Brady Street Developments Pty Ltd v M E Asset Investments Pty Ltd

Bard Lawyers - for the first cross-defendant File Number(s): 2012/266799

Introduction 1The principal relief sought by the summons in this case is a declaration that a deed dated 28 September 2011 is valid and effective and that the plaintiff (BSD) remains the trustee of the Brady Street Developments Trust (BSD Trust). The scope of that dispute is narrow and, for the reasons that appear at the end of this judgment, that issue should be decided in the plaintiff's favour. 2The major part of the hearing was taken up by a claim by the first cross-claimant Khaled El Sayed, who says that he has been cheated by Mr Hawach, the first cross-defendant, in relation to a property development at Merrylands in western Sydney. Although the further amended cross-claim contains many allegations and diverse claims for relief, the underlying factual issue was whether Mr Hawach had acted contrary to an understanding which he and Mr El Sayed reached in 2008. In fact, Mr El Sayed contended initially that it was an 'agreement'. After the evidence concluded, his counsel withdrew most of his allegations and claims for relief, including the allegation that the 2008 conversations constituted an agreement. This was commendable and I am grateful for the good sense that led to that decision. What was left was an equitable estoppel claim and an allegation of breach of fiduciary duty. The parties confined their addresses to those issues. I have concluded that the estoppel claim fails but that the latter claim should succeed. 3The threshold issue on the estoppel claim was the respective credibility of Mr El Sayed and Mr Hawach. The estoppel hinged on what was said between them and whether there was any reasonable basis for the assumption on which Mr El Sayed allegedly relied. My assessment of each witness's credibility did not depend only on the clarity and fluency of their accounts in the witness box. In that regard, Mr Hawach was a markedly superior witness. He was clever, sharp and intelligent but in rare cases, it can be difficult to discern whether one is listening to an honest account or a false one delivered with the aplomb of an amateur thespian. 4In Mr El Sayed's favour, I took into account the fact that he is an elderly pensioner and builder who gave evidence through an Arabic interpreter. However, I cannot ignore a number of features of his evidence. He feels so wounded by what has occurred and so disappointed by what he believes is the 'loss' of his properties, that I reached the firm view that his evidence was unreliable. I thought that he was so convinced by his own cause that over time he had persuaded himself, and was re-constructing his account of what was said, contrary to the reality. 5Although I have preferred the evidence of Mr Hawach, I have not limited myself to the disparity in quality and plausibility between his evidence and that of Mr El Sayed. I have also taken into account the broader probabilities having regard to the proved objective facts, the evidence of other witnesses, and the inherent likelihood of the respective competing versions of events. Some of this evidence was not conclusive, and some of it was difficult to explain and reconcile, but the civil law only requires proof on the balance of probabilities and overall the evidence has confirmed my view that I should accept the account of Mr Hawach. 6One of the most important objective facts was that, at the time of the critical conversations in late 2008, Mr El Sayed had lost any prospective interest that he might have had, or aspired to, in the development properties. He brought nothing to the 'deal' with Mr Hawach other than his skills as a builder and the fact of his past historical connection with the land. Perhaps even more important to him, was the fact that he had lost a large amount of money. He was embittered; he could not let go; and he was unrealistic. 7Mr El Sayed's own failed venture clearly provided the commercial opportunity for Mr Hawach and his wife to later acquire and develop the properties. For that reason, it seemed obvious to me that Mr Hawach felt a vague sense of obligation, perhaps even gratitude, towards Mr El Sayed. Indeed, he said that he had sympathy for him. Mr Hawach recognised that he had been advantaged by Mr El Sayed's misfortune but there was, understandably, no legal commitment by him to give Mr El Sayed an interest in the development properties without a contribution from him towards their purchase. The 100% beneficial interest in the project that Mr El Sayed fantastically claimed, subject to the return of Mr Hawach's money with interest, was difficult to accept. 8Mr Hawach's sense of obligation probably explains why he generously allowed Mr El Sayed to operate with a loose rein - effectively as a project manager - in dealing with third parties in connection with the development; and why he trusted him with access to the project bank account. In some respects, I think it suited Mr Hawach that way. Not to put too fine a point on it, I think he used Mr El Sayed to his own advantage. Mr Hawach had his solicitors practice to run; his wife had four children to care for; and he was not an experienced property developer in his own right. On the other hand, Mr El Sayed had a lengthy (but unsuccessful) previous history in connection with the properties; had entered into contracts to acquire the land (which he had been unable to complete); had commenced the initial site preparation; and had lodged a development application with Parramatta City Council. 9Although Mr El Sayed cherished a misconceived sense of 'ownership' of the development, I am satisfied that he was never a co-developer with Mr Hawach, and was certainly not the beneficial owner. I accept that Mr Hawach may have been marginally responsible for allowing Mr El Sayed to foster this notion, although not in any legally culpable sense. That is because, apart from their initial conversations in late 2008, Mr Hawach failed clearly to reiterate the position, or to contradict any misapprehension that Mr El Sayed may have wistfully developed - until a dispute arose, and it was too late. 10Nonetheless, whatever Mr El Sayed may have thought, or whatever he might have said or done by way of holding himself out as owner or co-developer, there was no reasonable or rational basis for his belief and no legal basis for the caveat he subsequently lodged on the title. The belief on which his wishful thinking was based was inconsistent with what he had discussed with Mr Hawach in 2008; inconsistent with the fact that Mr Hawach and his wife subsequently invested all of the money for the purchase of the properties; inconsistent with the fact that Mr Hawach and his wife took all of the risk of the development; and inconsistent with the fact that Mr El Sayed introduced nothing at all in the way of a contribution to the project, other than the largely non-monetary and somewhat ephemeral matters to which I referred in paragraph [8]. 11Mr El Sayed's unfounded conviction was exemplified by one of the spurious particulars on which his version of the original pleaded 'agreement' with Mr Hawach depended. He relied on the fact that 'the development had originally been [his] idea'. That may be so, but his idea came to nothing and he lost his money. The development was only salvaged because Mr Hawach had the financial resources to do so; and because he and his wife provided personal guarantees of the construction finance facility for $6.3 million while Mr El Sayed was not in a position to make any financial contribution. 12It is true that Mr Hawach's wife (Victoria Lahoud) and Mr El Sayed's son (Ahmed) were the named beneficiaries pursuant to the trust deed for the BSD Trust and that the classes of eligible 'beneficiaries' included the members of the extended Hawach and El Sayed families. But it was a discretionary trust which was created as a convenient vehicle at a time when it was contemplated that Mr El Sayed might make a financial contribution. Victoria Lahoud, as the sole director and shareholder of BSD, controlled the trustee. Although the trust deed contained no express reference to the fact that the entitlement of the El Sayed family to a distribution under the trust was contingent on whether a financial contribution was made on their behalf, this had been clearly stated and was, in my view, clearly understood by Mr El Sayed. The discretionary nature of the trust adequately catered for different possibilities. 13The breach of fiduciary claim on the other hand, which I have concluded should succeed, is essentially a question of law that turns on relatively undisputed facts. The fiduciary duty was owed by Mr Hawach to BSD. It existed because Mr Hawach acted as the solicitor for BSD in its role as trustee of the BSD Trust. By a deed dated 28 September 2011, Mr Hawach made himself appointor pursuant to the trust deed in place of the accountant, Mr Fayad, who had originally prepared the trust deed. This gave Mr Hawach extensive powers, including the power to remove the trustee. He was also, of course, a member of one of the classes of eligible beneficiaries. His roles as solicitor and appointor were both fiduciary and his duty inherent in those roles placed him in a position of possible conflict with his 'interest' as a potential beneficiary. I have concluded that his appointment as appointor pursuant to the trust deed should be set aside.