- Balout v Bella Ikea Cronulla Pty Ltd

Judgment (7 paragraphs)

[1]

Solicitors: Mistry Fallahi (Plaintiff) Hicksons (First - Fourth and Seventh Defendants) File Number(s): 2021/230139 (006, 007)

[2]

Background

The history of these proceedings was helpfully summarised by Rees J in associated proceedings in the Expedition List ("Expedition List Proceedings") in Balout v Bella Ikea Cronulla Pty Ltd [2024] NSWSC 775 at [4]ff. With gratitude, I have drawn on her Honour's summary for part of the description that follows. The proceedings concern a failed collaboration between several Plaintiffs ("Balout parties") and several Defendants ("Touma parties") to develop a block of units in Cronulla. The site had five units and the benefit of a development consent to demolish the existing building and build nine units instead. It is common ground that the existing units comprised two one-bedroom units (units 2 and 4), two two-bedroom units (units 1 and 3) and one three-bedroom unit (unit 5).
In May 2017, Bella Ikea Cronulla Pty Ltd ("BIC") and Bella & SEB Holdings Pty Ltd ("BSH") purchased unit 3 and unit 5 for $1,147,221.24 and $1,250,176.99 respectively and, in October 2017, BIC purchased unit 2 and unit 4 for $705,982.30 and $764,814.16 respectively. Mr Touma was then the sole director of BIC and BSH and his company, Bilpin Projects Pty Ltd ("BPPL"), was the sole shareholder. In August 2018, BIC purchased unit 1 for $1.2 million. The Balout parties contend that, in 2018, Mr Balout and Mr Touma entered into a joint venture agreement to develop the property. Disputes subsequently arose between the parties and, on 12 August 2021, the Balout parties commenced these proceedings seeking inter alia to restrain the sale of the units in the property by BIC and BSH. On 13 August 2021, I made certain orders by consent and without admission. The Balout parties ultimately brought an oppression suit and sought a buy-out order or alternatively an order the BIC and BSH be wound up.

The Touma parties' application

By Interlocutory Process filed on 23 July 2024, the Touma parties applied for an order that the amount of $2,387,812.96, being the surplus of the purchase money of the relevant properties "or such other amount that the Court deems appropriate" be paid to BPPL from the controlled monies account in which they are now held. As matters developed at the hearing, the Touma parties no longer press the former relief and now seek either the payment to them of the total amount, held in that account on the basis that they claim priority over the Balout parties as "secured" creditors, or alternatively a pro rata share of those funds, implicitly on the basis of a pooling of the amounts realised by BIC and BSH and the costs of sale of the properties. Mr O'Neill, with whom Mr Rizk appeared for the Touma parties, initially submitted that the Funds were payable by BIC and BSH to BPPL on a secured basis and in priority to any amount to which the Balout parties are entitled and that, implicitly on a pooled basis, BPPL was entitled to 54.82% of the Funds even if it ranked pari passu with the Balout parties. These positions were reflected in calculations that the Touma parties put forward at the hearing (MFI 1).
The Balout parties propound a different calculation (MFI 2) of the amounts that would be paid out on the basis of the debts determined by the Accounting Report, separately by reference to debts owed by BIC and by BSH, and either on the alternative basis that 60% of the monies in the Fund were attributed to BIC and 40% to BSH, by reference to the value attributed to the properties in the recent transfer and sale of those properties, or alternatively that 52% of the amounts in the Fund were attributed to BIC and 48% to BSH, by reference to the amounts paid for those properties when they purchased by BIC and BSH.
These alternative calculations raise three issues. First, whether the Touma parties have priority in respect of any amount due to them as a "secured" creditor; second, whether any amounts owing by BIC and BSH should be calculated on a pooled basis or alternatively by reference to the separate entity by which they are due; and, third, if pooling is not adopted, whether the amounts held in the Fund should be attributed to BIC and BSH on the basis of the value of the units recorded in the transfers when they were acquired by BIC or BSH (CB 795, 797, 799, 801, 803) or the value attributed to them in the recent transfers to a third party (Ex P1). While the determination of these issues could be deferred, given the conclusions which I reach below in respect of the Accounting Report, I will determine them now against the contingency that the parties may seek leave to appeal from this decision or, perhaps too optimistically, because a determination of these matters may assist the parties in assessing whether there is utility in incurring the costs of a continuing dispute as to the issues addressed in the Accounting Report.
I first address the issue whether the Touma parties have priority in respect of any amount due to them as a "secured" creditor. In written submissions, the Touma parties submitted that BPPL's debts were "secured" and to be paid in priority to debts claimed to be owing by the Balout parties, by reason of charges that it held over the property of BIC and BSH respectively. There was no contest as to the fact that any rights of BPPL under the relevant charges were expressly preserved by order 7 of the Consent Orders, to which I have referred above. The issue in dispute was instead whether BPPL's rights under the relevant charges had the consequence that it was entitled to any priority in the relevant circumstances. In written submissions, Mr O'Neill submitted that: "The validity and enforceability of the [loan agreements] and [charge deeds] has not been challenged. By their terms they granted [BPPL] a charge over the real property and all other property of each of BIC and BSH, which entitles [BPPL] to now claim the remaining net proceeds of sale in priority to any unsecured creditor." However, that submission did not identify how the exercise of any rights by BPPL under the charges had or could give rise to any such priority and, as will emerge below, Mr O'Neill ultimately did not maintain that proposition in oral submissions.
In support of their claim to priority in respect of repayment of the loans due to them by BIC and BSH, the Touma parties rely on a Loan Agreement and Deed of Charge (in substantially the same form) dated 11 October 2017 between BPPL and BIC and between BPPL and BSH. Mr Afshar, with whom Mr Pokoney appeared for the Balout parties, points out, and it appears to be the case, that the Loan Agreement (Ex JAT 4, CB 330) and Deed of Charge (Ex JAT 4, CB 343) between BPPL and BIC was executed for BIC by Mr Touma and witnessed by Mr Ibrahim on the day before Mr Touma was appointed as a director of BIC in place of Mr Ibrahim. Mr Afshar rightly did not submit that, even if the Loan Agreement and Deed of Charge did not bind BIC for that reason, BIC would be discharged of any obligation to repay amounts that were in fact advanced to it by BPPL, and that submission appears to have been directed only to the question of any priority of BPPL's claim to those amounts. It is not necessary to determine Mr Afshar's somewhat technical submission that the Loan Agreement and Deed of Charge was not binding on BIC for this reason, given the conclusions which I have reached on other grounds.
The Loan Agreement in respect of BIC (Ex JAT 4, CB 330) relevantly commenced on the "Effective Date", defined as the date of execution of the loan agreement, in October 2017. Clause 3.1 defined the sum advanced, calculated as the "Initial Sum" (being $1,458,000) and all "Further Sums" advanced less repayments. The term "Further Sum" was defined as an amount advanced under cl 5 of the Loan Agreement and that definition recorded that that amount "will [be] secured and repaid in the same way as the Initial Sum". Clause 5 also provided that "Further Sums" advanced by BPPL would be secured and be treated as the Initial Sum.
Clause 7 of the Loan Agreement provided that BIC was liable to repay to BPPL on demand the whole of the sum advanced in specified circumstances, including, relevantly, where BIC "ceases to carry on the Business". The term "Business" was defined as "the business of [BIC], namely the operation of Property Investment and Development". There is a dispute between the parties as to whether that event has occurred; although it is strictly not necessary to decide that dispute, I am inclined to think that BIC has ceased to carry on the relevant Business following the sale of the units, although the proceeds of that sale have not yet been distributed. I would also be inclined to accept Mr O'Neill's submission for BPPL that its Interlocutory Process filed in these proceedings amounts to sufficient demand for repayment of the relevant amount. Mr O'Neill also referred to cl 7.2 of the Loan Agreement in support of a contention that BPPL had priority as to its entitlement to repayment. I do not accept that submission, where that clause merely provides the time period within which repayment must be made by BIC to BPPL, after the receipt of a demand for repayment made by BPPL.
Clause 13 of the Loan Agreement provides for BIC to grant security interest over its present and after-acquired property to secure, inter alia, the repayment to BPPL of an amount "not exceeding the Loan Account". Such a security was granted by the Deed of Charge given by BIC in favour of BPPL. The term "Loan Account" is defined by reference to cl 14 of the Loan Agreement which required BIC to establish and maintain a Loan Account in the name of BPPL. There is no evidence that such a Loan Account was maintained, but I do not accept Mr Afshar's submission for the Balout parties that BIC's failure to maintain such an account can displace its obligation to repay the amount properly due, or any security properly available, to BPPL in respect of the loan.
Importantly, cl 15 of the Loan Agreement, which appears under the heading "Company Must Treat Lender Equally With All Other Shareholders", provides that, in all respects in relation to reimbursement or repayment by BIC of the sum advanced by BPPL under the Loan Agreement, BIC must "treat [BPPL] equally". The last part of that clause is incomplete and I recognise that cl 1.2 of the Loan Agreement provides that headings must not be used in the interpretation or construction of the Loan Agreement. However, that clause plainly establishes an obligation for BIC to treat BPPL equally; that obligation necessarily requires a comparison of the treatment of BPPL with other lenders to and creditors of BIC; and the obligation to treat BPPL equally would be breached by treating it more favourably than other creditors as well as by treating it less favourably than other creditors. That clause seems to me to be inconsistent with BPPL's claim to have priority for its debts over the debts owed by BIC to the Balout parties.
The Deed of Charge granted by BIC in favour of BPPL was also dated 11 October 2017 (Ex JAT 4, CB 343) and relevantly provides, in cl 2.1, for the grant of a fixed and floating charge by BIC in favour of BPPL. Clause 7 provides for the floating charge to crystallise in the event of default, and I will assume favourably to the Touma parties, without deciding, that an event of default has arisen either by reason of BIC's failure to pay amounts due to BPPL or by BIC's ceasing to carry on its business following the sale of the relevant units. Clause 8 of the Deed of Charge provides BPPL has certain powers in the event of default, but Mr O'Neill fairly conceded that BPPL has not exercised any of those powers.
Clause 11 of the Deed of Charge in turn provides for the application of the "Exercise Proceeds", as defined, and provides that those proceeds will be applied or paid by BPPL or a receiver or attorney in a specified order, with the first priority being toward any money owing by BIC to BPPL. It is plain that, as Mr O'Neill ultimately accepted in oral submissions, that provision does not apply here so as to give priority to BPPL for amounts due by BIC. First, the Funds do not fall within the definition of "Exercise Proceeds" because BPPL or a receiver or attorney have not received any money or property by the exercise of any right or power given to them against the Secured Property; and second, BPPL does not hold the Funds to apply or pay the Exercise Proceeds in the specified manner under that clause. BPPL has therefore not established any priority over the Balout parties, in respect of the Funds, notwithstanding that the benefit of the Deed of Charge is preserved by the Consent Orders, because the provisions of the charge are not applicable in the relevant circumstances.
Mr O'Neill retreated, in oral submissions at the hearing, to the proposition that, notwithstanding BPPL was not entitled to priority under the Deed of Charge, it had such priority under an "equitable charge". I do not accept that submission. First, to the extent that any equitable charge arose from BIC's agreement to grant the relevant charge to BPPL, it did so and that equity is now satisfied; second, the terms of any equitable charge could not extend beyond the terms of the Deed of Charge to which BPPL was entitled and has obtained, and cannot give rise to a priority to which BPPL is not entitled under that Deed of Charge. For these reasons, BPPL is not entitled to priority over the Balout parties in respect of the amounts due to it by BIC. The same result applies in respect of the amounts due by BSH to BPPL, under a Loan Agreement and Deed of Charge dated 25 November 2018 (Ex JAT 4, CB 492, CB 505) which are in relevantly the same terms.
I now turn to the issue whether the amounts owing by BIC and BSH to the Touma parties and the Balout parties respectively should be calculated on a pooled basis or alternatively by reference to the separate entity by which they are due. The answer to this question seems to me to be straightforward. While the terms of the Consent Orders proposed by the parties, and made by the Court, provided for the payment of the surplus into a controlled monies account, they did not alter the parties' existing entitlements as against the respective companies so as to provide any basis for pooling the respective assets or liabilities of BIC and BSH.
The third question is how the Funds held as a pooled amount in the controlled monies account would be attributed to each of BIC and BSH. It appears to be common ground that such an attribution would be made by reference to the value of the units owned by BIC and BSH from the sale of which those funds were derived, although the parties disagree as to the basis on which that value should be determined. Mr Afshar put the primary position of the Balout parties that such an attribution should be made by reference to the value attributed to the units in the transfers when they were purchased, although he fairly recognises difficulties with that approach, and puts an alternative position that such an attribution should be made by reference to the value attributed to them in their recent sale, which attributed an equal value to the five units although they are of different sizes. It seems to me that, first, the attribution of value to the five units in the recent sale process was a serious matter where stamp duty would be calculated on that basis, and there is no suggestion that that allocation was not properly made; and, second, there is no reason to doubt an equal allocation of value to the five units, where they had been purchased by BIC and BSH for development purposes and were likely purchased by the third party purchaser for development purposes. There is no reason to think that a three bedroom unit would be more valuable than a two bedroom unit where it is likely all of the units in the block were purchased in order to redevelop that block rather than to live in those units. For that reason, I do not accept Mr Afshar's submission that the higher percentage of value should be attributed to the units held by BIC by reference to their value at the time of their earlier purchase, rather than the lesser percentage attributed to BIC by reference to the value recorded in the transfers at the time of sale.
I recognise that, in opposition to a contention that amounts due by BIC and BSH may be treated separately, Mr O'Neill submits that the settlement sheet for the recent sale of the properties also recorded an amount of $2,927,608 repaid in respect of a third party loan which was not there allocated as between BIC and BSH, and to marketing costs and commission which were also not allocated between BIC and BSH. However, it seems to me that, where neither party has led evidence to support a different allocation, those amounts can reasonably be allocated between the companies referrable to the transfer value of the relevant properties they respectively owned (Ex JS1, CB 121).
For completeness, I note that the liabilities of each of BIC and BSH have already been determined by reference to each company in the Accounting Report, subject to the resolution of any further issues in the manner I set out below. At paragraphs 58 and 61 of the Accounting Report, the Accounting Expert determined the amount that BIC owed to Mr Balout as about $1.1459m and the amount that BIC owed to BPPL and Mr Touma as about $2.219m, although the latter figure is subject to an issue as to BIC's recent repayment of the CBA loan, raised by the Balout parties which I address below. In paragraphs 59 and 62 of the Accounting Report, the Accounting Expert determined the amounts that BSH owed to the Balout parties as approximately $770,694 and the amount that BIC owed to the Touma parties as $20,666, being an amount owing to BPPL. That conclusion indicates that the Balout parties have a substantially larger claim against the assets of BIC than the Touma parties.
The Touma parties' application must fail in its original form because the Touma parties did not establish, by admissible evidence, their entitlement to the amount claimed. I also cannot accept their revised position put at the hearing on the basis that they had a right to priority of payment, and no order can be made for payment to the Touma parties either on a pooled basis for the reasons noted above.

The Balout parties' application

By Amended Interlocutory Process filed on 4 September 2024, the Balout parties seek orders under ss 73 or 135 of the Civil Procedure Act 2005 (NSW) ("CPA") or, alternatively, r 20.24(1) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") for the preparation an updated Accounting Report addressing the two issues to which I refer below or, alternatively, that the Accounting Report be adopted in its present form.
In written submissions, Mr O'Neill originally submitted that the provisions on which the Balout parties relied did not authorise the relief which they sought, although I note that the Touma parties now support adopting the Accounting Report in its present form. I accept that s 73 of the CPA does not support the relief sought by the Balout parties, because the proceedings have not been compromised or settled between the parties. Rather, the Consent Orders reflected only the parties' agreement to an alternative mechanism to determine a subset of issues in the proceedings, including the amounts of the loans owing by BIC and BSH to the respective parties, leaving the remaining steps in a distribution for the further agreement of the parties or further order of the Court, as order 7 of the Consent Orders recorded. On balance, I am inclined to think that s 135 of the CPA also does not authorise the making of further orders, where the question here does not involve the enforcement of any previous judgment or order of the Court, but instead the further orders which should now be made in respect of the Accounting Report and the distribution of funds to the parties. However, little turns upon those matters, where the Touma parties rightly accept that the Court has inherent power to make further orders as to how the Funds are to be distributed, and order 7 of the Consent Orders specifically reserved that question for determination by the Court if the parties did not reach agreement about it. That power is sufficient to justify the further orders which I propose to make, as set out below, subject to allowing the parties a brief opportunity to be heard in respect of them.
I do not consider it necessary to determine whether the Accounting Report can properly be treated as a referee's report for the purposes of UCPR rr 20.23 and 20.24, where the process which was adopted by the parties was plainly analogous to the preparation of a referee's report and it seems to me that the Court would, in its inherent jurisdiction, at least apply similar principles to those that are applicable to adopting a referee's report in respect of the Accounting Report. In Chocolate Factory Apartments Pty Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 at [6]-[8], McDougall J summarised those principles as follows: "The principles to be applied, in exercising the discretion conferred upon the Court by Pt 72 r 13 to adopt, vary or reject in whole or in part a report of a referee, are well established. There are a number of cases to which, customarily, reference is made. They include Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 [("Super")]; the unreported proceedings in that case before Giles J (19 May 1992: the relevant considerations referred to by his Honour are sufficiently extracted in the decision of the Court of Appeal); Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60; White Constructions (NT) Pty Ltd v Commonwealth of Australia (1990) 7 BCL 193; and Foxman Holdings Pty Ltd v NMBE Pty Ltd (1994) 38 NSWLR 615. As to the nature and content of the referee's obligation to give reasons, the relevant authorities include Xuereb v Viola (1989) 18 NSWLR 453 and Hughes Bros Pty Ltd v Minister for Public Works (Rolfe J, 17 August 1994 unreported; BC 9402885). The relevant principles, distilled from those decisions, can be stated as follows: (1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing. (2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised. (3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest. (4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh. (5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report. (6) If the referee's report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than "unsafe and unsatisfactory". (7) Generally, the referee's findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence. (8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based. (9) The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire. (10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report. (11) Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise. (12) The right to be heard does not involve the right to be heard twice. (13) A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised "by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it". The real question is far more limited: "to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence". (14) Where, although the referee's reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee's findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence. (15) Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non adoption) is justified. The twelfth point restates the aphorism of Mahoney JA in Super at 567. The thirteenth, fourteenth and fifteenth points are drawn (and include direct quotations) from the judgment of Hodgson CJ in Eq (with whom Priestley JA agreed and with whom, as to the relevant principles, Fitzgerald AJ also agreed) in Franks & Anor v Berem Constructions Pty Ltd (NSWCA 2 December 1998, unreported; BC 9806367). If I may say so with respect, I regard what his Honour said as giving content, on the facts of the particular case, to the operation of relevant principles rather than as stating any new principle."
Those principles have since been adopted on many occasions and I summarised the relevant cases in Re Fearndale Holdings Pty Ltd (admin apptd) (recs and mgrs apptd) [2019] NSWSC 1810 at [9]ff. I adopt, without repeating, that summary.
Here, the Balout parties first seek to have the Court order that the parties instruct the Accounting Expert to revisit the Accounting Report to make a further adjustment in respect of the CBA Repayment. The Balout parties particularise that application by referring, inter alia, to the fact that the Accounting Expert identified the existence of that loan but did not address the payment by BIC to CBA to discharge the mortgage, which took place in connection with the sale of the properties on 24 April 2024, about three weeks before the Accounting Expert delivered his report on 13 June 2024. The Balout parties go on to particularise the proposition that: "In failing to address the payment described above, being a transaction, which has (or may have) a material effect on the calculations of the loans and/or required adjustments, the Expert committed an error such that the determination of the Expert is not in accordance with the agreement between the parties contained in the [Consent] [O]rders. The Expert ought to have found that the amount of $949,147.30 paid by BIC to the [CBA] ought to have been deducted from the total amounts [BPPL] was found to have loaned to BIC."
By the Accounting Report (Ex JS1, CB 74), the Accounting Expert summarised the submissions made by the parties as to relevant loans and pointed to the steps which he had taken to seek to verify the position in respect of those loans. He referred, at paragraphs 49-51, to the CBA loan and observed that: "The loan was in the name of [BPPL] in the amount of $924K and the repayments were made by [BPPL]. On 20 June 2018, the proceeds of the loan were transferred to a CBA Business Transaction Account held by [BPPL]. On 30 June 2018 an amount of $0.903M was withdrawn, with the bank reference [WDL Branch Double Bay]. No detail has been provided in relation to the purpose of the withdrawal. The loan proceeds have not been recognised in the financial statements of [BIC] nor in the financial statements of [BSH] … Therefore, all associated CBA loan repayments have been adjusted from the claim of [BPPL]. The repayment of the loan to [BPPL] by BIC, as included in the claim of [BPPL] has not been evidenced in the bank statements provided in relation to BIC or BSH. Therefore, the claim of [BPPL] has been amended so that the amount of $0.9030M noted as being repaid, has been reinstated. The forgiveness of the amount of $0.9030M would be subject [to] an agreement between the parties involved."
There is an obvious difficulty with that observation, arising from the fact that the subsequent CBA Repayment was not drawn to the Expert Accountant's attention, where that has the result that BPPL's liability to CBA has been extinguished from assets of BIC, and it is not apparent how BPPL could be entitled both to have its liability to the CBA extinguished from BIC's assets and at the same time to have that liability also treated as an amount still due by BIC to it. In fairness to the Expert Accountant, there is no suggestion that the Balout parties or the Touma parties had either advised the Accounting Expert of the fact of that payment or made any submission to him as to how that payment should be addressed.
The Balout parties also seek to have the Court order that the parties instruct the Accounting Expert to address a transfer of $820,000 from BIC to BPPL on 18 April 2019. The Balout parties contend that there was reference to that transaction in bank statements of BPPL that were provided to the expert. There is also no suggestion that either party contended in submissions before the Accounting Expert that that transaction had particular significance for the matters which the Accounting Expert was to determine or that any particular adjustment should be made in consequence of it.
The Balout parties also seek an order that an updated report be prepared by the Accounting Expert or, alternatively, an order that the Accounting Report be adopted by the Court. In his written submissions, Mr Afshar submitted that the Consent Orders contained a binding mechanism for the determination of the quantum of the parties' loans by the Expert Accountant, and that the Consent Orders constituted an agreement for valuable consideration binding upon the parties in contract. Mr Afshar emphasised the use of the term "determine" in order 1 made in the Consent Orders in respect of the quantum of loans made to the companies and I also recognise that the Court noted, in paragraph 2 of the Consent Orders, that the relevant parties were to instruct the Accounting Expert that, in specified circumstances, that expert may determine that he was not satisfied of the veracity or occurrence of a transaction, claim or expense for the purposes of Order 1 of those orders. Mr Afshar points to the fact that the Consent Orders provided for the payment of the sale proceeds into a controlled monies account, pending the parties' agreement or further order of the Court following the delivery of the Accounting Report. I accept that that established a mechanism to give effect to the determination made by that report. Mr Afshar points to the lack of explanation by the Touma parties of why the elaborate process to prepare an Accounting Report as contemplated by the Consent Orders would have been adopted, if either party was free to depart from the findings of the Accounting Report at will. Notwithstanding the Balout parties' primary position (in written submissions) that the Accounting Report was binding under the Consent Orders, Mr Afshar also there put the submission that the Court had power under CPA s 73, under UCPR r 20.24 or in its inherent jurisdiction, to make further orders providing for the parties to instruct the Accounting Expert to update the Accounting Report to address two issues to which the Balout parties now draw attention. Alternatively, Mr Afshar submitted that the Court would determine the Accounting Report was binding upon the parties in its present form and, to the extent necessary, adopt it, if it did not instruct the Accounting Expert to consider the two additional matters to which the Balout parties referred, and this became the Balout parties' primary position in the course of their oral submissions. The Balout parties' then modified their position in oral submissions to express a preference that the Accounting Report should be adopted in its present form despite their criticisms of its treatment of the two transactions noted above and, in the alternative, submit that the matter should be referred back to the Accounting Expert to address only those two transactions.
The Touma parties initially contended, in written submissions, that the Accounting Report was not binding on the parties or the Court and that the Accounting Report should not be adopted but did not press that position at the oral hearing and ultimately submitted that report should be adopted in its present form.
I have not neglected the interest in finality in the Accounting Expert's determination, analogous to the interest in finality which exists in the determination of contested proceedings. However, here, without any fault on the part of the Accounting Expert, his reasoning has been vitiated by the parties' failure to draw his attention to, and his consequential failure to have regard to, the CBA Repayment. In this situation, it is not necessary to decide whether the parties are bound to the Accounting Report by contract, or whether the Court would alternatively adopt the Accounting Report as an expert determination, by analogy with a referee's report. In either case, as a matter of construction of the Consent Orders in their context, or by way of a term implied in fact, it seems to me that such a contractual obligation would not extend to a report that was vitiated by the parties' failure to draw a material transaction to the Accounting Expert's attention, and the Court would also not adopt the Accounting Report in that situation.
I reach this result notwithstanding that the Touma parties had fallen back to the position that the Court should adopt that report by the conclusion of the oral hearing and the Balout parties had also advanced that proposition as their primary position, although they maintained their criticisms of that report and advanced the relief sought in their Interlocutory Process as their alternative position. The parties could, of course, have agreed between themselves to adopt the Accounting Report, notwithstanding their respective criticisms of it, to avoid the continued erosion of their ultimate recoveries by legal costs but no such agreement was reached between them.
Where the parties are not bound by the Accounting Report by contract and the Court should not adopt the Accounting Report in this situation, then it seems to me that there is no basis to restrict the matters which can be addressed by the Accounting Expert in any further review of his report to the single issue which I have found to have vitiated the reasoning in that report, or the two issues raised by the Balout parties in their submissions, so as to prevent the Touma parties seeking to raise the further issues that they seek to raise in any reconsideration by the Account Expert of his report.

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Judgment (7 paragraphs)

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Legislation Cited (3)

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