Takalu KF Pty Ltd v Property Management Corporation Pty Ltd & Ilgun; sub nom Fairfield City Council v Property Management Corporation Pty Ltd

[2024] NSWSC 822

Supreme Court

New South Wales

Medium Neutral Citation:

Takalu KF Pty Ltd v Property Management Corporation Pty Ltd & Ilgun; sub nom Fairfield City Council v Property Management Corporation Pty Ltd [2024] NSWSC 822

Hearing dates:

2 July 2024

Date of orders:

2 July 2024

Decision date:

02 July 2024

Jurisdiction:

Equity - Applications List

Before:

Hammerschlag CJ in Eq

Decision:

Judgment for the First Cross-Claimant against the Second Cross-Defendant for $260,700 plus interest. Cross-Claim against First Cross-Defendant and Third Cross-Defendant dismissed with no order as to costs.

Catchwords:

EQUITY – Fiduciary duties – Where Cross-Claimant company gives authority to Second Cross-Defendant to be a signatory on its bank account and he signs cheques in favour of himself, his wife and a company associated with him in circumstances where no money is owed and the Company derives no benefit from the payments – Cross-Claimant claims the amount of the payments from the Second Cross-Defendant and also the other recipients on the basis of knowing participation in his breach of trust – HELD: He had fiduciary duties to the company not to do this and is liable to compensate the company for its loss – Requisite knowledge on the part of the other recipients not established.

Legislation Cited:

Civil Procedure Act 2005 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Barnes v Addy (1874) LR 9 Ch App 244

Redman v Permanent Trustee Co of NSW (1916) 22 CLR 84

William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454

Category:

Principal judgment

Parties:

Takalu KF Pty Ltd (First Cross-Claimant)

Takalu Pty Ltd (Deregistered) (Second Cross-Claimant)

Property Management Corporation Pty Ltd (First Cross-Defendant)

Kadirham Ilgun (Second Cross-Defendant)

Fatmagul Ilgun (Third Cross-Defendant)

Frank Hageali (Fourth Cross-Defendant)

Representation:

Solicitors:

Solve Legal (Cross-Claimant)

File Number(s):

2020/00121490

Publication restriction:

Nil

Ex tempore JUDGMENT (Revised)

1. HIS HONOUR: This is the final hearing of a Cross-Claim brought by the Second Cross-Claimant (the Company) against the First Cross-Defendant company (PMC), the Second Cross-Defendant, Mr Kadirham (Kadir) Ilgun (Ilgun), and the Third Cross-Defendant, Ms Fatmagul Ilgun, (Ms Ilgun) (who is married to Ilgun).

2. PMC is associated with Ilgun and Ms Ilgun. Ilgun has described himself as PMC's principal, but at the times material to this dispute he was not a director of PMC. Ms Ilgun was appointed a director of PMC on 1 July 2016 and ceased to be a director on 27 August 2021. The present Cross-Claim also included a Fourth Cross-Defendant, Mr Frank Hageali (Hageali). I will refer to PMC, Ilgun, Ms Ilgun and Hageali, collectively, as 'the Cross-Defendants' and to Ilgun and Ms Ilgun collectively as ‘the Ilguns’.

3. The principal proceedings were by Fairfield City Council (the Council) against PMC. A little more is said about them later. Those proceedings were resolved. Also, the Cross-Claim against Hageali was settled on 27 September 2022 pursuant to written Heads of Agreement between the Company and Hageali. Hageali paid a settlement sum of $70,000.

4. A brief exposition of the factual matrix behind the Cross-Claim will suffice.

5. Ms Phuong Thao Do (Ms Do) ran a Vietnamese grocery business on Canley Vale Road, Canley Heights on a property owned by her.

6. In about 2013, she learnt that 45-47 Peel Street, Canley Vale (the Property), directly behind her grocery store, was for sale. The Property had development approval dated 2008 from the Council for construction of 25 strata units (the DA). In 2011, the Council granted an application for Deferred Commencement of the DA on conditions which included payment of an infrastructure contribution of $82,916.00 and other charges amounting to $2,090.50. By 25 July 2017, the amount payable to the Council had increased through indexation to $112,191.82. Takalu had apparently established a bank guarantee in favour of the Council securing payment of this amount upon which issue of a construction certificate was dependent. The Council issued a construction certificate on 5 April 2018.

7. Ms Do met Ilgun when applying to the National Australia Bank for a loan to buy the Property. Ilgun was, at that time, a Business Banker at the Marrickville Branch of the bank.

8. Takalu Pty Limited, which later went into liquidation and has now been deregistered, was incorporated by Ms Do to purchase, and did purchase, the Property for about $4.3 million, financed in part by a loan from the bank organised by Ilgun. Ms Do was Takalu’s sole director and secretary.

9. Ilgun later left the bank and operated his own loan mortgage brokerage firm through PMC. Ilgun introduced Ms Do to builders who were retained to do the construction.

10. Ilgun introduced Ms Do to Hageali as a person who might assist in raising construction finance. Hageali recommended a lender called Princeton (associated with a Mr George Gadallah). As a condition of their participation in the enterprise, Ilgun and Hageali imposed on Takalu and Ms Do a condition that Ilgun and Hageali be the only signatories on Takalu's bank account, avowedly (and perhaps ironically) to ensure that no one from Takalu had the ability to misuse funds in the account. In addition, Takalu was required to appoint Hageali as a project manager.

11. The proceedings brought by the Council arouse out of cancellation (apparently by Ilgun and possibly unilaterally) of the guarantee in favour of the Council referred to above.

12. Takalu established a bank account at the Rhodes Branch of the ANZ Bank. Ilgun and Hageali were the signatories on the account. Ms Do did not have access to it. The development was duly constructed. A significant number of the units were sold off plan.

13. After the Council had commenced proceedings against Takalu, Ms Do found out that:

1. on 2 May 2018, Ilgun and Hageali drew a cheque on Takalu's bank account in favour of Ilgun and Ms Ilgun for $245,000 (the first payment);

2. on 30 December 2018, Ilgun and Hageali drew a cheque on Takalu's bank account in favour of Ilgun for $80,000 (the second payment); and

3. on 15 May 2019, Ilgun and Hageali drew a cheque on Takalu's bank account in favour of PMC for $5,700 (the third payment).

14. The cheques were duly honoured by Takalu.

15. It may be that part of the first payment was used to establish the guarantee to the Council. However, there is no suggestion that on cancellation of the guarantee any money used in that way came back to Takalu. If it was used that way, there is a clear inference that on cancellation Ilgun took it.

16. Mr Dan Phuong (Andy) Lu (Lu) is Ms Do's son and was a director of Takalu and the Company.

17. By Statement of Cross-Claim filed on 5 February 2021, Takalu sued the Ilguns, Hageali and PMC. As mentioned earlier, the claim against Hageali settled.

18. Takalu alleges as against Ilgun, relevantly, that upon his appointment as signatory to Takalu's bank account, he owed it fiduciary duties to act in its best interests, not to place himself in a position of conflict between his personal interest and his duty owed to Takalu, and not to obtain any benefit by reason of his position as a signatory.

19. With respect to the first payment, Takalu alleges against the Ilguns that at no point did either have any lawful entitlement to the money, none of which was used in connection with any liabilities owed by Takalu. If this is the case (and I find that it is), so much must have been known by Ilgun.

20. The Company sues Ilgun for equitable compensation arising out of his breach of fiduciary duty and it pleads that the Ilguns are both liable as recipients of Takalu's money under the first limb of Barnes v Addy. ^[1] It also makes claims in restitution based on payment made under mistake of fact, but these have insuperable difficulties and were not pressed.

    1. (1874) LR 9 Ch App 244. The first limb of Barnes v Addy imposes liability on a recipient of trust property with sufficient knowledge of the breach of trust to account, as a constructive trustee, to the object of the trust.

21. With respect to the second payment, similar averments are made against Ilgun.

22. With respect to the third payment, Takalu makes similar allegations, but on the basis that there was no lawful justification for the payment to PMC. It claims directly against PMC also on the basis that it was a knowing recipient under the first limb of Barnes v Addy.

23. On 26 March 2021, Takalu went into liquidation. Messrs Rajiv Goyal and Joseph Hayes were appointed the liquidators. By Deed of Assignment (the Deed) entered into on 26 May 2021, Takalu, represented by the liquidators, assigned to the Company all the claims and causes of action of Takalu against PMC, the Ilguns and Hageali for a consideration of $15,000 plus five percent of any amount the Company recovers against any of the Cross-Defendants, less legal and other costs (defined in the Deed).

24. On 18 February 2024, Takalu was deregistered.

25. Under clause 3.1 of the Deed, the assignment is absolute so that the assignor no longer has any interest in the property assigned and the assignee is entitled to sue in its own name without joinder of the assignor. In any event, I would have, in this case, dispensed with any rule of practice that an assignor is a necessary party when the assignee sues on an assigned chose in action. ^[2] Also the Cross-Defendants have not appeared to take any such point.

    2. Redman v Permanent Trustee Co of NSW (1916) 22 CLR 84, 95; William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454.

26. By Amended Statement of Cross-Claim, the Company was joined as a Second Cross-Claimant and the assignment to it under the Deed was pleaded.

27. On 3 June 2022, PMC and the Ilguns filed a Defence to the Amended Statement of Cross-Claim (pursuant to a direction made by the Registrar on 31 March 2022).

28. Relevantly, they admit the first payment. They deny, however, that the Ilguns had no lawful entitlement and say that Ms Do and Lu authorised the withdrawal and instructed Ilgun and Hageali to pay it. They also admit the second payment and again plead that payment was authorised by Ms Do and Lu. They plead the same thing with regard to the third payment.

29. On 2 November 2022, Ms Ilgun filed a separate Defence to the Amended Statement of Cross-Claim pleading, relevantly, that she had no knowledge of Ilgun’s alleged breach of fiduciary duty.

30. On 16 November 2022, the Registrar in Equity made directions in chambers for the Cross-Claimants to file and serve evidence by 13 January 2023 and the Cross-Defendants to file and serve evidence by 17 February 2023. No evidence was filed. On 18 November 2022, the Registrar in Equity made consent orders discontinuing the claim against Hageali.

31. On 6 March 2023, the Registrar in Equity made directions in chambers for the Cross-Claimants to file and serve evidence by 29 March 2023 and the Cross-Defendants to file and serve evidence by 26 April 2023. No evidence was filed.

32. On 17 May 2023, when the matter was listed before the Registrar in Equity, there was an appearance for the Cross-Claimants but none for the Cross-Defendants. A direction was made for the Cross-Claimants to serve evidence by 7 June 2023 and the Cross-Defendants to serve evidence by 19 July 2023.

33. The matter was stood over to 16 August 2023, with the Cross-Claimants to notify the Cross-Defendants. The material before me indicates that they were duly informed.

34. But on 16 August 2023, there was no appearance by anyone and the matter was stood over to 20 September 2023. The Cross-Defendants were ordered to serve evidence by 18 October 2023. By this time, an affidavit by Lu dated 18 September 2023 had been filed.

35. The Cross-Defendants failed to serve any evidence. This led the Cross-Claimants to bring an application for summary judgment. They were given leave to make such an application returnable on 30 January 2024. On that occasion, the Cross-Claimants appeared but the Cross-Defendants did not. The Cross-Claimants were granted leave to serve further affidavits by 6 February 2024 and the Cross-Defendants to serve any by 27 February 2024. The Cross-Claimants were to notify the Cross-Defendants of the directions. An affidavit by Ms Do sworn 5 February 2024 was filed on 6 February 2024.

36. I interpolate that the affidavits relied on in the hearing are those of Lu and Ms Do referred to earlier.

37. The matter was stood over to 5 March 2024. On that occasion, once more, the Cross-Claimants appeared but not the Cross-Defendants. The Record of Proceedings for the day reflects that the Senior Deputy Registrar was informed that the Cross-Defendants were not active parties to the proceedings. This seems to be an accurate description. The Cross-Defendants were ordered to file any evidence in respect of the Cross-Claim by 18 March 2024. The proceedings were stood over to 9 April 2024. The Cross-Defendants did not file or serve any evidence.

38. On 9 April 2024, the matter came before the Registrar in Equity who ordered the Cross-Claimants to file any motion for summary judgment by 23 April 2024 and that it be made returnable on or after 30 April 2024. They filed a motion for summary judgment on 29 April 2024 which was listed before Kunc J in the applications list. The Cross-Claimants appeared but not the Cross-Defendants. Kunc J stood the matter over in the Applications List to 24 May 2024 for directions and, on 24 May 2024, stood the matter (I take this to be the application for summary judgment) over to 28 June 2024 in the Applications List for hearing. His Honour ordered that the Cross-Claimants were to notify the Cross-Defendants of the hearing date with an affidavit of compliance. Kunc J was on leave on 28 June 2024 and I conducted the Applications List. The Cross-Claimants appeared; the Cross-Defendants were called outside of Court but did not appear. I observe that, although the matter was originally fixed for a summary judgment application, the active Cross-Defendants had been ordered to file evidence on the Cross-Claim, which they did not do. I fixed the matter for final hearing today.

39. When the matter was called today, the only active party who appeared was the Company. I am satisfied that the Ilguns and PMC had notice of both the summary judgment application and this hearing. They were called outside Court but did not appear.

40. The Ilguns are, of course, in different positions.

41. As a signatory on Takalu’s bank account, Takalu was in a position of vulnerability vis-a-vis Ilgun, as is demonstrated by the simple fact that he was signatory to cheques in favour of himself, Ms Ilgun, and PMC, in circumstances where the only evidence is, and I accept, that the payment was not to the benefit of Takalu. He was, in effect, in a position of a trustee, and plainly owed Takalu fiduciary duties not to do what he did. It was in breach of his duty to act in Takalu’s best interest. He put himself in a position where his personal interest and his duty to Takalu were in conflict and he obtained a benefit (to Takalu’s disadvantage) for himself (in the last case, at least for himself in relation to the first payment and the second payment, and probably for the third). His only pleaded defence, apart from bare denials and non-admissions, is express authorisation, but he has not appeared to make that claim good.

42. I observe that the Ilguns pleaded a non-admission to the assignment. But I am satisfied that any choses of action against them were duly assigned.

43. Ms Ilgun pleaded only non-admissions and bare denials together with authorisation.

44. Ms Ilgun, in contrast to Ilgun, owed and owes no duty to Takalu. In order for Takalu to have a claim against her in her own right, it is necessary for it to be shown that she had knowledge of Ilgun’s breach of duty which would entail knowledge that the payments were not in discharge of any obligation of Takalu or otherwise for its benefit and with no authorisation from Takalu.

45. The evidence does not extend to establishing this knowledge either directly or by inference. The most that could be said is that she has not appeared to say otherwise. This does not establish knowledge on her part.

46. In relation to PMC, it is in the same position as Ms Ilgun. Ilgun was not a director at the relevant time and the evidence led by the Company does not establish knowledge that the payments were not in discharge of any obligation of Takalu or otherwise for its benefit and with no authorisation from Takalu.

47. I am satisfied that by Ilgun’s breach of fiduciary duty, Takalu suffered damages in the amount of the three payments less the amount of $70,000 received from Hageali.

48. It follows that the claim against Ilgun succeeds but the claims against PMC and Ms Ilgun must be dismissed.

49. The amount paid by Hageali is, in my view, to be deducted from the damage suffered by Takalu from the first payment as it was the earliest in time. Given that the Company is entitled to pre-judgment interest deducting the settlement payment from the first payment is the most advantageous to Ilgun.

50. I make the following orders:

1. Judgment for the Second Cross-Claimant against the Second Cross-Defendant in the amount of $260,700 together with interest at the prescribed rate in accordance with section 101 of the Civil Procedure Act2005 (NSW) read with UCPR Part 36.7 on:

1. $245,000 from 2 May 2018 to 27 September 2022 inclusive;

2. $175,000 from 28 September 2022;

3. $80,000 from 30 December 2018; and

4. $5,700 from 15 May 2019.

2. The Second Cross-Defendant is to pay the Second Cross-Claimant’s costs of the Cross-Claim against him.

3. The Cross-Claim against the First Cross-Defendant and the Third Cross-Defendant is dismissed with no order as to costs to the intent that each shall pay their own.

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Endnotes

Decision last updated: 27 September 2024