HEADNOTE
[This headnote is not to be read as part of the judgment]
Two appeals were heard concurrently, emerging from separate property developments conducted on behalf of Mr Hazem Afyouni and Mr Omar Sadek.
The Maroubra Appeal
In 2016, Mr Afyouni (the second appellant) and Mr Sadek (the first respondent) entered a joint venture agreement to develop property in Maroubra. For this project, they incorporated two companies, Elite Realty Development Pty Ltd (Elite) and Maroubra Road Development Pty Ltd (MRD). Mr Afyouni and Mr Sadek were both directors and, through their alter ego companies, joint owners of Elite and MRD.
In 2018, following a disagreement, Mr Afyouni changed the access settings to Elite's bank accounts so that money could be withdrawn only if both he and Mr Sadek consented. This caused problems for Elite paying its subcontractors. One of the subcontractors, Mr Bilal Dennaoui, threatened Mr Afyouni with a gun and demanded he reverse the changes to the account. Mr Afyouni complied. The primary judge found that Mr Sadek either procured the gun attack or acted in a common design with Mr Dennaoui to bring the attack about.
Soon after the attack, Mr Afyouni and Mr Sadek entered an agreement to terminate the Maroubra joint venture. The parties agreed that Mr Afyouni would relinquish his directorship and ownership of MRD and that Mr Afyouni would then receive $700,000.
For the gun attack, Mr Afyouni successfully sued in tort. He also sought rescission of the termination agreement on the ground of duress. The primary judge found that rescission was unavailable because, although Mr Afyouni entered the agreement under duress, he later affirmed the agreement by performing it once the duress had ended. The appellants appealed from this finding.
While the Maroubra development was underway, Mr Sadek incorporated a separate company, Big Homes Sydney Pty Ltd, which bought a property at Matraville and another at Condell Park. The primary judge found that the purchases were funded with bank loans, were not intended to fall within the Maroubra joint venture and were not bought with joint venture funds. The appellants appealed from these findings.
The issues on appeal were:
(i) Whether the respondents failed to plead or "properly argue" affirmation at first instance;
(ii) Whether the primary judge should have found that, because the gun attack left Mr Afyouni with post-traumatic stress disorder or because he was still in fear of Mr Sadek, Mr Afyouni remained under duress when carrying out the termination agreement and that affirmation was not proven;
(iii) Whether the appellant should be permitted to amend their case on appeal to argue that the Matraville and Condell Park properties were bought with bank loans repaid using Maroubra joint venture money and were therefore traceable property.
The Avoca Appeal
Mr Afyouni and Mr Sadek were each owed money by an unrelated construction company, Kanebridge Constructions NSW Pty Ltd and its subsidiaries. In mid-2017, Mr Afyouni and Mr Sadek agreed to release Kanebridge from its debts, provided that a Kanebridge subsidiary KPI53 enter a joint venture with Elite to develop a property at Avoca Beach. In late 2017, the agreement with Kanebridge began to break down.
In March 2019, Mr Sadek executed a deed with the Kanebridge companies, settling his aspect of the dispute with them. The deed recited that Mr Sadek had terminated the Avoca Beach joint venture in July 2017. Elite alleged that Mr Sadek terminated the joint venture on that date, or that the deed itself terminated the joint venture. Elite complained that by terminating the Avoca Beach joint venture, Mr Sadek, as its director, breached his fiduciary and directors' duties. The primary judge found that Mr Sadek had not in fact terminated the joint venture and had therefore not breached any duties. Elite appealed this finding.
The issues on appeal were:
(i) Whether, by his dealings with the Kanebridge companies, Mr Sadek "de facto" terminated the Avoca Beach joint venture, diminished the Avoca Beach joint venture's assets and diminished the value of KPI53's assets, such that he breached his directors' and fiduciary duties to Elite;
(ii) Whether, if there was a breach of duty, the primary judge erred in refusing equitable compensation or statutory damages under Corporations Act 2001 (Cth) s 1317H, on the basis that Elite had suffered no loss.