Tonna v Mendonca

[2019] NSWSC 1849

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Tonna v Mendonca [2019] NSWSC 1849

Hearing dates:

22-24 May 2019; 27-31 May 2019; 3-4 June 2019

Date of orders:

20 December 2019

Decision date:

20 December 2019

Jurisdiction:

Equity

Before:

Ward CJ in Eq

Decision:

In the Tonna Proceedings
1.   Declare that the first defendant holds the legal title to the property referred to in these proceedings as the Galston Property on a resulting trust for herself and the plaintiffs in the proportions that reflect their respective contributions to the purchase price for the Galston Property (the precise proportions to be as specified in orders to be entered following determination of the legal costs referable to the conveyancing aspects of the contract for sale to the first defendant of the Galston Property).
2.   Order the first defendant to execute and provide to the plaintiffs, within 28 days of the making of orders specifying the proportionate share of the plaintiffs’ beneficial interest in the Galston Property, in accordance with Order 1 above, a transfer in registrable form in respect of the Galston Property to record the plaintiffs’ interest in the Galston Property as declared by Order 1 above.
3.   Order the plaintiffs to account to the first defendant for their proportionate share of the mortgage repayments referable to the original amount advanced under the said loan facility (i.e., not the increased amount of the facility drawn down by the first defendant after the acquisition of the Galston Property) from February 2015 (taking into account that an amount was in fact paid by the plaintiffs in May 2015 towards the mortgage repayments) and for there to be a proportionate adjustment of amounts paid by the first defendant in relation to expenses associated with the Galston Property (Council rates, water rates and insurance premiums); such accounting and adjustment to be in accordance with orders to be made following the provision of any further submissions on that issue.
4.   Order that, on any subsequent sale of the Galston Property, the first defendant’s proportionate share of the net proceeds of sale be reduced by the amount required to discharge the increased amount of the ANZ loan facility drawn down by the first defendant after the acquisition of the Galston Property.
5.   Direct the parties to file short minutes of order to give effect to Order 1 above (as to the proportionate contributions by each of the first defendant on the one hand and the plaintiffs on the other hand to the purchase price, having regard to the conveyancing costs referred to in Order 1 above), and as to the necessary adjustments to be made in accordance with these reasons in relation to expenses paid by the first defendant in respect of the Galston Property, within 21 days (and, failing agreement as to the said proportionate contributions and relevant adjustments, to file and serve brief written submissions on that issue within that time period).
6.   Dismiss the plaintiffs’ claim against the second and third defendants.
7.   Reserve the question of costs and direct the parties to file brief written submissions on costs within 21 days, with a view to costs being dealt with on the papers.

 In the Mendonca Proceedings
1.   Dismiss the plaintiffs’ claim with costs.

Catchwords:

CONTRACTS — Parties — Privity — Agency – whether husband acted as agent for his wife – whether the wife consented to, and authorised, her husband to act on her behalf in relation to the alleged agreement – held that an agency relationship was established – the wife had left it to her husband to make arrangements for her in relation to the transaction – the wife was aware of what was being proposed and did not disabuse anyone of the notion that her husband was able to represent her in the relevant transaction.

 

CONTRACTS — Formation — Agreement — Uncertainty and incompleteness – whether agreement had been reached pursuant to which a party was to hold a property for the benefit of another party on an express or constructive trust – held that agreement reached in principle but that the terms of the arrangement were not the subject of a clear agreement between the parties – held that alternative claim for unjust enrichment failed as there was no binding agreement.

 

EQUITY — Trusts and trustees — Resulting trusts – consideration of the intention of the parties at the time that one of the parties was registered as legal owner on the title to the property – in circumstances where the other party had contributed to the acquisition of the purchase price with deposit moneys – whether the contribution was intended to be a gift – held that it was not the intention of the parties that the registered party would have an immediate unconditional interest in the property without taking into account the expectations of the other party and their contribution to the purchase price.

  CONTRACTS — Formation — Agreement — Uncertainty and incompleteness – whether there was a binding residential tenancy agreement in existence – where unclear whether the document was complete when signed or which version of the cover page (there being two in evidence) formed part of the document when signed – held no binding residential tenancy agreement.

Legislation Cited:

Civil Liability Act 2002 (NSW)
Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law, ss 3, 18, 60, 61, 236, 237, 267
Conveyancing Act 1919 (NSW), s 23C
Corporations Act 2001 (Cth)

Cases Cited:

Adler v Australia Securities and Investments Commission; Williams v Australian Securities and Investments Commission [2003] NSWCA 131
Ainsworth v Hanrahan (1991) 25 NSWLR 155
Allen v Snyder [1977] 2 NSWLR 685
Amit Laundry Pty Ltd v Jain [2017] NSWSC 1495
Anderson v McPherson (No 2) [2012] WASC 19
Australian Securities and Investments Commission (ASIC) v Adler [2002] NSWSC 171; (2002) 168 FLR 253
Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17
Azzopardi v The Queen (2001) 205 CLR 50; [2001] HCA 25
Bannister v Bannister [1948] 2 All ER 133
Bennet v Bennet (1879) 10 Ch D 474
Birtchnell v The Equity Trustees, Executors and Agency Company Limited (1929) 42 CLR 384; [1929] HCA 24
Black Uhlans Incorporated v New South Wales Crime Commission [2002] NSWSC 1060
Bloch v Bloch (1981) 180 CLR 390; [1981] HCA 56
BM Sydney Building Materials Pty Ltd v AWT Building Group (Aust) Pty Ltd; BM Sydney Building Materials Pty Ltd v AWT Building Pty Ltd; Harpro Group Pty Ltd v BM Sydney Building Materials Pty Ltd [2019] NSWSC 421
Boardman v Phipps [1967] 2 AC 46; [1966] 3 All ER 721
Bonette v Woolworths Ltd (1937) 37 SR (NSW) 142
Bourns Inc v Raychem Corp [1999] 3 All ER 154
Boyle v Wiseman (1855) 10 Ex 647; (1855) 156 ER 98
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61
Buffrey v Buffrey [2006] NSWSC 1349
Busby v Walker (1956) 84 So 2d 304
Calverley v Green (1984) 155 CLR 242; [1984] HCA 81
Caxton Street Agencies Pty Ltd v Korkidas [2002] QSC 210
Central Newbury Car Auctions Ltd v Unity Finance Ltd [1957] 1 QB 371
Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36
Chong v CC Containers Pty Ltd (2015) 49 VR 402; [2015] VSCA 137
Ciavarella v Polimeni [2008] NSWSC 234
Comptroller-General of Customs v Stephen Edward Parker [2006] NSWSC 390; (2006) 200 FLR 44
Cook v Fountain (1818) 36 ER 984
Cowcher v Cowcher [1972] 1 All ER 943; [1972] 1 WLR 425
Currie v Hamilton [1984] 1 NSWLR 687
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48
Dilosa v Latec Finance Pty Ltd (1966) 84 WN (Pt 1) (NSW) 557
Drever v Drever [1936] ALR 446
Dyer v Dyer (1788) 2 Cox Eq Cas 92; (1788) 30 ER 42
Eade v Vogiazopoulos (No 2) [1999] 3 VR 889
Elddin v Hamed (No 2) [2015] NSWSC
Equiticorp Finance (In Liq) v Bank of New Zealand (1993) 32 NSWLR 50
Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10; [1995] HCA 19
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22
Fowkes v Pascoe (1875) LR 10 Ch App 343
Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480; [1964] 2 WLR 618
Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48
Gemstone Corporation of Australia Ltd v Grasso (1994) 62 SASR 239; (1994) 13 ACSR 695
Grefeld v Grefeld [2012] FamCAFC 71; (2012) FLC 93–508
Hamed v Elddin [2016] NSWCA 9
Hanneybel v Uniflex (Australia) Pty Ltd [2002] WASCA 349
Harman v Secretary of State for the Home Department [1983] 1 AC 280
Hearne v Street (2008) 235 CLR 125; [2008] HCA 36
HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 41 ACSR 72
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64
Hyhonie Holdings Pty Ltd v Leroy [2004] NSWCA 72
Jain v Amit Laundry Pty Ltd [2019] NSWCA 20
Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
Kauter v Hilton (1953) 90 CLR 86; [1953] HCA 95
Keech v Sandford (1726) Sel Cas Ch 61; (1726) 25 ER 223
Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11
Leybourne v Permanent Custodians Ltd [2010] NSWCA 78
Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3; (2005) 218 ALR 283
Martech Energy Systems Pty Ltd (in liq) v Bell [2005] VSC 198
Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72
Mehmet v Benson (1965) 113 CLR 295; [1965] HCA 18
Moage Ltd v Jagelman [2002] NSWSC 953
Murtagh v Murtagh [2013] NSWSC 926
Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78
Nelson v Nelson (1995) 184 CLR 538; [1995] HCA 25
Ong v Lottwo Pty Ltd (in liq) (2013) 116 SASR 280; [2013] SASCFC 57
Petersen v Moloney (1951) 84 CLR 91; [1951] HCA 57
Picwoods Pty Ltd v Panagopoulos [2004] NSWSC 978
Pola v Commonwealth Bank of Australia (Federal Court, Sundberg J, 19 December 1997, unrep)
Pole v Leask (1863) 8 LT 645
Re Kerrigan; Ex parte Jones (1946) 47 SR (NSW) 76
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; [1942] 1 All ER 378
RHG Mortgage Ltd v Rosario lanni [2015] NSWCA 56
Riddick v Thames Board Mills Ltd [1977] QB 881
Romeo v Papalia [2012] NSWCA 221
RPS v The Queen (2000) 199 CLR 620; [2000] HCA 3
Ryan v Dries [2002] NSWCA 3
Ryan v Ryan [2012] NSWSC 636
Sapphire (SA) Pty Ltd (trading as River City Grain) v Barry Smith Grains Pty Ltd (in liq) [2011] NSWSC 1451
Shepherd v Doolan [2005] NSWSC 42
Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217; 110 ALR 685
Taylor v Smith (1926) 38 CLR 48; [1926] HCA 16
Trajkovski v Simpson [2019] NSWCA 52
United Equipment Pty Ltd v Australian Portable Buildings Pty Ltd (No 2) [2017] WADC 73
Vanguard Financial Planners Pty Ltd v Ale [2018] NSWSC 314
Varma v Varma [2010] NSWSC 786
Vu v New South Wales Crime Commission [2013] NSWCA 282
Vukmirica v Betyounan [2008] NSWCA 16
Wallington v Kokotovich Constructions Pty Ltd (1993) 11 ACSR 759
Watson v Foxman (1995) 49 NSWLR 315
Weige v Cupton Pty Ltd [2012] NSWCA 414
White v Shortall (2006) 68 NSWLR 650; [2006] NSWSC 1379
Williams Group Australia Pty Ltd v Crocker [2015] NSWSC 1907
Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265

Texts Cited:

G E Dal Pont (ed), Law of Agency (3rd ed, 2014, LexisNexis Butterworths)
JD Heydon in Cross on evidence (11th ed, 2017, LexisNexis Australia)
P Watts and FMB Reynolds, Bowstead and Reynolds on Agency (21st ed, 2017, Sweet & Maxwell)

Category:

Principal judgment

Parties:

2016/00182075
Mark Julian Tonna (First Plaintiff)
Lorraine Mary Tonna (Second Plaintiff)
Renuka Maria Mendonca (First Defendant)
Gerard Mendonca (Second Defendant)
Business Services (NSW) Pty Ltd (Third Defendant)

  2017/00292576
Renuka Maria Mendonca (Plaintiff)
Mark Julian Tonna (First Defendant)
Lorraine Mary Tonna (Second Defendant)

Representation:

Counsel:
2016/00182075
P Newton with J Gatland (Plaintiffs)
SE Gray (First Defendant)
AC Harding (Second and Third Defendants)

 

2017/00292576
SE Gray (Plaintiff)
P Newton with J Gatland (Defendant)

  Solicitors:
2016/00182075
Adam & Partners (Plaintiffs)
TressCox Lawyers (First Defendant)
Wotton & Kearney (Second and Third Defendants)

File Number(s):

2016/00182075; 2017/00292576

Publication restriction:

Nil

INDEX

JUDGMENT – WARD JA			[1]
The respective proceedings			[2]
Tonna Proceedings		[3]
Mendonca Proceedings		[10]
Parties			[15]
Chronology of relevant events			[18]
Deed of Call Option regarding the Schofields Property		[20]
Galston Property		[21]
Exchange of contracts for the Galston Property – 9 December 2013		[27]
Attempts to secure finance after exchange of contracts for the Galston Property		[32]
Initial date for completion – 23 December 2013		[39]
Request for extension of time to complete		[44]
Notice to complete specifying completion date as 24 January 2014		[45]
Bank of Queensland applications		[47]
Wednesday, 22 January 2014		[55]
Thursday, 23 January 2014		[57]
Friday, 24 January 2014		[70]
Alleged meeting between Mr and Mrs Tonna and Dr and Mr Mendonca with Mr Gough on 24 January 2014		[81]
Position as at 24 January 2014		[86]
Saturday, 25 January 2014		[90]
Sunday, 26 January 2014		[92]
Monday, 27 January 2014		[99]
Tuesday, 28 January 2014		[103]
Wednesday, 29 January 2014		[116]
• Email communications		[116]
• The meeting with Mr Gough		[125]
Mr Gough’s evidence		[134]
Thursday, 30 January 2014		[153]
Friday, 31 January 2014		[175]
Saturday, 1 February 2014 – Thursday, 6 February 2014		[184]
17 February 2014 – residential tenancy agreement		[188]
Subsequent conduct		[194]
Draft Put and Call Deed in relation to the Galston Property		[198]
Commencement of proceedings in District Court by Prime Capital		[210]
March-September 2014 – the proposed call option		[211]
Improvements to the Galston Property		[216]
Exercise of call option over Schofields Property – December 2014		[217]
Increase in loan facility		[224]
January 2015		[225]
Further evidence secured on Galston Property – March/April 2015		[230]
Completion of sale of the Schofields Property		[231]
Events in the late 2015/2016		[236]
Summary of the issues in both proceedings			[242]
Evidence of the lay witnesses		[246]
Evidence of the expert witnesses		[252]
Jones v Dunkel inference		[257]
Determination re Jones v Dunkel inference	[267]
Credibility of the witnesses		[280]
Mark Tonna	[281]
Lorraine Tonna	[295]
Sandra Ward	[296]
Mary Mackman	[297]
Phillip Mackman	[304]
Stewart Gough	[306]
Dr Mendonca	[313]
Harman Undertaking issue		[318]
The Tonna Proceedings			[325]
Summary of Issues in the Tonna Proceedings		[344]
Determinations in the Tonna Proceedings		[353]
(i) Was there an agency relationship between Mr Mendonca (and/or his company) and, Dr Mendonca in relation to the conveyance of the Galston Property from Mr and Mrs Tonna to Dr Mendonca?	[353]
Mr and Mrs Tonna’s submissions	[353]
Dr Mendonca’s submissions	[366]
Determination	[375]
(ii)(a) Was there a binding trust agreement giving rise to an express (or constructive) trust?	[411]
Mr and Mrs Tonna’s submissions	[411]
Dr Mendonca’s submissions	[417]
Mr Mendonca’s submissions	[433]
Determination as to whether there was a binding and enforceable agreement	[435]
Mr and Mrs Tonna’s submissions	[443]
Dr Mendonca’s submissions	[450]
Determination whether the agreement, if binding, could be specifically performed	[452]
(iii) Is the Galston Property held by Dr Mendonca on a resulting trust for Mr and Mrs Tonna?	[453]
Mr and Mrs Tonna’s submissions	[453]
Dr Mendonca’s submissions	[459]
Determination of resulting trust claim	[462]
(iv) If the Galston Property is held by Dr Mendonca on trust for Mr and Mrs Tonna, did Dr Mendonca breach the fiduciary duty owed by a trustee to avoid a conflict of interest and not profit from her position?	[480]
Mr and Mrs Tonna’s submissions	[480]
Dr Mendonca’s submissions	[482]
Determination regarding breach of fiduciary duty by Dr Mendonca	[483]
(v) Consequence of conclusions on above issues in terms of relief to be granted against Dr Mendonca	[487]
Mr and Mrs Tonna’s submissions	[487]
Dr Mendonca’s submissions	[488]
Determination	[489]
(vi) Alternative unjust enrichment claim	[490]
Dr Mendonca’s submissions	[490]
• Repayments in respect of the mortgage – see [79(i)(C)] of the further amended statement of claim	[493]
• Letting costs – see [79](i)(D)] of the further amended statement of claim	[495]
Cost of the repairs and improvements made by Mr and Mrs Tonna to the Galston Property – see [79(i)(F) of the further amended statement of claim	[496]
• Increased value of the Galston Property from the repairs and improvements made to it by Mr and Mrs Tonna – see [79(ii)] of the further amended statement of claim	[504]
Increased value of the Galston Property – see [79(iii)] of the further amended statement of claim	[505]
Determination as to alternative unjust enrichment claim	[506]
(vii) Claim against Mr Mendonca and/or his company – alleged breach of duty as agent for Mr and Mrs Tonna in relation to the conveyance of the Galston Property from Mr and Mrs Tonna to Dr Mendonca, and the breach of the fiduciary duty owed by an agent to avoid a conflict of interest?	[508]
Mr and Mrs Tonna’s submissions	[508]
Mr Mendonca/Business Services submissions	[514]
Determination in relation to the alleged breaches by Mr Mendonca	[541]
The Mendonca Proceedings			[549]
Issues in the Mendonca Proceedings			[549]
Issue 1: Did Mr Tonna enter into the Tenancy Agreement, orally or in writing, with Dr Mendonca and does this entry onto and occupation of the Galston Property arise on the basis that he was a beneficial owner?			[552]
Issue 8: Should there be a setoff payable by Dr Mendonca to Mr Tonna for the increase in the value of the Galston Property by the improvements undertaken by Mr Tonna			[555]
Issue 9: Quantum			[556]
Determination in the Mendonca Proceedings			[559]
Conclusion			[564]
Costs			[571]
Orders			[574]

Judgment

1. HER HONOUR: These two matters, which were heard together with evidence in the one being evidence in the other, involve disputes relating to certain land in Galston, New South Wales (the Galston Property): the first set of proceedings (2016/00182075), commenced by Mr Mark Tonna and his wife, Mrs Lorraine Tonna, in 2016 against Dr Renuka Mendonca, her husband, Mr Gerard Mendonca, and a company controlled by Mr Mendonca (Business Services (NSW) Pty Ltd, to which I will refer as Business Services) through which Mr Mendonca operated an accounting business (the Tonna Proceedings); the second set of proceedings (2017/00292576), commenced by Dr Mendonca in 2017 against Mr and Mrs Tonna (the Mendonca Proceedings).

The respective proceedings

2. Broadly speaking, the disputes in the related proceedings can be described as follows. (I address the pleaded cases in more detail later in these reasons.)

Tonna Proceedings

3. In the Tonna Proceedings, Mr and Mrs Tonna allege that an agreement was reached between Mr Tonna and Mr Mendonca (as agent for Dr Mendonca and also in his capacity as agent and accounting adviser to Mr and Mrs Tonna) (the Agreement) that, among other things, Dr Mendonca would purchase the Galston Property (from Mr and Mrs Tonna, simultaneously with the completion by them of an earlier contract to purchase the property from a third party) and would hold the legal title on trust (the Trust) for their sole benefit until the sale of a property owned by Mr and Mrs Tonna at Schofields (the Schofields Property), with an obligation on the part of Dr Mendonca not further to encumber the Galston Property for Dr Mendonca’s own benefit or for the benefit of any person other than Mr and Mrs Tonna and, on direction by Mr and Mrs Tonna, to transfer the Galston Property to them (see further amended statement of claim filed 23 May 2019 at [38]).

3. The substance of the complaints made in the Tonna Proceedings against Dr Mendonca is that she breached the Agreement, and her duties as trustee under the Trust, by, among other things, denying the existence of the Agreement and Trust and refusing to transfer the Galston Property to Mr and Mrs Tonna after the sale of the Schofields Property had been completed.

4. There is also a claim against Dr Mendonca for unjust enrichment (by reference to Dr Mendonca’s alleged breach of the Agreement (see [75] of the further amended statement of claim)) in that she has received the legal ownership of the Galston Property without paying various outgoings, as there particularised.

5. Dr Mendonca denies any obligation to transfer the Galston Property back to Mr and Mrs Tonna. Her position is that: there was no concluded and legally binding agreement for her to hold the Galston Property on trust for Mr and Mrs Tonna; to the extent that the Agreement and Trust relies on the conduct of Mr Mendonca, she was not privy to that conduct and Mr Mendonca was not authorised to make representations on her behalf; the contemporaneous documentary evidence in relation to the existence of that Agreement and the Trust is, at its highest, equivocal; and the conduct of the parties, both at the time of the alleged Agreement and afterwards, is inconsistent with the existence of a concluded and legally binding trust agreement. Dr Mendonca says that she bought the Galston Property from Mr and Mrs Tonna (as evidenced by the contract for sale and the payment of money from her to Mr and Mrs Tonna); and that by so doing she assisted them to avoid a substantial financial loss (as they were not in a position to complete the earlier sale contract).

6. As to the alternative unjust enrichment claim, Dr Mendonca’s position is that she has never resiled from her obligation to repay Mr and Mrs Tonna the “shortfall loaned to her to purchase the [Galston] Property” from Mr and Mrs Tonna. It is said that Dr Mendonca has previously offered to repay those funds and remains willing to do so; and that she has been “trying to work this issue out for some time”.

7. As against Mr Mendonca, and his company, Business Services, with some variation the claims broadly are of a failure to provide the Services (as defined in the pleading) at an acceptable level of care, skill and diligence (and it is alleged that there has been a breach of fiduciary or statutory duties in Mr Mendonca preferring the interests of Dr Mendonca over those of Mr and Mrs Tonna, to whom it is alleged a duty of care was owed). There are allegations of the making of representation(s) and misleading and deceptive conduct by Mr Mendonca but (as will be explained later) no relief appears to be sought in relation to those allegations. Rather, the relief sought against Mr Mendonca and Business Services is a claim for damages for breach of a common law duty of care (see prayer 6 of the further amended statement of claim).

8. Mr Mendonca and Business Services deny the allegations made against them. They maintain that there are fundamental problems with the claim in relation to issues of breach and causation (and say that, even if breach is established, Mr and Mrs Tonna were contributorily negligent and have failed to mitigate their loss).

Mendonca Proceedings

10. The Mendonca Proceedings relate to a residential tenancy agreement that Dr Mendonca alleges she entered into with Mr Tonna on 31 January 2014, commencing on 17 February 2014 (the Tenancy Agreement) (see [3] of the points of claim filed 27 August 2018), and, later, a licence (the Licence) in respect of the Galston Property. Dr Mendonca seeks “rental” arrears, vacant possession of the Galston Property, and damages with respect to alterations that Mr Tonna made to the Galston Property (contrary to the terms of the Tenancy Agreement and without Dr Mendonca’s consent). Dr Mendonca also asserts that a party other than Mr and Mrs Tonna has occupied part of the Galston Property since September 2014. (A claim for work orders in relation to the property alterations is no longer pressed.)

11. The quantum of the damages claim in relation to the alterations in question (albeit not any liability therefor) was agreed between the parties during the course of the hearing as being: $64,771.93 in respect of the alterations referred to at [23(a)] and [23(b)] of the points of claim (installation of a large shed and concrete slab and demolition of an existing shed); and $7,529.66 (for demolition of a section of the boundary wall).

12. Mr Tonna’s defence to this claim is two-fold: he maintains that he and Mrs Tonna are the true owners of the Galston Property (for the reasons propounded in the Tonna Proceedings); and he denies that he is bound by the Tenancy Agreement by reason of not having entered into it. His evidence – though this is contradicted by the expert forensic evidence – is that the signature that appears on the Tenancy Agreement is not his; but in any event there is an issue as to the authenticity of the Tenancy Agreement in that it appears that there are two different versions of the first page of the document and the evidence of the forensic expert called by Dr Mendonca is that the first page of the document that was initially propounded as the Tenancy Agreement is not likely to have been the version initially stapled to the document.

13. Dr Mendonca accepts that if Mr and Mrs Tonna can establish their primary claim in the Tonna Proceedings, then the “practical reality” is that there will not be a need to address the Mendonca Proceedings (as they will be the true owners of the Galston Property). To the extent that in that event there needs to be some adjustment for moneys not paid by Mr Tonna to Dr Mendonca in accordance with the alleged Agreement, it is noted that in his affidavit sworn 6 May 2019 (Mr Tonna’s 6 May 2019 affidavit) Mr Tonna deposes to being ready willing and able to pay whatever amount he owes Dr Mendonca (he says that the payments owing are not rental payments, but some sort of mortgage payments he had to pay to Dr Mendonca under the arrangement propounded in the Tonna Proceedings).

14. If, on the other hand, Mr and Mrs Tonna are unsuccessful in the Tonna Proceedings, then Dr Mendonca says that the only remaining defence to the claim by her in the Mendonca Proceedings is the denial by Mr Tonna that he is bound by the Tenancy Agreement (and she maintains that the expert evidence establishes that it was signed by Mr Tonna). In that regard, it is said by Dr Mendonca that even if Mr Tonna is not bound by the Tenancy Agreement, there is no doubt that: Mr Tonna has occupied part of the Galston Property since February 2014; he has caused a third party (Mr Nielson) to occupy another part of the Galston Property (predominantly, the home on the Galston Property) since September 2014 and has collected money from Mr Nielson in return; he has not paid any money to Dr Mendonca since a payment made in May 2015, and had missed payments for March and April 2015; he has made alterations to the Galston Property without approval (in particular, he erected a large shed on the Galston Property which was used by Mr and Mrs Tonna to store various belongings); and that, in the absence of an agreement, he has no right to occupy the Galston Property.

Parties

15. Mr Mendonca is an accountant and registered tax agent. He is the director and sole shareholder of Business Services, which carries on the business of the provision of tax agent services (and he accepts that he is the controller of that company). For some time, Mr Mendonca (and then his company) had provided accounting and/or tax agent services to Mr and Mrs Tonna. (For no doubt obvious reasons, they are no longer his clients.)

16. Dr Mendonca is a registered medical practitioner. She and Mr Mendonca have two children. Dr and Mr Mendonca were separately represented in the proceedings and, to my observation, did not acknowledge each other in the courtroom. They certainly did not sit together at times when both were present in the courtroom. It appears from their respective affidavits, however, that they continue to reside together in the matrimonial home.

17. Mr Tonna was formerly a licensed builder and has worked as a contractor in the building and trucking industry. Mrs Tonna has worked at times in the aged care field.

Chronology of relevant events

18. It is convenient first to set out the chronology of events (and unavoidably that must be in some detail given the factual disputes between the parties). At the outset, I note that I place greater weight on the contemporaneous documents than on the respective parties’ varying recollections of what was said on the relevant occasions. Not only is the contemporaneous documentary evidence generally a more reliable guide, particularly as to the timing of the various events (not least because of the recognised frailty of human memory (see the extract from Watson v Foxman (1995) 49 NSWLR 315 (Watson v Foxman) set out below) but also because of the obvious self-interest on the part of the principal players in this dispute), but there is also the difficulty that there was no evidence from one of the parties who on any view of things was heavily involved in the relevant events (Mr Mendonca), which necessarily means that there is an incomplete picture of events. (I consider in due course the submissions as to whether an adverse Jones v Dunkel inference (see Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8) should be drawn against Dr Mendonca from Mr Mendonca’s absence from the witness box.)

19. In Watson v Foxman (at 319), McLelland CJ in Eq (as his Honour then was), in an off-quoted passage, said:

... human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

Deed of Call Option regarding the Schofields Property

20. As at 2013, Mr and Mrs Tonna owned (and lived in as their residential home) the Schofields Property. By Deed of Call Option dated 4 March 2013 (Exhibit AK), Mr and Mrs Tonna granted to a property developer, Universal Property Group Pty Ltd (Universal), an option to purchase the Schofields Property for $5,000,000. Mr and Mrs Tonna received $25,000 at this time, with the balance of the option fee (a further $50,000) due in 12 months’ time. The Deed of Call Option provided that the option was required to be exercised within 21 months of the date of the deed (the Sunset Date), i.e., by December 2015. (The option was in fact exercised on 3 December 2014.)

Galston Property

21. In or about September 2013, Mr and Mrs Tonna inspected the Galston Property. On or about 4 October 2013, they made an offer to purchase the Galston Property for $1,450,000. The property was at that time owned by a company associated with a group of Buddhist monks. (It is not clear whether the Galston Property was actually occupied by the monks at that time or whether it was vacant and they were only in occupation of the neighbouring property to the Galston Property, as they apparently continued to be after the sale of the Galston Property, but little turns on this – its only apparent relevance arising in the context of cross-examination of the real estate agent who acted for the vendor on the sale, Ms Sandra Ward, as to certain photographs put forward by her as representing the state of the Galston Property after renovations by Mr and Mrs Tonna. Ms Ward in cross-examination accepted that those photographs, or at least some of them, were photographs used for marketing purposes when the Galston Property was originally for sale and hence were taken before any renovations were carried out by Mr and Mrs Tonna.)

22. The offer by Mr and Mrs Tonna was accepted by the vendor (Maha Budhi Company Pty Ltd) (Maha Budhi Co) in or about November 2013. There was a relatively short period of time allowed under the contract for completion of the contract (the completion date in the contract being specified as 23 December 2013 – see below).

23. Mr and Mrs Tonna retained a firm of solicitors in Parramatta (Matthews Folbigg) to act for them on the conveyance. Their evidence (corroborated by the solicitor who gave evidence from that firm) is that they were introduced to that firm of solicitors by Mr Mendonca. Mr Mendonca was aware of the firm from his dealings with the firm in the past in his position as an accountant with another firm. He had over the years referred a number of clients to the principal from Matthews Folbigg who acted on the conveyance of the Galston Property (Mr Stewart Gough). Mr Gough had assistance from time to time from a more junior lawyer at the firm, Mr Eric Leo, and a more senior lawyer, Mr Terry Doust. Mr and Mrs Tonna entered into a fee agreement with Matthews Folbigg (Exhibit E), and there is no dispute that they paid all the firm’s legal fees in respect of the conveyance (and of the simultaneous conveyance to Dr Mendonca which is the subject of these proceedings).

24. It appears that, at the time of the retainer agreement with Matthews Folbigg, Mr Tonna raised with Mr Leo a number of matters in relation to the proposed purchase, including the costs involved in fencing the pool at the Galston Property (Exhibit 3). This has some relevance in comparing the special conditions in the respective sale contracts – see below.

25. Mr and Mrs Tonna accept that they required finance to complete the purchase of the Galston Property and it does not appear to be disputed (nor could it be having regard to the contemporaneous documents to which I refer below) that Mr Mendonca assisted Mr and Mrs Tonna in relation to the purchase, including, in particular, dealing with various brokers or lenders in connection with applications for finance for the proposed sale and with the vendor’s agent (and with other solicitors in relation to the Hornsby Shire Council’s (the Council) requirements regarding improving the land). Indeed, by late January 2014 (as the correspondence reveals), Mr Mendonca appears to have taken a somewhat personal interest in achieving completion of the sale transaction (in the sense that some of his communications are couched in quite emotive terms; not what one might expect of a dispassionate professional adviser).

26. On or about 4 December 2013, Mr and Mrs Tonna received conditional approval for a loan from National Australia Bank Limited (NAB) of $1,160,000. The balance of the purchase price was to be funded from Mr and Mrs Tonna’s savings, supplemented by money to be provided by members of their family or entities associated with them (see further below).

Exchange of contracts for the Galston Property – 9 December 2013

27. On 4 December 2013, instructions were given to Mr Leo by Mr Mendonca to exchange contracts for the sale of the Galston Property to Mr and Mrs Tonna with a sale price of $1,450,000 and with a completion date of 23 December 2013. That occurred in the following circumstances.

28. On 4 December 2013, Mr Tonna received written advice from Mr Leo that:

Mark, in any event, before signing the contract you should be satisfied that the finance will be available at the time of completing the purchase. [emphasis per the original]

29. Mr Leo gave the same advice to Mr Tonna at a meeting on the same day; and Mr Tonna expressly confirmed to his solicitor that he understood this advice. Matthews Folbigg’s subsequent tax invoice dated 12 February 2014 records an entry for 4 December 2013: “[p]hone attendance with Mark re exchange, penalty interest, potential forfeiture of deposit and risk of being sued” and a conference with Mr Tonna and Mr Mendonca on that date “re exchange; risks and completion date”.

30. On 5 December 2013, Mr and Mrs Tonna gave instructions to Matthews Folbigg to allow the deposit to be paid to the real estate agents acting for the vendors under the contract for sale. The contract for sale was then signed by Mr and Mrs Tonna (the first contract of sale). On 5 December 2013, Matthews Folbigg paid to Ms Ward (in her capacity as the real estate agent acting for the vendor), from trust funds deposited by Mr and Mrs Tonna, the deposit in the sum of $145,000. Mr Gough’s tax invoice records an entry for 5 December 2013 in the following terms:

Conference with Lorraine [Mrs Tonna] re signing of contract, potential risks associated with completion date such as penalty interest and forfeiture of deposit, collating documents in anticipation of exchange[.]

31. On 9 December 2013, contracts for the sale of the Galston Property were exchanged (with the sale price of $1.45 million and specified completion date of 23 December 2013).

Attempts to secure finance after exchange of contracts for the Galston Property

32. Following the exchange of contracts, Mr Mendonca, on behalf of Mr and Mrs Tonna, had dealings with a finance broker with a view to obtaining an unconditional loan approval from NAB. Those dealings were unsuccessful.

33. On or about 11 December 2013, Mr Mendonca advised Mr Tonna that NAB had refused to provide finance. Mr Tonna’s evidence is that he was distressed by this news; that he did not want to lose the deposit or the Galston Property; and that Mr Mendonca recommended that they approach other lenders immediately.

34. Mr Mendonca subsequently assisted Mr and Mrs Tonna in applying for loans from various other lenders including the Bank of Queensland (with whom Mr Tonna was an existing customer) and “second tier” lenders known as Redilend and Prime Capital Nominees Pty Ltd (Prime Capital). Mr Mendonca charged Mr and Mrs Tonna fees for his professional services in assisting Mr and Mrs Tonna in this regard.

35. I interpose to note that Dr Mendonca points to the fact that, in the course of seeking finance, Mr and Mrs Tonna submitted applications that were known, at least by Mr Tonna, to be inaccurate (in that some were not complete at the time of signing and by reference to some of the contents of the applications – such as the identification of the purpose of the loan (as not being a residential loan but for business purpose) and as to the income or employment details of Mrs Tonna) (see for example at T 685.6-28); this being relied upon by Dr Mendonca not simply as going to the reliability of Mr and Mrs Tonna’s evidence but as something from which (given that Mr Mendonca was heavily involved in making loan applications to the various lenders and helping Mr and Mrs Tonna to complete documents) is said to permit an inference that when Mr Mendonca included in his email correspondence suggestions as to Dr Mendonca being a guarantor, or having a 1% interest in the Galston Property, those suggestions were not based on instructions or directions from Dr Mendonca but were being put to the lenders “in order to somehow obtain the finance that they desired” (T 685.39). Dr Mendonca submits that those applications, as Mr Tonna frankly conceded, included whatever Mr Tonna believed the banks needed to hear in order to advance the money.

36. One factor that appears to have caused difficulty with the attempts to obtain finance at around this time was that a caveat was lodged on the title to the Schofield Property by Prime Capital for fees of about $39,000. See, for example, the Matthews Folbigg file note, dated 15 January 2013 (but which in context must have been 15 January 2014), of an attendance, on Mr Mendonca and Mr Tonna. That file note refers to a discussion as to the need to “get rid of [the] caveat” in the context of a discussion as to the “logistics of getting the deal done” and there are references in that file note to the applications to the Bank of Queensland and Prime Capital (see below).

32. Another complicating factor was what was referred to as the “red flag” issue: namely, the problem caused for Mr and Mrs Tonna by an earlier identity fraud; they having apparently been the victims of a fraud perpetrated by Mr Tonna’s cousin to obtain bank funds, which led to a “red flag” being placed on their credit history.

33. By about 15 December 2013, Prime Capital had indicated its approval of an application for finance of $1.3 million to enable completion of the purchase of the Galston Property. While Mr Tonna’s evidence is that he thought Prime Capital would let him down (see his email to Mr Mendonca on 18 December 2013 with the subject “Gerard these idiots are going to let us down”) (and there is a later file note made by Mr Gough on 1 January 2014 which records Mr Tonna as saying that “Prime [is] not an option (even if loses $145k deposit)”), as at this point in time it appears that the Prime Capital loan was still a possibility (and hence Mr Tonna’s evidence that he had finance available seems at least at that point credible). Mr Mendonca advised Mr Tonna that he would “chase them” (i.e., Prime Capital) and that he recommended that Mr and Mrs Tonna sign the mortgage documents for the proposed loan prepared by Gadens (the solicitors for Prime Capital). (Prime Capital was ultimately only prepared to lend about $870,000 for the purchase of the Galston Property. Prime Capital also later brought proceedings in the District Court for alleged breach by Mr and Mrs Tonna, and a company associated with them – Welcome Homes (NSW) Pty Ltd (Welcome Homes) – of a loan agreement constituted by acceptance of a loan offer made by Prime Capital around this time.)

Initial date for completion – 23 December 2013

39. Completion of the Galston Property purchase did not occur on 23 December 2013 (the completion date specified in the contract). It is not disputed that Mr and Mrs Tonna failed to complete the first contract for sale at that time because they were unable to obtain finance (see Mr Tonna’s affidavit sworn 16 October 2017 at [45]) (though, as noted below, Mr Tonna did claim in the witness box to have had other loan funds available to him in the period after December 2013).

40. On 23 December 2013, Mr Mendonca went to India for a holiday. Mr Mendonca had initially planned to be overseas until 1 February 2014 (see Exhibit AJ) but, as it transpired, he returned to Australia in mid-January 2014 (see below).

41. According to Mr Tonna, shortly before Mr Mendonca left for India, Mr Mendonca offered to have the Galston Property purchased in the name of Dr Mendonca. (Dr Mendonca notes that Mr Tonna’s evidence of that discussion (at [43] of his 16 October 2017 affidavit) does not disclose that any agreement was here communicated to Mr Tonna; in that Mr Tonna does not give evidence that Mr Mendonca telephoned him or sent him an email to the effect that Mr Mendonca had spoken with Dr Mendonca and she had agreed.) The first reference in the contemporaneous documents to any proposed involvement of Dr Mendonca in the transaction does not appear until Mr Mendonca was in India (and was then in the context of Dr Mendonca guaranteeing the loan –see below). Mr Tonna’s recollection (in an affidavit prepared in other proceedings – see later) at one stage was that he had first suggested that Dr and Mr Mendonca be involved.

42. While Mr Mendonca was in India, he communicated with both Mr Tonna and Mr Gough by use of a different email address (which he advised Mr Tonna was his temporary address (see the email of 24 December 2013)). By emails sent from India on 23 December 2013, Mr Mendonca continued to pursue the Bank of Queensland (Mr Drew Clegg and Ms Kavi Gounder) for finance. At that time he proposed to Mr Tonna (and to Mr Tonna’s daughter, Belinda) the following “plan of action”:

First let us wait and receive approval from Bank of Queensland. If Bank of Queensland approves then issue ends.

If Bank of Queensland does not approve then ask Drew to approve with Renuka Mendonca as additional guarantor (with a caveat in favour of Renuka until December 2014 when you shall get your A$5million). Renuka’s wage is around A$150,000 per year and has no debt on 2 homes: [there giving the addresses of two properties, one at Northmead and one at Winston Hills].

43. This is the first reference in the documents that I can find to a proposal that Dr Mendonca be involved in any way with the financing or purchase of the Galston Property (and, relevantly, it contemplates that Dr Mendonca would act as guarantor in respect of the purchase by Mr and Mrs Tonna; not that she would acquire the Galston Property). Mr Tonna’s evidence was that he did not know about the idea of Dr Mendonca providing a guarantee at the time this email was sent (T 275.25). As pointed out for Dr Mendonca, there is no documentary evidence to suggest that she was aware of such a proposal at this time.

Request for extension of time to complete

44. On 2 January 2014, Mr Mendonca recommended that Mr Tonna approach the vendor’s real estate agent requesting a two week extension of time. Mr Tonna did so and the agent advised that an extension was “out of the question”. By email from his daughter (Belinda) on 6 January 2014, Mr Tonna informed Mr Mendonca of this. That email stated that the Bank of Queensland was “still taking their time with the loan” and requested further advice.

Notice to complete specifying completion date as 24 January 2014

45. On 6 January 2014, Mr and Mrs Tonna were advised that the vendor had refused an extension and had stated that the ‘absolute final’ payment day was 10 January 2014.

46. On 7 January 2014, the vendor served a Notice to Complete requiring completion of the first contract for sale of the Galston Property by on or before 3pm on 24 January 2014. At this point, Mr and Mrs Tonna were aware that the vendor might terminate the first contract for sale, keep the deposit and that Mr and Mrs Tonna could be sued for losses (which Mr Tonna was of the view could have been a substantial amount of money (see T 299.35)).

Bank of Queensland applications

47. As noted above, Mr Mendonca continued to press the Bank of Queensland in relation to a proposed loan while he was in India. By email to the Bank of Queensland sent on 7 January 2014, Mr Mendonca advised the representatives of the Bank of Queensland that he was returning to Sydney on 15 January 2014 to help Mr Tonna and (consistently with, though in one respect going further than, the “plan of action” earlier communicated to Mr Tonna) that:

Also, please consider if the guarantee of my wife (a medical specialist with 2 properties without debt and A$150,000 wage) or the inclusion of my wife with 1% interest on the contact [sic] can help expedite the approval of the loan.

48. Insofar as what was proposed there included the alternative suggestion that Dr Mendonca acquire a 1% interest in the Galston Property this goes further than the “plan of action” that Mr Tonna had suggested on 23 December 2013. (Dr Mendonca does not accept that she was aware of the Galston Property at the time. Again, there is no documentary evidence to suggest that Dr Mendonca was aware that this was being proposed at the time.

49. Mr Mendonca returned to Australia on 15 January 2014. In response to a request from the Bank of Queensland for further information in relation to Welcome Homes, by email sent on 16 January 2014 at 11.58pm, Mr Mendonca advised:

l am happy to help in any way possible even if it means being a co-borrower or guarantor or giving security over my 2 properties valued at a$1.5 million [sic] with no debt.

Mark is desperately awaiting your written loan approval.

50. By this communication, Mr Mendonca thus seems to have been putting himself forward as a co-borrower, guarantor, or surety.

51. There is in evidence a Matthews Folbigg file note dated 17 January 2014 of an attendance by Mr Gough on Mr Tonna, Mr Mendonca, Mr Doust and Mr Leo at 12.26pm which includes the notation:

Mark confirmed not proceeding with loan from Prime.

52. Mr Gough’s 12 February 2014 tax invoice also records (at item 80) a conference on that day.

53. On 20 January 2014, Mr Clegg from the Bank of Queensland indicated that it would not provide finance to Mr and Mrs Tonna.

54. By this stage (on their own evidence) Mr and Mrs Tonna were in a state of desperation. Mr Tonna deposes in his 16 October 2017 affidavit that he felt he was “in a desperate situation and [he] was out of [his] mind with worry” (at [59]).

Wednesday, 22 January 2014

55. On 22 January 2014, Mr Gough sent an email to Mr Mendonca at 8.22am (copied to Mr Leo and Mr Doust at Matthews Folbigg but not to Mr Tonna’s email address), with an email header “Mark and Lorraine Tonna – settlement figures – urgent”, including:

As you know we have sent a letter to the vendor’s solicitor seeking an extension of the settlement date – prior to that time though we received the attached settlement directions which includes an approx. $12k interest component – whilst we are hopeful that the vendor will act compassionately to the request we have made [which from other documents appears to have been put on the basis that Mr Tonna was unwell and had been hospitalised], we still need to work on the basis that settlement MUST occur on Friday, thus please keep up your efforts with BOQ.

56. At 6.33pm on 22 January 2014, Mr Mendonca sent an email to Mr Leo and to Mr Tonna’s email address (copied to Mr Gough and Mr Doust of Matthews Folbigg), referring to an attached private loan that it was said had been recommended by the Bank of Queensland (a copy of which document was not in evidence) and advising that:

Both Home Loans/Pepper Loans and Bank of Queensland informed me that late today they have discovered a Red flag against Mark’s name which would require further investigation. This may cause a delay in the settlement.

Thursday, 23 January 2014

57. On 23 January 2014 (i.e., the day before completion was required under the terms of the notice to complete), there appears to have been a flurry of email communications headed “Tonna – CEG – Letter of Offer – SUPER URGENT”.

58. At 8.20am, Mr Gough emailed Mr Mendonca and Mr Tonna’s email address (copied to Mr Leo and Mr Doust) advising as to the “current position” including as to: the position with Prime Capital and its caveat over the Schofields Property; the notice to complete; a proposed loan document from CEG Capital & Equity Group (CEG); the caveat (and the position if a lapsing notice were to be issued); and as to their legal costs.

59. At 10.25am, in response, Mr Mendonca responded that “Mark is happy to pay all your legal fes [sic] from your trust account” and that “Mark accepts all you[r] advice below and shall not accept the private loan offer unless the rate of interest is decreased and terms and conditions favourable to Mark (which we do not expect)”.

60. At 10.36am, Mr Gough emailed Mr Mendonca and Mr Tonna’s email address (copied to Mr Leo and Mr Doust) attaching terms of an extension to the settlement date and saying that he would ring “you” (presumably, Mr Mendonca since the email is addressed to him) “now”.

61. At 11.37am, Mr Mendonca sent an email to Mr Gough and Mr Tonna’s email address (copied to Mr Leo and Mr Doust), referring to Mr Gough’s email and telephone call, and stating:

Mark has approved the extention [sic] letter of vendor and shall call you today.

Mark has not made a decision on a further offer to Prime.

Bhart Bushan [associated with Universal] who has executed his option contract [for the Schofields Property] has promised to lend Mark A$1,000,000.00 – meeting tommorrow [sic] at 9AM – shall keep you updated.

62. Next in the chain of emails on that day is an email from Mr Gough to Mr Mendonca and Mr Tonna’s email address (copied to Mr Leo and Mr Doust) sent at 12.03pm, thanking Mr Mendonca and Mr Tonna for their time (which on its face indicates that Mr Tonna was a participant to the telephone conversation to which reference is there made) and summarising those discussions as follows:

•   I spoke about options eg, proceed with the purchase or pull-out now (that is, cut your losses and run) – the decision is to proceed with the purchase and accept the proposal the vendor has made – I have notified their lawyer accordingly – Mark and Lorraine will be available at short notice to sign the paperwork when it arrives to document that agreement

•   you are NOT proceeding with CEG and will NOT sign any documents with them

•   you are seeing Bhart tomorrow re his offer of finance as a ‘plan C’ option and you have sufficient funds to cover the difference between what Bhart will offer and what we need for settlement (keeping in mind there will be another approx.. $10,000 in interest to pay plus the vendor’s legal fees of around $2,000 that you need to budget for)

•   we still only have a short space of time to sort out finance as Monday is a public holiday

•   the ‘red flag’ problem relates to an identity fraud issue where Mark was the victim

•   the purchaser is now to be Welcome Homes (NSW) Pty Ltd – I understand the s18 Duties Act aspect has been considered

•   there is no counter-offer at this time to be made to Prime – we can discuss this further next week

63. The response to this from Mr Mendonca at 12.12pm was that “[a]gree with all you have written except that the purchaser on the contract shall remain the same until advised otherwise next week”.

64. At 12.16pm, Mr Gough advised that “I will get some paperwork signed whilst Mark and Lorraine are in here just in case re Welcome Homes and just hold that on my file in case it is needed”.

65. Then, relevantly, there was the following email at 1.24pm from Mr Mendonca to Mr Gough and Mr Tonna’s email address (copied to Mr Leo and Mr Doust):

Welcome Homes (NSW) Pty. Ltd. is not going to be used. Instead, the purchaser will be Renuka Mendonca and Borrower, Renuka Mendonca. This Plan “D” – “Desperate” - if nothing else works.

I am expecting Renuka’s written approval from ANZ Bank tommorrow [sic].

When Mark gets his A$5 million, Renuka shall transfer the property to Mark and Mark shall bear the stamp duty. [my emphasis]

So, I believe Welcome Homes paperwork may not be necessary at all.

I am going to get some ANZ paperwork signed from Renuka. Hence, shall expect to return at 3 PM. today.

66. The sum of “A$5 million” there appears to be a reference to the amount that it was expected would be realised by Mr and Mrs Tonna for the sale of the Schofields Property. (The call option in relation to that property had not been exercised at that time but, under the call option deed, the option was capable of being exercised at any time prior to the sunset date.) The email also, relevantly, suggests that at that stage nothing had been signed by Dr Mendonca in relation to the ANZ loan application.

67. On 23 January 2014, at 1.28pm, Mr Mendonca sent an email to an officer (Kiran Singh) at ANZ providing a copy of the contract and valuations for the Galston Property and confirming the settlement date as Friday, 31 January 2014 “with no extentions” [sic]. (That same email seems to have been forwarded again to ANZ twice later that day.)

68. At 4.08pm on 23 January 2014, Mr Gough (responding to Mr Mendonca’s ‘Plan D Desperate’ email) emailed Mr Mendonca and Mr Tonna’s email address (copied to Mr Leo and Mr Doust), stating:

As discussed, one key item is the fact that if you nominate Renuka as the borrower unless she satisfies the “related persons” test under the Duties Act then you end up paying two lots of stamp duty – one by Mark and Lorraine as the purchasers on the contract – and two by Renuka who takes the property from Mark and Lorraine – and a third layer if Renuka then transfers it back to Mark and Lorraine.

Extracted below are the relevant sections we need to keep in mind IF we are going to nominate any person or entity to buy the property other than Mark and Lorraine in their personal names:

[there setting out various provisions from the legislation]

If the vendor agreed to end the contract with Mark and enter into a new one with Renuka then potentially that could alleviate one lot of stamp duty BUT you need the vendor’s consent [to] do this AND there is a concern that this arrangement is a fraud on the OSR as it is purely designed to deny it an extra lot of stamp duty (and of course we could not recommend such an approach)[.]

69. The narrative to Mr Gough’s subsequent 12 February 2014 tax invoice records a number of entries for 23 January 2014 consistent with the above communications.

Friday, 24 January 2014

70. On 24 January 2014, Mr and Mrs Tonna signed a Deed of Agreement to release the deposit to the vendor in consideration for the vendor forbearing in the exercise of its rights under the notice to complete until 4pm on 31 January 2014 (cl 2.1). They also signed an Order on Agent directing the immediate release of the full amount of the deposit. The terms of the Deed of Agreement had been agreed as between Mr Gough and the solicitors for the vendor (Elson Pow & Associates) in the course of email correspondence on 23 and 24 January 2014. Mr Gough witnessed their signatures on the said documents. He had noted in an email sent at 10.32am on 24 January 2014 to Mr Mendonca and Mr Tonna’s email address (copied to Mr Leo and Mr Doust) that the documents must be completed by around 12 pm and had there said it was critical that the documents be signed “when you arrive here at around 11am”, which indicates the time of the execution of those documents. A direction was issued to the agent by the solicitors for the vendor on 24 January 2014 in that regard (and appears to have been sent by facsimile transmission at 12.44pm).

71. At 5.20pm on 24 January 2014, Mr Mendonca emailed Mr Gough and Mr Tonna’s email address (copied to Mr Leo and Mr Doust) advising that:

ANZ Loan verbally approved in the name of Renuka Mendonca.

Please prepare contract in the name of Renuka Mendonca.

Renuka will execute any deed of agreement agreeing to hand over the property to Mark Tonna when he gets the A$5 million. [my emphasis]

72. The reference to $5 million must logically be a reference to the amount payable if the call option was exercised in relation to the Schofields Property.

73. At 9.41pm on 24 January 2014, Mr Mendonca emailed Sonal Singh at ANZ (an email copied to Kiran Singh, Mr Doust, Mr Gough and Mr Leo) thanking the bank officer for the “quick 24 hour approval” and advising that:

Renuka is happy to whole-heartedly accept the offer of ANZ with the best terms and conditions.

74. The email stated that “our solicitors” shall forward the contract containing Dr Mendonca as the purchaser and asked that, when the mortgage documents were ready, Dr Mendonca be contacted on a specified mobile phone number (a number that it is accepted was Dr Mendonca’s mobile phone number).

75. At 10.14pm, Mr Mendonca emailed Ms Ward (the real estate agent), copied to Mr Tonna’s email address, advising her, among other things:

Loan is approved. Mortgage documents expected to be executed on Wednesday, 29 January 2014 and settled on or before 31 January 2014.

…

I return from Gold Coast on Wednesday, 29 January 2014 to sign mortgage documents and instruct bankers cheque to be prepared. [Interestingly, this suggests Mr Mendonca was to sign the mortgage documents – whereas the loan was to be to Dr Mendonca.]

76. At 10.33pm that day, Mr Mendonca sent an email to Mr Tonna’s email address (copied to Ms Belinda Tonna) in the following terms:

Please ensure all money in from Mangion Family Trust and Mark’s Mum is transferred to Matthew Folbiggs [sic] trust account on or before Wednesday, 29 January 2014.

Money = Final Settlement number (Please request Eric [Leo] to obtain final settlement sheet from vendor showing amount payable as at 31 January 2014) + stamp duty + All Matthew Folbiggs [sic] legal fees - less A$1,100,000.00.

Contract in Renuka Mendonca’s name. Please request Stewart [Gough] to prepare any legal document to protect your interest in the property and your money payments in respect of this property for Renuka to sign when Renuka arrives to sign the contract. This agreement can state that Renuka agrees to transfer the property to you at the same value when you are able to obtain a loan in your name or when you receive your A$5,000,000.00 whichever is earlier. Can include anything per Stewart’s advice.

If you have any urgent issues, please call me in [sic] the Gold Coast on [Renuka’s mobile number] or else I shall return at Noon on Wednesday, 29 January 2014. [emphasis per original]

77. From the above, it appears that on 24 January 2014 ANZ had approved a loan to Dr Mendonca for $1.1 million. (See below as to the evidence of Dr Mendonca’s knowledge, or lack thereof, of that occurring on that day.)

78. What is therefore tolerably clear on the face of the contemporaneous documents is that an application for a loan in the name of Dr Mendonca was submitted to ANZ sometime in the 24 hours up to 5.20pm on 24 January 2014. Dr Mendonca accepts that she signed an Applicant Guarantor Declaration dated 24 January 2014 to ANZ (see the cross-examination by Dr Mendonca as to her signing of this document – T 485ff) and appears to accept that this must have been at the request of Mr Mendonca, although her evidence on this was expressed in highly conditional terms – “if he had asked …”) but she does not recall having signed the document. Dr Mendonca also accepted that Mr Mendonca must have submitted the document to ANZ (since she is adamant that she did not herself do so) but she denies that she authorised him to do so.

79. Certainly, by 24 January 2014, ANZ must have been in receipt of some form of application for a loan in favour of Dr Mendonca for it to have given the verbal opinion to which Mr Mendonca had referred in his 5.20pm email communication to Mr Mendonca (and there was no response from ANZ to his 9.41pm email to Sonal Singh to deny the making of an offer). There is in evidence a copy of an internal ANZ document dated 24 January 2014 (in similar handwriting to the date on the applicant guarantor declaration form), which records the loan objective as “Customers wish to buy an investment ppty @ Galston NSW”. There is no suggestion that Dr Mendonca attended a meeting at ANZ on this date but it seems a reasonable inference that Mr Mendonca must have done so, or at least by some means had delivered the applicant guarantee request form to ANZ on 24 January 2014.

80. Dr Mendonca was (at least later) aware that Mr Mendonca had made the loan application to ANZ on her behalf. He must also have submitted sufficient financial information to ANZ to enable it to process the loan application. (Dr Mendonca’s evidence in cross-examination as to what access her husband had to her financial information was to some extent contradictory – see T 536ff.) Even though Dr Mendonca said she did not know her husband had provided financial information to ANZ, it is said for Mr and Mrs Tonna that she was nevertheless “happy” to adopt whatever information had been provided by him to ANZ for the purpose of ANZ processing her loan application. Whether one would describe Dr Mendonca as “happy” about any of the arrangements at the relevant time is a moot point – her attitude in the witness box seemed to be one of relative indifference to whether or not she acquired the Galston Property. Relevantly, however, Dr Mendonca does not appear to have raised any objection to the provision by Mr Mendonca of the loan application (and whatever details were supplied to ANZ on 24 January 2014), insofar as she subsequently proceeded with the ANZ loan.

Alleged meeting between Mr and Mrs Tonna and Dr and Mr Mendonca with Mr Gough on 24 January 2014

81. Mr Tonna has deposed (see [64] of his 16 October 2017 affidavit) that “on or about 24 January 2014” he attended a meeting at the office of Matthews Folbigg with Mrs Tonna, Dr Mendonca, Mr Mendonca, Mr Gough and other lawyers of Matthews Folbigg. He says the meeting went for more than an hour. He recalls that Mr Doust came in about three quarters of the way into the meeting. At [65]-[68] of this affidavit, Mr Tonna deposes to what was discussed at the meeting. At [44]-[47] of her affidavit also sworn 16 October 2017, Mrs Tonna also gives evidence of this meeting. (Mr and Mrs Tonna contend that the evidence of this meeting is consistent with the prior correspondence and supports their claim that the parties agreed to create a trust in respect of the Galston Property.)

82. At [63] of his affidavit sworn 8 March 2018, Mr Mendonca denies attending any meeting at the office of Matthews Folbigg on 24 January 2014. He says the first and only meeting he attended with Dr Mendonca and Mr and Mrs Tonna at Matthews Folbigg’s office was on 30 January 2014. In response to [64]-[68] of Mr Tonna’s affidavit of 16 October 2017, Dr Mendonca says “I have never met or spoken to Terry Doust”.

83. I consider in due course the most likely sequence of events over the period 24-30 January 2014. Suffice it here to say that I cannot conclude that there was a meeting attended by Dr Mendonca at the offices of Matthews Folbigg on 24 January 2014.

84. What is, however, corroborated by reference to Mr Gough’s subsequent 12 February 2014 tax invoice is that there was a conference on 24 January 2014 between Mr Gough and Mr and Mrs Tonna. See the following entry:

106.   24/01/2014   Conference with Mark and Lorraine to discuss the deed, direction to pay, order on the agent and Renuka becoming the new purchaser and discussions with vendor’s lawyer re paying their account and organising same. [my emphasis]

85. An email from Mr Gough to the vendor’s solicitor on 24 January 2014 at 7.36am confirms that such meeting had been arranged – as he requested the final clean version of the deed for signing by 11am “as my clients will attend at my office at that time to sign the Deed”.

Position as at 24 January 2014

86. The position as at 24 January 2014 (by reference to the contemporaneous documents referred to above) was therefore that: an application, signed by Dr Mendonca and dated 24 January 2014, had been lodged in Dr Mendonca’s name for a loan from ANZ for $1.1 million; the loan had apparently been at least verbally approved on 24 January 2014 and Mr Mendonca had communicated, to ANZ, Dr Mendonca’s “whole-hearted” acceptance of the offer; Mr and Mrs Tonna had paid the sum of $141,292.75, being the balance of funds held in the Matthews Folbigg trust account after payment out to the vendor’s agent of the deposit; and it was contemplated that they would also have access to further funds (which I understand to be an amount of $173,000, which was provided by Mrs Tonna’s mother on 29 January 2014, and a further $20,000 provided by Mr Tonna’s mother on 30 January 2014) to enable the purchase of the Galston Property to be completed.

87. Mr and Mrs Tonna contended in their opening outline of written submissions (at [31]) that the evidence established that, by 24 January 2014, Dr Mendonca and Mr and Mrs Tonna had reached an agreement which provided that: Mr and Mrs Tonna would complete the purchase of the Galston Property and contemporaneously convey the Galston Property to Dr Mendonca upon which she would hold the property on trust for Mr and Mrs Tonna; Dr Mendonca would borrow moneys from ANZ to be secured by mortgage over the Galston Property to enable completion of the purchase of the Galston Property by Mr and Mrs Tonna; Mr and Mrs Tonna would pay all stamp duty, conveyancing costs, the balance of the purchase price owing after the loan advance from ANZ, all repayments due under the loan from ANZ and all other costs associated with the purchase and holding of the Galston Property; and upon Mr and Mrs Tonna obtaining a discharge of the ANZ Mortgage and paying all costs associated with the discharge and re-conveyance, Dr Mendonca would re-convey the Galston Property to Mr and Mrs Tonna (this is referred to in the pleading as the Trust Agreement).

88. The position of Mr and Mrs Tonna as to the date by which this agreement is alleged to have been reached changed during the course of the hearing (as to which I say more in due course). Nevertheless, what is clear is that, on and from 24 January 2014, Mr Mendonca, both verbally and by email, communicated with ANZ (Mr and Mrs Tonna say this was on behalf of Dr Mendonca) in relation to finance and gave instructions to Mr Gough in relation to the purchase of the Galston Property by Dr Mendonca (Mr and Mrs Tonna say this was on behalf of Mr and Mrs Tonna and Dr Mendonca); Dr Mendonca accepts that Mr Mendonca was sending emails suggestive of the fact that Dr Mendonca had agreed to certain matters but her evidence is that she was unaware of this information. She denies that such emails were sent with her authority. (Although it was said in submissions for Dr Mendonca that this evidence was not challenged, it seems to me clear that there was a sustained attack mounted for Mr and Mrs Tonna to Dr Mendonca’s denial throughout the hearing that Mr Mendonca was acting as Dr Mendonca’s agent.)

89. Dr Mendonca points in this context to the evidence given by Mr Tonna to the effect that he was telling the lenders information that he knew not to be correct and what he thought they “might want to hear in order to lend [to Mr and Mrs Tonna] money” (T 273.37; T 274.21). Dr Mendonca submits that this includes statements to the effect of Dr Mendonca having an interest in the Galston Property despite Mr Tonna not knowing whether that was true (T 276.25).

Saturday, 25 January 2014

90. Mr Gough sent an email on 25 January 2014 to Mr Mendonca and Mr Tonna’s email address (copied to Mr Leo and Mr Doust), headed “Mark and Lorraine Tonna - CRITICALLY URGENT”, including the following:

I thought it prudent to mention the following:

(1)   Contract

•   the contract actually remains in the name of Mark and Lorraine, albeit we submit a ‘non-confirming’ Transfer to the vendor with Renuka’s name on it

…

(5)   Renuka

•   as Renuka is becoming the purchaser she should be aware of what she is buying – Gerard can you have Renuka contact me even if it is just to say that she waives the need for me to provide advice to her AND that she authorises me to sign the non-conforming Transfer.

•   if there is an ‘arrangement’ in place between Renuka and Mark/Lorraine about paying the mortgage, paying rates, use/occupation of the Property, eventual transfer back to Mark/Lorraine (which will trigger another round of stamp duty), etc, then it is VITAL that this be documented now – to do this, I need to know precisely what terms the parties have agreed upon [emphasis as per original]

…

91. Mr Gough’s tax invoice includes the following item:

108.   24/01/2014   Perusal of 3 emails from Gerard and prepare detailed reply of items requiring urgent attention – done on Saturday 25.1.14

Sunday, 26 January 2014

92. Relevantly, over the long weekend of 26-28 January 2014, Dr Mendonca and Mr Mendonca, with their children, went on holiday to the Gold Cost. Dr Mendonca’s evidence is that this was the first occasion on which she heard about the proposed purchase of the Galston Property and about the existence of an indicative loan approval. In her affidavit affirmed 19 March 2018, Dr Mendonca deposes to a conversation where Mr Mendonca raises whether she would be interested in investing in a property in Galston and says “I’ve got an indicative pre-approval”, to which Dr Mendonca says her response was that she did not wish to talk about it on holidays.

93. Dr Mendonca was cross-examined at some length as to aspects of this conversation. She was adamant that she had not been prepared to talk about this while she was on holiday with her family. More than once, Dr Mendonca (in evidence that was suggestive of some past, if not indeed continuing, disharmony in the relationship with Mr Mendonca) said that she did not wish to start a fight; her position being that she wanted to enjoy their holiday (see for example at T 485.39). There are aspects of Dr Mendonca’s evidence as to the conversations about the Galston Property purchase (to which I will refer in due course) that I find implausible. While her refusal to engage in discussion about the acquisition of a property in Galston while she was on holiday with her children (and her desire not to start a fight about it), and her seemingly supreme indifference as to whatever indicative loan approval Mr Mendonca might have obtained, strikes me as not implausible, it does make her subsequent conduct less credible. For her to place such emphasis in cross-examination on not wanting to start a fight with her husband when the Galston Property issue was raised with her on 26 January 2014 is difficult to square with the seeming docility with which Dr Mendonca then seems to have been immediately willing to engage in such a discussion (on her evidence either at the airport in Queensland on her way back from the Gold Coast or in the car on the drive to her home at Northmead) and indeed the alacrity with which she seems to have then responded to the proposal put to her on 29 January 2014 that she acquire a property about which (on her evidence) she knew almost nothing and to do so within a very short space of time. It is also difficult to accept that Dr Mendonca did not raise with her husband (her tax accountant) what amount ANZ was prepared to lend her at the time.

94. In any event, Dr Mendonca’s position is that she asked no questions about the Galston Property or the indicative loan approval when the subject was raised with her on 26 January 2014 (and, indeed, her evidence is that she never asked Mr Mendonca the amount of the indicative loan approval).

95. Also about this time (26 January 2014) it appears that Mr Tonna contacted a licensed conveyancer (Mrs Mary Mackman or her son Mr Philip Mackman) to act on the transaction in place of Matthews Folbigg. I say this because an email was sent on 26 January 2014 at 2.19pm by Mr Mendonca to Mr Gough and to Mr Tonna’s email address (copied to Mr Leo and Mr Doust) responding to Mr Gough’s email of 25 January 2014 and stating:

Please do not forward anything to ANZ. [Presumably this was in response to Mr Gough’s comments – not extracted above – in the last email as to documents that would be forwarded to ANZ on Tuesday – a copy of the front page of the contract and the non-conforming transfer]

Your advice is accurate but Mark informed me that he cannot afford to pay stamp duty three times. Mark states that he has a conveyancer who has promised to get him over the line if ANZ provides the money. Hence, please give Mark the final legal bill for all issues including Prime and Victor Zammit issues, deduct all outstanding fees from your trust account money and transfer the money to Lorraine Tonna’s account for Mark to prepare the required bank cheques for settlement.

Immensely appreciating all that each of you have done for Mark and myself acting for Mark.

96. Consistent with the reference in that email to Mr Tonna having a conveyancer “who has promised to get him over the line …”, at 6.03pm on 26 January 2014, Mr Mackman sent an email to Mr Mendonca attaching a front page of contract “as requested”, that being the front page of a contract for the sale of the Galston Property direct from the then registered proprietor (Maha Budhi Co) to Dr Mendonca. The email requested Mr Mendonca to “print, sign and return to our office as soon as possible in anticipation of exchange” and the author (Mr Mackman) said that he had “just tried phoning however was unable to get through, please call to discuss further”.

97. Dr Mendonca notes that the emails sent on 26 January 2014 raise, for the first time in writing, Mr and Mrs Tonna’s wish to avoid paying various amounts of stamp duty; and Mr and Mrs Tonna is retainer of a new conveyancer known to them.

98. There was some confusion in the oral evidence of Mrs Mackman and her son, Mr Mackman, as to the timing of their involvement (or more precisely of the proposal for the involvement of Mrs Mackman) as licensed conveyancer. Certainly, it would appear that there was some perceived urgency about this on the part of at least Mr Mackman (since Mr Mackman went into the office on the Saturday of the long weekend to draft a new cover page for the contract of sale and forwarded it to Mr Mendonca at 6.30pm that day). The discrepancy in the Mackmans’ evidence as to this is as to when the relevant conversation(s) took place and whether Mr Mendonca was privy to the said conversation(s) (see further below). There can, however, be no doubt that what Mr Mendonca was conveying to Mr Gough of Mathews Folbigg at the time of his 26 January 2014 email was that Mr Gough was no longer to be acting for Mr and Mrs Tonna (let alone for Dr Mendonca) in relation to the sale transaction(s) – see the reference to a “final” bill; and this was certainly how Mr Gough understood that email (see his 28 January 2014 emails below).

Monday, 27 January 2014

99. Monday, 27 January 2014 was a public holiday.

100. It appears that Mr Gough responded to the 26 January 2014 email above (i.e., the email advising him that Mr and Mrs Tonna proposed to engage a licensed conveyancer in the matter and asking him to render a final bill) on 27 January 2014, saying that “I will ring you tomorrow to clarify a couple of items”; and that Mr Mendonca then responded:

I am in the Gold Coast on holiday and expect to arrive at my residence in Sydney at Noon on Wednesday, 29 January 2014.

Please feel free to call me on [xxx] - Renuka’s mobile. I have requested Renuka to pass on your telephone call.

You are welcome to call me anytime but 8.30 AM to 9.30 AM is preferable because I would [be] in the Seaworld theme park at 10 AM attending with kids.

Meanwhile, Renuka has been requested to retain his son [Aaron Tonna]’s mate as her conveyancer. Attached is the front page of her contract which has been submitted yesterday to the bank as per their request to facilitate their processing the mortgage documents on Tuesday 28 July 2014.

…

At this point in time, Mark understands that it is important for Mark to pay all his legal bills for all legal issues from your trust account tomorrow and receive the remainder funds so that Mark can prepare bank cheques on Wednesday, 29 January 2014 for potential settlement on or before 31 January 2014.

101. I place the timing of the above exchanges of emails as occurring on 27 January 2014 because the next email sequentially in the chain of emails (sent at 8.54pm on 27 January 2014) by Mr Mendonca to Mr Gough and to Mr Tonna’s email address (copied to Mr Leo and Mr Doust) commences with clarification as to the difference in time between Sydney and Queensland time (obviously for the proposed call from Mr Gough the following morning) and Mr Gough’s call occurred on 28 January 2014 (see the email below). Mr Mendonca in this email set out information researched from the Office of State Revenue website as to duty if a sale or transfer agreement is rescinded or annulled.

102. Mr Gough’s tax invoice includes the following item:

109.   24/1/2014   Perusal of email from Gerard and reply (Australia Day public holiday)

Tuesday, 28 January 2014

103. On Tuesday, 28 January 2014 (when Dr and Mr Mendonca were still on holiday with their children at the Gold Cost) at 8:05am, Mr Gough sent an email to Mr Mendonca (copied to Mr Tonna’s email address), setting out a list of matters that he said “[w]ith Mark, I will discuss … with you when we chat at 9.30am Sydney time to make sure I understand what is to happen to each item”. The list comprised the following items:

(1)   Renuka

•   new contract

•   this conveyance will be handled by another firm

•   documentation between Renuka and Mark (we will attend to this if instructed to do so)

•   we will only be involved as instructed

(2)   Mark and Lorraine - Purchase

•   rescission of their contract (to be organised – by whom?)

•   application for refund of stamp duty (Mark/yourself to handle)

•   we no longer be [sic] acting on the purchase and are to cease work

(3)   Mark and Lorraine – Victor Zammit and Prime

•   we are to cease acting in each matter

•   Mark would like copies of all emails and letters between our firm and the lawyers for Victor and Prime

•   we will need to notify the other parties of our ceasing to act

(4)   Legal Fees

•   we are to deduct our legal fees in respect of the purchase (which includes Prime) and Victor Zammit matters from monies held in our trust account

514. It is noted that the heads of loss claimed against Mr Mendonca and Business Services are identified in the particulars to [81] and [82] of the further amended statement of claim and comprise loss and damage alleged to arise from Mr Mendonca’s advice to Mr and Mrs Tonna to enter into the purchase contract in respect of the Galston Property, consisting of: payment of the deposit; financing and legal expenses arising from attempts to obtain alternative finance; costs of these proceedings to recover the Galston Property from Dr Mendonca; loss of opportunity (bargain) in respect of the offer of private finance; and (unspecified) expenses paid in furtherance of the alleged Agreement between Mr and Mrs Tonna and Dr Mendonca.

515. It is submitted that if Mr and Mrs Tonna succeed in their claims against Dr Mendonca, and obtain orders requiring her to transfer the Galston Property to them, many of the alleged losses will not arise; and that if Mr and Mrs Tonna fail against Dr Mendonca, then the claimed losses were in any event not caused by any breach of duty by Mr Mendonca. It is submitted that the true cause of those losses was instead Mr and Mrs Tonna’s decision to enter into the purchase contract in the first place, against advice, and in full knowledge of the risk they were taking.

516. Further, it is noted that on 25 and 29 January 2014, Mr and Mrs Tonna received advice from Matthews Folbigg that any agreement between them and Dr Mendonca with respect to the Galston Property should be documented and signed prior to completion of the contract for the purchase of the Galston Property, and that Mr and Mrs Tonna should obtain independent legal advice about any such agreement. It is submitted that, had they obtained independent legal advice, the advice would have been to the same effect as had already been received from Matthews Folbigg – i.e., they should be sure to have the alleged Agreement with Dr Mendonca recorded in a deed or registrable instrument, and to do so before Dr Mendonca obtained title.

517. Mr Mendonca says that Mr and Mrs Tonna failed to follow that advice of their solicitors in that they did not ensure that the alleged Agreement was ever documented in writing by way of a deed or instrument prior to Dr Mendonca purchasing the Galston Property. Thus, it is said that the claimed losses, even if suffered, were not caused by any breach of duty of Mr Mendonca but rather by Mr and Mrs Tonna’s own conduct in failing to follow and implement the advice they had been given. Alternatively, it is said that these matters demonstrate that Mr and Mrs Tonna were contributorily negligent and failed to mitigate their losses.

518. It is submitted that if there was no binding agreement between Dr Mendonca and Mr and Mrs Tonna, then there was no duty on the part of Mr Mendonca (breach of which duty is pleaded at [64] and [65A] of the further amended statement of claim). Alternatively, if (which is denied) there was a binding agreement between Mr and Mrs Tonna and Dr Mendonca, it is said that that agreement, on Mr and Mrs Tonna’s case, was reached on or before 30 January 2014.

519. Mr Mendonca says that the evidence relied on by Mr and Mrs Tonna does not establish that, after that date, Mr Mendonca continued to act as the agent of Mr and Mrs Tonna with respect to the implementation (as distinct from the formation) of the alleged agreement or in respect of any other matter. It is said that the matters relied upon by Mr and Mrs Tonna to establish the existence and scope of the agency said to have existed after 30 January 2014 are not pleaded nor particularised (nor are they identified in Mr and Mrs Tonna’s closing submissions dated 3 June 2019). It is submitted that there is no evidence of an express agreement of agency after 30 January 2014, nor does the evidence point to or establish matters sufficient to infer a relationship of agency or the scope of that relationship.

520. Instead, it is submitted that Mr and Mrs Tonna’s closing submissions, both oral and written, put the matter no higher than that Mr Mendonca acted as Mr and Mrs Tonna’s agent in relation to the finance and purchase of the Galston Property and that this says nothing which would lead to the conclusion that there was an agency arrangement which persisted after purchase of the Galston Property, right through 2015, requiring Mr Mendonca as an incident of that relationship to “direct” Dr Mendonca to transfer the Galston Property.

521. Mr Mendonca notes that the scope of an agent’s authority determines the extent to which the agent’s actions can, without personal liability for so doing, impact on the principal’s affairs; and also determines the scope of the legal obligations and entitlements as between agent and principal (referring to Law of Agency at [4.9] and the authorities there cited). It is submitted that, that being so, before liability will be visited on a putative agent for breaches of duties said to have arisen in the course of the agency relationship, the evidence must be clear enough to enable affirmative findings: first, that there was an agency relationship and, second, that the scope of the agency relationship extended to cover the matters of which complaint is made (including, for example, in this case, a duty to “direct” Dr Mendonca to transfer the property to Mr and Mrs Tonna; in circumstances where it is said that it would normally be left to lawyers (not an accountant) to pursue the enforcement of a legal agreement, and Mr and Mrs Tonna in fact had lawyers acting for them).

522. Mr Mendonca says that no real attempt has been made by Mr and Mrs Tonna in this case to establish either of those matters; and that they have failed to discharge the onus upon them of establishing that Mr Mendonca after 30 January 2014 was acting in the capacity of agent for them, and, in that capacity, owed to them the duties alleged.

523. Mr Mendonca further submits that there has been no breach occasioning loss. It is submitted that there are a number of fundamental problems with respect to breach and causation.

524. First, that there can have been no breach of any obligation prior to April 2015 (or breach of any obligation causing loss), as prior to that time Mr and Mrs Tonna admittedly did not have any funds to purchase the Galston Property and, on their version of the Agreement, no entitlement to take a transfer of the Galston Property. It is said that, on Mr and Mrs Tonna’s case, Dr Mendonca was only obliged to transfer the Galston Property to Mr and Mrs Tonna upon receipt by them of the sale proceeds from the Schofields Property (which occurred in April 2015). Hence, it is submitted that any failure by Mr Mendonca to “direct” Dr Mendonca to transfer the Galston Property to Mr and Mrs Tonna, or not to deny the existence of the alleged Agreement, prior to April 2015, cannot have caused any loss because Mr and Mrs Tonna at that time were not entitled to the Galston Property. It is said that although, in closing oral submissions (T 658.38), it was asserted for Mr and Mrs Tonna that a direction should have been given by Mr Mendonca in December 2014 or January 2015 for Dr Mendonca to retransfer the Galston Property, this is an unsustainable proposition and should be rejected.

525. Second, so far as the loss relating to the additional drawdown on the mortgage is concerned, it is said that that loss was incurred in December 2014 (see the particulars to [65] and [65B] of the further amended statement of claim; see also Exhibit A-G (the ANZ letter dated 23 December 2014)), which records the further funds as having been drawn down on 16 December 2014. The alleged breaches occurred after that date. It is said that, as the loss predated the alleged breaches, it cannot logically have been caused by those breaches.

526. Third, that the loss relating to the additional drawdown on the mortgage is not a loss that has been suffered by Mr and Mrs Tonna – that they are not out-of-pocket for that amount; nor, on their version of the Agreement, should they ever be liable to repay that amount. It is noted that, under the Agreement as pleaded, they are liable only to pay all charges on the mortgage incurred by Dr Mendonca in connection with the initial purchase. It is submitted that this is logical and that it is far-fetched and unlikely that the parties would have agreed that Mr and Mrs Tonna would be liable for any debt incurred by Dr Mendonca and secured against the Galston Property.

527. Fourth, that Mr and Mrs Tonna have not established (and there is no basis for any finding) that, had the alleged breaches not occurred, the claimed losses would not have been suffered. It is noted that Dr Mendonca has steadfastly asserted she is the owner of the Galston Property and has denied any obligation to transfer the Galston Property to Mr and Mrs Tonna. Mr Mendonca says that there is no evidence to suggest the position would have been any different if Mr Mendonca had not made the Alleged Representation; or had “directed” Dr Mendonca to transfer the Galston Property to Mr and Mrs Tonna; or had not “denied” the existence of the Agreement. Mr Mendonca says that Mr and Mrs Tonna bear the burden of establishing that, had Mr Mendonca not acted in breach of duty (such as by giving a “direction” to Dr Mendonca), that Dr Mendonca would have transferred the Galston Property to Mr and Mrs Tonna, or would not have defended these proceedings but that the evidence does not permit such a finding. In this regard, it is submitted that the evidence shows that Dr Mendonca was not amenable to suggestion from Mr Mendonca (reference being made to the conversation at [80] of Dr Mendonca’s 19 March 2018 affidavit, upon which Mr and Mrs Tonna rely, in which Dr Mendonca gives evidence that, when asked by Mr Mendonca whether she was interested in selling the Galston property to Mr Tonna, Dr Mendonca replied that “[f]or me to consider whether I wish to sell or not sell my Galston Property, I need to know how much Mark [Tonna] is willing to offer me”). That, and her evidence (at [69] of Dr Mendonca’s 19 March 2018 affidavit) that she was “not interested” in the Put and Call Option (to which she adhered in cross-examination, see T 585.19ff; 586.12, 586.21) is said to be inconsistent with Dr Mendonca “being disposed slavishly follow the directions of Mr Mendonca” and reveals Dr Mendonca as being independently minded and determined to hold the Galston Property unless and until she received an acceptable offer of purchase the Galston Property from Mr Tonna.

528. As to the claim for the legal costs, the same submissions are made. It is said that the “obvious, inescapable cause of the proceedings” against Dr Mendonca is the fact that Dr Mendonca, as registered proprietor of the Galston Property, has denied she was party to any agreement with Mr and Mrs Tonna and has refused to transfer the Galston Property to them. It is noted that Dr Mendonca has taken that stance separately from Mr Mendonca and with the benefit of her own independent legal advice. It is submitted that litigation against Dr Mendonca was therefore inevitable, regardless of the conduct alleged against Mr Mendonca.

529. Further or in the alternative, it is submitted that if Mr and Mrs Tonna did suffer the claimed losses, those losses were caused not by any breach of duty by Mr Mendonca but rather by the failure of Mr and Mrs Tonna to follow the express, written advice of their solicitors to ensure that any agreement with Mr Mendonca was recorded in writing prior to any transfer of the Galston Property taking place.

530. The advice (to have any “deal” documented, and to obtain independent legal advice) is said to be contained in the emails from Mr Gough to Mr Tonna on 25 January 2014, 26 January 2014, 28 January 2014 and 29 January 2014. It is noted that Mr and Mrs Tonna had also received advice from Mr Mendonca to ensure that any agreement was documented, by email dated 25 January 2014.

531. Mr Mendonca points out that Mr and Mrs Tonna failed to follow the advice of their solicitors (and Mr Mendonca); that they did not ensure that the alleged Agreement, was ever documented in writing by way of a deed or instrument prior to Dr Mendonca purchasing the Galston Property; and that had they done so, it is probable that the claimed losses would have arisen. It is submitted that their failure to follow the advice of their solicitors (and Mr Mendonca himself) cannot be laid at the feet of Mr Mendonca; and that alternatively, these matters demonstrate that Mr and Mrs Tonna were contributorily negligent and failed to mitigate their losses.

Determination in relation to the alleged breaches by Mr Mendonca

541. As noted earlier, the claim against Mr Mendonca and Business Services was in the course of the hearing substantially narrowed. In essence, it is a claim based on alleged breach of a duty of care owed by Mr Mendonca in his capacity as financial adviser to Mr and Mrs Tonna (and a corresponding claim against Business Services to the extent that Mr Mendonca was performing his role as financial adviser under the auspices of that company). Although allegations of fiduciary duty were raised in the pleading, no equitable compensation or claim for relief for breach of fiduciary duty was expressly pleaded.

542. There is (and could be) no dispute that Mr Mendonca acted as an adviser to Mr and Mrs Tonna in relation to their applications for finance and in their dealings with various people (i.e., bank officers, finance brokers, real estate agent, and lawyers alike) in relation to the Galston Property transactions. Mr Mendonca was the person involved in the day to day communications with those people in relation to the transactions. Indeed, as noted earlier, Mr Mendonca’s communications reveal an increasing level of urgency or desperation over the period from December 2013 to January 2014 – not simply from the perspective of finding a suitable financing solution but a desperation that “we” not “loose” [sic; lose] the Galston Property.

543. Seen through the prism of the Civil Liability Act2002 (NSW), Mr Mendonca was certainly in the position where there was a reasonable risk of significant harm (in terms of financial loss) in relation to the giving of financial advice to Mr and Mrs Tonna regarding the relevant transactions, so as to give rise to a duty of care in the giving of that advice (though careful attention needs here to be given to the circumstances in which, and nature of, the advice that was or should have been given); and it would not have been onerous for him to have given the relevant advice (such as the risk involved in entering into an unconditional sale contract when there was not an unconditional loan approval and the risk involved in not documenting any arrangement reached with Dr Mendonca for the transfer back to them of the Galston Property), or referred Mr and Mrs Tonna to other advisers. The fact, however, is that such advice was given to Mr and Mrs Tonna and they proceeded nonetheless.

544. It is less clear that Mr Mendonca was acting in a fiduciary role (see the discussion by Black J as to the circumstances when fiduciary obligations arise, in Vanguard Financial Planners Pty Ltd v Ale [2018] NSWSC 314 from [51] to [60], and the authorities considered therein) but ultimately it is not necessary to make any final determination on that issue since no claim for relief based on any breach of fiduciary duty is here pressed.

545. As to the particulars of the alleged breach of duty of care, the first relates to the conveying of instructions by Mr Mendonca in relation to the exchange of unconditional contracts at a time when there was no unconditional loan approval. I am not persuaded that there was any breach of a duty of care in that regard. Mr and Mrs Tonna understood that they were running a risk in exchanging contracts at the time that they did (and were privy to legal advice to that effect). Even if there was a duty of care in that regard, it is clear that it was not causative of any loss and that the decision to exchange contracts was made in full knowledge of the relevant risk.

546. As to the alleged conflict of interest, to the extent that these claims are predicated on Mr Mendonca preferring the interests of his wife, Dr Mendonca, to those of Mr and Mrs Tonna in the arrangements pursuant to which they entered into the respective sale contracts, the difficulty is that I can discern no preferential arrangement in the entry into the sale contracts as such. Rather, the position seems to be that Dr Mendonca’s entry into the contract to purchase the Galston Property enabled Mr and Mrs Tonna to avoid what they accepted was likely otherwise to have been a substantial loss. Moreover, any conflict arising from the relationship between Mr Mendonca and his wife is one that Mr and Mrs Tonna must be taken to have accepted – since they well knew of the marital relationship (and indeed it is obvious that this was the genesis of the ultimate plan to resolve their financing difficulties – whether that was a proposal in the first instance from Mr Mendonca or from Mr Tonna, as Mr Tonna’s earlier evidence in the Prime Capital proceedings suggested).

547. Insofar as a claim based on the failure of Mr Mendonca to direct Dr Mendonca to transfer the Galston Property to Mr and Mrs Tonna, the difficulty I have is that there is nothing to suggest that Mr Mendonca was in a position to compel Dr Mendonca to act in accordance with such a direction (and if this were put on a loss of the chance that she might have done so, it fails for the reason that it is abundantly clear that, for whatever reason, Dr Mendonca’s earlier spirit of “co-operation” had well and truly dissipated by late 2014/early 2015).

548. Therefore, largely for the reasons submitted by Counsel for Mr Mendonca and Business Services, I find that the claims against Mr Mendonca and Business Services have not been made good.

The Mendonca Proceedings

Issues in the Mendonca Proceedings

549. As already noted, the Mendonca Proceedings relate to a Residential Tenancy Agreement that Dr Mendonca alleges that she entered into with Mr Tonna on 17 February 2014 (i.e., the Tenancy Agreement) and, later, when she terminated the Tenancy Agreement, a licence (the Licence) in similar terms. Dr Mendonca alleges that Mr Tonna breached these agreements when he: failed to make payments in accordance with the terms of those agreements (points of claim at [16]-[18]); made alterations to the Galston Property, including installing the new shed on the Galston Property without her approval or that of the Council (the Alterations) (points of claim at [23]-[31]); sublet the Galston Property without Dr Mendonca’s permission (points of claim at [19]-[22]); and failed to deliver vacant possession of the Galston Property in accordance with Notices to Terminate (points of claim at [32]-[39]); (the relevant claims in relation to the Licence being at points of claim [43]).

550. Dr Mendonca seeks relief in the form of: the payment of outstanding rent either under the Tenancy Agreement or the Licence (points of claim at [41(a)], [42(a)] and [45(a)]); the costs of removing, replacing and/or repairing the Alterations and bringing the Galston Property back to its condition prior to the commencement of the Lease (points of claim at [41(a)], [42(a)] and [45(a)]) and termination of the Tenancy Agreement and vacant possession of the Galston Property (points of claim at [41(d)]). A pleaded claim for work orders in respect to replacing and/or repairing the Alterations was abandoned (points of claim at [41(c)]).

551. Three issues were identified by Dr Mendonca as now arising for determination in these proceedings. They are as set out below.

Issue 1: Did Mr Tonna enter into the Tenancy Agreement, orally or in writing, with Dr Mendonca and does his entry onto and occupation of the Galston Property arise on the basis that he was a beneficial owner?

552. Dr Mendonca submits that a finding that Mr Tonna did not sign the Tenancy Agreement would be contrary to the expert evidence put forward by both parties, who describe the signature as genuine. Dr Mendonca argues that the evidence by Mr Dubedat (to the effect that the document, as a whole, is a composite (given that page 1 appears to be on a different type of paper than pages 2 through to the end; as to which I have referred earlier)) leads nowhere and is no more than a “red–herring”.

552. It is submitted by Dr Mendonca that Mr Tonna plainly signed a tenancy agreement with her. Dr Mendonca points out that Mr Tonna does not assert he signed some other tenancy agreement with some other person and that Mrs Tonna gave evidence that they were not leasing any other premises during the relevant period (T 416). Dr Mendonca says that the only plausible explanation of events is that given by her under cross-examination (see T 573.4ff; 578-582), namely, her explanation to the effect that she made changes to the original (unsigned) version because she wanted to include her land telephone number (landline) not her mobile telephone number on the agreement; that after she and Mr Tonna signed the document she copied it; and that this happened on numerous occasions, including when she took a copy of the agreement to ANZ. She says that, later, she found the original front page and produced that to Mr Dubedat.

553. It is said that there can be little doubt that the front page was the original front page, given Mr Dubedat’s expert opinion (at [9]) that the document labelled by him as “Q2” (which has Dr Mendonca’s landline on it) was almost certainly attached to the front of pages 2 to 11 of the original version on which Dr Mendonca relied (labelled by him as “Q1”) with a staple at an earlier time and long enough, under suitable conditions, for rust to form.

Issue 8: Should there be a setoff payable by Dr Mendonca to Mr Tonna for the increase in the value of the Galston Property by the improvements undertaken by Mr Tonna.

555. Dr Mendonca says that the issue as to whether there should be set off payable by Dr Mendonca to Mr Tonna for the increase in value of the Galston Property by the improvements undertaken by him falls away given the admissibility rulings made as to the report of Mr Bird (see above). I agree with this submission.

Issue 9: Quantum

556. For Dr Mendonca, is it noted that Mr Tonna accepts that, save for a payment in May 2015, he has not made any payments in respect of the occupation of the Galston Property (whether, I interpose to note, under the Tenancy Agreement or as mortgage repayments) since February 2015; that Mr Tonna has carried out alterations to the Galston Property and the quantum to reverse those alterations has been agreed at $64,771.93 (for the cost of removing the new shed and replacing the old shed that was demolished by Mr Tonna) and $7,529.66 (for the cost of reinstating a section of the boundary wall and removing metal gates amounts).

557. Insofar as there is an issue as to whether Dr Mendonca should make good the Alterations, Dr Mendonca notes that Mr Tonna did not seek any permission before making any alterations. It is submitted that Mr Tonna cannot complain as to Dr Mendonca’s requirement for the removal of the new shed in circumstances where one of the “negatives” identified by the valuer put forward on behalf of Mr and Mrs Tonna is that this shed is not the subject of DA approval (and in circumstances where Mr Tonna failed to obtain the requisite approval).

558. Thus, Dr Mendonca claims, in addition to an order that Mr Tonna vacate the Galston Property, damages in the sum of: $266,677.98 for unpaid rent (plus interest); $64,771.93 for the costs of the removal of the new shed and for the costs of replacement the previous shed; and $7,529.66 for the cost of reinstating a section of the boundary wall and removing metal gates amounts. Further, Dr Mendonca seeks an order to set off those amounts against the amounts owed by Dr Mendonca in respect of the purchase money borrowed by her to buy the Galston Property.

Determination in the Mendonca Proceedings

559. I am not persuaded, to the requisite degree of satisfaction, that the arrangements between Dr Mendonca on the one hand and Mr (and Mrs) Tonna on the other hand in relation to the occupation of the Galston Property were governed by the terms of, and subject to, the Tenancy Agreement document that was in evidence.

560. I find that Mr Tonna did sign a document bearing the word “tenant” in the form of the concluding page of the Tenancy Agreement but I cannot be confident that the document, when he signed it, was complete and, in particular, I cannot be confident which version of the cover page formed part of the document that he in fact signed (assuming that he signed an entire version of the Tenancy Agreement at the time). The evidence was unsatisfactory in that regard to say the least. In part, this was because Dr Mendonca’s explanation of removing the cover page (when photocopying the document on multiple occasions) cannot logically explain how the subsequent version of the cover page came to be attached after the document was signed or how (on the contrary scenario) an earlier (and on her account superseded) version came to be the one subsequently attached and then copied on those multiple occasions. Taking apart a document, copying it and then re-stapling it might well lead to missing or wrongly ordered pages, but it does not readily encompass the substitution of a different page in that process. Thus, if the front version of the coversheet (containing Dr Mendonca’s landline) was the version attached to the document that Mr Tonna signed, then any later substitution was an alteration to the signed document (and cannot have been binding on him) and, if not, then why it was attached to the document for long enough for the staple in the document to rust is unclear.

561. In circumstances where the parties seem to have been willing on at least one other occasion to sign an execution page without agreement as to the terms of the document itself (which was the case in relation to the draft put and call option deed), and while this was also contemplated at one stage (in relation to the Welcome Homes loan application), at least one possibility is that Mr Tonna simply signed the execution page of the Tenancy Agreement but without the document having been complete at that time. (That is not so far-fetched in circumstances where Mr Tonna was apparently unconcerned to sign blank loan applications – see for example T 201; and hence he does not appear to have been overly concerned with such a practice.) Another possibility is that, whatever document Mr Tonna signed, it was one that Dr Mendonca then altered (and I do not suggest for any nefarious motivation) in the sense of replacing at least the cover page (to remove a page that contained her landline). That is, of course, no more than speculation but it highlights that I am left in considerable doubt as to the circumstances in which the document came into existence (and I certainly cannot conclude on the balance of probabilities that the parties’ common intention as at February 2014 was that Mr Tonna would be bound by the terms of the Tenancy Agreement or that he was agreeing to occupy the Galston Property as a tenant, under any particular form of Tenancy Agreement).

562. The giving by Mr Mendonca of the standing instructions for the mortgage repayment sums (even if Mr Mendonca was not then held out as, and/or cannot be said to be, acting for Dr Mendonca in the implementation (as opposed to the formation) of the arrangements post the acquisition of the Galston Property) makes it difficult to conclude that there was any common intention of the relevant parties back in February 2014 that Mr and Mrs Tonna would occupy the Galston Property as tenants.

563. Accordingly, the claim by Dr Mendonca under the Tenancy Agreement (and subsequent Licence) must fail; and the question of liability for breach of the Tenancy Agreement by the making of unauthorised Alterations or sub-letting of the Galston Property does not arise. So too, does the claim for unpaid rent fail. (Had the Tenancy Agreement been established, then I would have allowed the sum for rental arrears but would have been inclined to offset those against any contribution to mortgage repayments as contemplated in the in principle agreement that I have found was reached between the parties. I would not have allowed an offset (against the cost of removal of the Alterations) for the value added to the Galston Property as a result of those improvements, since the evidence in respect of value was not persuasive. In any event, on the findings I have made this does not arise.)

Conclusion

564. I have found that there was an agreement in principle (albeit not a binding contract as a matter of law) between Mr and Mrs Tonna on the one hand and Dr Mendonca on the other (reached most likely at the 29 January 2014 meeting but certainly at the latest on 30 January 2014 when the parties took steps to implement that “in principle” agreement) to the effect of that contended for by Mr and Mrs Tonna (albeit that certain aspects of the “in principle” agreement were uncertain). Pursuant to that “in principle” agreement, Mr and Mrs Tonna made payments (until March 2015) directly to meet the mortgage repayments due in respect of the ANZ loan facility entered into by Dr Mendonca at the time of acquisition by her of the Galston Property. Further, as part of that “in principle” agreement, Mr and Mrs Tonna were to have the benefit of occupation of the Galston Property (their “new home”).

565. As it transpired, Mr and Mrs Tonna have had the benefit of occupation of the Galston Property (albeit for some part of the time through a tenant, Mr Nielsen) since the completion of the sale transaction, but, from May 2015, they have not paid the mortgage repayments (or rent, as Dr Mendonca says was required).

566. Up to the period when a request was made (with which Mr and Mrs Tonna were objectively able to proceed) for the transfer to Mr and Mrs Tonna of the Galston Property, which was not until December 2014, the payment by Mr and Mrs Tonna of amounts referable to the mortgage repayments was consistent with the “in principle” agreement. Thereafter, in circumstances where Dr Mendonca refused to recognise any beneficial interest of Mr and Mrs Tonna in the Galston Property and Mr and Mrs Tonna were in a position to proceed with the “in principle” agreement, I consider that it is appropriate that those repayments should be borne as between the parties proportionate to their beneficial interest in the Galston Property since the mortgage repayments (on the original loan facility amount; i.e., not including the increase in the borrowings secured by that facility) will ultimately benefit both owners of the Galston Property.

567. Accordingly, I consider that Mr and Mrs Tonna should account to Dr Mendonca for their proportionate share of the repayments that were required to be made (and were paid by Dr Mendonca) for the original amount of the loan facility from the time that they ceased paying any such payments (which was in March 2015 when Mr Tonna’s evidence is that he was concerned that in light of the freezing orders that he understood had been obtained if he continued to make the repayments they would not “go to the property” – see T 348.19) and that Dr Mendonca should account for her proportionate share of the December 2014 – March 2015 mortgage repayments made by Mr and Mrs Tonna.

568. Since it was contemplated (see the email correspondence from Mr Mendonca referring to Mr and Mrs Tonna’s “new home” and the absence of any contrary position then taken by Dr Mendonca) that Mr and Mrs Tonna would have the benefit of occupation of the Galston Property after its acquisition by Dr Mendonca, I do not consider it appropriate to require Mr and Mrs Tonna to account for the rents obtained from Mr Nielsen during his occupation of part of the Galston Property. However, it was accepted by Mr and Mrs Tonna that (on the assumption that they succeeded in their principal claim) they ought account for amounts paid by Dr Mendonca for items such as insurance premiums, Council rates and water rates in respect of the Galston Property.

569. As to the improvements or alterations effected by Mr and Mrs Tonna to the Galston Property, the amount referable to the boundary fence is nominal in the scheme of things and, as to the new shed, although I accept that this was erected without the consent of Dr Mendonca, it is by no means apparent that this is an alteration which is to the detriment of the Galston Property as a whole (in that it is by no means clear that DA approval could not retrospectively be obtained). Bearing in mind that Dr Mendonca was aware at some point of the requirement by the Council for DA approval and chose to take no action in that regard, I would make no adjustment for that item.

570. The appropriate time for the making of adjustments in relation to contributions made after the acquisition of the Galston Property (which do not count as part of the determination of the proportionate contributions to the purchase price) is likely to be on any sale of the Galston Property (since I assume that it is unlikely that the parties will wish to persist in co-ownership of this property). Therefore, I will make no order in that regard but will invite submissions as to the appropriate way in which account should be made of those adjustments.

Costs

571. As to costs, the general rule, of course, is that they follow the event. In the Tonna Proceedings, the outcome is substantially in favour of Mr and Mrs Tonna – they have obtained recognition of a beneficial interest in the Galston Property, albeit not to the exclusion of Dr Mendonca. They have, however, failed in their claims against Mr Mendonca and Business Services. Accordingly, on a costs follow the event basis, I would be inclined to order that Dr Mendonca pay Mr and Mrs Tonna’s costs of the Tonna Proceedings; and that Mr and Mrs Tonna pay the costs of Mr Mendonca and Business Services of those proceedings.

572. However, it may be that a special costs order is sought by one or other of the parties (perhaps on the basis that there was a mixed outcome in the proceedings or, say, if it were to be argued that Dr Mendonca ought indemnify Mr and Mrs Tonna for the costs they would otherwise have to pay in respect of the costs of Mr Mendonca and Business Services (given the role that Mr Mendonca played as Dr Mendonca’s agent in the arrangements that Dr Mendonca refused to honour and which led to these proceedings)). Therefore, I will reserve the question of costs of the Tonna Proceedings and will make directions for the provision of brief written submissions with a view to dealing with this issue on the papers.

573. In relation to the costs of the Mendonca Proceedings, I am of the view that the costs of those proceedings (in which Dr Mendonca was unsuccessful) should be borne by Dr Mendonca.

Orders

574. Accordingly, for the above reasons, I make the following orders:

In the Tonna Proceedings

1. Declare that the first defendant holds the legal title to the property referred to in these proceedings as the Galston Property on a resulting trust for herself and the plaintiffs in the proportions that reflect their respective contributions to the purchase price for the Galston Property (the precise proportions to be as specified in orders to be entered following determination of the legal costs referable to the conveyancing aspects of the contract for sale to the first defendant of the Galston Property).

2. Order the first defendant to execute and provide to the plaintiffs, within 28 days of the making of orders specifying the proportionate share of the plaintiffs’ beneficial interest in the Galston Property, in accordance with Order 1 above, a transfer in registrable form in respect of the Galston Property to record the plaintiffs’ interest in the Galston Property as declared by Order 1 above.

3. Order the plaintiffs to account to the first defendant for their proportionate share of the mortgage repayments referable to the original amount advanced under the said loan facility (i.e., not the increased amount of the facility drawn down by the first defendant after the acquisition of the Galston Property) from February 2015 (taking into account that an amount was in fact paid by the plaintiffs in May 2015 towards the mortgage repayments) and for there to be a proportionate adjustment of amounts paid by the first defendant in relation to expenses associated with the Galston Property (Council rates, water rates and insurance premiums); such accounting and adjustment to be in accordance with orders to be made following the provision of any further submissions on that issue.

4. Order that, on any subsequent sale of the Galston Property, the first defendant’s proportionate share of the net proceeds of sale be reduced by the amount required to discharge the increased amount of the ANZ loan facility drawn down by the first defendant after the acquisition of the Galston Property.

5. Direct the parties to file short minutes of order to give effect to Order 1 above (as to the proportionate contributions by each of the first defendant on the one hand and the plaintiffs on the other hand to the purchase price, having regard to the conveyancing costs referred to in Order 1 above), and as to the necessary adjustments to be made in accordance with these reasons in relation to expenses paid by the first defendant in respect of the Galston Property, within 21 days (and, failing agreement as to the said proportionate contributions and relevant adjustments, to file and serve brief written submissions on that issue within that time period).

6. Dismiss the plaintiffs’ claim against the second and third defendants.

7. Reserve the question of costs and direct the parties to file brief written submissions on costs within 21 days, with a view to costs being dealt with on the papers.

In the Mendonca Proceedings

1. Dismiss the plaintiffs’ claim with costs.

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Amendments

02 March 2020 - Amendments to parties details on coversheet

Decision last updated: 02 March 2020