalija Constructions on 18 November 2019. That breach was of minimal significance and not sufficient to justify the Court in making an order replacing Antalija No 4 as trustee.

428. However, I consider that in principle there are reasons that would justify the Court making an order replacing Antalija No 4 as trustee of the Unit Trust in this case. They are:

• As Mr Katavic is a unit holder and the sole director and shareholder of Antalija No 4, he may be in a position of conflict of interest in making decisions on behalf of Antalija No 4 in relation to the exercise of its powers under the Unit Trust Deed in respect of any outstanding disputes that may require to be resolved as between the trustee and the unit holders.

• It follows from my findings above (1) that clause 9(e) and (f) of the Unit Holders Agreement are invalid, (2) that aspects of that agreement and the Unit Trust Deed are either meaningless or were never intended to be implemented, and (3) that the real agreement was an inchoate informal agreement substantially made in November 2016 at the QT Hotel, that there is an exceptional degree of ambiguity in this case concerning the real terms of the trust and the duties of Antalija No 4 as trustee of the Unit Trust. It is likely to be productive of further disputation between Antalija No 4 and the unit holders if Antalija No 4 continues to exercise the powers and discretions of the trustee in winding up the Unit Trust and resolving outstanding disputes.

429. However, it is not yet clear whether it will be necessary or convenient to replace Antalija No 4 as trustee of the Unit Trust, as it has not been shown what steps remain outstanding or whether the most convenient course will be to wind up the Unit Trust by means of orders made by the Court in these proceedings. The further consideration of that issue should await the provision to the Court of further information concerning what remains to be done to wind up the Unit Trust. It is material that the Moncrieff land development was successfully completed, and all townhouses sold and at least most of the creditors paid. The remaining assets of the Unit Trust are known and either held in court or in the defendants’ solicitors’ trust account. It is not yet clear whether it is in the unit holders’ interests for the Unit Trust to incur the further costs that will inevitably be incurred if Antalija No 4 is replaced by a new trustee.

430. If Antalija No 4 should be replaced as trustee of the Unit Trust, it will be appropriate for a professional person or company to be appointed as trustee in its stead. Ms Morvillo will not be an appropriate replacement for equivalent reasons to those that would justify the replacement of Antalija No 4.

431. The Court will hear the parties concerning the most appropriate course to take in the efficient winding up of the Unit Trust.

Claim that the Court make an order for an account

432. The final outstanding question is whether the Court should make an order for an account of the affairs of the Unit Trust to be taken. In principle, any unit holder is entitled to require that the trustee of the Unit Trust provide a complete and proper accounting: Manning v Commissioner of Taxation (1928) 40 CLR 506 at 509 (Knox CJ). However, except to the extent that the cost of undertaking the account is caused by some delinquency on the part of the trustee, the cost will be an expense of the Unit Trust. It is not yet clear what issues will arise in the accounting and whether a formal account is necessary and in the interests of the unit holders.

433. I consider that it will be preferable to defer making a final determination on this issue until the unit holders have been able to explain to the Court the nature of the accounting process that will be necessary and the issues that should arise.

434. The parties should confer for the purpose of preparing short minutes of order to give effect to these reasons and they should include case management orders to deal with all outstanding issues.

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Decision last updated: 02 May 2022