Anthony Magafas & Anor v Peter Carantinos & Ors [2007] NSWSC 416 | Case summary

Anthony Magafas & Anor v Peter Carantinos & Ors [2007] NSWSC 416 | Case summary | Zoe

[16]

[150] …A convenient starting point is the decision of Bryson J (as he then was) in Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 at 15 where his Honour said: "It is in no way difficult but is ordinarily to be expected that a person under a fiduciary obligation to another should be under that obligation in relation to a defined area of conduct, and exempt from the obligation in all other respects. Except in the defined area, a person under a fiduciary duty retains his own economic liberty." [151] His Honour then referred to a number of authorities in support of that proposition. For present purposes it is sufficient to refer, as did Bryson J, to the following passage from the judgment of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97: "That contractual and fiduciary relationships may coexist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all-important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."… [156] One of the authorities referred to by Bryson J in Noranda was Birtchnell v Equity Trustees Executors and Agencies Co Ltd (1929) 42 CLR 384 at 408 where Dixon J (speaking of a partnership) said: "The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm." [158] …An understanding of the purpose or nature of the relationship is therefore crucial to a determination of the scope or extent of the fiduciary obligations arising from it. However, the relationship between the parties including its object or purpose needs to be considered in the context of the principles which inform the nature of a fiduciary relationship.

[20]

It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owned and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed."… [166] [In Blythe v Northwood [2005] NSWCA 221 the] President commenced the relevant part of his judgment with an extensive citation from the judgment of Deane J in Chan v Zacharia (1984) 154 CLR 178 at 198-199, the relevant parts of which for present purposes I set out hereunder: "The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one 'fundamental rule' embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. … Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Any such benefit or gain is held by the fiduciary as constructive trustee … That constructive trust arises from the fact that a personal benefit or gain has been so obtained or received and it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed. In some, perhaps most, cases, the constructive trust will be consequent upon an actual breach of fiduciary duty: eg, an active pursuit of personal interest in disregard of fiduciary duty or a misuse of fiduciary power for personal gain. … The principle governing the liability to account for a benefit or gain as a constructive trustee is applicable to fiduciaries generally including partners and former partners in relation to their dealings with partnership property and the benefits and opportunities associated therewith or arising therefrom: see Birtchnell v Equity Trustees; Consul Development Pty Ltd v DPC Estates Pty Ltd. "… [167] …But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of a person to whom the duty is owed….

[22]

A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves 'at a level higher than that trodden by the crowd'. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage." [168] After referring (at [187]) to Birtchnell at 408 (which I have cited in [156] above) and to Phipps v Boardman [1967] 2 AC 46, the President observed (at [194]) that the latter did "not contradict the proposition (well-established in Australia: see Birtchnell ) that the scope of the equitable obligation [of the fiduciary] depends on the precise nature and scope of the relationship in each individual case. The fiduciary is not accountable for profits derived outside the scope of the relationship or required, outside that scope, to prefer the principal's interest over those of the fiduciary." Background matters 14 Mr Magafas was the first-born child in his family. He had emigrated to Australia with his parents and then two brothers. He had three brothers: Gregory, Michael and Constantine [in order to distinguish between each of the brothers it seems convenient to refer to Mr Anthony Magafas as "Mr Magafas" or as "Tony" and to refer to his brothers by their Christian names]. Only Mr Magafas and Michael gave evidence. 15 Mr Magafas had no tertiary qualifications. He was made bankrupt in 1998 as was his brother, Michael following a failed hotel development in the snowy Mountains. Mr Magafas was discharged from bankruptcy in March 1991. Notwithstanding that setback, across the whole of the time span of present relevance Mr Magafas was a director of one or more companies comprising a substantial family printing business originally commenced by his father. In truth the companies were technically not a group but simply a number of companies controlled by one or more of the Magafas brothers: for convenience herein called 'the group'. By and large most of the wealth of the Magafas family in the early 1990s was actually owned by various companies and hence held through various shareholdings trusts and the like. The group would in time amass substantial surplus cash available for investment. 16 The affairs of the group were conducted professionally utilising an internal accountant to ensure that proper and accurate books and records were maintained. Those books and records were then provided to an external accountant KPMG in order, with the assistance of the internal accountant, to finalise the accounts and to prepare taxation returns. Minutes were kept of meetings and when various monies were advanced to family members by way of loan, this was properly documented in the books of whichever particular entity had made the loans. First born meets first born 17 In about 1988 or 1989 Mr Magafas met Mr Carantinos who was then operating a business trading as "Communicado" which operated in the printing industry essentially as a middleman business outsourcing requirements of clients [sometimes described as 'buying and selling printing' - transcript 222.6]. Without purporting to be exhaustive, the business may be described as a translation and creative studio involved with graphic design and translation. 18 Mr Carantinos was a person with a Bachelor of Arts degree majoring in economics and philosophy, also holding a Master of Arts with honours in philosophy. He had lectured for some period at the University of Sydney in economics and philosophy. He was also of Greek background. Both men shared in common the fact that each was the first-born in his family and that each had emigrated to Australia with their respective families. 19 The developing friendship occurred in the context/background of Mr Magafas seeking to re-establish his business reputation and seeking to re-establish himself financially. As will be apparent from these reasons, the friendship was destined to come to a bitter ending, these proceedings demonstrating that neither of the friends had any scruples about defrauding the Taxation Commissioner for common gain.

[23]

Trust and confidence 20 One of the vital matters which requires to be understood in relation to this litigation concerns the nature and strength of the friendship which developed between the two men. This is because over the years of meeting with one another and dealing with one another from time to time, Mr Carantinos would give advice as to what he considered would be the best route for the Magafas printing business to take: be it a matter involving company structure, future business planning [as for example dealing with the impending problems concerning new technologies]; taxation management or otherwise. Indeed on occasion, Mr Carantinos attained a formal position within the Magafas printing business when he became a director of a group company. On another occasion described as "Project Butterfly", the code name for a project aimed at investigating a public listing, Mr Carantinos was noted as chairman of a confidential meeting concerning future approaches to be taken to positioning the group in the market. He was noted as the person who would oversee within the group, a significant and somewhat sensitive planning for the future exercise. In time Project Butterfly became formalised into the corporation, as Centris Limited. Mr Carantinos became a director of Centris. The public listing never eventuated. 21 On yet another occasion in 1997 Mr Carantinos was joined for one day, as one of the employees of an employee benefit plan known as "Communications Technology Trust", when the directors of a number of group companies resolved to approve particular loans to identified employees for the purpose of those employees acquiring Employee Class Units [cf ExhibitD4]. 22 At least one of the central issues in the case concerns whether or not the advice given by Mr Carantinos over these years and the part which he sometimes came to play in the Magafas printing business, were ever expressly or impliedly the subject of discussion in terms of any anticipated remuneration to be paid to Mr Carantinos for these activities. The clear finding is that these activities were given gratuitously and as part of the friendship. As the reasons will disclose, Mr Carantinos well understood that there were a myriad of ways in which his relationship with Mr Magafas could assist his own business activities. He proffered his advice, freely and often, without any anticipation of payment in that regard. He anticipated that any reward for the time that he spent giving the assistance already described would come aliunde the giving of that advice in the form of collateral benefits by reference to the relationship itself. He never expected any such payment. He never received any such payment. And on the other side of the ledger, Mr Magafas never considered that the advice and assistance given to his group by Mr Carantinos was being [or had been given] otherwise than gratuitously. 23 In truth as the evidence of Mr Magafas made plain, the sole 'business' relationship inhered solely in the real estate partnership/joint venture outlined below. 24 The two men formed a very firm and solid friendship during the whole of the period until the dispute leading to this litigation arose. It is crystal clear from all of the evidence that Mr Magafas saw Mr Carantinos as a person with a great deal of education and experience in all sorts of matters and particularly formed a very high opinion of him insofar as his ability as a businessman was concerned. He came to believe that Mr Carantinos had had a deal of experience in property development and also had a somewhat special ability 'to see outside of the square' in relation to general business matters. Mr Magafas was very impressed by the intellectual capacity of Mr Carantinos. Over the years up until the time of their relationship falling apart, the two men would regularly meet, very often over lunches, and would discuss all manner of things, both business and personal. Mr Magafas grew to repose absolute trust in Mr Carantinos as a friend and as a business partner. Indeed in time over the years Mr Magafas's three children came to refer to Mr Carantinos as their "Uncle Peter". Mr Carantinos spoke at the wedding of the elder son of Mr Magafas in late 2004. Mr Magafas appointed Mr Carantinos as his alternate executor in a 1995 Will, having appointed him as a joint executor in a 2003 Will. A matter of central significance 25 Even at this very early stage in these reasons it is perhaps convenient to record a matter of central significance in terms of the ultimate findings dealt with in the judgment. 26 The centrepiece of the submissions advanced on behalf of Mr Carantinos, addressed the crucial questions of credit which had been litigated. The point made was that Mr Magafas' case was "unbelievably complicated factually and was almost impossible to slot into legal boxes" [transcript 860]. 27 The proposition advanced was that it was the case of Mr Carantinos which was straightforward, simple and cohesive and which should be accepted. 28 Naturally the decision set out in these reasons is informed by many parameters: the evidence before the court being all-important. In cases such as the present, significance must be attached to:

[28]

[Indeed the very definition given to a fiduciary by Mason J in Hospital Products [supra] makes the point that it is by reason of the fiduciary's undertaking or agreement to act for and on behalf of or in the interests of another person which will affect those interests, that the relationship gives the fiduciary a special opportunity to exercise a power or discretion to the detriment of the other person, who is therefore vulnerable to abuse by the fiduciary of his position.] 30 It has to be remembered that the so-called "simple case" contended for on behalf of the defendants has, as an essential part, the proposition that there were no financial contributions made to the partnership or joint venture, following the agreement made between the Mr Magafas and Mr Carantinos in mid 1995. This case could only have succeeded were the Court to accept that Mr Carantinos was a retained and paid consultant of the Magafas Group of Companies. That case is rejected in the reasons which follow. 31 An important and pervasive finding is that Mr Magafas understood from his conversations with Mr Carantinos that the contributions to the so-called "cashbox" would be used by the latter for the purposes or object of the partnership/joint venture, and not for his own personal use. That Mr Carantinos was permitted a wide discretion in the use of the cashbox, albeit being imprudent conduct on the part of Mr Magafas, simply demonstrates the extent to which he placed absolute trust and confidence in Mr Carantinos. The gravity of the allegations 32 There is a plethora of authority in support of the proposition that the Court is bound to see that a case of fraud is clearly proved. An allegation of fraudulent intent is one of the most serious allegations capable of being made. Actual dishonesty is said to be "the hallmark of fraud". The gravity of the allegation has been said to be such that whereas section 140(1) of the Evidence Act 1995 (NSW) stipulates a single standard of proof for all civil cases, namely the balance of probabilities, section 140(2) preserves the doctrine in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362; Pedler v Richardson (unreported, Supreme Court of NSW, Young J, 16 October 1997) at 10-11. See also McLelland CJ in Eq in Watson v Foxman (2000) 49 NSWLR 315 at 319. More recently in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 the High Court has put the matter in the following terms (at 449-450):

[30]

"most closely and received with the greatest caution." [ Pascoe v Commissioner of Taxation (Cth) (1956) 30 ALJR 402] 34 Those of the findings in this judgment holding that in common with Mr Magafas, Mr Carantinos acted with intent to defraud the Taxation Commissioner are made in circumstances in which that case has been soundly established consistently with the approach taken in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 [supra]. The parties' business arrangements 35 The efficient approach is to next move directly to the evidence concerning the parties' business arrangements. This followed discussions between the two men which commenced in about 1992 when they determined to form a partnership or joint venture to buy and then either develop or sell, real property. 36 It is also noteworthy that although in all other respects Mr Magafas confided fully with his brothers in relation to every parameter of the family business, he did not confide in all of them, detail of his partnership/joint-venture/dealings with Mr Carantinos generally chronicled in these reasons. Generally he spoke to Michael to whom he communicated a deal of his general arrangements with Mr Carantinos. 37 However his evidence was that in his mind, all of those dealings were for the ultimate benefit of his family following the tradition that the first born in a Greek family is charged with looking after that family's long-term interests. Hence on his evidence, he saw himself as having that role as a first born, giving him the right to enter into arrangements in general terms on behalf of the family, without consulting family members. That was the spirit in which he came to advance corporate group funds to the partnership/joint ventures. He understood that Mr Carantinos had that same authority for the same reason in relation to his family. 38 It is necessary to travel through a number of business arrangements entered into between Mr Carantinos and Mr Magafas, some of which really do no more than provide a background to the particular matters in relation to which relief is sought. This necessity arises amongst other things because of the need to explain particular documents relied upon by the plaintiffs in the manner described below in these reasons. Characterisation as joint venture or partnership a non-issue 39 Even before treating with the detail one matter can be mentioned only to observe that it can be put to the side. This concerns whether or not the agreements and relationships entered into and dealt with below are properly characterised as a partnership or a joint venture. 40 A treatment of the statutory definition of partnership, the judicially recognised characteristics of a partnership and the existence of fiduciary obligations whether a relationship was characterised as a partnership at law or as a joint-venture is to be found in Schipp v Cameron and others [unreported, Supreme Court of New South Wales, Einstein J, 9 July 1998] at 234-245. Reference was then made to the decision of Ryan J in Pacific Coal Pty Ltd v Indemitsu (Qld) Pty Ltd [unreported, Supreme Court of Queensland, Ryan J, 21 February 1992]. His Honour held that it was unnecessary to decide whether a particular agreement could be characterised as a partnership agreement for the reason that based on the form of the subject joint-venture agreement and the obligations which had been assumed by the parties, regardless of such a finding, a fiduciary relationship existed between the parties:

[35]

[the position with respect to Mrs Carantinos is dealt with in the reasons below] The Barwon Holdings Property and Schwebel Street 43 In about June/July 1993 Mr Magafas and Mr Carantinos discussed the acquisition of 44 - 46 Princes Highway, St Peters ["the Barwon Holdings property"] an earlier development not the subject of the present proceedings. 44 Following the inspection of this property by Mr Magafas, he and Mr Carantinos discussed jointly purchasing the property. 45 The property was made up of two separate parcels on two titles. The property was purchased together - although one of those parcels was purchased in the name of Barwon Holdings Pty Ltd and the other parcel was purchased in the name of Mr Carantinos. However on the evidence of Mr Magafas both properties were purchased on behalf of both of them. 46 Mr Magafas nominated his brother Constantine to be a director of Barwon Holdings Pty Ltd to represent the Magafas family and to be a shareholder in the company with Mr Carantinos. 47 Contract for the purchase of the properties were exchanged in July 1993 in a circumstance in which ANZ bank loaned approximately $280,000. 48 Following completion of the purchase Mr Carantinos moved his Communicado business to occupy part of the ground floor of the property. The remaining part of the premises were refurbished. Mr Magafas arranged for a carpenter Mr Donnan to carry out repairs to the floor. 49 Mr Carantinos caused Mr Magafas to loan approximately $105,000 to the partnership in relation to this property. 50 This particular property development 'project', although not being the subject of the claim, has some features of it which are important to this litigation as the arrangement was part of the general relevant background and is said to explain the creation of a document which is said by the plaintiffs to contain an important admission. 51 The plaintiffs point out that one of the features of this early transaction was that Mr Magafas' interest in the property transaction and in the renovation of it was not recorded in any document. The plaintiffs rely upon this parameter as being the first significant indication of the trust and confidence which Mr Magafas reposed in Mr Carantinos that they would carry out their first venture in this way. 52 In 1993 Mr Magafas bought a property at 2/15 Schwebel Street Marrickville from Mr Carantinos. Mr Carantinos provided Mr Magafas with vendor's finance of approximately $40,000 interest-free which was repayable at the discretion of Mr Magafas. The vendor finance was secured on nothing more than a handshake. The plaintiffs again pointed this out as indicative of their relationship at the time. 53 Later Mr Magafas experienced some cash flow problems with his printing business. A business known as Highlight Printing had recently been acquired. Mr Magafas asked Mr Carantinos if the loan funds of $105,000 from the Barwon Holdings property acquisition could be repaid. Mr Carantinos obliged and on 25 August 1994 provided Mr Magafas with a cheque made out to Constantine for the $105,885 amount which had been loaned. 54 On 17 September 1994 discussion took place between Mr Magafas and Mr Carantinos as to how the former could exit from the Barwon Holding arrangement. The focus of their discussion was calculating the value of Mr Magafas's 50% interest in those properties. The plaintiff submit that this reflected the underlying arrangement notwithstanding that half of the property was in the name of Mr Carantinos and at the other half was in the name of Barwon Holdings. 55 An agreement was reached whereby Mr Carantinos would buy out Mr Magafas' 50% interest in the Barwon Holdings properties for $55,000 minus the balance that Mr Magafas owed to Mr Carantinos for the vendor finance on Schwebel Street of $15,000, leaving a balance of $40,000. 56 The evidence given by Mr Magafas which is accepted as reliable is that he said to Mr Carantinos that this $40,000 amount could be paid by the end of that calendar year. As far as Mr Magafas is aware, Mr Carantinos never ended up paying that amount. The evidence of Mr Magafas is that the amount seems to have been lost in the subsequent events but as earlier indicated, no claim is advanced in this litigation in respect of this sum.

[36]

April 1995 and following 57 By about this time the cash flow problems which had been experienced by the Magafas business leading to the exit from the Barwon Holding arrangements had passed. By now Mr Carantinos was spending only very limited time managing his business Communicado the work of which was in decline. Mr Carantinos was for more interested at this time in managing his property portfolio. 58 Mr Magafas was working long hours ensuring that his printing business was a success. The business had now acquired FH Booth and Son, another printing business, and there was an expectation that following the acquisition of that business as well as Highlight Printing earlier on, he would enjoy reasonable cash flow. 59 In contra distinction Mr Carantinos had the time, qualifications and skills as well as experience in property investment to move with Mr Magafas into a property development mode which should advance the interests of each. April 1995 60 Albeit that it is somewhat difficult to differentiate between the precise occasions when particular conversations took place, the balance of probabilities on the evidence adduced suggests that a critical set of discussions between Mr Magafas and Mr Carantinos took place in or about the first quarter of 1995 and likely continued over a number of months, these essentially constituting the inception of the business dealings treated with in this current litigation. These discussions form the linchpin of the claims pursued by the plaintiffs. Although crucial parts of the version of the discussions given by Mr Magafas are put in issue by Mr Carantinos, the findings accept as generally reliable, the versions of discussions given by the former. It is clear that viewing the entirety of the body of evidence before the Court, in substance the discussions were as deposed to by Mr Magafas. 61 Because of its significance it is convenient to set out in full the accepted content of some of the discussions, and to include some of Mr Magafas' associated evidence (8 May 2006 affidavit): [21] From about April 1995 I had a number of discussions with Peter regarding the formation of a new partnership with I representing the Magafas family and Peter representing the Carantinos family. Mr Magafas: "It is a great feeling to have come through the collapse of our business in 1987 and have started to re-build our empire. We have bought the property in Lawrence St that houses Stratagem and we have expanded the printing operations by buying the business of F.H.Booth and amalgamating our Grafika Press business into it, as well as buying Booth's factory in Marrickville so that we will no longer be tenants." Mr Carantinos: "You certainly have made a remarkable recovery."

[63]

iii. the assets to be acquired by this partnership would be owned equally so that upon termination of the partnership, when matters were brought to account, whoever had brought in the funding, would receive that back at 8% capitalised and the balance should be divided equally between them [no issue ever being taken as to the disclosed fact that Mr Magafas represented his group and through it his family, in all of his dealings with Mr Carantinos]. 63 Agreement had been reached on the above parameters. There were then discussions about getting advice in relation to the sort of structure needed to operate the partnership/joint-venture and the discussions included reference to whether what had been discussed should be operated through a company structure or a trust structure or a combination. One important element was that Mr Magafas wished to ensure that the foundation was protected from third party claims and was hence concerned to ensure that the assets were held by a corporate entity. Ultimately that corporate entity, Pac Com, was incorporated on 15 January 1997 with Mr Carantinos and Mr Magafas as sole directors and equal shareholders each holding 100 shares. Mr Carantinos was appointed company secretary. 64 Mr Magafas gave evidence that following the above exchange with Mr Carantinos, Mr Magafas caused payments to be made to Communicado on his understanding that these funds were to support the company yet to be formed to represent the partnership. The finding is that this was a shared understanding. 65 The evidence does establish that between November 1995 and March 2002, approximately $480,000 was paid by the Magafas Group of Companies to Communicado. The plaintiffs contend and the Court accepts that this evidence, read in the light of the arrangements reached in the discussions between the two men, constitutes a powerful indication of the existence of a partnership or a joint venture between the two men. 66 It can now be seen that the basis upon which these funds were paid forms the critical divide on the evidence given by the respective main actors. To the contrary of the evidence given by Mr Magafas, Mr Carantinos contends that the funds so paid were purely and simply genuine payments as the consideration for consultancy and other advice and assistance which he gave to the group over the years across which these funds were paid, as is said to be documented by the invoices which he sent to the group generally correlating with the payments from that group. There is an absolute denial of the proposition that the funds were by agreement simply paid to Mr Carantinos' business trading as Communicado, to bolster its sales figures. There is an absolute denial that these monies were paid for the purpose of developing any cashbox for any partnership/joint-venture. Mr Carantinos has given evidence born out by the tendered tax returns that the receipt of those funds from Mr Magafas were declared as business income in the tax returns of Communicado/Mr Carantinos as that is what they were. It is perhaps convenient at this point in time to observe that on the evidence, across at least the 1995 and 1996 financial years, in general terms the invoices approximated the sum of $100,000 per year. 67 It seems convenient albeit again at this early stage of these reasons, to make clear that the finding of the Court based upon all of the evidence is that the agreement between the parties was always that Mr Carantinos would be compensated by receiving 50% of the profit of the material developments the subject of any joint-venture/partnership activities engaged in. There was never ever any suggestion, arrangement or agreement for Mr Carantinos to receive remuneration of any type, whether for management fees, administration expenses, advice or otherwise and whether to come from Mr Magafas or from the Booth Group. 68 The finding is that the substratum of the agreements and arrangements reached was based upon the proposition that the essential provision of the funding would be from the Magafas Group which was seen as likely able to handle this parameter, with Mr Carantinos providing his skills and time in relation to locating real estate development properties and carrying out the general administrative and other work [as for example dealing with councils for development consents] necessitated when such a property would become a target for acquisition. The agreement of course permitted either party to contribute capital and in that event interest at 8% capitalised would be paid on such funds to such contributing party. Indeed Mr Carantinos conceded that Mr Magafas was to be the funder for the Pac Com purchases [transcript 579.25]. The version of the relevant conversation given by Mr Carantinos 69 The version of the relevant conversation put forward by Mr Carantinos [13 September 2006 affidavit at [136] et seq] had been as follows: [136] Sometime in early January 1997, after I had received the above letter from Balmain MB, I had a conversation with Tony.

[112]

83 It was not until after the appointment of the Joint Administrators of Pac Com on 4 November 2005 that Mr Magafas became aware that 43 Riverside Crescent had in fact been purchased by both Mr Carantinos and his wife [Mr Magafas' 8 May 2006 affidavit paragraph 42]. 84 On 13 January 1997, Mr Magafas and Mr Carantinos met with Mr Kevin Munro, a solicitor, about a suitable structure or vehicle for their capital acquisitions [Mr Magafas' 8 May 2006 affidavit paragraphs 30-31]. Mr Munro advised that the property be purchased by a hybrid trust that was eventually set up as The Karafas Trust. 85 Pac Com Pty Limited was incorporated on 15 January 1997. 86 On 16 January 1997, Mr Carantinos and Mr Magafas met with Mr Kotowicz, a solicitor, to execute necessary documents to cause Mr Carantinos to nominate Pac Com as his nominee to exercise the option to purchase 39 and 41 Riverside. Such nomination then took place [Mr Magafas' 8 May 2006 affidavit, paragraph 37]. 87 On 17 January 1997 Pac Com exchanged on the contract for the purchase of 39 - 41 Riverside Crescent, the purchase price being $470,000. At that time the Karafas Trust did not exist [the trust deed not having been executed until 11 February 1997: cf the seal register of Pac Com Exhibit P31]. 88 In March 1997 Pac Com settled on the contract for the purchase of 39 - 41 Riverside Crescent. The funds to enable settlement were advanced from HP Custodians which took a registered mortgage over 39 - 41 as security. 89 It follows that at material times with respect to numbers 39 and 41 Riverside Crescent, Pac Com was the joint venture vehicle [albeit there was not yet any trust established]. 90 However the position was different in so far as number 43 Riverside Crescent was concerned: this is because the contract for the purchase of that property preceded the incorporation of Pac Com. Nor was there any evidence of a reconveyance so as to provide Pac Com with a legal interest in number 43. Hence number 43 is seen to have been purchased on trust for the anterior partnership/joint-venture between Mr Magafas and Mr Carantinos. The Balmain NB mortgage proposal 91 The mortgage proposal arranged by Mr Carantinos for finance through Balmain NB [Exhibit P28] makes entirely clear that the proposition was for the three properties in Riverside Crescent to be acquired in one line for development accordingly. The document describes both Mr Carantinos as well as Mr Magafas as applicants and in terms advises that the applicants have also purchased the adjoining cottage, 43 Riverside Crescent. The factual finding is that each of the three Riverside Crescent properties were acquired as part of the joint-venture/partnership. 92 In July 1998 Mr Carantinos phoned Mr Magafas with the information that the Council has approved the DA on the Riverside properties. 93 Contracts for sale of 39 - 43 Riverside from Pac Com to Dimension Line Developments Pty Ltd were dated 3 May 1999 and exchanged on 6 May 1999. There were two contracts involved:

[114]

ii. Mr and Mrs Carantinos contracted to sell number 43 for $400,000. 94 A deposit of $296,000 was paid by the purchaser (cheque to Pac Com), representing 20% of the total purchase price for the sale of 39 - 43 Riverside Crescent of $1,480,000 [para 52, Mr A Magafas 8 May 2006]. This deposit was released to the vendor and was paid into the joint account of P & F Carantinos [ie Mr and Mrs Carantinos]. 95 In June 1999 the Booth factory roof that sustained severe damage during the April 1999 hailstorm collapsed during roof replacement. 96 Settlement of the sale of 39 - 43 Riverside occurred on 16 November 1999 [para 69, Mr A Magafas 8 May 2006]. By reason of a prior termination of the contract, following initial default of the purchaser, and forfeiture of the deposit which had been released, the whole of the purchase price due under the two contracts [$1.48 million] was paid on completion. Whilst Mr Carantinos has disclosed the distribution of the proceeds of sale of numbers 39-41, on the evidence there has not been any accounting provided in respect of the proceeds of sale of number 43 nor of the basis for apportionment of any profit across the sale of the three properties. It is worthy of note that the settlement date for the purchase of the Hoechst property [treated with below] was 9 days after 16 November 1999. 97 Mr Magafas gave evidence accepted as reliable that Mr Carantinos has never accounted to him for the proceeds of the sale of 39 - 41 Riverside. 98 On his evidence accepted as reliable, Mr Magafas only discovered [on investigation of the General Ledgers of The Karafas Trust supplied to the Administrators by Mr Michael Egan] that Mr Carantinos had in fact withdrawn the profits of the Riverside sale which had settled in November 1999 [see Mr Magafas' 8 May 2006 affidavit, paragraphs 60.6 to 60.8 for ledger details]. The tax bill discussion 99 In about September 2003, Mr Carantinos phoned Mr Magafas regarding a substantial tax bill of over $150,000 that Mr Carantinos had to meet due to having taken the profits from the sale of Riverside [paragraph 75, Mr Magafas' 8 May 2006 affidavit]. Mr Magafas gave evidence in his 8 May 2006 affidavit which is accepted as reliable, that Mr Carantinos told him he had used the proceeds from the Riverside sale to fund "our share of the Hoechst property purchase". The more particular facts concerning this property are referred to below. 100 After this conversation, Mr Magafas drew two personal cheques - one dated 15 September 2003 for $70,000 and one dated 18 September 2003 for $50,000 - to Mr Carantinos on the basis of his belief induced by Mr Carantinos, that all profits from the Riverside sale were rolled into the Hoechst site purchase. 101 The version of events given by Mr Magafas is clearly to be accepted in contradistinction to that given by Mr Carantinos. The latter whilst accepting that he used funds provided to him by Mr Magafas to pay for his tax, had difficulty in explaining why that had occurred and ultimately came forward with no explanation at all. His cross examination included:

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Mr Carantinos: "I did it because it would be simpler for us if I hold it on behalf of the Pac Com partnership in my own name, because this will make it quicker to deal with issues that arise and in dealing with our joint venture partner Gregory Gav. This is the same reason why Gav has taken his shareholding in his own name. " 113 It is likewise consistent with Mr Carantinos' note made on the reverse side of the cheque butt contemporaneously with the completion of the purchase of the Hoechst site on 25 November 1999 -"….$ from Pac-Com as contribution for share in future profits." [also dealt with in the reasons below] 114 It is also consistent with holding and development expenses being actually paid by Pac Com, as recorded in the cashbook (Exhibit P1) and the instructions or information provided by Mr Carantinos to his accountant on 25 June 2002 (Exhibit P47) - "Mars…+ Pac Com = own Artesian P/L jointly". 115 The finding is that Mr Carantinos needed Mr Magafas' cashflow to fund 50% of the holding and development costs of the Hoechst property, in accordance with the agreement between Mr Carantinos and Mr Gav. Mr Carantinos was not shown to have any demonstrable capacity to fund these costs independently of Mr Magafas. This is evidenced by Mr Carantinos' income tax returns from 1994 to, at least, 1999 [the returns beings Ex P20, P21, P22, P25, P29, P36 and P38] which disclose not only Mr Carantinos' net income (loss) from year to year, but also his net assets. The balance sheet for the year ended 30 June 2000 [Exhibit P36] demonstrated that his net assets in the 1999 year totalled $157,650 only 3 ½ months before he acquired the shares in Artesian. These assets included "goodwill" for Communicado in the sum of $300,000 (having been carried forward from pervious years), which at the time was either not a trading business or had considerably reduced its sale activity. If goodwill is removed, Mr Carantinos is seen to have suffered a deficiency of assets over his liabilities at the time. 116 On 14 March 2002, Mr Magafas caused Benward Pty Ltd [a company within the Magafas group of companies] to advance $500,000 to Pac Com to enable it to meet its share of the ongoing holding and development costs of the Hoechst property [Mr Magafas' 8 May 2006 affidavit, paragraph 63.1]. 117 The finding is that Mr Carantinos [in relation to the Hoechst property] at some stage in 2002 showed a model of the proposed development to Michael and said [T 44:7]:

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Dissolution of partnership 136 On 1 May 2006 Mr Magafas and Pac Com addressed a formal (p387 of AM1) Notice to Mr Carantinos pursuant to Section 32(c) of the Partnership Act intent to dissolve the partnership as from that date. 137 On 27 November 2006 Brereton J heard an interlocutory application for an injunction and other relief in relation to the Hoechst property sale. Reliability of evidence given by witnesses outside of the main witnesses 138 Evidence was given by Mr Au, Ms Sutton and Mr Donnan and there is no question but that this evidence was reliable in terms of honestly given and being generally acceptable as true. Mr Saviou Au 139 Mr Au was a former Executive Account Manager of Moore Business Systems Australia Limited ('Moore'). 140 Mr Au first met Mr Magafas and Michael Magafas in the early 1980s when the brothers were operating Stax Condor Printing, but became reacquainted with the Magafas brothers when they later acquired the Booth Printing business in the mid-1990s. At this time, Mr Au was working for the Australian Government Publishing Service (AGPS) but subsequently obtained a position with Moore in about early November 1996 in which he was engaged principally, given his background, in the acquisition of the business of AGPS. 141 In late 1996 to early 1997, Mr Au on behalf of Moore, was in contact with Mr Magafas regarding the opportunity for Booth Printing to work with Moore to form a strategic alliance or partnership to bid for AGPS printing service tenders. An agreement for a strategic alliance was entered into [although the tendering process was ultimately discontinued by AGPS]. It is Mr Au's evidence that Mr Carantinos did not have an active role in the entering of the agreement between Moore and Booth Printing [paragraph 12 of Mr Au's affidavit 9 March 2007]. 142 In addition Mr Au had other discussions about potential business acquisitions by Mr Magafas as well as the negotiations that led to the eventual formation of a consortium [which included Booth Printing and Moore] to purchase the printing operation of the former AGPS. The consortium was styled 'Information Solution Group (ISG) Pty Limited'. Mr Carantinos was again not said to be involved in these discussions [transcript 155 and para 19-20 of Mr Au's affidavit]. Ms Anne Sutton 143 Ms Sutton commenced employment with Tudune Pty Ltd t/as Stratagem Creative Services in about November 1998 as financial controller of the Magafas group of companies. She left the employ of the Magafas group of companies in about July 2005 [at that specific time she was employed by Benward Pty Ltd but was still the financial controller across the Magafas group of companies]. She gave evidence that during her employment, she would see Mr Carantinos from time to time and on an average of about every 6 to 8 weeks attending the [Magafas] premises at Marrickville around lunchtime to go off to lunch with Mr Magafas. Her office was in line of sight to Mr Magafas' office, and either Mr Carantinos or Mr Magafas would tell her they were heading off to lunch when leaving and passing by her office. Ms Sutton's evidence was that her work did not bring her into contact with Mr Carantinos [transcript 122.12]. From time to time, Ms Sutton attended meetings of directors of the various entities within the Magafas group of companies, and at only one of these meetings which she attended was Mr Carantinos in attendance. She observed no input from him at this meeting which discussed non-sensitive budgetary type matters [transcript 132.21]. 144 Ms Sutton gave evidence that at the management type meetings she attended [generally those with a financial requirement], Mr Carantinos was never in attendance [transcript 141.45]. 145 As previously observed, on 11 June 1999, part of the roof collapsed at the [Magafas] Marrickville premises. Subsequent litigation was brought and as financial controller, Ms Sutton became involved in the litigation that was brought by several of the Magafas entities against the roofing contractor and sub-contractor as well as the insurer. As far as Ms Sutton was aware, Mr Carantinos had no involvement in the litigation apart from his attendance as an observer on two occasions with Tony. 146 During her employment she became aware that Mr Carantinos was assigned to be project manager of a dispute with a supplier, Mediatech Pty Limited. She deposed that this was a relatively minor matter and it was ultimately Michael Magafas who took over the negotiations that led to the resolution of the dispute. 147 Two months prior to leaving her employment with the Magafas group of companies, Ms Sutton was requested by Mr Magafas to search the records and general ledgers to prepare a schedule of payments made to Pac Com and Communicado. Prior to this time, she had not heard of Pac Com and had no understanding that it was a related company to Mr Magafas. In re-examination, Ms Sutton expressed the opinion that the invoices that were related to the payments made to Pac Com and Communicado appeared very unprofessional in the way they were presented and that she had held professional doubts about their validity, given that she saw no evidence of Mr Carantinos actually doing the work specified in the invoices [transcript 148.20].

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Standing back from the detail - credit and related matters 152 There is no doubt but that determining credit as between two persons each of whom had no compunction in flouting the requirements for honesty in their dealings with the tax commissioner is no easy task. When men of dishonour fall out, each accusing the other of dishonesty, misrepresentation and similar and the matter comes before the Court it continues to be necessary for the Court to treat with decisions as to credit on the balance of probabilities. This is the approach taken in this case. Credit of Mr Magafas 153 It should be immediately pointed out that there is no substance in the proposition put forward by Mr Alexis SC appearing for the plaintiffs to the effect that lodgment by the Magafas parties of amended income tax returns alters by one jot, the proper approach to be taken to credit of those parties. Plainly enough they believed that in order to bring this litigation, this matter would require to be addressed. So much was accepted by Mr Magafas under cross-examination: [transcript 253]. Further Mr Fitzgerald gave evidence [transcript 480] that he had pointed out to Mr Magafas and to the other directors of the companies that the taxation returns were clearly fraudulent and that he suggested that they do something about it. 154 The credit of the Magafas parties is determined by their anterior conduct. By lodging the amended returns, they receive in a court of law no absolution from adverse inferences necessary to be drawn in respect of their credit by reference to their willingness, over many years to continue the pattern of dishonesty with the Commissioner of Taxation. 155 Outside of the dishonesty parameter shared by both Mr Magafas as well as Mr Carantinos, an assessment of the evidence of the former would accept that his evidence was given honestly, carefully and directly. I was certainly impressed with Mr Magafas in terms of his command of detail and in terms of the manner in which the evidence which he gave was often able to be corroborated in one way or another, by various types of documentation. It was plain that he is an intelligent person of depth. Naturally however his evidence must be carefully monitored by reason of his stake in the result. It was plain enough that he felt that Mr Carantinos was guilty of heinous wrongdoing which required to be corrected through the curial process. In one respect dealt with in these reasons, he became confused on a matter of chronology. This can happen, and the confusion does not affect his general reliability as a witness. Credit of Mr Michael Magafas 156 The evidence given by Mr Michael Magafas was given clearly and was generally also consistent with many of the written materials which came forward. I formed the view that his evidence could generally be accepted. It is plain that he is a careful person in his business affairs and takes fastidious notes. 157 However in one respect it is difficult to determine whether or not his evidence was reliable. I refer here to his evidence that notwithstanding:

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iii. the implication that there would be an advantage to the Magafas Group whereby that company [or those companies] would be able to claim as tax deductible expenses, expenses to which they would not be entitled to make a claim, nonetheless he had given little thought to the ramifications of that which he had been told and, although understanding the effect with the benefit of hindsight, at the time "did not join the dots together". [cf transcript 374 - 377] 158 These proceedings do not depend upon whether or not this evidence is to be regarded as reliable. For that reason it is unnecessary to reach a finding on the matter. Credit of Mr Carantinos 159 Mr Carantinos was clearly an unreliable witness. He often pontificated and often engaged in extended non-responsive answers, at times bursting into laughter at propositions put to him. There is naturally no problem in witnesses expressing their true feelings in whatever fashion is appropriate when a proposition put is so ludicrous that it can only be laughed away. The Court accepts entirely that laughter may occur [presumably to be equated with an answer rejecting the proposition put as so ridiculous as to be laughable]. However in this case I formed the view from time to time that the laughter was nothing more and nothing less than a performance put on for show, and on occasion to mask his surprise at being shown a document which contradicted his evidence. 160 Mr Carantinos, when directed to the particular matter at issue often either failed to address himself to it or alternatively, when confronted with an unequivocal document which was inconsistent with the evidence that he was giving, consistently responded by saying, "well, that's wrong" or "that's a mistake". One example concerns the mortgage proposal with respect to 39-43 Riverside Crescent, which clearly described both he and Mr Magafas as the applicants for the loan in relation to the development of those three properties. He was very quick to point out that the contents of that document were mistaken. 161 Time and time again his answers were that he could not recall; or he did not know, or he was not sure; or that others had dealt with particular matters and he was not certain of whether or not he had been cognizant of what they had done or why. His evidence was that in relation to the books and records of Pac Com, the bookkeepers had been his mother as well as his cousin Betsy; that in so far as the way in which the books and records of Communicado had been kept, that was not done at his direction or under his supervision in terms of the way in which his mother and Betsy had carried out their work and that he had had very little to do with the keeping of cash books or sales ledgers or accounting records, although he would look at them from time to time. 162 He accepted that when he had come to swear his affidavit he had understood that the cash book for Pac Com recorded expenditure that related not only to 39-41 Riverside Crescent but also to No 43 [transcript 544.44]. 163 He also accepted that it was plain to him prior to the time when he came to swear his affidavit, that the entries in the Pac Com cash book showed not only expenditure going out for the Riverside development including No. 43 but also moneys being expensed out for the purpose of the Artesian property at St Peter's [transcript 547.5]. 164 Under cross-examination [at transcript 547-548] he accepted each of the propositions put to him:

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The arrangement I had with Tony was a fairly loose one to begin with. I still had my own business and a lot of the research that I was doing I would also apply to the development of my business. I had no concerns that Tony would not honour his commitments to me for the work I had done. I was working closely with Tony, in regular contact with him, and I felt he was very grateful for, and reliant on, my advice." 169 Under cross-examination he was asked what he had said to Mr Magafas which led him to conclude that a meeting or meetings culminated in an agreement that he would take on the role to which he referred in paragraph 60. His answer commenced with stating that he was not sure that it was what he had said that led to the culmination of the agreement, but that it was a matter of a dialogue between them. He there purported to set out the effect of the dialogue in terms of their having been insurmountable problems within the industry which he had predicted and that he was to be the person who would address these matters in a way which otherwise could not be afforded within the Magafas organization. [Transcript 565] 170 He was also asked whether he discussed payment at the time and his evidence was that this had been discussed and that what had been said was that it would be about $100,000 per year. It was put to him that in contradistinction to this evidence, in his 13 September 2006 affidavit at paragraph [68] he had deposed that given the passage of time, he could not recall the specific conversations which he had with Mr Magafas about his being paid for his consultancy work. It was put to him that he had not, at least in that section of the affidavit, made any reference to a conversation during which Mr Magafas had agreed to pay him by the end of 1994, the sum of $100,000 a year. He accepted that proposition [transcript 570.11]. 171 Mr Carantinos' evidence with respect to an arrangement having been reached with Mr Magafas whereunder the former would be paid $100,000 per year for management fees and administration expenses is rejected in its entirety. As already observed, the evidence put forward in relation to such an arrangement was unclear as to date or the occurrence of particular conversations with any defined detail. Commonly stale claims or claims which come forward very late in the day are viewed with high suspicion. In this particular case it would be astonishing indeed had it been the case that over a number of years prior to 2005, Mr Carantinos had had an entitlement to annual payments of this order without making claims to such. 172 It is clear from the evidence given by Mr Magafas, which is accepted as reliable, that the first time that there had been any reference in any conversation with Mr Carantinos, to a claim made for management fees and administration expenses of this annual order was in 2005 prior to Mr Carantinos leaving for an overseas trip. It is also clear [even from the evidence accepted by Mr Carantinos] that the first time that he had ever prepared a document to reflect such a claim was on 28 October 2005 when he prepared an invoice for the administrator of Pac Com. Prior to that date as he accepted [transcript 692], there was never any written invoice or other document prepared by him and provided to Mr Magafas making a claim for management fees, administration expenses or a combination of both. 173 It is also clear from the annual balance sheet prepared by Mr Egan, who had been Mr Carantinos' accountant for in excess of 20 years, that there was no reference to any loan or liability due to Mr Carantinos from either Pac Com or Mr Magafas in relation to outstanding management fees or administration expenses. All of this corroborates the evidence given by Mr Magafas of no such arrangement or agreement ever having been reached with Mr Carantinos. 174 It is no exaggeration to say that it became extraordinarily difficult to follow exactly what Mr Carantinos ultimately contended for as to, not only the moneys to which he was entitled, but also as to the basis for that entitlement and certainly as to the particular conversations at which any such entitlements were agreed upon. In this sense his evidence was riddled with inconsistencies. 175 Dealing with the bogus invoices directly, it is clear from the wording on these invoices that they do not reflect the provision of genuine consulting services that were actually provided. Indeed Mr Carantinos accepted in cross-examination that the invoices were prepared by Mr Magafas giving him directions in relation to whom the invoice should be directed and in relation to the description to be put on the invoice. [Transcript 526.20]. He also accepted that Mr Magafas had explained to him what was the amount to be included on the invoices and that this would be largely informed by anticipated cash flow with respect to work at hand in the Booth Group businesses. To take up only one part of the submissions to the effect that the invoices could not be accepted as genuine, the following may be noted:

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Mr A Magafas: "I see someone has already written the invoice number 95024. Now, on the left column I put the date of the invoice as you normally do, then the invoice amount in the column next to the invoice number. I think this invoice was for $34,500. And in the last column you enter funds received. Again I think the instalment I gave Peter was $10,000. So we put that figure here. See, it is no different to what you normally do. I also suggest that you keep these entries separated from your normal sales so as to make it easy for Peter and I to work out later what I have transferred into our partnership." 178 There is also the evidence of the tax returns of Mr Carantinos which consistently showed the return of a loss as well as the fact that the receipt of the so-called "consultancy fees", did not have the consequential effect of his paying any tax. The plaintiffs also contend and I accept that it is appropriate to infer that Mr Magafas never had any access to Mr Carantinos' income tax returns for the 1994 to 2000-2001 period which were discovered in the course of these proceedings. In that regard, to use the words of Mr Alexis, the evidence given by Mr Magafas about the manner in which the invoices to boost sales was to work, fitted hand in glove with what is in the content of those tax returns. In the environment which came forward by way of proof, any suggestion by Mr Carantinos that the arrangement was uncommercial because he had had to pay tax on those receipts falls away. As the Westpac bank Exhibit P15 made plain, due to the way in which Mr Carantinos structured his financial affairs to minimise tax liability, both his business and his other investments had never revealed much profitability, this being a difficult aspect in demonstrating serviceability. 179 The finding is that Mr Carantinos as he well understood, was to receive the benefit of being able to show "sales" in his income tax returns. This was important for the purpose of maintaining the appearance of being able to service his liabilities to his bankers so as to maintain his property portfolio (most of the properties being negatively geared). This position is made plain by his income tax returns from 1994 to, at least, 1999: see the Westpac diary notes that comprise Ex P15 and the returns beings Ex P20, P21, P22, P25, P29, P36 and P38. [Note also the handwritten note on Exhibit P48]. 180 It is a fair reflection of the cross examination of Mr Carantinos to observe that in relation to most of the elements of the consultancies which he relied upon, he was left floundering when cross-examined. I accept that in relation to the Butterfly project, although he was made the Chairman, that description amounted to a purely ceremonial description, his contribution amounting to very little indeed and his interest being that of the kudos to which he aspired in the event that he would ever have a prospect of becoming the chairman of a public company. 181 A convenient short transcript summary reference [as extracted by the Magafas party's counsel in final submissions] to some of the evidence which substantiates the proposition that the so-called consultancy invoices were purely fictitious is set out below:

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iii. in applying the unclean hands principle it is necessary first to identify what is the equity which (absent unclean hands) the court would be prepared to uphold. 190 It is immediately apparent that the unclean hands defence must fail in the present proceedings. Not a single one of the above requirements is made out by Mr Carantinos' case. All that has been made out is that the two men determined to participate in a long-standing fraud upon the Deputy Commissioner of Taxation. Certainly this conduct does not meet the requirement that it had an immediate and necessary relation to the Equity sued upon. There was no lack of clean hands in the relationship between the two participants to the scheme. 191 It is equally clear that in so far as Mr Magafas was one of the parties to the agreement to engage in the so-called disentitling conduct, that conduct was not directed at the defendant. 192 The equity which entitles the respective plaintiffs to success is that which obliges the person who is under a fiduciary obligation to account to the person to whom the obligation is owned for any benefit or gain which has been obtained or received in circumstances where a conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it: the law requiring that any such benefit or gain is held by the fiduciary as constructive trust: cf Mason P in Blythe v Northwood supra, [in turn citing Deane J in Chan v Zacharia at 198-199 ]. 193 Importantly and as observed by Campbell J in Black Uhlans, equitable relief is always discretionary and other factors can influence the exercise of the discretion. Here those factors include the injustice in permitting Mr Carantinos against the case proven by the plaintiffs, to avoid the obligation to account. Dealing with the District Court proceedings 194 Reference has earlier been made to the September 2003 tax bill discussion. The evidence clearly establishes that on a number of occasions leading up to June 2003 Mr Carantinos inquired of Mr Magafas as to whether any of the companies in the group had tax losses which he said he needed. Subsequently the tax bill discussion occurred. Mr Magafas agreed to lend those moneys to assist Mr Carantinos as Mr Magafas felt he had a duty to assist his partner, believing that the Riverside profits were rolled over to fund the Hoechts site development costs and as he thought that it had absorbed all of their profits from the Riverside Sale. 195 In these circumstances, this appears to have been a one- off arrangement. The finding is that Mr Magafas is entitled to judgment in the claim pursued in the District Court statement of claim for the amount claimed plus interest. 196 The cross claim mounted against Pac Com requires to be dismissed. Issues concerning the pleadings 197 The defendants sought to advance submissions concerning the suggested inadequacy of the pleadings to cope with the case said to now be put forward by the Magafas parties. In this regard the defendant submitted inter alia as follows:

Anthony Magafas & Anor v Peter Carantinos & Ors

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