First Plaintiff v First Defendant

(a) an order pursuant to s.90(2) of the Transfer of Land Act that the third defendant, the Registrar of Titles, delay registration of the transfer and mortgage;

(b) an interlocutory injunction to restrain the first defendant disposing of his interest in the property;

(c) a "Mareva" order to restrain the first and second defendants disposing of the property.

3 In turn, the first and second defendants have brought a summons in the proceeding seeking an order for the removal of the caveat lodged by the plaintiffs over the property pursuant to s.90(3) of the Transfer of Land Act.

4 The facts in the case are somewhat complicated, and a number of them are in dispute. However the facts which are essential for the purposes of the applications which are before me can be summarised briefly. In either late 2002, or January 2003, Beiser and Topoljski entered into a joint venture agreement, initially for the purposes of developing units at Jersey Parade, Carnegie. The plaintiffs' case is that the agreement was committed to writing and was constituted by a document, which is in evidence before me, entitled "Joint Venture Agreement Jersey Property" dated 13 January 2003, sealed by the second named plaintiff, P.C.C. (Imports) Pty Ltd and signed by Topoljski. On the other hand the first defendant submits that the agreement was verbal, and was constituted by conversations between Topoljski and Beiser in late 2002. It is contended that the written joint venture agreement was only signed for the purposes of enabling Beiser to obtain finance to progress the development of the Jersey Parade units.

5 On any view, it is common ground that by the terms of the agreement the profits of the joint venture were to be divided as to 70% for the second plaintiff, and 30% for the first defendant. Beiser was to contribute capital and know-how to the project, and Topoljski was to contribute labour, project management skills and some capital. The written agreement provided that the second plaintiff would be entitled to charge the joint venture interest at the rate of 8% in respect of all funds advanced to the joint venture. The first defendant denies that that was a term of the oral agreement made between the parties and which, it is contended, governs the relationship between the parties.

6 The Jersey Parade project was completed in about May 2003. At about that time it was agreed between the parties to roll over the profit from that project into further developments of residential properties to be undertaken by Beiser or by entities nominated by him, and by Topoljski. The plaintiffs claim it was agreed that those projects be conducted on the terms set out in the written joint venture agreement between the second plaintiff and Topoljski. It is common ground between the parties that the profits of each succeeding development was rolled over into the next development. The point at issue between the parties is whether the plaintiffs were entitled to charge the joint venture interest at the rate of 8% in relation to any advances made by them to the joint venture.

7 In any event, after the completion of the Jersey Parade project, companies associated with Beiser on the one hand, and Topoljski on the other hand, carried out four further development projects at Tattenham Street, Caulfield East; Royal Avenue, Glenhuntly; Marne Street, East St Kilda; and, finally, at Murray Street, East St Kilda. The penultimate project, at Marne Street, was concluded in July 2004. The Murray Street project (being the fifth and last project), concluded in June 2005.

8 The dispute between the parties arises in respect of two payments which were made in favour of Topoljski on the account of the third plaintiff, Sortelli, in May and June 2005. On 25 May 2005 Topoljski procured payment to himself of the sum of $300,000 from Sortelli's account. On 14 June 2005 Topoljski had a further sum of $200,000 paid to him out of the accounts of Sortelli. The first payment of $300,000 was applied by Topoljski to facilities which he had with the National Australia Bank which was secured over the Camperdown Street property. It is not altogether clear whether the $200,000 was also paid against that facility. The affidavit of Ms Flis, sworn in support of the plaintiffs' case, suggests that Topoljski sought payment of that cheque for that purpose.

9 The plaintiffs allege that the two payments were made in excess of any entitlements of Topoljski to the profits of the joint venture and that as a consequence Topoljski overdrew the sum of $240,096.94 from the joint venture. In response, Topoljski, in his affidavit, claims that the amounts paid to him were part-payment of his entitlement to the profits from the joint venture, from which he is still entitled to a further sum of $60,000.

10 As I understand it, the difference between the amount which the plaintiffs assert is owed to them by Topoljski, and, on the other hand, the amount which Topoljski claims he is still owed from the joint venture, arises from the different positions taken by the parties in relation to the issue whether the plaintiffs were entitled to charge the joint venture 8% interest on moneys advanced by them to the joint venture.

11 The circumstances in which the two payments were made to Topoljski are in dispute. Beiser left for overseas on 11 May 2005. He appointed Topoljski, Ms Jacobson and Ms Flis as alternative directors of the third plaintiff during his absence. The third plaintiff was the vehicle used for the last development by the joint venture. It is common ground that the two payments were made to Topoljski on request by him made to Ms Flis. Ms Flis is employed by the plaintiffs as their administration manager. In her affidavit she states that Topoljski told her that he was entitled to the moneys from the third plaintiff. Topoljski in his affidavit states that before Beiser departed for overseas, he told Beiser that the NAB bank bill of $300,000, secured over the Camperdown Street property, was expiring on 31 May 2005. Topoljski says that he also told Beiser that his personal overdraft with the NAB was nearing its limit of $200,000 and would also need to be repaid. At that time Topoljski had not received any sum on account of his 30% interest in the profits of the five projects undertaken by the joint venture. Mr Topoljski maintains that Beiser told him that he would provide funds so that Topoljski could pay the $300,000 bank bill and the $200,000 overdraft while Beiser was away, and that Topoljski should contact Ms Flis to arrange payment.

12 In response Beiser, in his affidavit, states that he did not authorise the payment of $300,000 made by the third plaintiff to Topoljski. He states that while he was overseas Topoljski telephoned him and asked him if he could have $200,000 of his money. Beiser states that he authorised the payment of $200,000, but did so in ignorance of the earlier payment of $300,000 made in May. Beiser says that he spoke to Ms Flis while he was away and authorised her to draw up and sign the cheque of $200,000 to Topoljski.

13 Beiser returned from overseas on 20 June 2005. In the meantime Mr and Mrs Topoljski had departed for overseas and they returned in early October. Shortly thereafter the joint venture relationship between Beiser and Topoljski came to an end.

14 On 6 April 2006 Beiser's solicitors sent a letter to Topoljski seeking payment of the sum of $240,096.94 claimed to have been overdrawn by Topoljski on his entitlements and drawings from the joint venture. On 27 July 2006 there was lodged at the Titles Office a transfer by the first and second defendants to the second defendant of their interest in the Camperdown Street property. There was also sought to be registered a discharge of the mortgage by the first and second defendants to the National Australia Bank, and in its place a new mortgage by the second defendant to the bank.

15 In short compass, the plaintiffs claim that Topoljski acted in breach of his fiduciary duties to the plaintiffs in procuring the two payments to himself in May and June of 2005. It is claimed that as a consequence the first and second defendants hold the East Brighton property on a constructive or resulting trust on behalf of the third plaintiff or all of the plaintiffs to the extent of the moneys said to be misappropriated. It is that trust which is claimed to be the basis of the caveat lodged by the third plaintiff over the title to the Camperdown Street property. Alternatively the plaintiffs' claim is based on the alleged overpayment to Topoljski from the joint venture from the sum of approximately $240,000. It is submitted that there is a real risk of dissipation of assets by the first defendant, evidenced principally by the transfer by him to his wife of his interest in the Camperdown Street property. Accordingly the plaintiffs seek a Mareva order against the first and second defendants.

16 The first defendant having brought a summons in this case to remove the caveat, the onus now lies on the plaintiffs to establish that there is a serious question to be tried that the third plaintiff has the estate or interest in the land claimed in the caveat. Further, it must be shown that the balance of convenience favours the maintenance of the caveat until the trial of this action.[1]

17 The principles relating to the plaintiffs' claim for a Mareva injunction are well established. The plaintiffs are required to show that they have a good arguable case in the proceeding. Further they must show that there is a substantial risk there will be a dissipation of assets by the defendant before judgment which might deprive the plaintiffs of the fruits of their judgment. It is well established that the jurisdiction to grant a Mareva injunction must be exercised with care, and that the purpose of such an order is not to provide a plaintiff with security in advance for a judgment which he might obtain in the proceeding.[2]

The Caveat

18 I shall first consider the application by the first defendant to remove the caveat. That caveat was lodged by Sortelli Pty Ltd. The caveat claims an equitable interest in fee simple in the interests of the first defendant as one of the registered proprietors in the property. The grounds of claim stated are:

"Pursuant to a constructive trust or equitable charge created as a result of Vladislav Topoljski misappropriating moneys in breach of trust and in breach of fiduciary duty in expending same on the land described."

19 Mr Arthur, who appeared on behalf of the plaintiffs, submitted that each of the parties to the joint venture agreement had an equitable interest in the undistributed profits of the joint venture agreement; Chan v Zachariah.[3] Each of the parties to the joint venture owed a fiduciary duty to the other. He submitted that Topoljski acted in breach of that fiduciary duty by procuring the two unauthorised payments to him totalling $500,000 in May and June of 2005. He submitted that those payments when received by Topoljski were impressed with a constructive trust in favour of the third plaintiff. He further submitted that since those moneys were paid in reduction of the mortgage secured over the Camperdown Street property, the first defendant's interest in that property was impressed with the same constructive trust.

20 In response Mr Stirling attacked the plaintiffs' claim, based on a constructive trust, both as a matter of fact and as a matter of law. He pointed out that the claim is dependent on the right of the plaintiffs to charge 8% interest on advances to the venture. That right is at the core of the dispute between the parties. At the conclusion of each joint venture project Beiser produced and provided to Topoljski summaries of the accounting in relation to the particular project. None of those summaries contained any reference to Beiser having an entitlement to an 8% return on moneys advanced. The profits that were calculated in each of those summaries did not contain an allowance for such an entitlement. It appears that the first occasion upon which such an entitlement was asserted on behalf of the plaintiffs, in any accounting between them and Topoljski, was by way of the claim made on 6 April 2006, sent under cover of the solicitor's letter. Furthermore, that letter does not contend that the payments made in May and June of 2005 constituted a misappropriation as is now contended on behalf of the plaintiffs.

21 In my view, each of those matters are relevant and important in assessing whether the plaintiffs made out an arguable claim in relation to the caveat, and indeed whether they have a good arguable claim to support their application for a Mareva injunction. In his affidavit Mr Beiser states that while he was overseas he was contacted by Topoljski and he authorised Topoljski to have payment of the $200,000. Beiser states that he then spoke to Ms Flis and authorised her to draw and sign the cheque on the third plaintiff's account. Mr Beiser states that at that time he did not know that the earlier payment of $300,000 had been made to Topoljski. There is force in the argument of Mr Stirling that there is an inherent probability about Mr Beiser not knowing that fact, given that he was speaking to Ms Flis concerning the issue of making a payment to Topoljski from the accounts of the third plaintiff.

22 That improbability is reinforced by the fact that the plaintiff had not raised an issue about the entitlement of Topoljski to that payment until April 2006. The payment was recorded in the books of account of the third plaintiff. Further, as I have stated, the issue raised by the solicitors in their letter to Mr Topoljski of 6 April 2006 concerned the question whether Mr Topoljski had been overpaid; it did not allege that there was any misappropriation by Topoljski of the cheque for $300,000.

23 All of those circumstances make it questionable whether the plaintiffs at trial will be able to establish the relevant breach of trust now asserted by them, if they do succeed in establishing that Topoljski has been overpaid his share of entitlement to the profits from the joint ventures. As Mr Stirling correctly points out, there is a distinction between one partner innocently receiving an overpayment of an amount, and, on the other hand, that partner wrongfully and in breach of trust procuring payment to him of an amount to which he is not entitled. Only in the latter case might it be said that a breach of trust has occurred. Thus the claimed breach of trust in this case in my view, on the materials currently before me, rests on quite a weak factual foundation. Of course, this application has been conducted on affidavit, without the opportunity for the deponents of the affidavits to be cross-examined. It is with caution that I proffer any assessment of any merits of the claim of the plaintiffs. Nonetheless, the plaintiffs have sought to sustain the caveat lodged by the third plaintiff on material which, it seems to me, provides a real basis to doubt that the plaintiffs will be able to make out their claim to a breach of trust in this case.

24 The claim of the plaintiffs based on the caveat is further complicated by the fact that the moneys received by Topoljski were used by him to reduce the debt owed to the bank, that debt being secured by the mortgage over the Camperdown Street property. It is well established that a benefit or a gain held by a fiduciary as a result of a breach of fiduciary obligation may be impressed with a constructive trust.[4] Assets which are acquired with moneys taken in breach of trust may be subject to a constructive trust, at least to the extent of the amount misappropriated by the fiduciary.[5] Furthermore, modern courts of equity adopt a flexible approach to declaring a constructive trust which is moulded and adjusted to give effect to the particular circumstances of that case.[6] However difficulties do arise where it is not possible to trace the misappropriated funds to identifiable property which is said to be subject to the constructive trust. In Jones (as trustee of the property of Heather MacNeil-Brown, a bankrupt) v Southall and Bourke Pty Ltd,[7] Crennan J considered the authorities and stated:

"There is no doubt that the courts will hold that money stolen, whether in cash or by cheque, by a fiduciary ... which can be traced remain the moneys of the beneficiary ... . However, even if a constructive trust of this type arises, evidence that there was once property received which at the time of its receipt was subject to a constructive trust is insufficient to found judgment in favour of the respondent. What the respondent must prove, if it is to establish there is any property now held by the [fiduciary] that is to be declared to be subject to a constructive trust, a proprietary remedy, is that identifiable property subject to such trust is still held by the [fiduciary]. ... On the evidence ... , this is the vital element which cannot be made out on the facts of this case."[8]

25 In this case the imposition of a constructive trust may be problematic where, as here, the funds alleged to have been received by the fiduciary are no longer held by the fiduciary, but, rather, have been used to reduce the level of fluctuating debt owed by the fiduciary, and which debt is secured over a property partly owned by the fiduciary. It is not necessary, and in a proceeding such as this undesirable, for me to decide whether or not in such circumstances a constructive trust may arise. However, both on a factual and legal basis, it can be seen that the third named plaintiff's claim to the constructive trust relied on by it in support of the caveat rests on a difficult foundation.

26 On the other hand, I am not persuaded that the balance of convenience clearly favours the retention of the caveat on the title. On the affidavit material before me, the Camperdown Street property is valued at approximately $1.3 million. A number of accounts, held by the first defendant, his wife and companies associated with the first defendant, are secured in part against that property. At present those debts total $2.3 million. Since the dissolution of his relationship with Beiser, Topoljski has entered into a partnership, which is involved in renovating and selling properties. Topoljski's borrowings for those undertakings are supported by guarantees provided by his wife and himself to the bank. Mr Topoljski has sworn that the National Australia Bank would not advance any further funds to him, given that the caveat has been lodged against the Camperdown Street property. Without access to those funds Topoljski will be unable to embark on any further development projects.

27 In those circumstances, if the caveat were to remain, it would stultify the business conducted by Topoljski. On the other hand, the equitable interest asserted by the third plaintiff would rank behind any interest of the National Australia Bank in the property. It is doubtful whether, at least at present, that equitable interest, if it exists, is of any value, given the high level of debt secured by the National Australia Bank mortgage. In those circumstances, I am not satisfied that the balance of convenience favours the maintenance of the caveat lodged by the third plaintiff over the property. Indeed, I am persuaded that the converse is the case.

28 The Court's power under s.90(3) of the Transfer of Land Act is discretionary. On the materials which have been put before me the plaintiffs' claim to a constructive trust clearly has difficulties. On the other hand, as I have concluded, the balance of convenience does not favour the maintenance of the caveat. In those circumstances it is my conclusion that the first and second defendants are entitled to an order, on their summons dated 27 October 2006, for removal of the caveat lodged by the third plaintiff over the property.

Mareva order

29 The next question is whether the plaintiffs are entitled to any form of relief by way of a Mareva injunction. Mr Arthur has conceded that the plaintiffs have not made out a good arguable case (or indeed any case) against the second defendant Mrs Topoljski on materials which have been put before me. In order to establish a good arguable claim, the plaintiffs, of course, do not need to establish the constructive trust relied on in support of the caveat.

30 It is well established that a court should exercise a high degree of caution in determining whether to grant a Mareva injunction. The purpose of such an order is not to set aside, for the benefit of the plaintiffs, security in advance of a judgment which the plaintiffs hope to obtain. Rather the purpose of such an order is to prevent frustration or abuse of the process of the Court.[9]

31 The first question is whether the plaintiffs are able to establish a good arguable case. In light of the conclusions I have already reached concerning the factual basis of their claim, and on the materials which have been put before me, it is difficult to come to the conclusion that the plaintiffs have established such a case as might entitle them to the exceptional remedy of a Mareva order. In support of their argument that there is a risk of dissipation of assets by the first defendant, the plaintiffs rely on the transfer by the first defendant to the second defendant of its interest in the property. That transfer is dated 18 January 2006. In his affidavit Mr Topoljski states that after returning from overseas he and his wife decided to separate, and accordingly Topoljski agreed to transfer to her his interest in the property. There are unusual circumstances attaching to the execution of that transfer. However there is nothing which enables me to infer that the date contained on the transfer does not reflect the true date on which it was executed. The transfer by the first defendant is of his interest to the second defendant. As I have already stated, at present that interest is heavily encumbered by debt. In my view the transfer by the first defendant to the second defendant of his interest in the property does not constitute a dissipation of assets by the first defendant. For those reasons I do not consider that the plaintiffs have made out their claim to entitlement to a Mareva order and I refuse the application made by the plaintiffs for such an order.

32 Accordingly, subject to hearing from counsel, I propose making the following orders which are consistent with these reasons for judgment:

1. I dismiss the summons by the plaintiffs dated 14 September 2006.

2. On the summons by the first and second named defendants dated 27 October 2006, I order that caveat No. AE288699K dated 6 April 2006 lodged by the third plaintiff, Sortelli Pty Ltd, in relation to the land described in Certificate of Title Volume 7081 Folio 146 be removed pursuant to s.90(3) of the Transfer of Land Act 1958 (Vic).

33 I shall hear counsel on the question of costs.

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[1] Goldstraw v Goldstraw [2002] VSC 491 at [30] (Dodds-Streeton J).

[2] See Glenwood Management Pty Ltd v Mayo [1991] VicRp 45; (1991) 2 VR 49; Cardile v L.E.D. Builders Pty Ltd (1999) 198 CLR 380 at 403-4.

[3] (1983) 178 CLR 180 at 192.

[4] See for example Keith Henry and Company Pty Ltd v Stuart Walker and Co Pty Ltd and anor [1958] HCA 33; (1958) 100 CLR 342 at 350.

[5] Re Halletts Estate; Knatchbull v Hallett (1880) 13 Ch D 696 at 709 (per Jessel MR).

[6] Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 at 615 (Deane J); Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 107 to 108 (Mason J).

[7] (2004) FCA 539.

[8] At [76].

[9] Goldstraw v Goldstraw at [51].