Yeshiva Properties No 1 Pty Ltd v Lubavitch Mazal Pty Ltd

[2003] NSWSC 615

CITATION:	Yeshiva Properties No 1 Pty Ltd v Lubavitch Mazal Pty Ltd [2003] NSWSC 615
HEARING DATE(S):	05/05/03; 06/05/03; 07/05/03; 10/06/03
JUDGMENT DATE:	8 July 2003
JURISDICTION:	Equity Division
JUDGMENT OF:	Young CJ in Eq
DECISION:	Plaintiffs' case dismissed with costs. Orders sought in the cross claim should be made.
CATCHWORDS:	ARBITRATION [29]- Application for stay- Alleged agreement for rabbinic arbitration- Whether "arbitration" within Commercial Arbitration Act 1984- Held agreement subject to non-fulfilled condition. CONTRACT [109]- Abandonment- Whether an agreement for arbitration was abandoned by inactivity. ESTOPPEL [33]- Promissory estoppel- Alleged promise that liability under deeds would not be enforced.
LEGISLATION CITED:	Commercial Arbitration Act 1984, ss 4(1), 47, 53(1)(2)
CASES CITED:	ABB Power Plants Ltd v Electricity Commission of New South Wales (1995) 35 NSWLR 596 Abernethy v Deitz (1996) 39 NSWLR 701 Abner Soleimany v Sion Soleimany [1999] QB 785 Anderson v GH Michell & Sons Ltd (1941) 65 CLR 543 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Australian Granites Ltd v Eisenwerk Hensel Bayreuth Dipl-Ing Burkhardt GmbH [2001] 1 Qd R 461 Bulk Chartering & Consultants Australia Pty Ltd v T & T Metal Trading Pty Ltd (The Krasnogrosk) (1993) 31 NSWLR 18 Cohen v Baram [1994] 2 Lloyd's Rep 138 Cole v Cottingham (1837) 8 Car & P 75; 173 ER 406 Compagnie des Messageries Maritime v Wilson (1954) 94 CLR 577 Construction Engineering (Aust) Pty Ltd v Tambel (Australasia) Pty Ltd [1984] 1 NSWLR 274 Dewhurst v Edwards [1983] 1 NSWLR 34 Doleman & Sons v Ossett Corp [1912] 3 KB 257 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 Fletcher Construction Australia Ltd v MPN Group Pty Ltd (NSWSC, Rolfe J, 14.7.1997) Giumelli v Giumelli (1999) 196 CLR 101 Green v Johnstone [1995] 2 VLR 176 Hooper Bailie Associated v Natcon Group Pty Ltd (1992) 28 NSWLR 194 Huddart Parker Ltd v The Ship "Mill Hill" (1950) 81 CLR 502 Imperial Leatherware Co Pty Ltd v Macri & Marcellino Pty Ltd (1991) 22 NSWLR 653 Jenkins v Wynen [1992] 1 Qd R 40 Krantz v Hand [1999] NSWSC 432 Kurt Keller Pty Ltd v BMW Australia Ltd [1984] 1 NSWLR 353 Masters v Cameron (1954) 91 CLR 353 Naumann v Edward Nathan & Co (1930) 37 Ll L Rep 249 New South Wales v Banabelle Electrical Pty Ltd [2002] NSWSC 178 Petredec Pty Ltd v Tokumaru Kaiun Co Ltd (The "Sargasso") [1994] 1 Ll Rep 162 PMT Partners Pty Ltd (In liq) v Australian National Parks and Wildlife Service (1995) 184 CLR 301 Qantas Airways Ltd v Dillingham Corporation (1985) 4 NSWLR 113 Racecourse Betting Control Board v Secretary for Air [1944] Ch 114 Riesenberg v Weinberg [1959] SR (NSW) 106 Royal Society for the Prevention of Cruelty to Animals (Victoria) Inc v Marson Constructions Pty Ltd (2000) 1 VR 274 Scrimaglio v Thornett & Fehr (1924) 17 Ll L Rep 148 The Hannah Blumenthal [1983] 1 AC 854 The King v Poole; Ex parte Henry (1938) 61 CLR 1 The Leonidas D [1985] 1 WLR 925 The Scaptrade [1983] QB 529 Triarno Pty Ltd v Triden Contractors Ltd (1992) 10 BCL 305
PARTIES :	Yeshiva Properties No 1 Pty Limited Yeshiva Properties No 2 Pty Limited Yeshiva Properties No 3 Pty Limited Yeshiva Properties No 4 Pty Limited Yeshiva Properties No 5 Pty Limited Yeshiva Properties No 6 Pty Limited (P) Lubavitch Mazal Pty Limited (D)
FILE NUMBER(S):	SC 5361/02
COUNSEL:	M Pembroke SC, J Stevenson and L Menzies (P) B W Walker SC, CRC Newlinds and I D Martindale (D)
SOLICITORS:	McCabe Terrill (P) Schetzer Brott & Appel (Melbourne) (D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG CJ in EQ

Tuesday 8 July July 2003

5361/02 – YESHIVA PROPERTIES NO 1 PTY LTD & ORS v LUBAVITCH MAZAL PTY LTD

JUDGMENT

1 HIS HONOUR: The plaintiffs, a group of corporations owning properties in the Eastern Suburbs of Sydney which are primarily used for the purposes of operating religious schools and a synagogue, sue the defendant for declarations that the defendant is not entitled to realize those properties as their mortgagee until some rabbinical arbitration has run its course. Alternatively they seek a declaration that the defendant is estopped from so realizing those properties.

2 The plaintiffs are trustees of the Sydney Talmudical College Building & Maintenance Fund which carries on religious and educational activities under the name “Yeshiva” in accordance with the principles of Orthodox Judaism practised by the Lubavitch movement. The plaintiffs are under the day to day control of one Rabbi Pinchus Feldman.

3 The defendant is the trustee of The Lubavitch Mazal Trust established by deed of settlement of 21 December 1994 and is under the effective practical control of Rabbi Joseph Gutnick. The defendant was, in fact, only incorporated on 21 December 1994.

4 Rabbi Feldman and Rabbi Gutnick are brothers-in-law.

5 As at December 1994, the plaintiffs’ eight properties at Bondi described in paragraph 7 of the latest version of the statement of claim or at least most of them were mortgaged to the Commonwealth Bank of Australia.

6 The Bank made it clear to the plaintiffs that, unless it was repaid what was owing to it, an amount it claimed of some $24,000,000.00, it would seek to take possession of the properties mortgaged to it.

7 In order to avoid that situation, two sets of transactions were entered into by the plaintiffs. The first set was with the defendant involving a loan agreement dated 29 December 1994 (referred to in these reasons as "the loan agreement") supported by mortgages over the first six properties listed in paragraph 7 of the statement of claim. The second set of transactions was with Nelvet Pty Ltd, a company controlled by a Mr Scheinberg which involved mortgages over the other two properties (listed 7 and 8) as well as various other properties.

8 There was also what was described as a "Side Deed" between the defendant and Nelvet Pty Ltd.

9 What then occurred was that the defendant agreed to pay $5,000,000.00 to the Commonwealth Bank by way of ten payments of $500,000.00 each and the Commonwealth Bank assigned to the defendant promissory notes signed by the plaintiffs with a face value of $10,660,269.23 and also assigned to the defendant mortgages over ten pieces of real estate owned by the plaintiffs, which ten pieces were called by the parties "the core properties".

10 Nelvet outlaid a further five million dollars in that it paid $2,401,335.00 to the Commonwealth Bank and loaned a further $2,548,665.00 to the plaintiffs on the terms of the Nelvet loan agreement. The Bank assigned promissory notes signed by the plaintiffs with a face value of $10,660,269.24 payable on demand to Nelvet.

11 The effect of these transactions was that the Commonwealth Bank had taken what in commercial argot is known as “a haircut” and taken $10,000,000.00 in full satisfaction of its debt of about $24,700,000.00. Apart from incidental mention from time to time, it is unnecessary to refer further to the Nelvet part of the transactions.

12 It must be noted that the particular loans made by the Bank which made up the $24,000,00.00 were deliberately kept in separate existence. Thus particular loans, amounting to $4,400,000.00, which were included in the loans assigned to the defendant were loans which attracted interest subsidies from the State Government with its program of assisting schools with capital works. The parties made contact with the Department of Schools Education and cleared with the Department that the subsidies would continue to be payable.

13 What occurred in practice for some time after December 1994 until February 1996 was that the plaintiffs paid the defendant interest on its loan and collected the subsidy from the Government including subsidy in respect of back interest due to the Bank. The defendant donated the amount received back to the plaintiffs.

14 It is now necessary to detail the documents signed by the parties in December 1994.

15 The loan agreement was prepared by a well known firm of Sydney solicitors. It recited that the defendant had agreed to pay five million dollars by instalments at the request of the plaintiffs. It fixed an interest rate of 12.5% per annum and a repayment date of 24 December 1999. However, there was provision for the defendant to demand repayment at any time after this date and a provision permitting the plaintiffs to pay off the loan earlier. The parties agreed that NSW was the proper law of the contract and agreed that the courts of NSW had non-exclusive jurisdiction to determine any matter arising out of the loan agreement.

16 The Side Deed contained many provisions, but the only relevant ones for present purposes are that it provided that the interest payable to the defendant was to be 12.5% only in respect of the subsidized loans and 10% for the remainder, and that the defendant would donate back to the plaintiffs' trust fund the first two years' interest and any interest received over 10%. In the case of inconsistency, the Side Deed was to prevail.

17 It is conceded by both parties that the transaction documents were genuine and effective according to their terms.

18 Certainly by the end of 1999, it was made clear to the plaintiffs that the defendant required the loan to be repaid. This put the plaintiffs in the position of having to negotiate with the defendant or having to sell some of the properties over which it held security, refinancing or maintaining that the defendant was not entitled to repayment.

19 Refinancing did not seem a viable option and negotiation with the defendant was unsuccessful. The plaintiffs were extremely reluctant to sell any of its properties which it said were vital for them to conduct their schools and synagogue. The plaintiffs considered that they had good grounds for opposing the need to repay the loans and so mounted these proceedings.

20 The plaintiffs seek to resist the defendant’s demands on two grounds:

(a) that the parties have agreed that their dispute be arbitrated by a rabbinical court and that the defendant should be restrained from proceeding to enforce its demands until that arbitration has concluded;

(b) that the defendant is estopped from claiming that the arrangement was one of loan; rather the five million dollars was a gift to the plaintiffs.

21 The defendant disputes both those grounds. It has also filed a cross claim which seeks judgment for $14,275,038.83. This sum is made up of $5,660,269.33 being the non-interest bearing face value of the promissory notes plus the five million dollars and interest thereon at 10% plus incidental expenses. The defendant also seeks possession of the mortgaged properties.

22 It is thus necessary to deal with the two principal questions and then consider what flows from the answers to them. Thus, I will consider the matter under the following heads viz:

A. Should the proceedings be stayed pending rabbinical arbitration?

B. Is there any binding estoppel preventing the defendant from asserting its claims under the documents of 24 December 1994?

C. In the light of the decision on issue B, what relief should be given?

23 The proceedings were dealt with by me in the Expedition list. They were initially set down for two periods of three days each for a very good reason which ceased to have relevance soon after the hearing commenced. The hearing commenced on 5 May 2003, continued on 6 and 7 May, when the evidence finished. The next scheduled day was 10 June, which was devoted to submissions. I then reserved my decision.

24 At the hearing, Mr M Pembroke SC, Mr James Stevenson and Mr L Menzies appeared for the plaintiffs, and Mr BW Walker SC, Mr CRC Newlinds and Mr I D Martindale appeared for the defendant.

25 I am grateful to all counsel for the concise way in which they presented the evidence and the thorough yet efficient way in which they presented written, oral and electronic submissions.

26 Before dealing with the questions, I should note that the main factual evidence is to be found in the documents. However, there is a very severe contest on the credit of both Rabbi Feldman and Rabbi Gutnick which I will endeavour to resolve when I consider issue B.

27 A. This claim is based on s 53(1) of the Commercial Arbitration Act 1984, with a subsidiary base on s 47 of that Act.

28 The essential facts on which the plaintiffs rely are that on 19 October 2001, an injunction was sought in the Rabbinic Court of Tel Aviv against the sale of the relevant properties.

29 The application (PX249) was said to be made by Rabbi Pinchus Feldman Yeshiva Properties Sydney Australia. The defendant was named in a rather curious way with the words "Rabbi Joseph Gutnick" appearing above the words "Lubavitch Mazel [sic]".

30 The application asserted that Rabbi Feldman conducts institutions including schools and synagogues “held in the formal name of Yeshiva Properties”. It is then said that the defendant bought half of the debt that the plaintiff owed to a bank so that he could collect a $12,500,000.00 tax deduction. Further that the defendant undertook that that debt would never be realized. It was claimed that realization will cause irreparable damage to the whole Jewish community. The claim went on to say that Rabbi Gutnick owes large amounts of money to the plaintiff and that “the plaintiff is prepared with many additional claims to be presented to the court.” The court purported to grant an injunction restraining enforcement of the defendant’s securities.

31 Other material suggests that the claim for large sums of money refers to a claim made by Rabbi Feldman that Rabbi Gutnick owes sums of money by way of commission for the introduction of business. The claims have not been quantified.

32 On 22 October 2001, in a document in which Rabbi Feldman was said to be the plaintiff and Rabbi Gutnick, the defendant, Rabbi Gutnick said that some of the claims were totally false, that Rabbi Feldman uses strongarm tactics so that no non-enforceable decision of a rabbinic court was of any use, but that Rabbi Gutnick was “prepared to attend a din torah of zablo in Australia through a deed of arbitration that is enforceable by the local courts.”

33 The next relevant communication was a letter from the plaintiffs’ Sydney solicitors to the defendant’s Sydney solicitors dated 12 November 2001. This letter, which was said to be “RE YESHIVA PROPERTIES NO 1 PTY LIMITED AND ORS AND LUBAVITCH MAZAL PTY LIMITED”, so far as is relevant said:

“Your client’s response proposes an alternative form of dispute resolution by way of the matter being determined by a Beth Din in Australia by mechanism of the Zoblow[sic] procedure. Our clients accept that the dispute should be determined by an Australian Beth Din in accordance with such procedure and further accepts your client’s proposal that such decision be taken between the parties to be legally binding upon them.
In these circumstances, our clients will advise you of the name of the Rabbi that they nominate for that purpose in the very near future and looks forward to hearing from you as to the appointee to be nominated by your client.”

34 Although it was not completely clear to me, it would seem that “Beth Din” means “tribunal” and the Zablo procedure involves the tribunal being constituted by three Rabbis, one appointed by each side and the third chosen by the first two.

35 On 2 November, the Tel Aviv court was notified by Rabbi Gutnick’s representative that he desired to have a “Din Torah of Zablo in Australia through a legal document that is enforceable in Australia.”

36 On 12 November 2001, Rabbi Gutnick’s representative informed the Tel Aviv court that he had selected Rabbi Berger of London as his representative for the Zablo.

37 On 22 November, 2001, Rabbi Feldman’s representative nominated Rabbi Grauss of New York and indicated that “it has been agreed to appoint as the third Rabbinical Arbitrator … Rabbi Rosenberg from Monsey, USA”.

38 Whilst this was going on, the solicitors were engaged in correspondence as to whether the defendant would give any undertaking not to realize the securities. This correspondence tended to follow the line that senior and junior counsel had advised the plaintiffs that they had “additional equitable rights” beyond those appearing in the documents and that the defendant was not entitled to realize its securities. It was also apparent that the plaintiffs’ solicitor had broadcast that claim to third parties. The defendant’s solicitor was saying that the plaintiffs should not inform third parties of non-existent equitable rights and that they would not proffer the required undertakings.

39 Nothing then happened until correspondence was resumed in October 2002. During the lull, the defendant took no steps to realize the properties and neither party took any step to progress the arbitration. In particular, no arbitration deed was sealed between them. The reason for the lull is of little moment. It may well have been because friendly relations between the rabbis was temporarily restored.

40 By letter of 4 October 2002, the plaintiffs’ solicitor asserted that an agreement was reached “some time ago” to have the dispute referred to rabbinical arbitration. The defendant’s solicitor replied denying that any such agreement was reached.

41 Rabbi Feldman then again approached the court at Tel Aviv seeking orders after an alleged contempt of court. These approaches have little consequence save that in document PX301 of 6 November 2002, Rabbi Gutnick’s representative queried the jurisdiction of the Tel Aviv court “more so, that the defendant agreed to be judged … by a Rabbinical Arbitration Court in Australia.”

42 At the same time, there was correspondence between the parties' solicitors in Australia. In late October 2002, the plaintiffs’ solicitor advised that they would be proceeding to obtain relief in this court if the threat to realize the relevant properties was not lifted. The defendant’s solicitors replied that it would lift the threat on certain conditions which in summary were that the plaintiffs forthwith issue a summons, provide an undertaking as to damages, agree to a suggested timetable for pleadings and evidence and seek an expedited hearing. The plaintiffs’ solicitors replied on 31 October 2002 that they agreed with all those matters.

43 The only other fact that is relevant to the present question is that about 3 June 2002, the defendant received a letter on letterhead marked “The Yeshiva Centre, a business name of Sydney Talmudical College Association (Dean and Spiritual leader: Rabbi Pinchus Feldman)" requesting the defendant to confirm to its auditors that it was owed $8,195,428.88 plus subordinated debt of $5,666,000.00 with accrued interest to date of $777,603.88, the interest rate being 10%.

44 The plaintiffs say that there was an arbitration agreement in this case within the definition contained in s 4(1) of the Commercial ArbitrationAct. They point to the authorities, such as Bulk Chartering & Consultants Australia Pty Ltd v T & T Metal Trading Pty Ltd (The Krasnogrosk) (1993) 31 NSWLR 18, that one does not necessarily look for some formal document, but an informal exchange of correspondence may suffice. No-one gainsays this point.

45 Then it is put that even though the parties each wrote to the Tel Aviv court and not to each other, there can still be offer and acceptance when the scenario exists that each party uses a third party as a channel of communication; see Cole v Cottingham (1837) 8 Car & P 75; 173 ER 406. Again no-one gainsays this point.

46 Then it is put that there was a binding offer and acceptance in the instant case and thus an arbitration agreement.

47 The defendant says:

(a) There was no binding arbitration agreement;

(b) If there was such an agreement it was subject to two conditions precedent neither of which has occurred, viz:

(i) There was no deed of arbitration;

(ii) There was no proper appointment of a third arbitrator;

(c) Any provisional agreement for arbitration was superseded by the agreement between solicitors that the matter proceed in this court;

(d) Any agreement for arbitration was abandoned;

(e) There is no power in the court to stay this action;

(f) Section 53(1) of the Commercial Arbitration Act does not apply to this case;

(g) If the court has power to stay the cross claim, it should not, in its discretion, exercise that power in the plaintiffs’ favour.

48 In my view the propositions advanced by the defendant are substantially correct. I will briefly explain why this is so.

49 As to (a), the defendant says that the parties never reached a consensus as to the dispute that they were referring to arbitration. The plaintiffs’ representative before the Tel Aviv court does not clearly identify parties, and groups together claims made by Rabbi Feldman personally against Rabbi Gutnick personally together with claims by the present corporate plaintiffs against the present corporate defendants. The fact, if it be the fact, that the Tel Aviv court has no concept of corporate personality nor the drawing of the corporate veil is irrelevant except insofar as it may demonstrate that that court or any subsidiary tribunal under the same system is not in a position to deal with the present dispute between corporations. Furthermore, the two Rabbis would seem to be necessary parties both to the present suit and the arbitration agreement.

50 However, the problem goes deeper. Whilst the dispute over the defendant’s right to realize its securities is clear, the money claim for commission by Rabbi Feldman is not particularized though it would appear that this has nothing to do with any charity. Furthermore there are the undefined claims under the head “the plaintiff is prepared with many additional claims to be presented to the court.”

51 The plaintiffs say that there was sufficient certainty. They submit:

(i) The term “din torah of zablo” described the procedure sufficiently to enable acceptance without further elaboration. They argue that the present situation should be compared with agreements to arbitrate “in London in the usual way” which has been upheld as being sufficiently certain in cases such as Scrimaglio v Thornett & Fehr (1924) 17 Ll L Rep 148 and Naumann v Edward Nathan & Co (1930) 37 Ll L Rep 249.

(ii) If further details of procedure remained to be resolved (which is said not to be this case), their absence would not render the arbitration agreement uncertain. Such matters of procedure may be decided by the arbitrator: Fletcher Construction Australia Ltd v MPN Group Pty Ltd (NSWSC, Rolfe J, 14 July 1997, unreported) citing Triarno Pty Ltd v Triden Contractors Ltd (1992) 10 BCL 305 at 307 (Cole J);

(iii) The subject matter of the proposed arbitration included “all” of the matters that were initially raised before the Rabbinical Court of Tel Aviv as being relevant to whether the defendant was entitled to sell the properties. These included (1) the defendant’s entitlement to realize the securities and its associated claim to recover pursuant to the loan and security documentation; and (2) monies alleged to be owing by the defendant or Rabbi Gutnick.

52 Again, I find the correct statement of general propositions, relatively unhelpful in resolving the present dispute. There certainly can be cases where defects in procedure and even lack of clear definition of the ambit of the dispute can be left to the arbitrators. However, in the instant case, it is just too uncertain to say the "all" disputes between any entity of which Rabbi Feldman was a stakeholder on one side and Rabbi Gutnick on the other were to be decided by rabbis.

53 As to (b), the plaintiffs say that:

(i) The agreement, properly characterised, did not require entry into a deed before the parties would be contractually bound. Rabbi Gutnick’s intention expressed in paragraph 3 of the letter to the Rabbinical Court was that any decision of an arbitration panel should be enforceable in New South Wales. This principle was agreed to and acknowledged in the acceptance by the plaintiffs’ solicitors. Neither party subsequently thought it necessary that a formal deed need be brought into existence.

(ii) Even if the parties did intend that a further document be created (which they say is not this case), the arbitration agreement was intended to be binding immediately and was an agreement falling within either the first or fourth classes in Masters v Cameron (1954) 91 CLR 353 at 360.

54 They then say that the subsequent conduct of the parties can be looked at to determine whether an agreement came into existence: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 551. This is undoubtedly correct. They say that the subsequent conduct, confirmatory of an agreement having come into existence, is as follows:

(i) the absence of any contradictory response on behalf of the defendant to the statements made by the plaintiffs’ solicitors that an “ agreement ” had been reached; see Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 528, 531 (Kirby P) and at 534-535 (McHugh JA);

(ii) the nomination of an arbitrator by each party;

(iii) Rabbi Gutnick’s failure, following the agreement, to take any “practical steps” or to act on the statutory notices served on 11 October 2001, and Rabbi Gutnick’s preparedness to “maintain the status quo”;

(iv) The defendant’s subsequent acknowledgment on 6 November 2002 of an agreement in paragraph 6 of its appeal to the Supreme Rabbinical Court of Jerusalem. A document conceded by Rabbi Gutnick in evidence to represent his position correctly.

55 Again the plaintiffs’ submissions move from correct general proposition as to what may be inferred to suggest that I should infer something in this case. The Empirnall case goes no further than to note that the conduct of the parties may enable a court to find that there has been a contract made.

56 In the present case, the conduct of the parties between November 2001 and October 2002 is unexplained, but, as I have said, the most likely inference is that relations between Rabbi Feldman and Rabbi Gutnick temporarily improved. I would not read anything into what happened or did not happen in this period as conduct either confirming or disclaiming a contract.

57 The vital fact is that Rabbi Gutnick made it clear at all times that the arbitration had to be one where the result was binding in Australia, and was to be properly documented. There was clear insistence on this provision by Rabbi Gutnick throughout the Tel Aviv court process, even though one might be able to point to the odd document where a more general statement was made. To this is added the vagueness as to what dispute and between what parties the arbitrators were to decide a matter which could only be remedied by a proper document.

58 In my view, this case is one within the third class described in Masters v Cameron that is, that the parties did not intend there to be a binding contract until the formal document was executed.

59 On the point as to the third arbitrator not being properly appointed, the plaintiffs submit that the fact that a third arbitrator has not yet been appointed does not affect the existence of the arbitration agreement. They say that the appointment of the third arbitrator is not a step to be performed by the parties. The arbitration agreement may be found to exist, notwithstanding that the nominated arbitrators have not yet appointed a third arbitrator. This is all the more so where the parties have agreed to arbitrate pursuant to a recognised procedure, the Zablo procedure, which necessarily involves the appointment by the two nominated arbitrators of a third arbitrator.

60 A binding arbitration agreement may exist in circumstances where:

(a) two parties to a dispute each nominate an arbitrator; and

(b) it is intended by the parties that the two nominated arbitrators would nominate a third arbitrator;

even if the third arbitrator is never nominated; see Petredec Pty Ltd v Tokumaru Kaiun Co Ltd (The "Sargasso") [1994] 1 Ll Rep 162, 166.

61 This proposition may be accepted in general. However, there will be cases where the appointment of the third arbitrator may be made by the parties a condition precedent to the coming into force of the arbitration agreement. It seems to be that this is so in the present case. Rabbi Gutnick really or fancifully took the view that Rabbi Feldman was a man accustomed to use strongarm tactics and who would not be content to give up his legal rights unless there was a watertight arbitration process in place whose decision could be appropriately enforced. However, in view of what I have said about the Masters v Cameron point, the matter is probably academic.

62 As to (c), I find it difficult to read the correspondence between the solicitors in October 2002 to which I have referred in any way other than, if the dispute between the parties over the right to realize the properties was dealt with in this court expeditiously, both parties would co-operate in achieving that result. This conclusion means that any prior arrangements or contract must be treated as abandoned or superseded.

63 As to (d), there was some discussion as to whether there had been abandonment of the arbitration agreement. Plaintiffs’ counsel noted that an election to abandon rights under an arbitration agreement must be unequivocal and cited Australian Granites Ltd v Eisenwerk Hensel Bayreuth Dipl-Ing Burkhardt GmbH [2001] 1 Qd R 461, 469-470, to support that proposition.

64 In England, the general principles governing when a contract is deemed abandoned are that “The party seeking to establish abandonment of a contract must show that the other party so conducted himself as to entitle him to assume, and he did assume, that the contract was agreed to be abandoned", Chitty on Contracts 28th ed (Sweet and Maxwell, London, 1999) at 23-027, a proposition mainly based on The Hannah Blumenthal [1983] 1 AC 854, 924 and The Leonidas D [1985] 1 WLR 925.

65 This analysis really requires an offer by silence to be accepted by silence and has not appealed logically to the Australian legal mind. However, the practical effect of inferring abandonment after a period of time seems to reach the same result; see DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 434.

66 I do not consider that there is a sufficient length of time elapsed or other circumstances in the instant case to infer abandonment.

67 As I have found that there is no binding arbitration agreement, it is really unnecessary to pursue the arguments as to law and jurisdiction, but, as they have been canvassed in detail by counsel and because this matter may be the subject of an appeal, I will briefly consider them.

68 I will consider (e) and (f) together.

69 Counsel for the defendant says that arbitration agreements are not and never have been the subject of specific performance by courts of equity, nor does equity grant injunctions to restrain breaches of arbitration agreements. Counsel cite Doleman & Sons v Ossett Corp [1912] 3 KB 257; Anderson v GH Michell & Sons Ltd (1941) 65 CLR 543; The King v Poole; Ex Parte Henry (1938) 61 CLR 1 and Compagnie des Messageries Maritime v Wilson (1954) 94 CLR 577, 586.

70 The plaintiffs acknowledge that this is so. However, they say the object behind the grant of a stay or the grant of an injunction, is to effect such relief as will have the practical result of compelling adherence to the parties’ bargain. They cite Hooper Bailie Associated v Natcon Group Pty Ltd (1992) 28 NSWLR 194 at 210 (Giles J); Racecourse Betting Control Board v Secretary for Air [1944] Ch 114 at 126; New South Wales v Banabelle Electrical Pty Ltd [2002] NSWSC 178 at para [29] (Einstein J) and Mustill & Boyd, The Law and Practice of Commercial Arbitration in England, 2nd ed (Butterworths, London, 1989), at p7.

71 The plaintiffs say that a cardinal principle of both equity and the law of arbitration is that once an agreement is found to have been made, the governing principle which informs the grant of relief is that the parties will ordinarily be required to adhere to their bargain. They cite a large number of cases including Qantas Airways Ltd v Dillingham Corporation (1985) 4 NSWLR 113 at 117 (Rogers J); ABB Power Plants Ltd v Electricity Commission of New South Wales (1995) 35 NSWLR 596 at 615 (per Cole JA); Huddart Parker Ltd v The Ship "Mill Hill" (1950) 81 CLR 502 at 508-509 and PMT Partners Pty Ltd (In Liq) v Australian National Parks and Wildlife Service (1995) 184 CLR 301 at 321.

72 However, again, one must not be misguided by the citation of these authorities into thinking that the process by which parties are held to their bargain is other than per medium of orders under ss 53 and 47 of the Commercial Arbitration Act.

73 Section 53 of the Act, so far as is relevant provides:

"(1) If a party to an arbitration agreement commences proceedings in a court against another party to the arbitration agreement in respect of a matter agreed to be referred to arbitration by the agreement, that other party may, subject to subsection (2), apply to that court to stay the proceedings and that court, if satisfied:


(a) that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement, and

(b) that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary for the proper conduct of the arbitration,

may make an order staying the proceedings and may give such further directions with respect to the future conduct of the arbitration as it thinks fit.
(2) An application under subsection (1) shall not, except with the leave of the court in which the proceedings have been commenced, be made after the applicant has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance.”

74 It is not necessary to set out s 47. The power of the court to grant injunctions and the discretionary factors involved are well known.

75 Plaintiffs’ counsel cite numerous authorities as to the power of the court to act under these sections which it is unnecessary to set out. They further submit that the power under s 53 extends to stay a cross claim and they cite Royal Society for the Prevention Of Cruelty to Animals (Victoria) Inc v Marson Constructions Pty Ltd (2000) 1 VR 274, 282.

76 Defendant’s counsel submit that the passage referred to in the Marson case is of no authority. They point out that it occurs in the minority judgment of Ormiston JA and the judgments of the majority tend not to support it. They also say that other authorities referred to by the plaintiffs, Construction Engineering (Aust) Pty Ltd v Tambel (Australasia) Pty Ltd [1984] 1 NSWLR 274, 278 and Imperial Leatherware Co Pty Ltd v Macri & Marcellino Pty Ltd (1991) 22 NSWLR 653, 666 are of no assistance on the present point.

77 I consider the defendant’s counsels’ submission is correct. However, the point is really academic in this case. Ormiston JA classed the builder’s cross claim in the Marson case as being for all intents and purposes a separate proceeding. That could not be said in the instant case. The plaintiffs had, in accordance with their agreement with the defendant’s solicitor instituted proceedings in this court in which they sought a declaration about the arbitration agreement, alternatively a declaration as to an estoppel and an injunction to prevent sale of the relevant properties. The cross claim was for sale of the properties: it was just the mirror image of the claim.

78 In my view, except, perhaps in the situation where the cross claim is really a completely separate claim divorced from the plaintiff’s claim, the whole tenor of the section shows that it applies where a party to an arbitration agreement, in breach of that agreement commences proceedings in a court.

79 I agree with the further submission of counsel for the defendant that whilst s 53 of the Commercial Arbitration Act gives the court power to stay proceedings commenced in contravention of an arbitration agreement, there is no basis for making a stay where the applicant for the stay has commenced the proceedings and a cross claim is filed in response thereto.

80 There is also difficulty in finding that the case comes within the section at all for the reasons already canvassed. Is the current proceeding between corporations a proceeding by a party to the arbitration agreement against another party? Is it in respect of a matter agreed to be referred to arbitration? Does not subsection (2) disqualify the plaintiffs from making this application?

81 There is then the further point that the current agreement is not an agreement to arbitrate at all. An arbitration agreement ordinarily requires the arbitrators to decide the dispute in accordance with the law of the contract. The law of the contract in the present case is NSW law. It is clear that, in a rabbinical arbitration the rabbis will decide the dispute in accordance with some religious principles and not necessarily in accordance with NSW law at all. It would also appear that they do not recognize any of the corporate parties to these proceedings as having any independent existence.

82 Plaintiffs' counsel submit that rabbinic arbitration is well recognised as an appropriate dispute resolution process the result of which is capable of enforcement by the courts of civilised countries. They cite a large number of authorities including many cases decided in the USA which give me no guidance. The Australian and English authority relied upon is Riesenberg v Weinberg [1959] SR (NSW) 106; Cohen v Baram [1994] 2 Lloyd’s Rep 138 (UK Court of Appeal) and Abner Soleimany v Sion Soleimany [1999] QB 785.

83 This citation of authority does not get very far. The Riesenberg case was one where, although the arbitration was by the Sydney Beth Din, it was held that it had to apply NSW law. The Abner Soleimany case was one where the arbitrators applied Jewish law, but the arbitration was not enforced in England because the transaction was illegal by English law though not by Jewish law.

84 It seems to me that s 53(1) may only apply to a case where the parties have agreed to arbitrate their dispute under the proper law of the contract. However, it is not necessary to decide this point in this case and I do not do so. However, this matter must be considered when assessing whether there is sufficient reason not to require the case to go to arbitration.

85 (g) Both sides acknowledge that, if there is power to make an order under section 53, whether the order is made or not lies in my discretion.

86 The plaintiffs say that the discretion should be exercised in their favour. They point to the following:

(i) Both Rabbi Feldman and Rabbi Gutnick are Rabbis and leading members of the orthodox Jewish community. Each professes to be devout and to conduct his life in accordance with the principles of his faith. Those principles include the resolution of disputes with other orthodox Jews by a rabbinic court or rabbinic arbitration.

(ii) It was Rabbi Gutnick who first proposed Rabbinic arbitration and who reiterated his position in 2002. On each occasion, Rabbi Gutnick was seeking to advance his position, as he perceived it, before the Rabbinical court in Tel Aviv. The injunction is sought to prevent Rabbi Gutnick and the defendant resiling from the position which they had previously taken.

(iii) It is apparent that there are features of the body of religious law and principles which may be applied by a tribunal of three Rabbis sitting in a rabbinic arbitration which are different from those which this court could apply. Some of those different features relate to the entitlement to charge interest and the validity of any dispensation (or heter iska), the notion that a profit shall not be made from a charity, non-recognition of corporate entities, the exercise of mortgage securities, and the entitlement to set off claims such as those asserted in the request for injunction.

(iv) The grant of the injunction sought would ensure that the parties resolved their dispute in the forum of their choice and in accordance with Rabbi Gutnick’s stated preference. Rabbinic arbitration is an appropriate forum for resolution of this dispute which involves Jewish law and is subject to an arbitration agreement. Rabbinic arbitration is a process with which each party is familiar and to which each is attached by cultural and religious ties, which will be adjudicated by their peers, having regard to all issues and contentions which each party is legitimately entitled to raise in that forum.

(v) Proper account is to be taken of religious beliefs as far as the law allows: Abernethy v Deitz (1996) 39 NSWLR 701 at 709 (per Mahoney P). In a multicultural society, great weight should be given to the cultural and spiritual laws and practices of the various cultural groups forming our society: Krantz v Hand [1999] NSWSC 432 at para 36 (Wood CJ at CL, citing Green v Johnstone [1995] 2 VLR 176 per Beach J at 179).

87 In my view, these submissions overemphasize the proposition, which is doubtful in any event, that Rabbi Gutnick chose rabbinic arbitration. The contract documents say that the disputes are to be dealt with under NSW law. It was Rabbi Feldman who sought to get the advantage of approaching the Tel Aviv court and obtaining an ex parte injunction on a statement of a case which has never been supported (at least so far as it claimed that the whole scheme was to get Rabbi Gutnick a large tax concession). Anything that Rabbi Gutnick did was to protect his position as an orthodox Jew in the light of that injunction which appeared to have no force, but yet must have concerned Rabbi Gutnick because of his religious principles.

88 I believe that I have already considered the other matters mentioned in the plaintiffs’ submissions as to discretion.

89 Defendant’s counsel point to a number of factors pointing in the other direction. These principally refer to the doubt as to whether a rabbinic court can properly deal with a series of disputes between parties who are both individuals and corporations, questions of estoppel arising under principles of equity and concepts of promissory estoppel.

90 The defendant's counsel also reminded me that so far as the injunction was concerned, the plaintiffs never at any time offered to do equity by making any payment on account of interest or otherwise. This is indeed a most relevant factor.

91 Because I am of the view that there is no arbitration agreement, s 53 is inapplicable and that if I have a discretion, I would exercise it against granting a stay, the first part of the plaintiffs’ case fails.

92 B. The plaintiffs put their case on estoppel in the following way. There were many statements made to Rabbi Feldman by Rabbi Gutnick that, despite what the documents said, he or the defendant would hold the relevant properties on behalf of the plaintiffs, not charge interest to the detriment of the plaintiffs and not exercise any power of sale.

93 The substance of Rabbi Feldman’s evidence about the representations relied on by the plaintiffs was that Rabbit Gutnick said words to the effect that in the event of default he would hold the properties for the benefit of the Yeshiva and to protect the Yeshiva and that the defendant would only be entitled to exercise its rights in respect of the properties if the Yeshiva ceased to exist as a result of the imposition of an insolvent administration.

94 I should refer to some of Rabbi Feldman's evidence in detail.

95 In his first affidavit, PA01, paras 28-30, Rabbi Feldman said:

"In or about October, 1994, I had a conversation with Gutnick in which words to the following effect were said:
JG: 'I am prepared to provide $5 million to help you settle with the bank.
'I am well aware of the fact that you will never be able to repay this amount of money as I know that you need to raise millions of dollars just to continue to look after the needy children in Sydney and continue to do the work of the Rebbe in looking after the needy, I none the less want it documented as a loan for my business purposes.
'I will never sell you up. I will hold the properties on your behalf.'
RPF: 'The way the deal can be structured by your lawyers is that you should be able to transform the debt into a donation since you would be buying the debt from the Bank the result may be not only a deduction for the capital and notional interest, but also for the additional $7.2 million. So the gift may really cost you nothing.'
JG: 'If that situation would arise, that would be beneficial. It will be a pleasure to help you particularly when it costs me nothing. I have decided I want to look after the community even in circumstances where Scheinberg will want his money back. The Scheinbergs may at some stage sell you out but I will never sell you out and it is my intention that my assistance at this stage will guarantee for you that you will never have to worry about the future of the Yeshiva. I will never sell you up. The loan documentation, which my lawyers will require, suits me for business purposes but will never be used to sell you up. I should have the same loan documentation as the Scheinbergs. Of course should the Yeshiva go bankrupt this documentation will help ensure that your interests are looked after.'
Shortly after the conversation referred to in the previous paragraph, I had a further conversation with Gutnick in which he said words to the following effect:
JG: 'Scheinberg wants property as security which he can more readily realise. I am happy with this. I want to make sure that all of the core properties are mortgaged to me so that I can always make sure that these properties will never be sold from under your feet.
'In effect I will hold these properties in trust for Yeshiva.'
On another occasion shortly before 29 December 1994 (the precise date of which I can not now recall), I had a further conversation with Gutnick in which he said words to the following effect:
JG: 'I will never sell the properties on you. If you can pay me the interest then good, and if not, not. If you do pay me the interest I will consider giving further donations to the Yeshiva.' "

96 In his affidavit PA02, Rabbi Feldman said that there were additional conversations between the parties. "We discussed how the transactions should be documented. I recall Gutnick saying words to the effect: 'I want the loan documented the same as Scheinberg. But I must have the core properties of the Yeshiva. Scheinberg is to have the saleable properties'. During one of the meetings I said words to the effect:

'What is the point of documenting it this way? You know there is no way we can pay back your loan. Why don't you just make a donation and get a tax deduction for it? The whole exercise may cost you absolutely nothing. We have discussed the fact that Scheinberg should have all the saleable properties and you have the core properties. So what is the point of making it a loan? Why not make a donation?'

Gutnick said words to the effect:

'I know you will never be able to pay me back. But I am doing this for the community. At the moment I do not need a tax deduction. If I do in the future, I will get advice and if it can be done as you suggest that might be an option for me'.

During the further conversations in about October 1994 I also recall Gutnick making statements to the following effect:

'As you will not be able to repay this money unless you have some miracle, at some stage in the future I will probably end up controlling the core properties. I will hold the properties on your behalf. In the future you may have to deal with my son Isur Osher [who was then approximately 9 years old] in relation to these properties'

and

'If anything ever happens to the Yeshiva, I am here to look after the interests of the community. I am looking after many other communities. Now I shall be looking after the Yeshiva community so it will not suffer because of your financial difficulties. That is why I want the core properties. Scheinberg will sell you up. You know I will never do that'

and

'You may have a miracle. You may be able to repay me'

and

'Another reason I am doing this as a loan is to protect you from yourself. Scheinberg and I have discussed this. All the properties need to be secured by our loans so you cannot use them for further borrowings and cannot get into further debt.'


I also recall Gutnick and I had a conversation to the following effect:

Gutnick: 'Now that I am giving you the 5 million, are you satisfied?

Me: 'From my perspective, your giving us the 5 million closes the chapter and I have no further claims.' "

97 Rabbi Feldman's cross examination was not the most brutal of cross examinations, nor was it phrased in technical terms or jargon. Much of it was aimed at trying to find out from Rabbi Feldman what he claimed were the limits of Rabbi Gutnick's ability to realize his securities over the relevant properties.

98 I did not consider that Rabbi Feldman, who is clearly a man of intelligence coped with these questions at all well.

99 For a while he more than once endeavoured to have counsel rephrase the question "in a form which he could understand". There did not seem to be anything about the questions concerned which would cause problems to the average man of intelligence. At T69 he upbraided senior counsel for asking a question with a double negative. He also tried the tactic of saying that he had already answered a question, often in cases where he neither answered it the first time nor the second.

100 After we passed on from this stage, I thought that Rabbi Feldman had extreme difficulty in defining just what were the limits of Rabbi Gutnick's ability to call up his loan.

101 At T69, the following dialogue occurred:

Walker SC: Q. "Are the limits you say you understood on the defendant's conduct, limits that prevented any valid demand for the repayment of money?"

A. "The limits were subject to all the disputes."

Q. "I am sorry. I thought you said the limits were imposed by these oral understandings and agreements?"

A. "Yes."

Q. "I am asking about the limits. Did they include there could not be any money required to be repaid?"
A. "That was a possibility, a very distinct possibility. If my view would stand in that particular arbitration, that would be the consequence in my view."
Q. "Your understanding was that whatever these understandings and agreements were they resulted in, from your point of view, no valid demand for repayment, is that correct?"
A. "If it would come to that. If there would be – if he would desire to exercise his rights, we would go to rabbinical arbitration; we would establish the truth of our counter claims to one another and on that basis and in regard to oral understandings and written documentation, a decision would then be made."

102 It can be seen that the witness was not really answering the questions. Insofar as he did provide an answer it was not that there were unequivocal statements about not enforcing Rabbi Gutnick's claims, but rather that the rabbinical court would work it all out fairly and a possible result might be that Rabbi Gutnick was not allowed to enforce his claims.

103 Rabbi Feldman was then asked about some advice that he had taken from a leading Sydney solicitor. It was put that, because of the advice he had received, Rabbi Feldman could not possibly have informed that solicitor of his assertion that there was no obligation to pay at all.

104 Rabbi Feldman answered:

"I think I will reiterate what I have said before which was that although I did not believe that there was any obligation to pay even five million dollars, but I was prepared to pay that five million dollars over the period of time as long as this would not impact upon the integrity of the organisation. The fact that I was prepared to pay five million dollars wasn't an admission that I didn't believe that I had rights. It was only the defendant assisted the organisation at a time of need and therefore, if we would be in a position to pay him the money which he was legally owed, we would be more than happy to do so conditional to it not impacting upon the future of the organisation. That's the position I maintain all along."

105 The last statement is probably as revealing of the truth as any other. Rabbi Gutnick was known by Rabbi Feldman to have legal rights. Rabbi Feldman made the assumption that Rabbi Gutnick would not do anything to upset the organisation so that, if there were difficulties, Rabbi Gutnick would not demand his money. It may be that these assumptions were partly reinforced by Rabbi Gutnick making remarks that he had security over the core properties for the Yeshiva's protection. However, things fell far short of there being a representation that he would not do so.

106 Rabbi Feldman's evidence as to the representation that he would not charge interest to the detriment of the plaintiffs is said to have been corroborated by the evidence given by Mr Scheinberg (which evidence was not challenged in cross examination) and by Mr Cohen (also not challenged in cross examination).

107 Rabbi Gutnick denies the so-called representations.

108 In paras 32-34 of his affidavit, DA08, he "absolutely" denied the conversations ever took place in which Rabbi Feldman alleged he made the representations.

109 It is clear that I have to determine whether they were made as alleged by the plaintiffs and that this means that I have to determine questions of credit between the two rabbis.

110 However, I will first set out the basic submissions made by the respective sets of counsel on the matter.

111 Plaintiffs’ counsel submit that the fact that both representations were made accords with the probabilities, given the objective facts that:

(a) the defendant did not exercise its right to call for the principal reductions referred to in sub-paragraph 3.2(a) and (b) of the loan agreement;

(b) interest was only paid by the plaintiffs to the defendant on irregular occasions between May 1995 and February 1996, and then only in circumstances where such payment attracted a subsidy from the New South Wales Department of Education and where, in accordance with clause 2.1(a) of the Side Deed the defendant donated an equal amount back to the plaintiffs;

(c) despite there being default in the payment of interest from at least March 1996, the defendant made no threat to exercise any power under the mortgages until May 2000;

(d) Rabbi Gutnick agreed that observant Jews (such as he and Rabbi Feldman) conducted their lives in accordance with the customary practices and religious principles of their faith and acknowledged that it was a principle of the Jewish faith that interest should not be charged unless there was a dispensation, there being no evidence (despite his own assertion) that Rabbi Gutnick had any such dispensation in 1994.

(e) Rabbi Feldman caused the plaintiffs to execute the loan and security documents. He believed and expected that Rabbi Gutnick would fulfil the promises he made.

(f) Rabbi Gutnick could not have entertained any serious expectation that the plaintiffs would be able to repay the $5 million at the expiration of the 5 year term.

(g) If, as the plaintiffs contend, Rabbi Gutnick made these representations, it is to be assumed that he meant them. If instead of merely trusting Rabbi Gutnick’s assurances, Rabbi Feldman had asked Rabbi Gutnick to come to a clear and definite arrangement as to the means by which the loan could be repaid, or the interests of the defendant otherwise accommodated, without the sale of the core properties used for the religious and educational purposes of Yeshiva, Rabbi Gutnick would have done so.

(h) As it was, because the representations were made with such strength, Rabbi Feldman considered that he did not need “to go into all the details and consequences” and did not need to “dot I’s or cross T’s”.

(i) The detriment suffered by the plaintiffs as the result of Rabbi Feldman's reliance on Rabbi Gutnick's representation is the loss of the opportunity to clarify those matters, and to confirm and agree an “ exit strategy ” which would have enabled the relevant synagogue and school properties to be retained for the purposes for which they were being used, at a time when, it must be assumed, Rabbi Gutnick would have been prepared to do so.

(j) The defendant has now evinced, in the clearest possible terms, an intention to no longer adhere to the representations made by Rabbi Gutnick in 1994 and is threatening to do the very thing that Rabbi Gutnick promised he would not do, namely sell the properties, even the synagogue.

112 The plaintiffs then say that they cannot now be restored to the position they would have occupied in 1994 had Rabbi Feldman known of the possibility that Rabbi Gutnick would cause the defendant to depart from the position which he represented to Feldman at that time. Accordingly, fulfilment of the promise is, in this case, the only way of doing "minimum equity": Giumelli v Giumelli (1999) 196 CLR 101.

113 Defendant’s counsel say that it must first be noted that all the objective evidence in the uncontested documents supports Rabbi Gutnick’s version of conversations. Furthermore, many of such documents were created by Rabbi Feldman or at his direction.

114 They further submit that Rabbi Feldman’s oral evidence also was actually corroborative in part of the defendant’s case. For example he said that his understanding was that if the plaintiffs paid $5,000,000.00 after five years they would have been entitled to a discharge, but otherwise they were liable to pay $10,660,000.00.

115 They say that it is further to be noted that the plaintiffs called no corroborative evidence of Rabbi Feldman’s view of the conversations, save material which was of virtually no weight. The inference must be that there was no evidence available.

116 Defendant’s counsel say that there are a number of reasons which cumulatively show that I should prefer Rabbi Gutnick’s evidence to that of Rabbi Feldman. I will set these out in summary form:

(a) First, they note the difference between Rabbi Feldman’s evidence on the first day of hearing when he gave unqualified assent to the proposition that the documents were genuine and that of the second day when he kept qualifying that statement with the phrase “the oral agreements and religious covenants with God that we both shared.” The suggestion is that in this and other things, despite warnings about not conferring during breaks in the hearing whilst cross examination was still current, Rabbi Feldman did so.

(b) Secondly, Rabbi Feldman’s attempts were unpersuasive when he attempted to explain why in the light of his alleged state of mind he was prepared to allow No 27 O’Brien Street, Bondi to be sold in 1998 and the net proceeds paid to the defendant.

(c) Thirdly, Rabbi Feldman’s attempts to the effect that the principal sum was never repayable at all because of some right of set off against Rabbi Gutnick personally that existed prior to 1994 is totally inconsistent with what he alleges was his state of mind based on the so-called representations and does not reflect well on his integrity.

(d) Fourthly, the gulf between the representations as pleaded, the various versions put forward in evidence and plaintiffs’ counsels' final submissions lend weight to the view that they were not made at all.

(e) Fifthly, they argue Rabbi Feldman did not present well in the witness box.

(f) Sixthly, the defendant puts that even if I should find that there was some sort of representation made, it is abundantly clear that it was not relied upon when Rabbi Feldman made his decision to execute the security documents. This is because the Commonwealth Bank was about to enforce its undoubted rights and Rabbi Feldman had no other avenue available to him to pay out the bank.

117 Plaintiffs’ counsel replied to these assertions. In the circumstances, the plaintiffs say that they do not throw any real light on the matter. It is said that they show no more than that Rabbi Feldman relied on the representations when they were made by Rabbi Gutnick in 1994 to commit the plaintiffs to the loan and security documentation without clarifying and confirming the defendant's position at the outset.

118 Plaintiffs’ counsel say that the evidence shows that Rabbi Feldman:

(a) recognized what the “black letter” of the loan and security documents said - hence his references to propositions about the documents being “legally correct” or being “correct according to the writing” or to “the books”;

(b) was nonetheless clear that the documentary arrangements were “subject to the oral agreement and religious covenant with God that we both had made” and “to our mutual religious covenant as to behaviour” and to the oral agreements and understandings arising from his conversations with Rabbi Gutnick;

(c) was clear that there were “three strands” to the agreement, namely the writing, the oral undertakings and “the mutual religious covenant we both shared”;

(d) recognised the improbability of the plaintiffs being able to pay the defendant $5 million at the end of the 5 year term otherwise than by realization of property;

(e) by 1999 knew that Rabbi Gutnick wanted the $5 million to be paid to the defendant at the end of the term ;

(f) for reasons now obvious, wished to avoid the plaintiffs' properties, and in particular the core properties, coming under Rabbi Gutnick's control or being held by him, albeit for the benefit of the Yeshiva community (he said he wanted to get the defendant off Yeshiva’s books and did not want control to pass to the defendant;

(g) continued to believe (because of the “mutual religious covenant” between them) that Rabbi Gutnick would honour his promises and continued to tell Mr Scheinberg this;

(h) was being advised by other financial supporters of the Yeshiva (who considered Rabbi Feldman’s management style was too “faith based” - especially Mr Scheinberg) that Rabbi Gutnick was giving every indication of acting inconsistently with the representations he had made and was going to renege;

(i) was being advised by such people that he should endeavour to bring the written documentation more into line with the undertakings given;

(j) was looking for a solution that might accommodate the interests of all parties “so that there will be harmony and peace” and which did not interfere with the integrity of the properties (ie the ability of the plaintiffs to continue to use them for the religious and educational purposes of the Yeshiva);

(k) was prepared to “make payments and waive rights if this can be done peaceably, peacefully and not impact on the integrity of the organization”.

119 In those circumstances they submit Rabbi Feldman was prepared to explore the possibility of arriving at a solution that, he hoped, would satisfy the interests of the plaintiffs and the defendant and, for a short time, was prepared to allow Mr Scheinberg to formulate and circulate the proposals designed to achieve that end.

120 Ultimately, it became clear that this was not possible and that a refinancing could not occur without the sale of the property on which the boys' High School was being conducted and, at that stage, Rabbi Feldman decided to take the matter no further.

121 Counsel submit that these actions do not show that Rabbi Feldman and, through him, the plaintiffs did not believe, and rely on the representations made by Rabbi Gutnick in 1994. They show no more than that (1) the plaintiffs did not relish the prospect of Rabbi Gutnick, through the defendant, acquiring possession or control of the plaintiffs’ premises, with all the consequences that would entail; and (2) that faced with the clearest indications that Rabbi Gutnick was proposing to renege on his promises, the plaintiffs had regard to advice that, whatever Rabbi Gutnick may have said in 1994, it was sensible to see if some compromise could be devised.

122 On the contrary, they say, these actions serve to highlight the strength of Rabbi Feldman’s continuing reliance on the representations and his faith (which the defendant’s actions have shown to be misplaced) that Rabbi Gutnick would honour the promises he made.

123 Accordingly, the plaintiffs say, they should be granted the primary relief sought by them.

124 Before dealing with questions of credit, I should briefly consider a few miscellaneous matters related to the cause of action.

125 First the cause of action is in promissory estoppel. Thus the plaintiffs should ordinarily satisfy the test laid down by Powell J in Kurt Keller Pty Ltd v B M W Australia Ltd [1984] 1 NSWLR 353, 371 that they "must be able to point to, either, a statement which constitutes, or, conduct from which a reasonable man would infer, a clear and unequivocal representation by the person having the particular legal power, or discretion, either, that, in the future, he would not exercise that power or discretion at all, or, that, for a time, the power would be suspended." See also Dewhurst v Edwards [1983] 1 NSWLR 34, 51-3; The Scaptrade [1983] QB 529.

126 Secondly, because the onus is on the plaintiffs to prove those representations and in the light of the fact that the documents all record a loan, this is not the sort of case where one considers that once money is proved to be paid, the onus is on the person claiming that the transaction was one of loan, to prove it, cf Jenkins v Wynen [1992] 1 Qd R 40.

127 Both sides agreed that were a promissory estoppel established, the court would give the minimum equity needed to salve the defendant's conscience.

128 Thirdly, insofar as it is said that any assurances by Rabbi Gutnick lulled Rabbi Feldman and his associates into a false sense of security which made them not consider other exist strategies, the bald facts in December 1994 were that the organisation was completely trapped in a situation where it owed a bank over 24 million dollars and had no means of paying anything. No exit strategy was available except the generosity of the Jewish community to bale the organisation out of its mess.

129 I might add here that, principally for this reason, I was not attracted by the submission that, should some promissory estoppel be made out, the minimum equity was to enforce the promise. In my view, all that would have been needed was a little time, during which some interest at least would have to be paid, for the plaintiffs to reconsider and implement alternative exit strategies. However, as matters have fallen out, it is unnecessary to take this thought further.

130 I now have to consider the questions of credit.

131 The case was an unusual one. Rabbi Feldman seemed to be attended by a large retinue of supporters. Rabbi Gutnick appeared not to be attended by many other people. The fact that the majority in the public gallery were Feldman supporters was confirmed when there was hissing when Rabbi Gutnick referred to Rabbi Feldman as “Mr Feldman”.

132 It was also most noticeable from the evidence that there is a very strong community network existing between businessmen who are orthodox Jews. One of the community would be most ready to help another member of the community on the mere request of a friend even though it were to his own detriment.

133 I found it very hard to get my mind around the fact that Rabbi Feldman seemed to be equating everything that he did with the charitable work of the religious and educational establishments of which he has day by day control. He never seemed to be concerned that his personal claims had really nothing to do with the claims of the schools and synagogue. He seemed to be a very intelligent man, yet was unable to segregate these two different types of claims. Of course, it advantaged him to commix them as much as he could.

134 Further, I was concerned about the interest subsidy matter. Interest subsidy is paid by the State Government for genuine relief to schools who construct particular capital works. The arrangement between the parties which preserved the subsidy and the deliberate structure of the transaction that Rabbi Gutnick would donate all interest received other than that which was in reality being paid by the Government, does not sit well with ethics.

135 However, the fact that the transaction was deliberately structured to preserve the loans bearing subsidies and for other reasons beneficial to the parties, makes it less probable that the whole documented transaction was negated by “the oral agreement and religious covenant with God that we both had made” and “to our mutual religious covenant as to behaviour”.

136 Finally, the fact that Rabbi Gutnick had to borrow the money to pay out the bank tells against the underlying transaction being a gift.

137 Indeed, if Rabbi Feldman’s position was accepted literally, no Jewish person could ever lend money to a Jewish charity at interest or indeed seek back his or her capital if to do so might imperil the charity. On the other hand, those administering the charity would be able to do so without accountability on the basis that they could never be forced to pay debts owing to members of the Jewish community. Indeed Rabbi Gutnick made this point at T148 that if Rabbi Feldman was right, every Jewish person would be scared whenever they lent money to a Jewish charitable organisation.

138 On the other hand, I considered that Mr Scheinberg who gave evidence for the plaintiffs, but who could not be classed as a Feldman supporter, was the most acceptable of the witnesses, and he did provide a small degree of corroboration of the plaintiffs’ story.

139 These preliminary observations do not absolve me from dealing head on with the question of credit, but they do assist in that resolution.

140 I have already set out the contentions of the respective sets of counsel as to how I should approach the issue of credit. Whilst, of course, both sets of submissions make pertinent observations, in my view the picture presented by defendant's counsel gives the best guidance.

141 I should add that a lot of Rabbi Feldman’s evidence was, I thought, a reconstruction of what his subjective thoughts and feelings were and that he has melded in various minor utterances of Rabbi Gutnick to bring into his mind the present picture of representations having been made. Basically, Rabbi Feldman’s situation is similar to the strereotypical Englishman of the 19th century, saying, “I know that that chap will not sell me up because we are a member of the same club and no one but a bounder would do it.”

142 On the other hand, Rabbi Gutnick’s evidence was less subjective. The major thrust of the cross examination went to the conduct of the Rabbi’s representatives before the Tel Aviv tribunal. I was not that impressed with his answers that he at one time was prepared to go to rabbinical arbitration over Rabbi Feldman’s claims for commission, but never in respect of the mortgage claims. However, generally I accepted his evidence.

143 Mr Pembroke SC provided me with a schedule headed "Gutnick preparedness to assert the improbable and deny the obvious". The heading might almost be used for some of Rabbi Feldman's evidence.

144 I have ready that schedule carefully. Most of the schedule refers to minor matters connected with the rabbinical court procedures in Tel Aviv. With the intervention of agents and foreign countries, one would always expect some breakdown in communication.

145 The matters directly related to the taking of security do not make me alter my view that Rabbi Gutnick's version of events is more likely to be correct.

146 I was not as confident with the evidence of Rabbi Feldman.

147 In my view, Rabbi Gutnick's version of the events is more likely to be correct than that of Rabbi Feldman.

148 I say this on a minor degree from the demeanour of the witnesses, however principally Rabbi Gutnick's account more accords with the documents, fits in better with the surrounding circumstances and does not suffer from the reconstruction inherent in Rabbi Feldman's evidence. Further, I broadly accept the criticisms of Rabbi Feldlman's evidence set out in defendant's counsels' submissions which I have recounted earlier in these reasons.

149 However, when one analyses his evidence a little more closely, it can be seen that the case can virtually be dealt with even on the basis of a version of that evidence.

150 Whilst the statements attributed to Rabbi Gutnick made in Rabbi Feldman's affidavit were clear, as they were analysed in cross examination and were modified in the submissions, the plaintiffs do not establish statements of the nature referred to by Powell J in Kurt Keller Pty Ltd v B M W Australia Ltd [1984] 1 NSWLR 353, 371 referred to earlier in these reasons.

151 Even if the plaintiffs had shown a sufficiently certain representation, giving a remedy virtually of granting specific performance of a promise to make a gift would, for the reasons already given go further than the minimum equity.

152 Finally, I might note that there may indeed be some religious principles which Rabbi Feldman can deploy in some rabbinical tribunal. However, whatever these are, do not concern this court as they do not constitute conduct from which, together with other relevant evidence, I can make a finding of equitable estoppel against the defendant exercising its clear rights under the documents.

153 C. It follows that the plaintiffs’ case wholly fails and must be dismissed with costs. That being so, the orders sought in the cross claim should be made.

154 The defendant seeks possession of the properties. As I have said, these include schools and a synagogue. The defendant agrees that the writ of possession should be postponed for one month. It may be that in view of the conduct of the schools and the fact that it may take a few months to sell the properties, the writ might be further postponed to the end of school Term III which I understand is 26 September. However, I would only be prepared to consider this if a proper occupation fee was fixed for at least the period after 11 August.

155 Of course if the loan is fully repaid to the defendant by 11 August 2003, the writ of possession will not issue.

156 In view of the fact that the current amount due to the defendant needs to be recalculated as at the date of making the order and that some consideration may need to be given to the form of order for possession, I will order that the claim be dismissed with costs and direct counsel for the defendant to bring in short minutes of the orders that they consider should be made on the cross-claim. As is probably apparent from what I have said above, the writ of possession should issue on 11 August 2003 unless some satisfactory occupation fee can be fixed to enable the schools to continue until the end of Term III.

157 I will tentatively fix Thursday 17 July at 9:30 for the short minutes to be brought in. If that date is not suitable to counsel or if the matter is likely to take more than 15 minutes, I would be obliged if counsel would make contact with my Associate not later than the previous Friday.

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Last Modified: 07/09/2003