Bachour Enterprises Pty Ltd v Munzer

Supreme Court of NSW|2024-12-20|Before: Rees J, Parker J

Solicitors: Cordoba Legal (Plaintiff) Orison Law Group (Defendants) File Number(s): 2022/355581

JUDGMENT

HER HONOUR: This judgment concerns costs and the release of funds held in the trust account of the defendants' solicitor under an interlocutory regime.

FACTS

In August 2022, the defendants agreed to sell a 'charcoal chicken' business in Mt Druitt to the plaintiff. The plaintiff paid for the shop and stock and began to operate the business. In September 2022, the parties signed a Heads of Agreement in respect of the sale, while more detailed transaction documents were being prepared. In October 2022, however, the first defendant, Simon Munzer, changed his mind and re-took possession of the shop to the exclusion of the plaintiff.

Calderbank offers

On 7 June 2023, the plaintiff sent a Calderbank letter, offering to resolve the proceedings on, relevantly, the following basis: 1. Mr Munzer to retain the business; 2. the defendants to pay the funds held in the trust account to the plaintiff; 3. the defendants to pay the plaintiff's costs in the sum of $65,000 plus $5,495 for the hearing allocation fee thrown away and $880 in respect of a costs order made on 10 March 2023; and 4. the defendants to immediately transfer the electricity and gas accounts from the plaintiff and attend to payment of the outstanding invoices for the business (which then totalled $10,940.66).
The offer was open for acceptance for 14 days. In the event that the offer was not accepted, the plaintiff advised that it intended to rely on the correspondence in support of an order for indemnity costs.
On 12 October 2023, the defendants made a Calderbank offer in the following terms: 1. That the parties do all things to cause the restaurant business … (Business) to be transferred to the plaintiff within 21 days of the date of this offer. 2. That the parties consent to the release of the money for the purchase of the business, presently held in the trust account of Orison Law Group in the sum of $116,282.82 to be released 3 business days following the discharge of the obligations pursuant to paragraph [1] above to the defendants; 3. That the proceedings be dismissed; and 4. That each party bears its own costs of the proceedings.
Neither offer was accepted.

Problematic discovery

In March 2024, orders were made for discovery. The defendants' list of documents, verified by Mr Munzer, included only nine documents, being largely unsigned financial statements or unlodged tax returns. The plaintiff complained. Mr Munzer verified a second list of documents, adding contracts of sale of business in respect of Eastern Creek, St Clair and Marsden Park shops. The plaintiff complained. On 5 June 2024, Mr Munzer made an affidavit setting out the steps taken to comply with the discovery order. The details were brief. The plaintiff complained as to the lack of detail. On 7 June 2024, Mr Munzer verified a third list of documents disclosing "various" EFTPOS, PAYG, superannuation documents, bank statements and records in respect of Paradise CC Corp. On 25 June 2024, Mr Munzer made a further affidavit explaining that he may have misunderstood some of the orders for discovery, but had now supplied all of the information, "I have been going through a divorce and it's been difficult in managing my personal life and other matters."
On 26 June 2024, Hammerschlag CJ in Eq ordered the defendants to provide a further affidavit setting out steps taken to comply with the orders for discovery and to produce bank statements, "all cash ledgers for the period (or any part of the period) since 1 July 2021" and all emails sent by Mr Munzer from the "accounts@paradisechicken.com.au" email address since 1 August 2022 in the course of operating the Mt Druitt shop. On 10 July 2024, Mr Munzer made a further affidavit as to his efforts to comply with the discovery orders, explaining any non-compliance with the orders as referable to a misunderstanding as to what was required or an error in what was produced, given the significant number of documents to be produced. He verified a fourth list of documents in respect of bank statements and PAYG. No reference was made to a cash ledger nor emails from "accounts@paradisechicken.com.au". This was pointed out by a letter from the plaintiff's solicitor. On 18 July 2024, Mr Munzer verified a fifth list of documents in respect of "various" emails from 1 August 2022 on.
On 19 July 2024, Mr Munzer was examined in respect of his compliance with the disclosure orders. Mr Munzer said that he recorded cash receipts manually on a piece of paper. Mr Munzer agreed that he had not produced these pieces of paper, but said that he could do so. Mr Munzer agreed that the business continued to use Abacus software, which recorded whether sales were made on credit or with cash, and he could produce the Abacus records. On 13 July 2024, Mr Munzer verified a sixth list of documents, adding various invoices from suppliers.
At trial, the plaintiff complained that, although Mr Munzer admitted in the examination that he had documents that should have been discovered but had not been, including MYOB records, Abacus records, cash journals and ledgers and handwritten cash records, these documents were still not included in the final list of documents nor produced. Mr Munzer was cross-examined on this subject. As noted in my primary judgment, his answers in respect of compliance with orders for discovery were defensive, variously saying that he did not recall what had been discovered and then suggesting that he may have printed MYOB and Abacus records and given them to his solicitor. There were no further documents produced by his solicitor in answer to a call for production. Mr Munzer variously blamed his failure to comply with orders for discovery on: anxiety and depression; "extreme personal circumstances"; not having the energy to find the material; family issues "and I left the house"; and his son having mental health issues and needing his constant presence and care. Ultimately, Mr Munzer said he had not produced the documents "because this is nothing to do with the sale of the shop."

The result

The plaintiff sought orders for specific performance of the business sale agreement, together with an assignment of the lease of the premises. The plaintiff also sought an account of profits, damages or, alternatively, restitution of the purchase price and payment for stock. (The parties agreed that any assessment of damages or account of profits should be performed by a referee.)
Initially, the proceedings were defended on the basis that the plaintiff's director, Fouad (Frank) Bachour, only "had discussions" with the vendor about granting a licence and sub-lease to shop manager, Maha Ghrayyeb, to operate the shop for five years. The $100,000 was said to be a licence fee, paid by Mr Bachour on behalf of Ms Ghrayyeb as a loan to her. By closing submissions, however, this 'case theory' was abandoned. Instead, Mr Munzer asserted that the agreement was not with him but with the second defendant, Paradise CC Corp Pty Ltd. Further, Mr Munzer asserted that he was absolved from complying with the agreement by reason of misleading and deceptive conduct, unconscionable conduct and undue influence said to have been perpetrated by Mr Bachour, or the defences of non est factum or mistake.
I concluded that the plaintiff was entitled to the relief sought. In short, Mr Munzer sold the business to his long-time friend for $100,000, as he was in need of funds. But Mr Munzer changed his mind and, quite audaciously, re-took possession of the shop. The only person who was exploited in the matter was Mr Bachour.
On 13 December 2024, I made orders for specific performance of the agreement, together with a referral to accountant Fiona Bateman. Ms Bateman is to report by 14 March 2025. The proceedings have been stood over for further directions on 21 March 2025.

MONEY HELD ON TRUST

The defendants submitted that the moneys held in trust should be paid to Mr Munzer on performance of the contract. The moneys were the consideration payable under the contract. There was no application for the injunction ordered by Parker J to continue and no application for a lump sum costs order under s 98(4) of the Civil Procedure Act 2005 (NSW). Any costs order, whether made on an ordinary or indemnity basis, would need to be assessed. The reference was no reason to defer payment of the consideration to Mr Munzer. The plaintiff was effectively seeking security for costs or security for a judgment sum.
The plaintiff submitted that those funds were part of the "holding arrangements" ordered by Parker J, pending resolution of the proceedings. Those holding arrangements are now directly linked to the reference, the purpose of which is to assess the plaintiff's lost profits by reason of the defendants' improperly misappropriating the business, coupled with the defendants' failure to give discovery of financial records. The orders for specific performance were yet to be performed. There was said to be a risk that the orders would not be complied with. The monies ought not be released until there has been performance. That required the defendants to transfer ownership and control of equipment, contractual rights and business records: cl 3(d). That could conveniently be addressed following completion of the reference. The proceedings were listed for directions on 21 March 2025 and this would be a convenient time for the Court to address the disposition of the monies held on trust.

Consideration

It follows from my primary judgment that Mr Munzer is entitled to receive the purchase price once he has performed his obligations under the binding contract of sale. Those obligations are detailed in cl 3(d) of the Heads of Agreement, including: 3. Terms … (d) The Vendor must transfer ownership and control to the Purchaser of all assets of the Business and everything necessary to operate the Business. This includes, but is not limited to the following: … (iv) Stock; (amount of $7514.76 paid to Vendor separately on 27/08/2022) … (viii) Permits and licences including a licence to use the Business name "Paradise Charcoal Chicken"; (ix) Leases including the sublease for the premises …; (x) Agreements with third parties including Delivery Partners where these agreements can lawfully be assigned, novated, or otherwise transferred; … Where Delivery Partners means third parties contracted by the Vendor to deliver products of the Business to customers, for example, Uber Eats: cl 12.
Of particular interest is an assignment of the lease of the shop premises. Obviously enough, the lessor will need to consent to this. However, once these obligations are performed, then the trust moneys should be released to Mr Munzer. To continue to hold the moneys until the referee has concluded her task is akin to seeking security for costs or security for any judgment sum which may be entered following the adoption of the referee's report. Accordingly, I will make orders in respect of disbursement of the trust funds, being either with the consent of the plaintiff or after having given the plaintiff sufficient notice that the defendants consider that Mr Munzer's obligations have been performed, to enable the plaintiff to bring an application to injunct the payment if it disagrees.

COSTS

In short, the plaintiff seeks its costs of the proceedings on an indemnity basis by reason of the defendants' "delinquency" in the conduct of the proceedings or, alternatively, non-acceptance of a Calderbank offer. The defendants oppose such an order by reason of the plaintiff's non-acceptance of their Calderbank offer and contend for an indemnity costs order in their favour.
The plaintiff submitted that it should have its costs of the proceedings on the ordinary basis given its success: r 42.1, Uniform Civil Procedure Rules 2005 (NSW) (UCPR). In addition, indemnity costs were sought on the basis of the defendants' "relevant delinquency" in disregard of the orders for discovery and Mr Munzer's multiple "verifying affidavits": r 42.5, UCPR; Mead v Watson [2005] NSWCA 133 at [8]-[9]. In addition, the defendants unreasonably failed to accept a Calderbank settlement offer made in June 2023, acceptance of which would have resulted in Mr Munzer retaining the Mt Druitt business, with the consideration to be returned, an unpaid costs orders to be paid and the plaintiff's costs. The defendants would thereby have achieved the outcome they sought in the proceedings, albeit paying invoices and a costs order that they were required to pay in any event and a modest amount for costs.
The defendants submitted that the plaintiff did no better by my judgment and orders than the Calderbank offer made by the plaintiff on 7 June 2023. Orders were made for specific performance of the contract, whereas the offer sought the repayment of the consideration and other monies and that the defendants retain the business. By contrast, the defendants' Calderbank offer of 12 October 2023 reflected the outcome which the plaintiff ultimately achieved in the judgment. While it was not imprudent for the defendants to reject the offer made by the plaintiff, it was imprudent for the plaintiff to reject the defendants' offer. In these circumstances, the Court would order that the plaintiff pay the defendants' costs on an indemnity basis.
The plaintiff submitted in reply that the Calderbank offer of 12 October 2023 did not reflect the judgment where no provision was made for compensation for loss of profit for the period when the plaintiff was excluded from the business. The offer was made on the basis that "each party bear its own costs", which would include interlocutory costs orders already made in the plaintiff's favour (including on 10 March 2023) and costs incurred to that point. The offer was only open for acceptance for two business days. As such, it was not unreasonable for the plaintiff not to accept the offer.

Consideration

So far as the plaintiff seek costs on an indemnity basis by reason of the defendants' discovery or lack thereof, an indemnity costs order may be made where there is a relevant delinquency on the part of the unsuccessful party: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24]; Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6]. Conduct which will ground an order for indemnity costs includes misbehaviour of a serious nature in the course of a proceedings, such as fraud (Gate v Sun Alliance Insurance Ltd (1995) 8 ANZ Ins Cas 61-251 at 75,817-75,818), perjury or contempt (Berkeley Administration Inc v McClelland [1990] FSR 565 at 568-569; Ivory v Telstra Corporation Ltd [2001] QSC 102) and dishonest conduct (Vance v Vance (1981) 128 DLR (3d) 109 at 122).
I have earlier set out the problems encountered with the defendant's discovery. It does certainly appear from the procedural history, the absence of records of a type which Mr Munzer accepted that he possessed, and his evasive answers on this subject that the defendants did not discharge their obligations in respect of discovery. Any "delinquency" in respect of this issue does not, however, support an order for indemnity costs for the whole of the proceedings, where orders for discovery were first made in March 2024 and the proceedings had then been on foot for 18 months. Such "delinquency" does, I think, support an order for indemnity costs in respect of the costs incurred by the plaintiff in endeavouring to obtain proper discovery from the defendants, and I will so order.
So far as the parties seek competing indemnity costs by reason of non-acceptance of their respective Calderbank offers, there is no "presumptive entitlement" to indemnity costs flowing from a failure of a party who has rejected a Calderbank offer to achieve a better outcome than provided for in the offer. Rather, the offeror must establish that the Calderbank offer involved a real and genuine element of compromise and that non-acceptance of the Calderbank offer was unreasonable: CGU Insurance Ltd v Corrections Corp of Australia Staff Superannuation Ltd [2008] FCAFC 173 at [75] (per Moore, Finn and Jessup JJ); Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]-[9] (per Basten JA, McColl and Campbell JJA agreeing).
The offeror bears the onus of establishing to the Court's satisfaction that, in all the circumstances, failure to accept the offer was unreasonable: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26] (per Giles, Ipp and Tobias JJA). Unreasonableness is to be judged by reference to the circumstances facing the offeree at the time of the offer, and not with the benefit of hindsight: CGU at [75]; Miwa at [11]. The factors which the Court may take into account include: the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree's prospects of success (assessed as at the date of the offer); the clarity with which the terms of the offer were expressed; and whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejection: Miwa at [12]. The Court's inquiry into whether the offeree's non-acceptance of a Calderbank offer was unreasonable in all the circumstances can be complex: Radovanovic v Stekovic [2024] NSWCA 129 at [68] (per Payne JA, Gleeson and Meagher JJA agreeing).
Before turning to the competing Calderbank offers, it is relevant to consider what costs order should be made absent those offers. On any view of it, the plaintiff is entitled to its costs of the proceedings, having wholly succeeded.
Next, the defendants' Calderbank offer can be put to one side. True it is that the defendants offered to transfer the business to the plaintiff in return for the release of the purchase price. Following my primary judgment, these events will now occur. But that is not all. The defendants' offer was conditional upon the proceedings being dismissed with each party to bear their own costs. By the time the offer was made, the proceedings had been on foot for almost a year. Acceptance of the offer would have required the plaintiff to forego its entitlement to a costs order in its favour, including where the Court had already ordered the defendants to pay the plaintiff's costs in the fixed sum of $880 on 10 March 2023 in respect of costs thrown away by the amendment to the defendants' pleadings. Where the hearing on 20 March 2023 had also been vacated on the defendants' application, there is little doubt that the plaintiff was entitled to recover the hearing allocation fee of $5,495 from the defendants as well. Having succeeded in toto, the plaintiff is also now entitled to its costs of the proceedings. Even if the referee assesses the plaintiff's damages or loss of profits at nil, the plaintiff has still done better than if it had accepted the defendants' Calderbank offer. It follows that the defendants are not entitled to any indemnity costs order of the proceedings in their favour.
Finally, the plaintiff's Calderbank offer must be considered. The plaintiff then offered, effectively, the 'flip side' of the relief which it sought in the proceedings and which has since been granted. That is, the plaintiff offered to let Mr Munzer keep the business in return for a refund of the purchase price and payment of the plaintiff's costs. The initial hurdle is that the plaintiff must establish that it has achieved a better outcome than provided for in the offer. As it has turned out, the plaintiff is entitled to the business and Mr Munzer is entitled to keep the purchase price. The plaintiff is entitled to have its costs of the proceedings paid. As matters presently stand, it is not obvious that the plaintiff has done better by my primary judgment than its Calderbank offer.
That may well change on receipt of the referee's report. For example, Ms Bateman may conclude that damages have been sustained or profits lost as a consequence of Mr Munzer running the business for the last two years. In that event, and if Ms Bateman's report is adopted, then the plaintiff will be entitled to judgment against Mr Munzer for either damages or loss of profits, as it elects. When taking any additional judgment sum into account, it may then appear that the plaintiff has achieved a better outcome than provided for in its Calderbank offer. The way forward is, I think, to make an ordinary costs order in the plaintiff's favour with liberty to apply to vary that costs order in due course.

Orders

For these reasons, I make the following orders: 1. Direct the defendants' solicitor, Orison Law Group, to transfer the sum of $116,282.82 from its trust account to the first defendant on: 1. obtaining the consent of the plaintiff; or 2. failing consent, 14 days after notifying the plaintiff's solicitor that the first defendant's obligations under cl 3(d) of the Heads of Agreement are considered to have been performed. 1. Order the defendants to pay the plaintiff's costs of the proceedings on an ordinary basis save for the plaintiff's costs of corresponding with the defendants' solicitors and all court appearances from 22 April 2024 to 23 August 2024 in relation to the defendants' discovery, which are to be paid on an indemnity basis. 2. Grant liberty to the plaintiff to apply to vary Order 2.

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: 13 February 2025

At a glance

Court

Decision date

Before

Source

Judgment (12 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (8)