Smav Nominees Pty Ltd v Bakal Enterprises Pty Ltd
[2020] VSC 203
•24 April 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2020 01214
| SMAV NOMINEES PTY LTD (ACN 100 012 459) | Plaintiff |
| v | |
| BAKAL ENTERPRISES PTY LTD (ACN 135 361 796) and ANOR (according to the attached schedule) | Defendants |
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JUDGE: | Derham AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 15 April 2020 |
DATE OF JUDGMENT: | 24 April 2020 |
CASE MAY BE CITED AS: | SMAV Nominees Pty Ltd v Bakal Enterprises Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 203 |
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CAVEAT – Removal of caveat – Caveat lodged by person claiming interest under a resulting or constructive trust by virtue of an alleged contribution to the purchase price – Caveat prevents sale of property and may effect sale price and any potential settlement – Caveat lodged without proper basis – No prima facie case established – No adequate interest in the property capable of supporting the caveat lodged – Piroshenko v Gosjman, (2010) 27 VR 489; Carbon Black Pty Ltd v Launer [2015] VSCA 126.
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| APPEARANCES: (By written submission) | Counsel | Solicitors |
| For the Plaintiff | Mr Bill Gillies | Bayside Solicitors |
| For the Defendant | Madgwicks Lawyers |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
The facts and evidence...................................................................................................................... 1
Applicable law.................................................................................................................................. 10
Submissions...................................................................................................................................... 12
Caveator’s submissions.............................................................................................................. 12
Plaintiff’s submissions................................................................................................................ 15
Consideration.................................................................................................................................... 17
Resulting Trust............................................................................................................................ 18
Constructive trust........................................................................................................................ 21
Restitution.................................................................................................................................... 22
Bargaining chip........................................................................................................................... 23
Conclusion......................................................................................................................................... 24
HIS HONOUR:
Introduction
The plaintiff seeks to removal a caveat lodged by the first defendant (Caveator)[1] against the title to the plaintiff’s property at 294 Pound Road, Hampton Park (Property).[2] The second defendant is the Registrar of Titles who, in the usual way, has notified the Court that he does not intend to appear in the proceeding.
The facts and evidence[3]
[1]Caveat number AS976542N.
[2]Being the property more particularly described in Certificate of Title Volume 9658 Folio 334.
[3]The statement of facts is based on the affidavits of Steve Mavroudis made 6 March and 9 April 2020, the affidavit of Edoan Bakal made on 14 April 2020 (but filed in an unsworn state on 2 April 2020) and the affidavit of Joseph Mark Teege, the solicitor for the Caveator, made 20 March 2020.
The plaintiff purchased the Property pursuant to a Contract of Sale dated 7 July 2018. The sole director of the plaintiff is Steve Mavroudis (Mavroudis). He signed the Contract on behalf of the plaintiff. When he did so, he swears that he did not know, or know of, the Caveator or anyone associated with it and he had not entered into any agreement, either personally or through any agent, with the Caveator or any other party in relation to the Property.
The background to the purchase of the Property is as follows:
(a) Mavroudis became aware of the Property in April 2018 when it was introduced to him by a friend, Saleh Sabawi (Sabawi), whom he believed to be a licensed real estate agent;
(b) he signed a ‘Letter of Offer Expression of Interest’ dated 13 April 2018 and paid a holding deposit of $10,000 by cheque to one of the vendors, Shirley Klein, at the direction of Sabawi;
(c) Mavroudis received the Vendor’s Statement on 21 June 2018. Before signing the contract to purchase the Property on 7 July 2018 he attended the home of Sabawi, who presented the contract to him with the name of the purchaser as ‘294 Pound Road Pty Ltd’. He asked Sabawi why that name had been inserted, and was told that it was better for tax purposes to have a new company. He insisted on the plaintiff being the purchaser. He also changed the contract to remove ‘Redi Property Pty Ltd’ as the vendor’s estate agent. That company had been formed by Mavroudis with Sabawi for the purpose of property investment. It was not intended or licensed to sell real estate. He crossed out the details of that company and wrote ‘Private Treaty’. He signed the contract and wrote a company cheque for the balance of deposit in the sum of $195,000 to Malkin Lawyers, the solicitors for the vendor;
Mavroudis had previously loaned to Sabawi $200,000 by two separate sums of $100,000. The first loan of $100,000 was made on 24 October 2017 and was evidenced by a loan agreement dated 26 October 2017. It was paid into the trust account of Rowson Brasse, Solicitors, as a part payment of deposit monies due for another property, in relation to which Mavroudis was loaning Sabawi the $100,000. The second loan of $100,000 was made on 9 November 2017 by telegraphic transfer at the direction of Sabawi.
On or about 17 April 2018, Sabawi asked Mavroudis for his account details so that he could repay the loan of $200,000, and Mavroudis provided the details to him by text message on 17 April 2018. Sabawi subsequently advised Mavroudis that he had repaid the $200,000 to his account and Mavroudis received the telegraphic transfer of $200,000 into his bank account on 18 April 2018. It is recorded in the bank statement as ‘Inward Telegraphic Transfer 180490’.
Over a year later, on 23 August 2019, the solicitors for the plaintiff and Mavroudis received a letter of demand from solicitors for the Caveator, Rothwell Lawyers, demanding the repayment of $200,000. The letter alleged, inter alia, that following discussion with a mutual friend (unnamed at this stage), the Caveator had paid the sum of $200,000 into Mavroudis’s account on 18 April 2018 towards a property development on the Property, that the development had fallen over, and that the $200,000 was a contribution towards that development and had to be repaid. Shortly prior to that letter (Mavroudis does not recall precisely when) he received a telephone call from an unknown person, whom he now believes was Mr Erdoan Bakal (Bakal), the director of the Caveator, demanding this repayment. Bakal advised that his company had paid $200,000 into Mavroudis’s account and that he wanted it repaid.
By letter dated 27 August 2019, the plaintiff’s solicitor responded to the letter from the Caveator’ solicitors, Rothwell Lawyers, pointing out that the plaintiff had no knowledge of the allegations made by the Caveator until early July 2019 when Mavroudis received a telephone call from Bakal. At the time the $200,000 was received into the plaintiff’s bank account:
(a) Mavroudis did not know of the existence of Bakal and had received no communication from him or on his behalf;
(b) there was no agreement with the Caveator or with anyone else in relation to the development of the Property, or otherwise;
(c) the receipt into the plaintiff’s bank account of $200,000 on 18 April 2018 was an unreferenced telegraphic transfer. Its receipt followed advice from Sabawi that it was repayment of a debt owed by Sabawi to the plaintiff. The plaintiff received no communication from the Caveator or any third party on its behalf. It assumed that the mutual friend referred to is Sabawi and if so, the Caveator may have been the victim of a fraud perpetrated by Sabawi;
(d) the money was received by the plaintiff when he had no knowledge of its origins apart from what he was told by Sabawi, and had no knowledge of the circumstances of the receipt of that money now advanced by the Caveator; and
(e) it is a dubious allegation that the Caveator advanced $200,000 to someone he does not know, without having any communication or agreement with him at the time and no communication until 16 months later.
By letter dated 16 September 2019 Rothwell Lawyers responded:
(a) confirming that the mutual friend was Sabawi;
(b) enclosing a receipt so as to corroborate the statement that it was the Caveator and not Sabawi that paid the $200,000 into the plaintiff’s bank account;
(c) suggesting that the plaintiff may have been the victim of a fraud by Sabawi;
(d) questioning the legal basis upon which the plaintiff retained funds transferred to it by the Caveator; and
(e) demanding repayment of the $200,000 forthwith.
Nothing further was heard from the Caveator until notice of the caveat was received by the plaintiff on 13 February 2020. The caveat claims a freehold interest in the Property on the basis of a resulting implied or constructive trust. The plaintiff’s solicitors then wrote on 20 February 2020 to the solicitors lodging the caveat, Madgwicks Lawyers, demanding the removal of the caveat and putting the plaintiff’s position in relation to the receipt of the $200,000 as repayment of a loan by Sabawi.
Madgwicks responded on 27 February 2020 seeking documentary evidence of the loan to Sabawi. They included that they had communicated with him and that he denies the loan. They also maintained the Caveator’s interest in the land arising from the contribution of $200,000 towards its purchase, demanded an undertaking not to deal with the land, and made a without prejudice offer to resolve the dispute.
On 28 February 2020 the plaintiff’s solicitors responded and enclosed documentary evidence of the $200,000 loan to Sabawi, contending that the Caveator had provided no basis for the claimed interest in the Property and said proceedings for removal of the caveat would be commenced asking if the solicitors had instructions to accept service.
The letter went on to say that:
(a) Mavroudis received the payment of $200,000 on 18 April 2018 in good faith, believing it to be the repayment of the loans owed by Sabawi, as he advised it was;
(b) Mavroudis has had no discussions with the Caveator regarding the payment, and has no knowledge of it or any other third party investing in the Property. The plaintiff purchased the Property using its own funds and with some financial assistance from Mavroudis’s father; and
(c) the plaintiff is expecting a Planning Permit for a 16-lot subdivision of the Property to issue from Council any day, and already has a very interested buyer for the Property once the plaintiff can sell the Property with plans and permits - but the plaintiff cannot do so whilst the Property is encumbered by the caveat.
The sole director of the Caveator is Mr Erdoan Bakal. He made an affidavit on 14 April 2020, which was preceded by the filing of an unsworn version on 2 April 2020 due to difficulties encountered in swearing the affidavit during the COVID-19 pandemic (Bakal’s affidavit). The Caveator’s solicitor, Joseph Mark Teege, also made an affidavit for the purpose of seeking an adjournment of the hearing previously due on 23 March 2020 because of the restrictions arising out of the COVID-19 crisis (Teege’s affidavit). In that affidavit, Mr Teege referred to the importance of obtaining evidence from Sabawi, and in correspondence exhibited to the affidavit set out some of the matters Sabawi raised and said that a statutory declaration was being prepared by Sabawi to confirm those matters.
The background from the Caveators perspective is set out in Bakal’s affidavit, which also exhibits a statutory declaration said to have been made by Sabawi. The key points identified by the Caveator’s solicitors in their outline of submissions are said to be as follows:[4]
[4]Caveator’s submissions dated 2 April 2020, [5].
(a) Sabawi approached Bakal inviting him to take part in the acquisition of the Property;
(b) the acquisition was intended to be a short-term position whereby the Property was acquired without plans and permits and then on sold with plans and permits; and
(c) Sabawi and Mavroudis were business partners who had undertaken similar projects of the kind previously.
In greater detail, the story as told by Bakal in his affidavit is set out in the following paragraphs, together with responses from Mavroudis taken from his affidavit in reply.[5] Not every matter set out in the affidavits is relevant to my analysis of the claimed interest which the Caveat purports to protect, so there are facts referred to that are not repeated here.
[5]Mavroudis affidavit made 9 April 2020.
Bakal says he has known Sabawi for over two years. Sabawi told him that he and Mavroudis were business partners and often worked together in small business opportunities relating primarily to real estate. Mavroudis responded to this, pointing out that he and Sabawi were only involved in one venture which resulted in Mavroudis suing Sabawi.
Bakal did not know Mavroudis personally nor had he any personal or commercial relationship with him or his entities. Other than the transfer of $200,000, which is the subject matter of the present dispute, he has had no dealings with him.
He says that in late March or early April 2018, Sabawi contacted him in relation to a potential investment opportunity concerning the Property. Sabawi told him that he could make a significant return on his money and all it required was an outlay of $200,000 which would go towards the deposit for the property. In return for the $200,000 he would be able to have a share of the profits, once Mavroudis and Sabawi ‘flipped it’. He understood the phrase ‘flip’ or ‘flipping’ to describe the situation where a property is bought just before an event which would result in an increase in value and then sold immediately following that event.
Bakal understood from Sabawi that it was the intention to obtain plans and permits and to then flip the Property with those permits. He also understood that the plans and permits were to increase the value of property. In contrast, in the letter of 23 August 2019 from his former solicitors, Rothwells, Bakal asserted that the plaintiff was conducting a development at the Property. Further, he contended that following discussions with Sabawi (a mutual friend), Bakal decided to invest $200,000 in the development. However, after it was paid the development fell through and did not progress.[6] Moreover the letter went on to say that Bakal made contact with Mavroudis on multiple occasions to demand repayment, and Mavroudis ‘inexplicably’ refused to repay the money.
[6]Exhibit SM-9 to Mavroudis affidavit of 6 March 2020.
Bakal was told by Sabawi that he and Mavroudis had moneys tied up in other ventures but if he, Bakal, was able to make the deposit payment, they would seek an extended settlement in which to seek and obtain the plans and permits. Once ‘flipped’, the profit would be split 3 ways between Sabawi, Mavroudis and Bakal. I note that in the statutory declaration Sabawi states that he told Bakal that if he were to pay the plaintiff a deposit of $200,000 ‘it [presumably the Caveator] could take a 50% share on any potential profits of the Property once it was sold’.[7]
[7]Exhibit EB-4 to Bakal’s affidavit at [8(d)].
Relying on these discussions, on or about 18 April 2018, Bakal transferred $200,000 to the plaintiff by way of electronic fund transfer. The details of who to pay and when to pay were provided by Sabawi to Bakal. There was no contact between the plaintiff (or Mavroudis) and the Caveator (or Bakal). The reference on the payment produced by Bakal is ‘Deposit Pound Road’. After the payment, Bakal understood that Sabawi and Mavroudis were going to use his money to secure the Property and that the contract was close to being secured. Bakal did not seek a copy of the Contract because, he says, he trusted Sabawi by virtue of the number of previous deals he had done with friends of his who spoke highly of him.
Bakal did not make contact or follow up with Sabawi after making payment because he had no reason to be concerned. He heard nothing from Sabawi or Mavroudis for some months. In July or August 2018, Bakal happened to bump into a friend who also had dealings with Sabawi. The friend mentioned that he knew about Bakal’s involvement with the Property and Sabawi and Mavroudis. Bakal asked the friend whether he knew Mavroudis, to which he replied ‘yes’ and they organised a phone call with all three of them on the line. In the phone conversation, Bakal asked Mavroudis about the deposit. Mavroudis acknowledged receipt of the $200,000 payment but denied Bakal’s interest in the Property. When Bakal pressed the point, Mavroudis told him in effect to ‘go get legal advice’.
To this Mavroudis says that:
(a) he had learned from one Roy Mouneimne that Sabawi had induced him to invest in the development of the Property, unbeknownst to Mavroudis;
(b) the three way conversation did occur (but much later than the time identified by Bakal as being in July or August 2018) and in the course of that conversation, he told Bakal that Sabawi told him the $200,000 paid into the plaintiff’s account was the repayment of money Sabawi owed the plaintiff; and
(c) the plaintiff had purchased the Property and if there is any issue Bakal should get legal advice as he had been defrauded by Sabawi.
After that phone call, Bakal sought advice as to the Caveator’s rights. However, no two people would give him the same advice and instead so confused him that he did nothing. In about June 2019, Bakal finally decided to engage a lawyer in order to recover the $200,000 payment. That solicitor, Rothwells Lawyers, corresponded with Mavroudis as referred to above at paragraphs [6] – [8]. He was not satisfied with Rothwells, ended their retainer and engaged Madgwicks Lawyers. On about 10 February 2020, he instructed Madgwicks to lodge a caveat over the Property. Then followed correspondence between them and the lawyers for the plaintiff as referred to above at paragraphs [9]-[11].
On or about 5 March 2020, Bakal arranged for he and Sabawi to have a teleconference with Madgwicks Lawyers in order to discuss the various allegations which the plaintiff had raised in its correspondence. Sabawi’s responses to the allegations raised against him are dealt with in a statutory declaration exhibited to Bakal’s affidavit.[8] In that declaration, Sabawi states that he told Mavroudis about the payment for the deposit on the Property and that it was coming from a friend, he disclosed the source of the payment to Mavroudis soon after it was received and that he never told Mavroudis that the $200,000 payment was to discharge a debt owed by Sabawi. Mavroudis counters these allegations in detail his second affidavit. According to Mavroudis there is no truth in them.
[8]Exhibit EB-4.
Bakal asserts that the reason why Sabawi has not sworn an affidavit in this proceeding is due to the social distancing measures required by the Commonwealth and State Governments in response to the COVID-19 pandemic since commencement of this proceeding. I note that the statutory declaration bears a footer of the kind included by an assistant undertaking word processing which begins: ‘CM:042545:’ followed by a number. That is the same reference that appears in the footers to Bakal’s affidavit, the affidavit of the solicitor (Mr Teege), and the written submissions of the Caveator.
The fact that Bakal arranged for Sabawi to have a teleconference with Madgwicks to discuss the various allegations raised by the plaintiff, and the use of the common footer on the statutory declaration, Bakal’s affidavit and the Caveators written submissions, leads to the inference that Madgwicks prepared the statutory declaration. There is no explanation why the matters dealt with in the statutory declaration were not, or could not be, the subject of an affidavit. That was done for Bakal and his affidavit was filed unsworn initially.[9]
[9]That filing was with the express leave of the Court.
The inconsistencies between the statutory declaration and matters raised in correspondence is relevant to an assessment of the strength of the claim raised by the Caveator. Apart from those referred to already, one that is noticeable and relevant is in a letter from Madgwicks dated 12 March 2020.[10] In that letter, after dealing with disputes about whether or not the debt of $200,000 admittedly owed by Sabawi had been paid otherwise than by the $200,000 payment, it was asserted that Sabawi said in discussions with Mr Teege that Mavroudis inappropriately amended the contract of sale for the Property by amending the purchaser’s details from
294 Pound Road Pty Ltd (an entity which was to be incorporated between Mavroudis and Sabawi) to Smav Nominees Pty Ltd. We are informed by Mr Sabawi that this change was made under false pretences and without adequate payment to Mr Sabawi, who was instrumental in facilitating the sale in the first place….Mr Sabawi is currently attending to swearing a statutory declaration confirming the above…’.[11]
[10]Exhibit JMT-1 to Teege’s affidavit.
[11]Exhibit JMT-1 to Teege’s affidavit.
The Statutory declaration does not, however, deal with this aspect of the matter. In light of the ambiguity in the statutory declaration to which I later refer, it is significant that the entity was to be incorporated ‘between Mavroudis and Sabawi’.
Applicable law
Under s 89(1) of the TLA, a caveat can only be lodged by a person claiming an estate or interest in the land. The estate or interest must be established to the requisite standard by the person who lodged the caveat, if the caveat is challenged.
The plaintiff’s application is made pursuant to s 90(3) of the TLA, where any person adversely affected by a caveat lodged under s 89 of the TLA is permitted to ‘bring proceedings in a court against the caveator for the removal of the caveat’. Section 90(3) empowers a court to ‘make such order as the court thinks fit’, and thus gives the Court a discretion. The application is in the nature of a summary procedure analogous to the determination of interlocutory injunctions.[12] The procedure is consequently interlocutory in substance, even though it may give rise to a final order.[13] The principles applicable were dealt with by Warren CJ in Piroshenko v Grosjman.[14] They are well settled. The authorities establish the following:[15]
[12]Eng Mee Yong v Letchumanan [1980] AC 331, 337 (‘Eng Mee’); Piroshenko v Gosjman, (2010) 27 VR 489, [12]-[23] (‘Piroshenko’); Goldstraw v Goldstraw [2002] VSC 491 [30] (‘Goldstraw’).
[13]Eng Mee, 337; Smith v Callegari (1988) V Conv R 54-300, 63,858-9; Joseph Lynch Land Co Ltd v Lynch, [1995] 1 NZLR 37, 43.
[14]Piroshenko [7]-[11].
[15]See, for example: Percy & Michele Pty Ltd v Gangemi [2010] VSC 530 [38]-[48] (Macauley J); Piroshenko [13]-[20] (Warren CJ); Schmidt v 28 Myola Street (2006) 14 VR 447, 457 [32] (Warren CJ); Goldstraw [30] (Dodds-Streeton J); Sylina v Solanki [2014] VSC 2 [43] (‘Sylina’).
(a) the Court’s power under s 90(3) of the Act is discretionary;
(b) the caveator bears the onus of establishing that there is a prima facie case to be tried that it does have the estate or interest in land as claimed;[16]
(c) if the caveator establishes a prima facie case to be tried in relation to the estate or interest claimed, the caveator must further establish that the balance of convenience favours the maintenance of the caveat until trial; and
(d) there is a relationship between the strength of the case in establishing a prima facie case to be tried, and the extent to which the caveator must establish the balance of convenience favours the caveator; the stronger the prima facie case, the more readily the balance of convenience might be satisfied. It is sufficient that the caveator show a sufficient likelihood of success that, in the circumstances, justifies the practical effect which the caveat will have on the ability of the registered proprietor to deal with the property in question in accordance with its normal proprietary rights.
[16]The Act, s 89(1).
The prima facie case test is often used interchangeably with whether a serious question to be tried is established. The prima facie case test is to be preferred.[17] That does not mean that the Caveator must show that it is more probable than not that at trial the plaintiff will succeed. The Caveator must show that they have a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat, and the preservation of the status quo pending trial.[18]
[17]CFHW Pty Ltd v Burness [2014] VSC 451, [17], citing Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 82 (Gummow and Hayne JJ) (‘O’Neill’); Carbon Black Pty Ltd v Launer [2015] VSCA 126, [37] (‘Carbon Black’).
[18]Sylina [2014] VSC 451 [20]; Piroshenko 494 and O’Neill 82.
An application to remove a caveat involves two steps:
(a) first, the Caveator must establish that there is a prima facie case - there is a probability on the evidence before the Court that the Caveator will be found to have the asserted legal or equitable rights or interest in the land; and
(b) second, having done so, the Caveator must establish that the balance of convenience favours the maintenance of the Caveat on the title until trial and:[19]
that probability is sufficient to justify the practical effect which the caveat has on the ability of the registered proprietor to deal with the property in question in accordance with their normal proprietary rights.[20]
[19]Piroshenko; Carbon Black.
[20]Piroshenko, [18].
In Carbon Black Pty Ltd v Launer[21] the Court of Appeal approved the approach Piroshenko and noted:
It is also to be observed that an application for removal of a caveat does not, at least ordinarily, present an occasion for the final determination of disputed factual issues or of the claims which the caveat seeks to protect. In McMahon v McMahon[22]Marks J referred to a number of authorities in which it had been held that it was not necessary or appropriate in an application for removal of a caveat finally to determine disputed questions of facts.[23] Those authorities reflect the reality that a prima facie case may be capable of being sustained by supporting evidence, without the need for the Court to answer the question whether or not that evidence should be accepted. The position may be different, as was the case in Simons v David Benge Motors Pty Ltd,[24] when no substantial issue of fact appears and the Court is able to have the claims in question fully argued and decided on a summons under s 90(3).[25]
[21][2015] VSCA 126, [35].
[22][1979] VR 239 (‘McMahon’).
[23]Ibid 245–6.
[24][1974] VR 585, 591 (Norris J).
[25]See McMahon [1979] VR 239, 245 (Marks J).
Submissions
The parties agree as to the applicable law relating to the removal of the caveat.
Caveator’s submissions
The Caveator submits that there is a strong and compelling prima facie case that the monies advanced to the plaintiff were held by it pursuant to a resulting or constructive trust, there is no evidence to suggest that maintaining the caveat will cause serious irreparable harm to the plaintiff and the balance of convenience favours the maintaining of the caveat.
In support of the existence of a resulting trust, it was submitted that:
(a) Bakal was invited by Sabawi to take part in the acquisition of the Property as a short term investment by contributing $200,000 which was to be the deposit;
(b) Sabawi told Mavroudis before the $200,000 was paid that it would be made by a friend;[26]
[26]Statutory declaration of Sabawi in exhibit EB-4 to Bakal’s affidavit.
(c) thereafter, once the payment was made, Sabawi told Mavroudis that it was Bakal (through the Caveator) who had made the payment;[27]
[27]Statutory Declaration of Sabawi – exhibit EB-4 to Bakal’s affidavit .
(d) the purpose of the payment made by the Caveator is evidenced by Bakal’s affidavit and also by Sabawi’s statutory declaration and the deposit description on the bank transfer;[28]
[28]Exhibit SM-12 to the affidavit of Mavroudis made 6 March 2020.
(e) the Caveator made the payment on the condition that it would obtain an interest in the Property, in the sense that Bakal relied on the representations made by Sabawi that if he paid the $200,000 for the deposit he would share in the profit on re-sale equally with Sabawi and Mavroudis;[29]
(f) at or around the time that the contract of sale for the purchase of the Property was entered into (July 2018), and in any event prior to the settlement of the purchase of the Property, Mavroudis was on notice of the Caveator’s claim as against the Property.[30] Notwithstanding this, Mavroudis took no action including, at the very least, raising the issue with Sabawi; and
(g) there is no dispute that the payment was made and received. The only dispute is the characterisation of the payment.
[29]Bakal’s affiavit, [11].
[30]Bakal’s Affidavit, [15]-[16].
The Caveator relies on the principle that where two persons jointly provide the purchase money for a property and the property is put into the name of one of them, then unless the relationship between the parties gives rise to a presumption of advancement, it is presumed that the beneficial ownership of the property is held in the proportions in which they each contributed the purchase money.[31]
[31]Calverley v Green (1984) 155 CLR 242 at 246-247, 258-259.
Alternatively, in reliance upon the representations made by Sabawi, the Caveator has, to its detriment, contributed $200,000 towards the acquisition of the Property. By applying the principles in Muschinski v Dodds[32] and Baumgartner v Baumgartner,[33] it would be unconscionable or unconscientious for the Plaintiff to assert that it holds it free of the Caveator’s beneficial interest in circumstances where:
[32](1985) 160 CLR 583, 615-616 (Muschinski).
[33](1987) 164 CLR 137, 148.
(a) the Caveator made payment on the condition that it would obtain an interest in the Property;
(b) the plaintiff knew that the payment came from the Caveator and that the payment was for the purchase of the Property; and
(c) some, if not all of the debt, allegedly owed to the plaintiff has been repaid.
For these reasons, there is clearly a serious question to be tried as to whether the plaintiff holds the Property on a resulting or constructive trust in favour of the Caveator.
The Caveator also maintains in the alternative that it has a claim to recover the $200,000 payment as restitution on the basis of a mistaken payment and failure of consideration.[34] Such recovery depends upon the existence of a qualifying or vitiating factor such as mistake, duress or illegality.[35] Receipt of a payment which has been made under a fundamental mistake is one of the categories of case in which the facts give rise to a prima facie obligation to make restitution to the person who has sustained the countervailing detriment.[36]
[34]Equuscorp Pty Ltd v Haxton; Equuscorp Pty Ltd v Bassat; Equuscorp Pty Ltd v Cunningham's Warehouse Sales Pty Ltd [2012] HCA 7; See also Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68 and Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation [1988] HCA 17; Baltic Shipping Co. v Dillon (1993) 111 ALR 289.
[35]David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48 at [46].
[36]Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662, 673.
Thus, it is submitted that if the Caveator fails in its submission that a resulting or constructive trust applies, then it is certainly entitled to repayment on the basis of the payment being made under a mistake, particularly in circumstances where the Caveator has been enriched at the expense of the Plaintiff and such enrichment is unjust.
Plaintiff’s submissions
The plaintiff maintains that the Caveator has provided no basis to support the allegations of an interest in the Property. Consistently with the facts advanced in support of the application, the plaintiff maintains that the payment of $200,000 received in April 2018 was the repayment of loans made by the plaintiff to Sabawi; that there was no agreement, nor any contact whatsoever between the Caveator (or Bakal) and the plaintiff or Mavroudis.
There can be no resulting trust as the moneys were paid into the plaintiff’s bank account in April 2018 and the moneys paid to the vendor’s solicitor were not paid until 8 July 2018. In short, there is no evidence that the moneys paid into the plaintiff’s bank account were any part of the deposit paid under the contract of sale. Moreover, so far as the plaintiff knew, they were received by the plaintiff as the repayment of debt owed to it by Sabawi. There was no relationship between Caveator and the plaintiff, and the plaintiff did not know that the moneys were paid by the Caveator as a contribution to the deposit to be paid for the purchase of the Property.
In relation to the claim for a constructive trust, there was no joint endeavor nor any common intention between the Caveator and the plaintiff, even taking the evidence of Bakal and Sabawi at its highest. There is no basis on which Sabawi could be constituted the agent for the plaintiff. The evidence, given on behalf of Sabawi, is that in March 2018 he told Mavroudis that he was getting ‘a friend’ to pay the deposit for the purchase of the Property, and that ‘he made it known’ to Mavroudis at the time of payment that the money was sent to him by Bakal for the purposes of purchasing the Property.[37] That evidence is unbelievable in the absence of documentation to support it. Against this, Bakal had no contact or conversation with Mavroudis, never sought to see the contract of sale under which the Property was purchased, did not follow up after the payment either with Mavroudis or with Sabawi, and did nothing about contacting Mavroudis until the three way conversation between Bakal, Mavroudis and Roy Mouneimne. There was no written enquiry until the letter from Rothwells of 23 August 2019.
[37]Exhibit EB-4 to Bakal’s affidavit, statutory declaration, [8(e), (g) and (h).
As Brennan J said in Muschinski v Dodds:[38]
There is no jurisdiction in an Australian court of equity to declare an owner of property to be a trustee of that property for another merely on the ground that, having regard to all the circumstances, it would be fair so to declare:…The flexible remedy of the constructive trust is not so formless as to place proprietary rights in the discretionary disposition of a court acting according to vague notions of what is fair. Not all cases of injustice or inequality make imposing a trust an appropriate remedy.
[38](1985) 160 CLR 583, 608.
In relation to the disputes of fact raised by Bakal, particularly through the statutory declaration of Sabawi, the plaintiff makes a concerted attack on the efficacy and substance of the statutory declaration, contending that:
(a) it fails for a number of reasons to satisfy the requirements of the Oaths and Affirmations Act 2018 (Vic); and
(b) Sabawi’s purported evidence does not corroborate Bakal’s affidavit in material aspects.
In relation to the efficacy of the statutory declaration, the plaintiff submits:
(a) it is supposedly signed by Md Tariqul Islam, B Pharm, but the stamp is a stamp of Chemist Warehouse at Dandenong. It does not identify the statutory declaration witness nor does it give his address (s.30(4), (5) and (6) of the Oaths and Affirmations Act 2018);
(b) the document is not signed or initialled on each page (s.30(3)(b)) and is not dated, or at least not dated properly; and
(c) it is asserted he is a person who is authorised to take a statutory declaration. He does not identify the Act or prescribed class of persons who can witness the signing of a statutory declaration.
The plaintiff does not identify the respects in which Sabawi’s declaration does not corroborate Bakal’s affidavit.
The plaintiff concedes that the Caveator may have a claim in restitution for recovery of the $200,000 as having been paid under a mistake, but contends that because it believed the payment to be repayment of debt owed by Sabawi this gives it a defence.
Consideration
First, it is desirable to deal with the objections made to the purported statutory declaration of Sabawi exhibited to the Bakal affidavit. Rule 43.03 of the Rules[39] provides:
(1)Except where otherwise provided by or under these Rules, an affidavit shall be confined to facts which the deponent is able to state of the deponent’s own knowledge.
(2)On an interlocutory application an affidavit may contain a statement of fact based on information and belief if the grounds are set out.
[39]Supreme Court (General Civil Procedure) Rules 2015 (Vic).
Under the Rules, where affidavit evidence is given on information and belief, the grounds that must be given include the identification of the person or persons who supplied the information; that is the ‘source’ of that information. Notwithstanding that general rule, the Court has a discretion to admit an affidavit that adduces evidence on information and belief where the grounds are not, or are not fully, set out.[40]
[40]Liesfield v SPI Electricity Pty Ltd [2014] VSC 348, [35]-[37].
Section 75 of the Evidence Act 2008 (Vic) is also relevant. It provides:
In an interlocutory proceeding, the hearsay rule does not apply to evidence if the party who adduces it also adduces evidence of its source.
By virtue of s 9 (particularly s 9(2)(c)) of the Evidence Act, s 75 does not affect the operation of the Rules.[41]
[41]Cross on Evidence (internet edition) paragraph 35595; see Director of Public Prosecutions (ACT) v Le (1998) 86 FCR 33; 156 ALR 110 at 122.
For hearsay evidence to be admissible under s 75 in an interlocutory proceeding, the source (at least the primary source) must be identified by name.[42]
[42]Liesfield v SPI Electricity Pty Ltd [2014] VSC 348, [38]-[43].
If the material in the statutory declaration had simply been related in the affidavit of Bakal as what he had been told by Sabawi, it would be admissible in this application, it being established that it is interlocutory. It is clear that the source of the hearsay is disclosed. The material in the statutory declaration is therefore admissible regardless of the efficacy of that declaration under the Oaths and Affirmations Act 2018.[43] It is therefore not necessary to consider whether the declaration was not made in accordance with that Act, although I venture to say that some of the criticisms are well made.
[43]I note that the declaration does not satisfy some of the requirement of the Act, but it is unnecessary to consider the extent of the non-compliance.
Resulting Trust
As Warren CJ noted in Piroshenko[44]:
It is well established in law that where two people provide the purchase money for a property jointly, but the property is put into the name of one of them only, the property is, in the absence of a relationship giving rise to a presumption of advancement, presumed to be held on resulting trust in favour of the unregistered party in proportion to their contribution.[45]
[44](2010) 27 VR 489, [33].
[45]Calverley v Green (1984) 155 CLR 242, 246. (Calverly). See also, Gissing v Gissing [1971] AC 886.
The evidence at present is that Mavroudis believed the moneys were repayment of a debt. The only evidence, in the absence of cross-examination and further investigation of the competing allegations, is at best that contained in the Sabawi’s statutory declaration and, insofar as it purports to ascribe knowledge to Mavroudis of the purpose of the payment, is extremely limited and ambiguous:
(a) that in March 2018, Sabawi told Mavroudis that he was getting a friend to pay the deposit for the purchase of the Property;
(b) after payment of the $200,000, Sabawi asked Mr Mavroudis if the plaintiff received the money to which he acknowledged that it had; and
(c) he made it known to Mr Mavroudis at the time of payment that the money was sent to him from Bakal for the purposes of purchasing the Property.[46]
[46]Exhibit EB-4 to Bakal’s affidavit, Statutory Declaration [8(e), 8(g) and [8(h)].
This does not support a claim that the Caveator has a freehold interest in the Property arising under a resulting trust. There is no identification of the supposed beneficiary of the trust beyond ‘a friend’ and the ambiguous statement that the money was sent to the plaintiff by Bakal for the purpose of purchasing the Property. That might indicate that the beneficiary was to be Sabawi or Bakal. Having regard to the evidence given by the plaintiff, it supports a claim that the beneficiary was to be Sabawi, as does the statement relating to the use of 294 Pound Road Pty Ltd as the purchaser to be incorporated ‘between Mavroudis and Sabawi’ (see above [28]). Thus it might ground a claim by Sabawi for an interest in the Property on the footing that the contribution by the ‘friend’ was made on his behalf. But that is not the case put here. Moreover it is entirely subjective hearsay evidence, best characterised as weak. It is therefore necessary to look to the objective evidence that supports the Caveator’s claim.
There is only one objective fact to support the contentions of the Caveator. There is the payment of $200,000 itself and the record that Bakal produces that it related to ‘Pound Road’. This must be contrasted with the record of the payment received by the plaintiff which merely records ‘Inward Telegraphic Transfer 180490’.[47] In addition, there is no evidence of any contact by Bakal with Mavroudis or anyone else on his behalf, apart from Sabawi, in relation to the acquisition. The evidence of Sabawi is weak and, as I have said, ambiguous.
[47]Mavroudis affidavit, [10].
Further, I accept that there is no evidentiary link between the payment of $200,000 into the plaintiff’s bank and the payment of the deposit nearly three months later. It is clear that there was no relationship between Caveator and the plaintiff, and no communication between them until some months after the contract of sale was entered into by the plaintiff. It is also clear that there was no claim to an interest in the Property arising under a resulting trust until the caveat was lodged nearly two years after the money was paid.
It is neither appropriate, nor possible, to resolve the conflict between the direct evidence of the plaintiff; that as far as he was aware the moneys were the repayment of a loan by Sabawi, and the indirect and hearsay evidence of Sabawi that he told Mavroudis that the money came from Bakal as a contribution to the deposit to be paid for the purchase of the Property. The determining factor in this case is not the resolution of that conflict, but an assessment of the strength of the claim and thus the probability of resulting trust being established at trial; having regard to the weight that should be attributed to the hearsay evidence of Sabawi and the objective conduct of the Caveator. I give little weight to the evidence of Sabawi. It has plainly been prepared by the solicitor for the Caveator based on instructions given, more than likely, over the telephone. It is ambiguous, as I have said, and contrived. It does not include any reference to the complaint made by Sabawi that Mavroudis rejected the use of a stand-alone company to buy the Property (referred to above at [28]), when Mr Teege stated in correspondence that it would.
In these circumstances, has the Caveator established a prima facie case? That is, has the Caveator established that there is a probability on the evidence before the court that it will be found to have the asserted equitable interest arising under a resulting trust? Further, is that probability sufficient to justify the practical effect which the caveat has on the ability of the registered proprietor to deal with the property in question in accordance with their normal proprietary rights?[48]
[48]Piroshenko [18] and O’Neill 82.
In my view, on the evidence before me and to which I have referred, it is not established that there is a probability that the Caveator has an interest under a resulting trust. The ‘prima facie case’ test requires a higher standard that the ‘serious question to be tried’ test.[49] Even under the latter test, the evidence does not satisfy me that there is anything more than a faint shadow cast over the registered interest of the plaintiff in the Property.
[49]Piroshenko [21].
Further, the probability of success of the caveator is insufficient to justify the practical effect which the caveat has on the ability of the plaintiff to deal with the property in question in accordance with its normal proprietary rights.
Constructive trust
Adopting again, for convenience, the statement of the law made by Warren CJ in Piroshenko,[50] the principles for imposing an unconscionability constructive trust on the legal owner of property were set out in Muschinski by Deane J,[51] and later adopted by the majority of the High Court in Baumgartner v Baumgartner.[52] Deane J described the circumstances justifying such a remedial legal institution in Muschinskiv Dodds as follows:
[I]n a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that the other party should so enjoy it … equity will not permit the other party to assert or retain the benefit of the relevant property to the extent to which it would be unconscionable for him to do so.[53]
[50]Piroshenko, [26].
[51](1984) 160 CLR 583, 620.
[52](1987) 164 CLR 137.
[53](1984) 160 CLR 583, 620.
The evidence to support a ‘joint relationship or endeavour’ in this case, is the evidence to which I have referred concerning whether there was a probability that a resulting trust arose. The notion underlying a joint relationship or endeavour is the existence of some consensus between the parties.[54] There is none in this case, even accepting that the evidence of Sabawi was understood by the plaintiff to refer to Bakal as an investor in the acquisition of the Property. The Caveator frankly concedes that he had no contact with the plaintiff or Mavroudis either at the time of the payment, the time of the contract under which the plaintiff purchased the Property, or for a good while thereafter. There is no basis in the evidence to find that Sabawi had any authority to bind the plaintiff. In short, there is no consensus between the plaintiff and the Caveator which could give rise to a joint endeavour.
[54]See for example, Dean J in Muschinski (1984) 160 CLR 583, 618.
Then, there is the fact that the inferring of any joint endeavour depends entirely on the weak and ambiguous hearsay evidence of Sabawi; evidence which is unsupported by any objective evidence, such as direct and meaningful contact between Bakal and Mavroudis contemporaneously with the payment or the contract. If the hearsay evidence of Sabawi is construed as referring to a joint venture between Bakal and the plaintiff, it is truly amazing that there was no written contact by Bakal with the plaintiff until August 2019. Even then, the demand was for repayment of the $200,000 on the basis that ‘the development’ of the Property which Bakal intended to participate in had fallen through. There was no claim then for any interest in the Property.
The proposal by Sabawi that the purchaser be a company to be formed and named 294 Pound Road Pty Ltd (the address of the Property), a common practice in property development, was rejected by Mavroudis. He thus rejected a joint venture company as proposed by Sabawi in favour of the plaintiff being the purchaser for itself alone. That is evidence that might be thought to cut both ways, in that it might indicate some knowledge by Mavroudis that there was to be a joint endeavour between Mavroudis (or the plaintiff) and Sabawi and perhaps other persons. But in the end, its value is that such a joint venture was rejected by the plaintiff in favour of a purchase by the plaintiff by and for itself alone.
Restitution
It is obvious that this application is concerned with the removal of a caveat registered on title to the Property. There is no suggestion that the existence of a claim for restitution gives rise to any equitable interest in the Property. For this reason, I will not take this matter further as I consider that the application for removal of the caveat is not an appropriate vehicle for the resolution of that dispute. The Caveator should commence its own proceeding in the appropriate jurisdiction to substantiate its claim, particularly having regard to the necessity for Sabawi to be either a witness or a party.
Bargaining chip
It is well established that a caveat is not a ‘bargaining chip’[55]. The Caveator recognises the plaintiff cannot deal with the Property while the caveat is maintained. The Caveator maintained in correspondence that there is no reason in the plaintiff’s evidence to show any urgency in the determination of the application.[56] Indeed, that assertion was put in terms of the plaintiff itself seeking urgent interlocutory relief, which is of course not the case as the plaintiff’s solicitors pointed out in response.[57]
[55]Goldstraw [42]; Piroshenko, [23].
[56]Exhibit JMT-3 to Teege’s affidavit.
[57]Exhibit JMT-4 to Teege’s affidavit.
The Caveator offered to hold $300,000 in trust pending determination of the dispute between the parties. That sum was arrived at by adding to the $200,000 payment the sum of $50,000 for the Caveator’s anticipated profit, an amount of $36,541.36 for interest and a contingency for costs ‘should our client be successful’. This was a course suggested by the Caveator’s solicitors because it meant that the plaintiff could deal with the Property as it chooses whilst providing a pragmatic and efficient process by which to resolve the current application.[58]
[58]Exhibit JMT-3 to Teege’s affidavit.
There are many cases where the dispute as to whether a caveator has or has not an interest in land sufficient to maintain a caveat is resolved in this way, with the addition of a mechanism for the resolution of the dispute, sometimes involving the caveator commencing a proceeding. But the fact remains – whatever the urgency might be – that the plaintiff is entitled to deal with its property as it sees fit without being restrained by the injunctive effect of the caveat. That is unless the Caveator can establish a proper basis, as on an application for an interlocutory injunction, to restrain that use. That involves establishing to the requisite standard that there is a sufficient probability that at trial the Caveator will establish its interest to justify the practical effect which the caveat has on the ability of the plaintiff to deal with the property.
The proposal to hold funds in trust pending resolution of the Caveator’s disputed claim was made before any evidence was filed on behalf of the Caveator. The calculation of the amount to be withheld to cover ‘anticipated profit’ was not justified in any way by reference to an increase in the value of the Property; nor does it appear that the Caveator had any factual basis to estimate whether there is likely to be any and, if so what, profit derived from reselling the Property with a planning permit and development plans.
In my view, the caveat has been used as a bargaining chip or lever to obtain repayment of the $200,000. The supposed interest of the Caveator in the Property arose in mid-2018 when the contract was entered into. The contract was completed in mid-2019 and the plaintiff became registered as proprietor on 8 July 2019. The Caveat was not lodged until 10 February 2020. In the meantime the Caveator sought recovery of the moneys on restitutionary grounds.[59] No claim to an interest in the Property was raised until the caveat was lodged.
[59]Exhibit SM-11 to the Mavroudis affidavit of 6 March 2020.
Conclusion
For these reasons, I conclude that the Caveator has not established that there is a probability on the evidence before the court that it will be found to have the asserted equitable rights or interest in the Property. I am also satisfied that the caveat has and is being used as a bargaining chip to recover the $200,000 payment, which if due by the plaintiff to the Caveator, is likely to be due on unjust enrichment grounds and not by virtue of the claims raised before me to support the caveat.
These reasons will be handed down by being sent to the parties by email. I will order that the second defendant remove the caveat and that the Caveator pay the plaintiff’s costs of the application. I will, however, reserve liberty to apply in the event that there is any further application to be made in relation to the orders I have proposed.
SCHEDULE OF PARTIES
| S ECI 2020 01214 | |
| BETWEEN: | |
| SMAV NOMINEES PTY LTD ACN 100 012 459 | Plaintiff |
| - v - | |
| BAKAL ENTERPRISES PTY LTD ACN 135 361 796 | First Defendant |
| REGISTRAR OF TITLES | Second Defendant |
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