Gangemi v Osborne & Anor; Bloomingdale Holdings Pty Ltd & Anor v 63 Buckley Street Pty Ltd & Ors [2009] VSCA 297

Gangemi v Osborne & Anor; Bloomingdale Holdings Pty Ltd & Anor v 63 Buckley Street Pty Ltd & Ors [2009] VSCA 297 - VSCA 2009 case summary — Zoe

[90]

Taken as a whole, I find that the evidence of the dealings with Coadys is not inconsistent with Mr Gangemi and Mr Lanciana treating the heads of agreement as binding upon them. I accept that they may have given Mr Jorgensen the impression that the arrangements between them under the heads of agreement might be the subject of further agreement to take account of revenue implications. However, no such further agreement was reached. Instead, Mr Lanciana simply took Coadys advice on board and took unilateral steps to ensure that any revenue obligations were avoided. Of particular relevance is Mr Lanciana's exploitation of the fact that the intended Buckley Street Unit Trust deed had not been executed and Mr Lanciana's rewriting of past events regarding the Mitchell Street Unit Trust, thus ensuring that he, Mr Gangemi and Bloomingdale did not have to pay any stamp duty or capital gains tax.

Furthermore, the evidence establishes that Mr Lanciana was of the view that, under the Heads of Agreement, he was obliged to assume all liability to pay stamp duty and taxes arising from the transactions contemplated by the Heads of Agreement, with the exception of any stamp duty payable in respect of any transfer of Lots 15, 16 or 17 (S2) in the Hoddle Street development (where the Heads of Agreement provided that the purchaser was to pay such stamp duty). Mr Lanciana was correct in that assumption. Clause 4(c) of the Heads of Agreement contains a broad indemnity which so provides. Based on this understanding, Mr Lanciana assumed all liability to pay any taxes owing, acted on the basis that there was no need for him to execute the deed of indemnity and in fact paid any unpaid taxes when Mr Gangemi brought them to his attention. As a result, Mr Gangemi has not been exposed to any tax liability at the present time. If, following investigation by the relevant authorities, Mr Gangemi or Bloomingdale are liable in respect of any unpaid taxes resulting from the transactions effected pursuant to the Heads of Agreement, other than stamp duty in respect of the transfer of Lot 17 (S2), Mr Lanciana must indemnify Mr Gangemi for that liability pursuant to his obligations under the Heads of Agreement.[22]

[107]

soon after the Heads of Agreement were signed, either Mr Lanciana or Mr Gangemi forwarded a copy of the Heads of Agreement to Suncorp Metway. Mr Gangemi acknowledged that he was in contact with Suncorp Metway at that point in time and knew that a copy of the Heads of Agreement had been provided to it. The Heads of Agreement provide that Mr Lanciana will procure a release of Mr Gangemi's guarantee of the obligations of Clapana to Suncorp Metway. Suncorp Metway was not prepared to entertain any release of Mr Gangemi. Accordingly, by letter dated 10 October 2003, Suncorp Metway sought to have Mr Gangemi and Mr Lanciana amend their Heads of Agreement to remove any obligation upon Mr Lanciana to obtain a release of Mr Gangemi's obligations under the Suncorp Metway guarantee.

In this context, Mr Lanciana approached another financier, the ANZ Bank, in about November 2003 and organised to refinance the Hoddle Street project, in an amount sufficient to pay out Suncorp Metway's finance and to provide some additional funding. This refinance was on the basis that Mr Lanciana would be the sole guarantor, and a guarantee from Mr Gangemi would not be required. The refinance involved Mr Gangemi signing some documents. He refused to do so on the basis that 'the documents were wrong'. Initially, Mr Gangemi said that he understood that the ANZ refinance 'wasn't so much for the guarantee, I think it was purely to increase the amount of borrowings against Hoddle Street'. Later, Mr Gangemi said that he could not remember why he thought the documents were 'wrong', but thought that they would increase his liability under his existing guarantee. I do not accept this evidence. Although the documents which Mr Gangemi was given to sign were not produced by him, and appear to have been misplaced, it is clear from the ANZ security documents presented to the finance broker acting on behalf of Mr Lanciana and Clapana that ANZ was offering to provide finance to replace the Suncorp Metway facility on the basis of guarantees of Mr Lanciana and Pre Need. There is no evidence that any guarantee was being sought from Mr Gangemi and I find that it was not. Of course, the refinance would have had the effect of releasing Mr Gangemi from his obligations as a guarantor of the Suncorp Metway facility.[35]

[167]

the conduct of Mr Gangemi towards Mr Jafari in the period leading up to the signing of the Heads of Agreement and thereafter provides a solid factual foundation for the conclusion that, as against Mr Jafari, Mr Gangemi should in any event be estopped from denying that Mr Jafari has acquired full ownership and control of 63 Buckley, to the exclusion of any interest of Mr Gangemi.

The relevant facts are the subject of detailed findings above. In summary, Mr Gangemi informed Mr Jafari of his negotiations with Mr Lanciana to resolve their overall dispute. In this context, Mr Gangemi showed Mr Jafari a copy of the final draft of the Heads of Agreement and said that he was having a further mediation (a reference to the third meeting) in an endeavour to resolve the dispute on the basis of the final draft. After the third meeting, Mr Gangemi told Mr Jafari that he and Mr Lanciana had resolved their dispute and that Mr Gangemi had transferred 63 Buckley to Mr Lanciana. Following this conversation, Mr Jafari confirmed the fact with Mr Lanciana and, in subsequent conversations with Mr Gangemi, was repeatedly told by Mr Gangemi that he was 'out of the Buckley Street project' and words to like effect. In addition, Mr Gangemi ceased to have any involvement with the Buckley Street project, for example in connection with the further prosecution of the permit application, and by this conduct confirmed his statements that he was 'out of Buckley Street'.

In these circumstances, Mr Jafari dealt with Mr Lanciana in an endeavour to recover his own investment in the Buckley Street project. Mr Jafari told Mr Gangemi of his efforts in this regard and Mr Gangemi responded in terms which further confirmed his earlier statements that he was 'out of Buckley Street'. As I have found above, I accept Mr Jafari's evidence in this regard.

Although it is unnecessary to decide it, I find that, in these circumstances, it would be wholly unconscionable for Mr Gangemi to now assert against Mr Jafari that Mr Lanciana had no capacity to transfer ownership and control of 63 Buckley to Mr Jafari because ownership and control of 63 Buckley remained with Mr Gangemi.[70]

[200]

Mr Lanciana said that he arranged for these contracts to be prepared and that they were signed by Mr Gangemi at the same time that he signed the contract of sale in respect of Lot 17 (or Lot S2) on or about 1 November 2003. This raises another factual dispute. The two contracts are dated 15 January 2001. Mr Gangemi says that they were signed at this time, and had nothing to do with performance of the obligations of Clapana under the Heads of Agreement. At first blush, Mr Gangemi's case appears to be supported by the facts that, under the Heads of Agreement, it was 'Giuseppina Carbone' (Mr Gangemi's mother-in-law) who was to be the intended purchaser and the Lot 15 contract instead names the purchaser as 'Rose Carbone and/or nominee', with Mr Gangemi being named as the nominee. However, in this regard, Mr Gangemi himself gave evidence that this was an error in the Heads of Agreement, because it was intended to be his wife, not his mother-in-law who was the purchaser.

Mr Gangemi's case on this issue also finds some support in the fact that the stated sale price in the contract for Lot 16, which was to be for a 'nominal value' is $450,000.

Mr Lanciana's case is that these contracts were back-dated, at the request of Mr Gangemi, in order to avoid stamp duty by representing that they were contracts entered into prior to commencement of construction of the Hoddle Street project. Further, and most importantly, Mr Lanciana relies upon the fact that the bound versions of the two contracts each include a copy of the Plan of Subdivision as at 28 August 2003. If the contracts of sale were signed in their bound form, then they could not have been signed before that time. In order to answer this inconsistency in his position, Mr Gangemi said that the contracts were not bound at the time that he signed them, and that they have been subsequently bound by or at the direction of Mr Lanciana.

I do not accept Mr Gangemi's evidence in this respect. I find that the two contracts were bound at the time that he signed them, and that they were backdated for stamp duty purposes. These were not mere sale notes but formal contracts drawn by a solicitor, which make reference to the attached bound materials, in particular to the Plan of Subdivision. Special Condition 17 of each contract specifically states that it relates to the sale of the apartment at a 'shell stage'. This language is consistent with the obligation in the Heads of Agreement to procure Clapana to sell a 'penthouse shell' to Mr Gangemi and to his mother-in-law or nominee. Moreover, I have examined the originals and can see no sign that they have been tampered with at a later time. Having regard to Mr Gangemi's credibility as a whole, and the time which he had to think of an explanation for the inconsistency between the date on the contracts and the date of the Plan of Subdivision which is attached to the contract of sale, I infer that Mr Gangemi has endeavoured to reconstruct a situation which is consistent with his case. I do not accept that he has a positive recollection of signing unbound contracts of sale in 2001 without any annexures.

As with the contract of sale for Lot S2, the question remains as to why the sale price in the Lot 16 contract is stated as $450,000 and is not a nominal consideration, as provided for in the Heads of Agreement. Once again, I infer that the answer lies in the desire of the parties to fix a sale price to enable the assessment of stamp duty payable by Mr Gangemi on any transfer. In this context, it is consistent with Mr Gangemi and Mr Lanciana intending to honour the Heads of Agreement, and to transfer Lot S2 and Lot 16 to Mr Gangemi for nominal consideration if the finances of the Hoddle Street development permitted. I note that the stated price of $450,000 for Lot 16 is the same as that stated in the contract of sale for Lot 15, which also relates to a 'penthouse shell' to be sold for that amount under the Heads of Agreement. I infer that the parties have simply endeavoured to link the Lot 15 sale price to that of Lot 16, and thus create evidence of value in respect of Mr Gangemi's obligation to pay stamp duty on the intended sale of Lot 16 for nominal consideration. Given that Clapana was unable to convey Lot 15 for $450,000 and repay Suncorp Metway in full, thus necessitating an arms-length sale to another purchaser, I infer that $450,000 was not a genuine estimate of the value of the penthouse shells.[77]

[210]

[B]y May 2003 Mr Gangemi and Mr Lanciana had commenced a serious falling out. There was a heated meeting at the Pre Need offices, attended by Mr Gangemi, Mr Lanciana, Mr Jafari and Mr Osborne. It was clear to all present that Mr Gangemi and Mr Lanciana could no longer work together. By this time, Mr Osborne was most concerned about his investment. It is in my view more probable that it was at this time that Mr Osborne asked Mr Gangemi for his money back and, in response, Mr Gangemi either offered to write down the terms upon which Mr Osborne had invested or Mr Osborne asked him to do so. Mr Gangemi said that, at this time, 'Mr Osborne was very concerned and I sympathised with him'. I accept this statement by Mr Gangemi. He and Mr Osborne were still good friends at this time.

Mr Osborne says that, on or about 12 May 2003, he assisted Mr Gangemi when he returned a rental truck to the Thrifty Car Rental office in Richmond. Mr Osborne said that he followed Mr Gangemi in his car whilst Mr Gangemi drove the rental truck to the Thrifty office. According to the invoice issued by Thrifty to Mr Gangemi, the truck was returned on 12 May. Once Mr Gangemi had returned to the truck, and obtained his copy of the invoice, Mr Osborne said that Mr Gangemi sat in the passenger seat of Mr Osborne's car and, at that time, Mr Osborne asked him to write out the terms upon which Mr Osborne had invested. According to Mr Osborne, Mr Gangemi then wrote out the terms of Mr Osborne's investment on the back of the Thrifty invoice ('the Thrifty note').

The Thrifty note is in the following terms:

DEED IS MADE THE _________ DATE 4/3/02

BY ANTONIO GANGEMI OF UNIT 6-3 ANCHOR PLACE PRAHRAN 3181

AND

CLAPANA PTY LTD ACN 080 253 050

AT THE REQUEST OF ________ RICHARD OSBORNE OF ADDRESS 95 Richardson Street Albert Park

ADVANCED THE AMOUNT OF $200,000. TO BE APPLIED

TOWARDS PURCHASE OF PROPERTIES.

61 BUCKLEY ST. FOOTSCRAY 3011, CERT OF TITLE VOL,. 8224 FOL 243

63-67 BUCKLEY ST. FOOTSCRAY 3011, CERT OF TITLE VOL. 2805 FOLIO 988

VOL. 8592 FOLIO 907. VOL. 8195 FOLIO 152. VOL. 8355 FOLIO 746.

VOL.10063 FOLIO 911. (THE PROPERTY)

THE PROPERTY WILL BE DEVELOPED BY THE REGISTERED PROPRIETOR 63 BUCKLEY STREET PTY LTD ACN 099 836 361

CONDITIONS

* PLAN-PERMIT FOR MIN 26 UNITS WITHIN 18 MONTHS OF MONEY PAYED (sic)

* INTEREST PAYED (sic) BY PRE NEED SERVICES AUSTRALIA

* YOU WOULD RETAIN 12½% IF PERMIT WITHIN 18 MONTHS

* IF PERMIT NOT ISSUE WITHIN 18 MONTHS MONEY REPAYED (sic) BACK WITH 25% NET RETURN $250,000

* COST OF ESTABLISHMENT FEES & CHARGES. + LEGAL FEES ASSOCIATED WITH CHARGE ETC.

* CHARGE OVER 86 MITCHELL ST. & 63 BUCKLEY ST.

*

B. Blott $30,000 + $120,000.[81]

[245]

In cases where all that is involved is the discovery by the unsuccessful party of fresh evidence ... the reconciliation of 'the demands of justice' and the 'policy' that there be an end to litigation at least prima facie (or 'generally'[91]) dictate that the successful party should be deprived of the verdict in his favour only if the unsuccessful party persuades the appellate court that there was no lack of reasonable diligence on his part and that it is reasonably clear that the fresh evidence would have produced an opposite verdict...

The position is, however, different in a case such as the present where the unavailability of the evidence at the trial resulted from a significant failure by the successful party to comply with an order for the discovery of relevant documents in his possession or under his control. The application to that category of case of the general rule that a new trial should only be ordered on the ground of fresh evidence if it is 'almost certain'[92] or 'reasonably clear'[93] that the opposite result would have been produced if the evidence had been available at the first trial would, particularly where the failure was deliberate or remains unexplained, serve neither the demands of justice in the individual case nor the public interest in the administration of justice generally ...

It is neither practicable nor desirable to seek to enunciate a general rule which can be mechanically applied by an appellate court to determine whether a new trial should be ordered in a case where misconduct on the part of the successful party has had the result that relevant evidence in his possession has remained undisclosed until after the verdict. The most that can be said is that the answer to that question in such a case must depend upon the appellate court's assessment of what will best serve the interests of justice, 'either particularly in relation to the parties or generally in relation to the administration of justice'.[94] In determining whether the matter should be tried afresh, it will be necessary for the appellate court to take account of a variety of possibly competing factors, including, in addition to general considerations relating to the administration of justice, the degree of culpability of the successful party,[95] any lack of diligence on the part of the unsuccessful party and the extent of any likelihood that the result would have been different if the order had been complied with and the non-disclosed material had been made available. While it is not necessary that the appellate court be persuaded in such a case that it is 'almost certain' or 'reasonably clear' that an opposite result would have been produced, the question whether the verdict should be set aside will almost inevitably be answered in the negative if it does not appear that there is at least a real possibility that that would have been so.[96]

[319]

However, the share transfer must be viewed in its context. Notwithstanding the procedural irregularities attendant upon it, the fact remains that it was signed by Mr Gangemi in performance of his obligations under the Heads of Agreement to resign as the sole director of 63 Buckley and to transfer the sole issued share in 63 Buckley to Mr Lanciana. In other words, the share transfer formed part of an agreement to transfer complete ownership and control of 63 Buckley from Mr Gangemi to Mr Lanciana. The clear intention was to enable Mr Lanciana to then become the sole director and shareholder in 63 Buckley, in place of Mr Gangemi. In these circumstances, it is appropriate that the Court exercise its undoubted power to validate the share transfer. That power is contained in s 1322(4)(a) of the Corporations Act 2001, which provides that the Court may:

(a) [make] an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken ... in relation to a corporation is not invalid by reason of any contravention of ... a provision of the constitution of a corporation;

The power to make an order under s 1322(4)(a) is constrained by s 1322(6) of the Corporations Act. Relevantly, that sub-section provides that no order shall be made under s 1322(4)(a) unless it relates to a matter which is essentially procedural in nature, the person or persons concerned in the contravention or failure acted honestly or it is just and equitable that the order be made.[133] It is enough if any one of these three requirements is satisfied, provided that the Court is also satisfied that no substantial injustice has been or is likely to be caused to any person by reason of the order.[134]

Section 1322(4) of the Corporations Act gives the Court a broad discretionary power. It is 'a remedial provision to be applied with liberality'.[135] Apart from the mandatory matters about which the Court must be satisfied, the discretion is unfettered and exists to prevent injustice.[136]

The share transfer form was signed by Mr Gangemi in performance of his obligations under the Heads of Agreement to transfer full ownership and control of 63 Buckley to Mr Lanciana. Subsequently, Mr Lanciana dealt with Mr Jafari and agreed to transfer full ownership and control of 63 Buckley to him. These circumstances call for the beneficial exercise of the Court's discretion to validate the transfer. The irregularities are essentially procedural in nature, my findings as to the lack of duress mean that Mr Lanciana should be taken to have acted honestly in this regard and, especially have regard to the intervention of Mr Jafari's rights, it is just and equitable that a validating order be made.

Further, the making of a validating order will not, on the view I take of the facts of the case, occasion injustice to Mr Gangemi. This is because he was contractually bound under the Heads of Agreement to bring about the result that Mr Lanciana obtained full ownership and control of 63 Buckley.

[321]

It was submitted on behalf of Mr Gangemi that Mr Lanciana's appointment as a director of 63 Buckley was defective because rule 84 of 63 Buckley's constitution was not complied with. That rule relevantly provides:

If the Company has a single member who is also the sole director, the director may appoint another director by recording his or her decision and signing the record.

At the time Mr Gangemi signed the Heads of Agreement, signed his resignation as a director of 63 Buckley and signed the share transfer form, he was the single member and sole director of 63 Buckley. By signing these documents, he effectively appointed Mr Lanciana as a director of 63 Buckley. However, the formalities for the appointment of Mr Lanciana were not observed. For the same reasons as I have given concerning validation of the share transfer from Mr Gangemi to Mr Lanciana, I will exercise my discretion to make validating orders in respect of the appointment of Mr Lanciana as a director of 63 Buckley.

(4) Were Mr Lanciana's acts as a director of 63 Buckley valid?

In my view, the acts of Mr Lanciana as a director of 63 Buckley, in particular his acts in issuing further shares to himself and subsequently selling those shares to Mr Jafari and arranging for Mr Jafari to take over full ownership and control of the company, are effective acts even though there were deficiencies in the appointment of Mr Lanciana as a director. This result is dictated by s 201M(1) of the Corporations Act, which provides:

An act done by a director is effective even if their appointment, or the continuance of their appointment, is invalid because the company or director did not comply with the company's constitution (if any) or any provision of this Act.

Furthermore, for the reasons stated, if s 201M(1) of the Corporations Act does not have the effect of validating Mr Lanciana's acts as a director of 63 Buckley, I would nevertheless make validating orders under s 1322(4), for the reasons stated above.

Notwithstanding this result, it appears that no stamp duty and capital gains tax may have been paid in respect of the transfer by Mr Lanciana to Mr Jafari of all of the issued shares in 63 Buckley. The Court cannot allow this situation to go unnoticed. The Court will refer this matter to the Attorney-General to take any necessary action and refer any appropriate matters to the relevant statutory authorities.

[329]

On 29 September 2003, Lanciana lodged an annual return with ASIC advising that he had been issued 10 new 'ordinary' shares in 63 Buckley Street Pty Ltd and it was these 10 'ordinary' shares (not Gangemi's original 'A-class' share) which Lanciana purported to sell to Jafari by the agreement dated 4 February 2005. The one 'A-class' share held by Gangemi was not referred to at all in the agreement between Lanciana and Jafari dated 4 February 2005. Jafari did not assert that the 'A-class' share had been transferred to Lanciana and then to him.
There was no documentation produced by Jafari or Lanciana at trial regarding the transfer of the 10 'ordinary' shares to Jafari and no transfer was effected in accordance with the constitution of 63 Buckley Street Pty Ltd. Jafari would have been liable to pay stamp duty on the transfer. He did not do so.
Although Jafari claimed to be the owner of 10 ordinary shares because he bought them from Lanciana, Jafari did not claim to have purchased Gangemi's one 'A-class' share. As a copy of the blank transfer was in Jafari's possession, Jafari could not have believed that Gangemi's share was transferred to Lanciana. Jafari never registered the transfer. Jafari produced the transfer at trial. It was still incomplete and was unstamped. Further, the 10 ordinary shares were never issued by 63 Buckley Street Pty Ltd, never paid for by Lanciana or Jafari and never processed in accordance with the constitution of 63 Buckley Street Pty Ltd.
The Judge's findings that the purported dealings in the shares were undertaken 'honestly' by Lanciana are inconsistent with the finding that Lanciana had acted dishonestly by attempting to avoid stamp duty, a matter which he referred to the Attorney General for investigation.
The Court held that it would validate the transfer under s 1322(4)(a) of the Corporations Act. However it is submitted the situation was not one involving 'procedural irregularities' as the learned Judge found. The share transfers simply did not take place. Lanciana did not register any transfer of Gangemi's share. No shares were issued to Lanciana. Lanciana could not transfer non-existent shares to Jafari.
Despite the illegality attached to the dealings the learned Judge made orders validating the purported transfers thereby perfecting the fraud on the revenue.
Further, Lanciana was not appointed a director of 63 Buckley Street Pty Ltd. The execution of a letter of resignation by Gangemi could not amount to appointing Lanciana as a director as found by the Judge. Lanciana was disqualified from being involved in the management of a corporation or a director of by reason of his criminal convictions. Jafari could not have been appointed a director by Lanciana and Gangemi did not appoint Jafari as a director.

At a glance

Court

Decision date

Before

Source

Judgment (410 paragraphs)

Gangemi v Osborne & Anor; Bloomingdale Holdings Pty Ltd & Anor v 63 Buckley Street Pty Ltd & Ors [2009] VSCA 297 (15 December 2009)

Legislation Cited (3)

Cases Cited (36)