Deputy Commissioner of Taxation v Westmeat Development Pty Ltd as trustee for Westmeat Development Trust

Evidence in support of the adjournment application

1. By an affidavit dated 6 May 2024, Mr El Youssef's solicitor, Mr Khanji, refers to the matters on which Mr El Youssef relies to seek an adjournment in these proceedings. He notes that the Summons only seeks interim relief against Mr El Youssef in the form of a freezing order and other orders supplementing the freezing order and that no final relief was sought against Mr El Youssef. Mr Corsaro also draws attention to that matter in the course of submissions.
2. Plainly, the question why a party would agree to be jointly and severally liable for a settlement amount of $18 million, if only a freezing order and not substantive relief was sought against him, is a question that warrants consideration. The difficulty with that proposition, here, is that it is apparent that, by the time the proceedings were filed, the DCT was already proceeding on the basis that the claims were made against the companies, and Mr El Youssef was the director of multiple companies. Where an allegation of fraudulent claims in respect of, inter alia, GST, or at least the provision of false information in that respect, and Mr El Youssef was a director of each of the companies, it is a very short step indeed from a claim against the companies to a claim against Mr El Youssef, and there is, as I will note below, no evidence from Mr El Youssef that he had not understood the DCT to have taken or to be about to take that short step by the time of the mediation at which the terms of Settlement Deed were agreed.
3. Mr Khanji also refers to the fact that another solicitor, Ms Gazi, had previously acted on behalf of all of the Defendants, including Mr El Youssef, and that Mr El Youssef continued to retain Ms Gazi, at least at the time of the settlement negotiations and entry into the Settlement Deed, until, on 21 February 2024, Ms Gazi filed a Notice of Ceasing to Act on behalf of Mr El Youssef and several other Defendants, and Mr Khanji's firm commenced to act for Mr El Youssef. Notably, Mr Khanji does not refer to the circumstances in which that decision was reached, nor does Mr El Youssef give evidence of those circumstances. That is not to say that Mr El Youssef is bound to waive legal professional privilege, which of course is a choice that is available to him at any relevant time; but, if Mr El Youssef does not waive relevant legal professional privilege in decisions relevant to the matters in issue, then it is plainly more difficult to establish a case in his favour in respect of those matters.
4. Mr Khanji in turn refers to steps taken to obtain Ms Gazi's file, which has not been obtained where she has asserted a lien over that file and, implicitly, Mr El Youssef has not paid the amounts that she claims to be due by way of legal fees, which would have been one way to resolve that difficulty, and an application by Mr El Youssef's solicitor to access the Court's file was not, it appears, addressed by the Registry and not raised with my Associate, to allow me any opportunity to address it.
5. Mr Khanji in turn indicates that: "Our office is presently instructed to investigate whether or not the [Settlement] Deed is enforceable as against [Mr El Youssef]. Some further time is required to complete these investigations."
6. I now turn to correspondence noted in Mr Khanji's affidavit which identifies the detailed matters which are the subject of investigation. By letter dated 12 March 2024 from Mr Khanji to the solicitors acting for the DCT, Mr Khanji referred to the receipt of a default notice issued by the DCT, in respect of the non-compliance with the Settlement Deed, and then set out the fact that his firm had only recently come on the record in the proceedings, did not have in its possession all the relevant documents, and that: "One of the matters we have been instructed to investigate and advise on is whether the underlying [Settlement] Deed (Deed) is voidable against [Mr El Youssef], for reasons including but not limited to: 1. Mr El Youssef's entry into the [D]eed was as a result of his former solicitor's breach of her fiduciary duties, having preferred another party's interest over his and acted when she was in position [of] conflict; and/or 2. Mr El Youssef's entry into the [D]eed was induced by the false representations of the various Gazal Parties as to their financial position and ability to satisfy the Settlement sum under the Deed; and/or 3. Mr El Youssef's entry into the [D]eed was induced by the Gazal Parties' misleading conduct; and/or 4. Whether the [D]eed is liable to be set aside for unconscionability in circumstances where [the DCT] knew at all material times that Mr El Youssef lacked the financial capacity to satisfy the critical obligation under the Deed if he was severally liable."
7. Mr Khanji's firm there requested that the DCT refrain from seeking judgment against Mr El Youssef until he had had an opportunity to be properly advised, and indicated that they expected to be in a position to advise whether Mr El Youssef intended to seek rescission of the Settlement Deed, or bring a cross-claim against his former solicitor, within fourteen days of being provided with the necessary documents. Mr Khanji did not there provide any indication how or when, absent either payment of the former solicitor's bill or an application to the Court, which had not then been and has not now been brought, access would be obtained to documents contained on the former solicitor's file. He did not there address, and the evidence does not now address, whether Mr El Youssef himself had copies of relevant documents, or some of those documents, although the implication of the letter was presumably that he did not, a matter which Mr El Youssef makes no attempt to prove.
8. Mr Khanji later sought access to documents held in the Court file from the solicitors for the DCT, and those solicitors did not provide that access. It seems to me that there was little utility in that request because the documents contained in the Court file would not have demonstrated anything as to the dealings between Mr El Youssef and his solicitors, so as to advance the matters raised in the letter dated 12 March 2024. So far as those documents were held in the Court file, the simple step of corresponding with my Associate would have allowed Mr El Youssef's solicitors to obtain access to them within one business day of the request, where it was made by a solicitor for a party, and there was no reason that such access could not have been sought from my Associate if the Registry had in fact failed to respond to a request for access.

Determination of adjournment application

1. Returning to the substantive matters which are the subject of Mr Khanji's proposed investigations, had I been persuaded that some factual basis had been established for those investigations, I would readily have taken steps to adjourn this application, and to expedite the process for access to documents, in a way that Mr El Youssef's solicitors have not sought to do. Those steps might have included, for example, making an order permitting their access to the Court file, with them to review that file within one business day, and an order for the short service of a subpoena upon Mr El Youssef's former solicitor, so that any question of her claim to a lien, or steps which might be taken to protect that lien and bring about the production of documents, could have been resolved. The difficulty, however, is that it seems to me that Mr El Youssef has not taken any real step, including steps which were only available to him personally, to seek to establish that the investigations his solicitors have been instructed to undertake have any substantive factual foundation.
2. The first of the matters raised in his solicitor's letter dated 12 March 2024, involved the question whether Mr El Youssef's entry into the Settlement Deed resulted from a breach of fiduciary duties on his former solicitor's part, because she preferred another party's interests to his interests, and acted when she was in a position of conflict. Mr Corsaro is, rightly, cautious about advancing such an allegation, at this point, as distinct from identifying the possibility of investigation into that matter. However, what is notable here is that Mr El Youssef does not himself give evidence to identify any aspect of the retainer of his former solicitor. He does not give evidence, for example, of the terms of the retainer; he does not address, for example, the basis of any view that he formed, when the solicitor was retained, that it was appropriate for the solicitor to act for all of the relevant parties, implicitly on the basis that they had a common and not a conflicting interest; and he does not identify any subsequent event which occurred which led him to be concerned that his solicitor was not acting in his interests, or was preferring the interests of any other parties, or was in a position of conflict.
3. Mr Corsaro points to the fact that Mr El Youssef, or his solicitors, may wish to undertake further investigations before advancing such an allegation. I can accept that proposition, but what Mr El Youssef does not disclose is the matters known to him, from his personal knowledge, which might provide a factual basis for such an investigation. I infer, and should properly infer in these circumstances, that Mr El Youssef's evidence would not assist him in that regard, and that is a critical deficiency where Mr El Youssef's evidence of these matters is necessary in order to establish that there is a proper basis for investigating these matters.
4. The position in respect of the second potential claim is even more straightforward. Mr El Youssef's solicitors raise the possibility that the Settlement Deed was induced by a false representation made by the various Gazal Parties as to their financial position and ability to satisfy the Settlement Sum under the deed. Plainly, it was open to Mr El Youssef to identify what false representation was made to him, from his recollection, so as to give rise to such a concern, but again he leads no evidence to do so. Again, I infer that his evidence would not assist in establishing a proper basis for investigation of that matter. The third issue, that Mr El Youssef's entry into the Settlement Deed was induced by the Gazal Parties' misleading conduct, raises the same problem, namely, that it was open to Mr El Youssef to identify the misleading conduct with which he was concerned, where that misleading conduct necessarily involved him and he necessarily had personal knowledge of it, but does not identify it or give evidence to suggest what it might be.
5. Fourth, the letter identifies a possibility that the Settlement Deed might be set aside for unconscionability, because Mr El Youssef lacked the financial capacity to satisfy the obligation under the Settlement Deed if he was severally liable. Again, what is striking here is the evidence that Mr El Youssef does not lead. First, he does not lead evidence that it was any surprise to him that he was undertaking an obligation under the Settlement Deed that exceeded, if that is the case, his financial capacity. Second, he does not give evidence that the obligation under the Settlement Deed in fact exceeded his financial capacity, something which again would be known to him.
6. The difficulty, it seems to me, is that these are all matters as to which Mr El Youssef would be expected to give evidence, in the ordinary course, and he does not give that evidence, and the Court should proceed on the basis that that evidence would not assist him. Absent that evidence, these propositions are no more than speculation, weakened by the fact that the party who was in the best position to give evidence as to these matters to disclose a factual basis for the suggested investigations does not do so. Mr Corsaro in turn speculates that perhaps Mr El Youssef did not give evidence, because his solicitors considered that he should not do so, until further investigations had been undertaken. That, however, adds speculation to speculation, where the solicitors acting for Mr El Youssef do not themselves give evidence that that is their thinking process, and that Mr El Youssef has not given evidence because he was advised not to do so, and that they had not recognised the fact that he may be unable to establish the basis that the matters which he wishes to investigate have any proper basis without giving such evidence himself.
7. I must determine, here, whether to adjourn the proceedings having regard to ss 56 - 58 of the Civil Procedure Act 2005 (NSW) ("CPA"), which provides that the overriding purpose of the CPA and the Supreme Court Rules 1970 (NSW) ("Rules of the Court), in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in dispute in the proceedings. The Court is required to give effect to the overriding purpose when it exercises any power given to it by the CPA or Rules of the Court. Section 58 provides that the Court, in deciding whether to make any order or direction for the management of proceedings, must act in accordance with the dictates of justice. I must in turn have regard to the provisions of ss 56 and 57 and may have regard to specified matters, in determining that question. Those matters include the degree of injustice that will be suffered by the respective parties as a consequence of any order.
8. I recognise, here, that there is plainly a detriment to Mr El Youssef in a judgment of the size provided by the Settlement Deed, although its nominal size would likely have to be discounted to reflect his capacity to meet it, as to which he leads no evidence. I also recognise, as potentially countervailing factors, that there was no obvious lack of logic in Mr El Youssef undertaking joint and several liability in the large amount he accepted in the Settlement Deed, which was much less than the amount claimed against him the proceedings, where he was the sole director of several companies facing allegations of fraudulent dealings with GST returns and would have known the relevant facts at the time of the settlement. I also recognise that a larger settlement amount would be no more disadvantageous to him than a smaller settlement amount, if each was less than his assessment of the likely judgment against him in contested litigation; and that he would be exposed to the same risks by either a larger or smaller settlement amount or judgment against him, if either would exceeded his capacity to meet it. On the other hand, the DCT has pursued these proceedings now for several years and is seeking to enforce a detailed Settlement Deed. Where it is not, by any means, self-evident that it was irrational for Mr El Yousef to agree to the Settlement Deed in these circumstances, it was a matter for him to show some factual basis for the investigations which he now wishes his new solicitors to undertake so as to support the adjournment he seeks. He has failed to do so, not least because he has not led any evidence of the matters known to him which might provide a basis for that investigation.
9. In those circumstances, it seems to me that there is no basis to adjourn the application, and Mr El Youssef's application for an adjournment is dismissed. I will adjourn the proceedings now to 2.15pm to proceed with a further adjournment application by another party, if it is pressed, and then with the DCT's substantive application to enforce the Settlement Deed.

Application for judgment in accordance with Settlement Deed

1. As I noted above, by Summons filed on 24 December 2020, the Plaintiff, the DCT sought final relief against several companies and interlocutory relief, including in the nature of freezing orders, against other parties.
2. Subsequently, by the Settlement Deed , the DCT entered a settlement with the various parties, which recited, in Recital K, that to avoid the cost, uncertainty and inconvenience of litigation, the parties have agreed to settle the Taxation Liabilities and the Claims in the Recovery Proceeding (as defined) on specified terms. I have dealt with the terms of the Settlement Deed and security at some length above. It is sufficient to note, for present purposes, that clause 3 provides for a settlement of Taxation Liabilities (as defined) and specifies the basis on which payments will be made; clause 5 provides for certain representations and warranties, including as to the parties' understanding of the terms of the Settlement Deed and their having obtained independent legal advice; and clause 6 provides a mechanism in the case of default, which has been followed by the DCT in these proceedings. In particular, clause 6.2 provides for service of a "Notice of Default", which the DCT has served, and, after that has occurred, the Gazal Parties (as defined) agree to the DCT applying for judgment in these proceedings and the Court's entry of judgment in the proceedings against all of them on a joint and several basis for the Settlement Sum, less amounts paid by the Gazal Parties to the DCT pursuant to the Settlement Deed, plus costs and expenses of and incidental to the proceedings on a full indemnity basis. Clause 7 in turn provides for the manner in which notices have to be given, including, in respect of the Gazal parties, to the solicitor then acting for them, and another solicitor.
3. Default occurred in respect of the terms of the Settlement Deed. As I also noted above, by Notice of Motion filed on 18 April 2024, the DCT seeks orders, inter alia, under r 36.1A of the UCPR and, alternatively, under r 13.1 of the UCPR, against the First-Second, Fourth-Eighth, Tenth, Eleventh and Thirteenth Defendants and two Additional Respondents, in the amount of $17,357,593.94. The Tenth and Thirteenth Defendants appeared this morning, by Counsel, but an adjournment application by one of them was unsuccessful, and an adjournment application by the other was not pressed, and Counsel for those parties have now been excused at their request and withdrawn. It is nonetheless clear that those parties had notice of the application. I will refer to evidence of service upon the remaining parties below.
4. The DCT reads the affidavit dated 18 April 2024 of Ms Llorca in respect of the application. Ms Llorca sets out the relevant systems operated by the Australian Taxation Office, although little turns upon those systems, where judgment is sought pursuant to the Settlement Deed. Ms Llorca in turn refers to key terms of the Settlement Deed, to which I have referred above, and to payments received by the DCT pursuant to the Settlement Deed, for which credit has been allowed in the judgment sum sought by the DCT. I should note, for completeness, that the amount claimed in the motion, of $17,357,593.94 to which I referred above, is, on the calculations of Ms Scott who appears for the DCT, a little short of the amount owed to the DCT. The DCT has rightly not pressed for any higher amount beyond that claimed in the motion, where the Defendants who have been served would not be on notice of an application for any higher amount.
5. The DCT also reads the affidavit dated 18 April 2024 of Mr Chambers, who is a partner in the firm of solicitors acting for them, who also refers to the execution of the Settlement Deed, and the manner in which it was executed by counterpart, and outlines the provisions for notice under the Settlement Deed. He also addresses a failure to pay the Settlement Sum under the Settlement Deed and gives evidence as to the DCT's costs of the proceedings.
6. That exhibit to Mr Chambers' affidavit in turn includes a letter dated 5 March 2024, sent by express post and email to a number of addresses, which reflect the addresses of current legal representatives of relevant Defendants or, in some cases, the addresses of those Defendants, and also email addresses. That course was taken in circumstances that the solicitor, whose address was for service was included in the Settlement Deed, had ceased to act for the relevant Defendants, after notice of default was given by the DCT under the Settlement Deed, but before this application was filed. In respect of the First, Second and Fourth-Sixth Defendants, the corporate entities, the letter (dealing with the amount due under the Settlement Deed and giving notice of an event of default and seven days' notice to rectify that event of default under the Settlement Deed) was sent to a registered office address and by email, including to the current or former director of those companies, who appeared by Counsel earlier today; I note that judgment is not sought by way of default judgment in respect of the Third Defendant. In respect of the Seventh Defendant, Belfield Development Pty Ltd, the letter was also sent to a registered office address and by email, to a director and a firm of solicitors. In respect of the Eighth Defendant, NNG Holdings Pty Ltd as trustee for a trust, the letter was sent to the same registered office address. The Tenth Defendant, as I noted above, appeared this morning and has notice of the application. In respect of the Eleventh Defendant, Nasri Gazal, the letter was sent to a street address and by email to that person and to the former solicitors. The Thirteenth Defendant, as I noted above, also appeared this morning. There is also evidence of service upon the First Respondent and the Sixth Respondent by reason of that letter. A further notice dated 8 March 2024 to the relevant Defendants reduced the amount claimed under the Settlement Deed, to reflect a payment of $3,105.70 reducing the amount claimed in respect of the default. Emails exhibited to that affidavit record the sending of the relevant letters by email to those parties.
7. The DCT also relies on an affidavit of service dated 1 May 2024 of Ms Tuziak, a solicitor employed by the firm acting for the DCT, which in turn identifies the way in which the email addresses for service were identified, generally from notices of ceasing to act or notices of appointment of solicitors for the relevant parties, and gives evidence of service of the documents relating to the application upon the relevant solicitors and upon principals at relevant email addresses.
8. I am satisfied that the evidence establishes that both the notice of default for the purposes of the Settlement Deed and the notice of motion and associated documents were served.
9. Turning now to the substance of the application, the DCT applies, first, upon UCPR r 13.1 for judgment against the relevant Defendants, implicitly relying on s 73 of the CPA in that regard. As Slattery J noted in Ahmed v Chowdery [2011] NSWSC 893, that section makes clear that the Court has jurisdiction to determine any dispute between the parties to proceedings as to whether and on what terms the proceedings have been compromised, and allows that matter to be determined in the relevant proceedings. Rule 36.1A of the UCPR in turn allows the Court, if satisfied that all relevant parties have been notified, to enter judgment in the terms of an agreement between the parties in relation to the proceedings between them, relevantly, here, the agreement reached pursuant to the Settlement Deed.
10. Ms Scott, who as I noted above appears for the DCT, in turn addresses the nature of the application and the terms of the Settlement Deed, and specifically the provisions relating to the due date for payment, which was six months from the date of the Settlement Deed, that is on or about 1 March 2024, and the provisions relating to default. She refers to the notice of default given to the several Defendants, as I noted above, on 5 March 2024, both to their solicitors, who were referred to in the notice provision under the Settlement Deed, and to the other addresses which I have referred above. Ms Scott in turn refers to the applicable principles in respect of UCPR r 36.1A and s 73 of the CPA, and also refers to the basis on which summary judgment may be available under UCPR r 13.1. It is not necessary to address the latter provision in the relevant circumstances.
11. Ms Scott submits, and I accept, that the terms of the Settlement Deed provide for the relevant Defendants' consent to the entry of judgment in the proceedings, in the circumstances of default of payment of the Settlement Sum, which have now come to pass. I am satisfied that the application has been served and that judgment is properly entered on that basis.
12. For these reasons, I am satisfied that the basis of the claim for costs, in paragraph 4 of the Notice of Motion, is also established by the agreement of the parties in the Settlement Deed and the evidence as to costs.

Orders

1. Accordingly, I make the following orders:
2. Judgment be entered for the Plaintiff jointly and severally against the First, Second, Fourth, Fifth, Sixth, Seventh, Eighth, Tenth, Eleventh and Thirteenth Defendants and the First and Sixth Respondents, in the amount of $17,357,593.94.
3. The First, Second, Fourth, Fifth, Sixth, Seventh, Eighth, Tenth, Eleventh and Thirteenth Defendants and the First and Sixth Respondents are jointly and severally liable to pay the Plaintiff's costs of and incidental to this proceeding fixed in the sum of $782,029.89.
4. The exhibits be returned.

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