Abou-Hamad v Darwish

The Proceedings in Outline 1HIS HONOUR: The Plaintiff, Bahia Abou-Hamad, seeks orders under Real Property Act 1900, s 74K extending the operation of a caveat, filed on 4 July 2011, over a property in Parramatta, New South Wales ("the Property"), which is owned by the Defendant, Issam John Darwish. 2At all relevant times, the Plaintiff, who is a solicitor, conducted a legal practice from the Property. 3I heard the application on 28 February 2011, when I declined to make any further order extending the caveat. I ordered the Plaintiff to pay the Defendant's costs of the proceedings. Due to the pressure of other court business on that day, I indicated that my reasons would be published in due course. These are those reasons. 4To help protect the parties against the possibility of identity theft the address and title details of the Property are not published in this judgment. 5On 4 July 2011, the Plaintiff filed a caveat ("the Caveat") in respect of the Property. The nature of the estate or interest in the Property was stated in Schedule 1 of the Caveat as: "Claiming an equitable interest in the property created by virtue of the facts referred to below. ... Claiming an equitable interest in the property created on 31 March 2009 when the Registered Proprietor used the Caveator's funds without the Caveator's consent in the sum of $15,000, to reduce the amount of his mortgage debts over the said property."

Procedural History 6On 29 August 2011, the Plaintiff commenced proceedings in the Local Court, claiming that the Defendant was liable to the Plaintiff in the sum of $25,000 for breach of contract. The Statement of Claim in the Local Court Proceedings did not allege that the Plaintiff had any proprietary interest in the Property. The Plaintiff filed an amended Statement of Claim in the Local Court on 17 January 2012. 7At the hearing before me, the Plaintiff tendered a copy of the Statement of Claim and a copy of the amended Statement of Claim that had been filed. Importantly, in the amended Statement of Claim, the Plaintiff, again, did not assert any proprietary interest in the Property. Rather, she added, as alternative claims: "14. Further and in the Alternative, the Plaintiff repeats and relies upon paragraphs 1 - 13 herein and states by reason as aforesaid facts and matters, the Plaintiff claims the sum of $25,000 as money had and received by the Defendant to the Plaintiff's use. 15. Further and in the Alternative, the Plaintiff repeats and relies upon paragraphs 1 - 13 herein and states by reason as aforesaid facts and matters, the Defendant wrongfully deprived the Plaintiff of the use and possession of the money and has converted the same to his own use." 8The Defendant filed a lapsing notice, with the effect that the Caveat would lapse, automatically, on 1 November 2011. 9On 24 October 2011, the Plaintiff filed a Notice of Motion, returnable on 26 October 2011, seeking amongst other things, an order under s 74K of the Real Property Act that the operation of the Caveat be extended until further order of the Court. 10On the same day, the Plaintiff filed a Summons seeking an order extending the Caveat, or in the alternative, an injunction restraining the Defendant from dealing with the Property until further order of the Court. 11On 26 October 2011, Nicholas J extended the caveat, by consent, until 5 December 2011, with orders that the parties serve evidence on which each intended to rely. 12On 5 December 2011, the matter came before Bergin CJ in Eq, who made orders extending the caveat until 15 December 2011, and referred the parties to court annexed mediation. 13On 15 December 2011, the matter came before me having been referred by the duty judge. After hearing some submissions, I made orders varying the time within which the parties would conduct the mediation, and extended the caveat until 28 February 2012, or until $15,000 was paid into court, whichever was earlier. 14On, or about, 25 January 2012, the Defendant caused to be served upon the Plaintiff an affidavit of Salim Ibrahim Baker, an accountant employed by the Melkite Catholic Eparchy Corporation. I shall return to the contents of this affidavit later in these reasons. 15On 23 February 2012, the Plaintiff swore an affidavit in response to Mr Baker's affidavit. I shall return to the contents of this affidavit later in these reasons. 16In accordance with the orders previously made, a mediation was held on 20 February 2012. The parties were unable to resolve the matter at the mediation. 17The matter came back before me on 28 February 2012. As the parties still had not reached agreement, the matter continued as a contested hearing. 18Each party provided written submissions, which I have carefully considered and which will remain with the papers.

The Facts upon which the Caveatable Interest is said to be Based 19The Defendant was the Melkite Greek Catholic Eparch of Australia, and New Zealand, acting with the full authority of the Eparchy of Saint Michael's of Sydney (Melkite Greek), (also known as Melkite Catholic Eparchy of Australia and New Zealand and Melkite Catholic Eparchy of Australia, and Melkite Catholic Eparchy Corporation), ("the Eparchy"). 20From August 2008, the Plaintiff occupied the Property pursuant to a written lease. The monthly rental was $1,200. 21In about March 2009, the Plaintiff is said to have provided $15,000 "to be paid to the Church directly for the purpose of payment of the costs of" an iconostasis for the St John Church. She says that the money was to be paid into a joint account in the names of the Plaintiff and the Defendant, from which the money would be paid, on account of the overall costs, to the carpenter engaged to construct the iconostasis. 22An iconostasis is a wall of icons and religious paintings that separate the nave from the sanctuary in a church. It can be a solid screen of stone, wood or metal. It has a royal door in the centre and two smaller doors on either side. 23The evidence reveals that the estimated cost of the iconostasis was in excess of $70,000. 24The Plaintiff asserts, and the documentary evidence reveals, that the joint account in her name and the Defendant's name, was opened on 23 March 2009 and that she paid $15,020 into that account. (The Plaintiff refers, in the amended Statement of Claim to another amount of $10,000 which she subsequently paid into the joint account, which she also says was used by the Defendant. However, the parties agreed that it was not necessary to deal with that amount in these proceedings since it was not subject of the claim in the Plaintiff's caveat. The amount claimed in the amended Statement of Claim in the Local Court is, however, $25,000. It appears that the alleged bases of the second payment are the same.) 25The Plaintiff's evidence establishes that the amount of $15,020 was not paid out of an account in the Plaintiff's name alone, but out of a joint account in the name of Mrs Alia Abou-Hamad and the Plaintiff, following receipt into that account of the same amount. 26For reasons that were not explained, a receipt dated 10 April 2009, was provided by the Eparchy to Mathiew Pty Limited, which is, apparently, a company in which the Plaintiff has an interest. Furthermore, the receipt states that $15,000 was received from Mathiew Pty Limited "being for Rent". 27Despite what she said regarding the use to which the $15,000 was to be put by the Defendant, the Plaintiff also asserts that she has "always described the payment of $15,000 as rent in advance for the Property". Again, no reasons for doing so were provided. 28The Plaintiff's case is then, that, on 31 March 2009, the Defendant transferred $15,000 from the joint account to an account in his own name, which reduced the debt secured by the mortgage registered on title of the Property. 29However, other evidence reveals that on 13 March 2009, the Defendant had written a cheque, drawn on another account in his sole name, in favour of Holy Saviour School, for $15,000, and that on, or about, 31 March 2009, the Defendant handed a cheque to Mr Baker for $15,000, which the Defendant stated had been "donated" by the Plaintiff for the iconostasis. 30Mr Baker also asserts that on 3 April 2009, he deposited the cheque handed to him by the Defendant into the account of the Holy School Account. However, he says that $15,000 was transferred by him overseas as the first payment for the construction of the iconostasis on 1 April 2009, in the knowledge that he then held the Defendant's cheque for $15,000, being the donation made by the Plaintiff for that purpose. 31Mr Baker also states "the $25,000 donated by [the Plaintiff] was used by [the Elerchy] to purchase the iconostasis". 32In her affidavit in reply to the affidavit of Mr Baker, the Plaintiff says: "The payment of $15,000 that the Archbishop paid to the Church was not drawn from that joint account [in the names of the Plaintiff and the Defendant], but I have since discovered, came from his own account." 33At the hearing, without objection, the Defendant tendered photographs of the iconostasis that is now situated in the Church.

The Submissions 34I set out next the summary of submissions made in respect of the claim that the Plaintiff has an equitable interest in the Property. 35The Plaintiff submits that she has an equitable interest in the Property arising from the use of $15,000 to reduce the Defendant's mortgage debt. She submits that the Defendant was "holding the money upon trust to use the funds provided by [the Plaintiff] for a specified purpose to wit, payment direct to purchase the iconostasis" and that "the failure of the Defendant to do so means that he has committed a breach of trust for which the Plaintiff is able to trace the funds and obtain equitable relief ... It also means that she has an equitable interest in the funds or property where the misappropriated funds ended: the mortgage fund for the unit". 36The Plaintiff relies upon Boscawen & Ors v Bajwa & Anor [1996] 1 WLR 328: Paragraph 8 of the Plaintiff's Submissions. 37She also relies upon Raulfs v Fishy Bite & Ors [2008] NSWSC 1195 and submits that "where there has been a breach of trust and the funds used to reduce a mortgage would give rights to recover the funds, noting in this case that the mortgagee has been repaid and the mortgagee has been paid out". 38The Plaintiff says that the balance of convenience favours the Plaintiff because "the Defendant has no other identifiable property here and is residing overseas and so is effectively outside the jurisdiction of the court to enforce any orders it could otherwise make to ensure the Plaintiff receives the fruits of her litigation in the lower Court". She also submits that "the Defendant has merely stated that he "may wish to sell [the property] in the future". 39The Defendant submits: (a) It is not clear from the Caveat, the Notice of Motion or the Summons, precisely what type of caveatable interest the Plaintiff claims, with the result that the court should decline to extend the operation of the caveat: Hanson Construction Materials v Vimwise Civil Engineering [2005] NSWSC 880 at [29] - [30]; (2005) 12 BPR 23,355; (2006) NSW ConvR 56-137; Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd [2005] NSWSC 997; (2005) 12 BPR 23,403; (2006) NSW ConvR 56-143. (b) That it is not possible to have an equitable interest arising from a constructive trust arising out a contribution to the Defendant's mortgage, because "that species of constructive trust requires the property to which the parties contributed [to be] part of a joint endeavour" and that "the joint endeavour must have been intentionally or deliberately entered into for the purpose of the joint relationship and the advancement of the parties' mutual security and benefit": Baumgartner v Baumgartner (1987) 164 CLR 137; 62 ALJR 29. (c) The Plaintiff has not established that it would be better to maintain the status quo until the substantive trial. The Defendant is prepared to notify the Plaintiff if contracts for the sale of the Property are exchanged (noting that it is not currently listed for sale).

The Legislative Framework 40Both parties proceeded upon the basis that the proceedings before me are interlocutory in character. 41On an application for the extension of the operation of a caveat on an interlocutory basis, the statutory test prescribed by the Real Property Act , s 74K(2), is whether the caveat has, or may have, substance. As has been said many times, in practice, this approximates the test applied by the Court on applications for an interlocutory injunction, namely whether there is a serious question to be tried for the final relief of the party, and, as on an application for an interlocutory injunction, the Court takes into account the balance of convenience, although where a caveat is shown to have substance, the Court will not lightly jeopardise the validity and/or priority of the caveator's claim on balance of convenience considerations: Kerabee Park Pty Limited v Daley [1978] 2 NSWLR 222; Martyn v Glennan [1979] 2 NSWLR 234; Gay v Gooden (1989) NSWConvR 55-445; 70 Pitt Street Sydney v McGurk [2004] NSWSC 413; (2004) 11 BPR 21,643 at [15], 21,645; Ruxan Pty Limited v Peachme Pty Limited [2004] NSWSC 1221 at [9]; Milstern Retirement Services Pty Ltd v The Owners Strata Plan No 22521 [2006] NSWSC 301; (2006) NSW ConvR 56-151 at [19]; Fitzgibbons v Shaftsbury Pty Ltd [2011] NSWSC 525; Syndication Capital Group Pty Limited v MDR Cornish Investments Pty Limited [2011] NSWSC 1289. 42The practice set out above is applied when the extension of the caveat that is being sought to be extended is one that is to last for a limited time, while litigation is under way to establish whether the caveator really has the interest that he, she, or it, claims.

Determination 43There are a number of problems that the Plaintiff faces in her application that, in my view, are insurmountable. 44As stated, the Summons that the Plaintiff filed does not seek any final relief. It has been stated, more than once, that "a Summons claiming an order extending operation of a caveat must include a claim for final relief. A Summons which claims, as this one does, only an order extending the operation of a caveat until further order is defective in not claiming any final relief": Wu v Dardaneliotou [2008] NSWSC 1319 at [2]. 45In Iaconis v Lazar [2007] NSWSC 1103; (2007) 13 BPR 24,937 at [22], Young CJ in Eq (as his Honour then was) said: "A caveat should only remain on the title pending the application by the person claiming the equitable or other interest to commence a suit for specific performance or otherwise to vindicate that equitable interest. Indeed, the standard order when a caveat was challenged was that the caveat be removed in any event unless within a month the caveator commenced a suit and then, and only then, was the caveat to be extended until the hearing of the suit; see eg Ex parte Muston (1903) 3 SR (NSW) 663." 46As has been stated, the Plaintiff commenced the Local Court proceedings, and the Plaintiff's counsel submitted that this was sufficient. 47In Waco Kwikform Ltd v Jabbour [2010] NSWSC 1379 White J (at [62]), said that where there was no dispute about the interest claimed by the caveator and where the caveator might have no need to seek any relief other than an order for the extension of the caveat, it may not be necessary for the summons to include a claim for final relief. But, where the defendant has made it clear that he contested the enforceability of the charge asserted by the caveator, the observations of Young CJ in Eq in Iaconis v Lazar and of Brereton J in Wu v Dardaneliotou applied. (Also see White J's decision in Summit Acceptance Pty Ltd v Wild [2011] NSWSC 659 at [21].) 48In Break Fast Investments Pty Ltd v C & O Voukidis Pty Ltd [2011] NSWSC 871, Black J after referring to Iaconis v Lazar and Wu v Dardaneliotou at [3], said: "[4] I do not regard those cases as necessarily requiring that the application for substantive relief be made in the same proceedings as those in which orders extending the caveat are sought." 49However, his Honour continued at [4]: "The policy underlying those decisions, namely that a caveat should only remain on the title pending an application for substantive relief, is satisfied where other proceedings exist which will determine the caveator's entitlement to that relief." 50I respectfully agree with his Honour's statements. 51As stated, in the amended Statement of Claim, the Plaintiff's claims are broadly identified as "breach of contract/debt recovery" and for a liquidated sum of $25,000, or, in the alternative, "damages for breach of contract and/or conversion", together with interest and costs. She makes no assertion of any trust, and does not, otherwise, refer to, or make any claim of, any equitable interest in the property, the title of which the Caveat has been lodged. 52Reliance was placed on what White J said at [63] in Waco Kwikform Ltd v Jabbour , "that the failure to claim such final relief should not be a bar to the making of the order for extension of the caveat provided that the plaintiff undertakes to file a further amended summons seeking to "vindicate" the interest claimed in the caveat". 53In that case, the paragraph before what I have quoted was in the following terms: "[62] One can envisage cases where there may be no dispute about the interest claimed by the caveator and the caveator might have no need to seek any relief other than an order for extension of the caveat. In such case, I respectfully doubt whether it would be necessary for the summons to include a claim for final relief. But, in the present case, the defendant has made it clear that he contests the enforceability of the charge. The observations of Young CJ in Eq and Brereton J referred to above apply." 54In the present case, not only has the Plaintiff given no such undertaking, but the amended Statement of Claim, which was filed well after the Supreme Court proceedings commenced, and after some argument had been heard, does not seek to vindicate the interest claimed in the caveat. 55It follows, in my view, that the Local Court proceedings will not determine the Plaintiff's entitlement to relief in relation to the Caveat or otherwise "vindicate the interest claimed in the caveat". 56The next problem with the Caveat is that it uses the phrase "an equitable interest". This is an inadequate description as has been held in a number of cases: Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Ltd ; Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd ; Raptis v Wija Investments Development Pty Ltd [2007] NSWSC 870; Perpetual Trustee Company Ltd v English [2011] NSWSC 264. 57A further problem is that I am not satisfied, on the evidence, that the Plaintiff has an arguable case even as asserted by her, to establish an equitable interest in the subject property. She appears to accept, in her most recent affidavit, that the Defendant paid the amount of $15,000, to the Elerchy, in order to assist in the purchase of the iconostasis, albeit that he paid it out of a different account, which account was in his sole name. 58Furthermore, there does seem to be evidence, which is undisputed, that the iconostasis has been purchased and that it adorns the Church. 59It follows, in my view, that this is not a case in which a mortgage has been paid out with funds obtained in breach of trust and fiduciary duty, thereby allowing the Plaintiff to stand in the shoes of the mortgagee whose mortgage debt has been paid out: Boscawen v Bajwa [1996] 1 WLR 328. To the contrary, it appears to be a case in which the precise purpose for which the $15,000 was placed in the joint account, was achieved. 60That matter, of course, will have to be decided in the Local Court proceedings if the Plaintiff proceeds with it. However, in this court, I am entitled to consider the Plaintiff's evidence acknowledging that $15,000 was paid by the Defendant. 61In any event, the Plaintiff did not make any submissions on the principles or the precise circumstances that would make it unconscionable for the Defendant to deny the proprietary interest that she claimed. As has recently been pointed out in Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26, by Barrett JA (with whom Campbell JA and Sackville AJA agreed): "73 In Boscawen v Bajwa [1996] 1 WLR 328 at 335, in a passage approved by the High Court in Bofinger v Kingsway Group Ltd [2009] HCA 44 at [94], Millett LJ described the foundation of subrogation as an equity that arises from the conduct of the parties on well-settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff." 62Even though there are Australian cases that have assumed that subrogation is available as a remedy when funds have been misapplied and are traceable to a payment discharging a debt: Gertsch v Atsas (1999) 10 BPR 18,431, [19]-[20]; National Australia Bank Ltd v Rusu [2001] NSWSC 32, [51]; Raulfs v Fishy Bite [2008] NSWSC 1195, [25]; Lygon Nominees Pty Ltd v Zeccola (unreported, Supreme Court of Victoria, Mandie J, 26 May 1998); Cook, Re; Italiano Family Fruit Co Pty Ltd (in liq) [2010] FCA 1355; (2010) 190 FCR 474; (2010) 276 ALR 349; (2010) 80 ACSR 680; each of those cases appears to involve facts very different from the present case which include that the Defendant appeared to have used other funds to satisfy the purpose for which the Plaintiff's funds were to be used. In any event, no circumstances were pointed to that make it unconscionable for the Defendant to deny the proprietary interest that has been claimed. 63In my view, the Plaintiff is really seeking "security" until the amount she claims in the Local Court proceedings, if successful, is paid to her by the Defendant. That does not provide a basis for a caveatable interest in the Property. 64If she is successful, then she may enforce any judgment. One of the methods of enforcement may be against the Property if the Defendant does not satisfy the judgment debt: see, for example, s 106(1)(c) Civil Procedure Act 2005 and Uniform Civil Procedure Rules 2005, rule 39.21. 65Finally, in my view, the maintenance of the Plaintiff's caveat is an interference with the Defendant's right, as registered proprietor, to deal with the Property. Whether he has no present intention to do so is irrelevant. The simple fact is that his rights to do so are presently being interfered with. 66The Plaintiff has not satisfied me that it would be better to maintain the status quo until the trial of the action, by leaving the Caveat in place so as to prevent disposal of the Property. In this regard, she bears the onus of proof: Duic v Duic [2011] NSWSC 371. 67For any or all of these reasons, the Plaintiff's caveat could not be extended. 68I order that the Plaintiff's notice of motion be dismissed and order her to pay the Defendant's costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 March 2012