The Plaintiffs in these proceedings, Ms Mary Balagiannis ("MB") and her sister, Ms Angeliki Balagiannis ("AB") are the daughters of the First Defendant, Mr Nicolas Balagiannis ("NB") and Mrs Susan Balagiannis ("SB"). The Second Defendant, Reserve Hotels Pty Ltd ("RHPL") is the former trustee of a trust established by NB, the NBF Trust, and the Third Defendant, Sydney Hotel Management Pty Limited ("SHM") is the current trustee of that trust.
By their Further Amended Originating Process filed on 12 March 2021, MB and AB seek an order that RHPL render accounts of a loan which was the subject of a Deed of Assignment dated 9 July 2018 ("DoA") between MB and AB on the one hand and NB on the other. They also seek an order that RHPL pay them, out of the assets of the NBF Trust, the amount due to them on the taking of the account. They also seek an order removing the trustee of the NBF Trust and appointing a new trustee to that trust. The orders sought by MB and AB are partly premised upon the effect of the DoA.
By their Amended Points of Defence and by an Amended Interlocutory Process filed on 11 March 2021, by way of cross-claim, NB, RHPL and SHM raise issues as to undue influence, unconscionable conduct and the application of the Contracts Review Act 1980 (NSW) in respect of the entry into the DoA. NB, RHPL and SHM seek a declaration that the DoA was procured by MB and AB by the exercise of undue influence over MB or by unconscionable conduct and ought to be set aside; an order that the DoA be set aside; and an order under s 7 of the Contracts Review Act that the DoA is void. By the Amended Interlocutory Process, RHPL also brings a cross-claim against MB, AB and MB's husband, and NB's son-in-law, Mr Dimitri Kentrotis ("DK"), and seeks orders that DK pay the amount of $510,000 to RHPL and that each of DK, MB and AB hold certain amounts received by them on trust for RHPL. The amount claimed against DK has since been reduced, as I will note below. Mr Jackman, with whom Mr Birch appears for NB, RHPL and SHM clarified, in opening, that the only relief sought against DK is for unauthorised payments, and no relief is sought against him in respect of the application to set aside the DoA because he is not party to the DoA, although he was implicated in the events which brought it about and was to be called by the Plaintiffs as a witness in respect of those events. SB was previously also a Cross-Defendant to that cross-claim, but the claim against her is not pursued.
[4]
Affidavit evidence
Before turning to the affidavits on which the parties rely, I should address the principles to which the Court should have regard in assessing the affidavit and oral evidence. I have regard to the fallibility of human memory, particularly when disputes intervene, in determining these proceedings. In an often quoted observation in Watson v Foxman (1995) 49 NSWLR 315 at 319, McLelland CJ in Eq observed that:
"… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience."
I summarised the applicable principles in Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 at [7], as follows:
"It is important in this context to have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319 per McLelland CJ in Eq; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41] per Rares J; Varma v Varma [2010] NSWSC 786 at [424]-[425] per Ward J. To the extent that credit issues need to be determined in respect of particular conversations, I have also had regard to the fact that objective evidence is likely to be the most reliable basis for determining them. I summarised the relevant principles in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 at [10], where I noted that the credibility of a witness and his or her veracity may be tested by reference to the objective facts proved independently of the testimony given, in particular by reference to the documents in the case, by paying particular regard to the witness's motives and the overall probabilities: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39 at [34]; Craig v Silverbrook [2013] NSWSC 1687 at [141]; State of New South Wales v Hunt [2014] NSWCA 47 at [56]."
The Plaintiffs rely on MB's affidavit dated 21 August 2020 which referred to the terms of the NBF Trust and its assets and to the assignment of a debt owed by the NBF Trust to NB ("Trust Debt") from NB to AB and MB and addressed matters relating to a proposed sale of the Mr B's hotel owned by the NBF Trust and to the dispute between NB and other members of the family. MB also referred to subsequent communications with NB which foreshadowed that she would get no more from him than any amount that she retained from the Trust Debt, and other communications which indicated at least a degree of anger on NB's part. The Plaintiffs also rely on MB's affidavit dated 29 October 2020, significant parts of which were not relevant and were not read. MB there partly shared a mistake also made in NB's initial affidavit evidence as to which family members were present in Greece in July 2018 when the DoA was executed, and incorrectly referred to having spent a great deal of time in providing comfort and support to SB in relation to an affair involving NB (which I address below) at that time; in fact, SB was not present in Greece at that time. MB corrected her evidence in that respect in a subsequent affidavit. The Plaintiffs also rely on MB's affidavit dated 3 February 2021 which also responded to NB's affidavit dated 17 December 2020 and affidavits of Mr Balayannis dated 24 December 2020 and Mr Wong dated 18 December 2020. That affidavit indicated MB's disagreement with NB's evidence as to a number of matters, most of which are not material to the substantive matters in issue in the proceedings and do not significantly affect either NB's or MB's credit in respect of their affidavits or cross-examination. I will refer to other aspects of these affidavits in reaching findings as to the chronology of events below.
[5]
Factual findings
By way of background, RHPL was incorporated in February 1997. NB has been a director of RHPL at all relevant times; AB was appointed an alternate director of RHPL in January 1999; MB and AB were appointed secretaries of RHPL in November 1999; MB and her husband, DK, were later appointed as directors of RHPL, although there is a dispute whether both were appointed in September 2018 or they were appointed at different times; and SB was appointed as a director of RHPL in November 2018.
The NBF Trust was established in June 1997. At about that time, NB and a business associate sold an earlier business for a substantial price and he used part of his proceeds of that sale to fund RHPL and the NBF Trust by providing funds to RHPL by way of the loan now reflected in the Trust Debt. The amount of the Trust Debt as at 30 June 2017 was $21,057,557.41 and the amount of the Trust Debt as at 30 June 2018 was $18,556,080. Payments to NB and his family members are generally made out of the Trust's funds but are recorded as credits against the Trust Debt rather than as distributions from the Trust (NB 17.12.20 [45]). Mr Jackman submits, and I accept, that those payments are in substance made from NB's funds, so far as they reduce the debt owed to him rather than reducing the Trust's net assets. The principal assets of the NBF Trust are now land and buildings in Pitt Street Sydney from which a valuable hotel trades under the name "Mr B's" and the business of that hotel, the land and buildings from which another hotel trades under the name "Chamberlain Hotel" and the business of that hotel, and the business of two other hotels which operated from leased premises.
By cl 3 of the Trust Deed for the NBF Trust, the Trust Fund and income of it is held for all or such one or more of the Eligible Beneficiaries as the trustee shall appoint. The class of Eligible Beneficiaries is defined in cl 1.1 to include, relevantly, NB, SB, their children (including illegitimate children) and NB's future spouse or spouses. The trustee also has a discretion to appoint trust assets before the vesting date under that clause and, under cl 4, it has an absolute discretion to pay or apply the whole or such part of the income of the Trust Fund to one or more of the individual Eligible Beneficiaries (as defined) for their advancement, maintenance, education or benefit in each Accounting Period (as defined) and, in default of an appointment under cl 4 or a distribution under cl 4.1 or a decision to accumulate, the Eligible Beneficiaries are entitled to the trust income for each Accounting Period in equal shares. Clause 5 in turn provides that, in default of appointments under cl 3 or distributions under cl 4 or cl 7, on the vesting day, the Trust Fund is held for NB's children in equal shares and their children take their share if they pass away. The Trustee also has an absolute discretion to pay or apply the whole or part of the Trust Fund to one or more of the individual Eligible Beneficiaries for their advancement, maintenance, education or benefit under cl 7. Under cl 19, NB as "Principal" of the Trust has power to appoint or remove a Trustee, but may not appoint himself or an Eligible Beneficiary as a trustee.
[6]
Claim under Contracts Review Act
It will be convenient to deal first with NB's claim under the Contracts Review Act 1980 (NSW) since, if that claim succeeds, it would not strictly be necessary to determine his claims for undue influence or unconscionability, and it will at least be possible to address them in less detail.
NB contends (APOD [17Y]) that the DoA was "unjust" within the meaning of the Contracts Review Act at the time it was made. That contention is particularised by reference to the matters pleaded in paragraphs 17A - 17K of the Amended Points of Defence, relating to the events surrounding the execution of the DoA, and the particulars to the claims for presumed and actual undue influence in paragraphs 17M and 17N of the Amended Points of Claim. It will be convenient to identify those particulars here. The particulars to paragraph 17M are that NB was aged 71 years at the time; he had limited command of written English and learned English as a second language; he did not complete secondary or tertiary education; the DoA conferred no benefit on him; he transferred the Trust Debt owed to him by the NBF Trust to MB and AB for no consideration; the DoA was prepared by Ms Kavadas without his instructions, knowledge or approval; he was accustomed to rely on his legal and commercial advisers in relation to documents executed in relation to the NBF Trust and his financial and legal affairs; Ms Kavadas had historically acted for RHPL; he was not given any or any adequate opportunity to consider the terms of the DoA prior to its execution; and he was not given the opportunity to obtain any financial or legal advice in relation to the DoA and did not in fact obtain such advice.
The particulars to paragraph 17N repeat paragraphs 17A to 17K and the particulars to paragraph 17M and add particulars that he had told DK of his affair in confidence and that DK told SB, MB and AB of that affair before he had the opportunity to do so; the DoA was executed during a meeting where MB and DK were "confronting" him about the extra-marital affair; NB "was under great emotional distress at the time"; MB, AB and DK had caused the DoA to be prepared before that meeting; the DoA was presented to him during that meeting without notice to him; he "was unfamiliar with the legal implications of his alleged fathering of [B] or his relationship with [B's] mother"; and he "was convinced by [MB] and [DK] that the assets of the NBF Trust were at risk to a claim by [B] or his mother". I am not satisfied that the DoA was executed during a meeting where MB and DK were "confronting" NB about the extra-marital affair, to the extent that term implies any element of aggression, or that NB "was under great emotional distress at the time", although I am satisfied that the atmosphere was tense and that NB was then under considerable stress and was deeply embarrassed by the affair; that MB was also then under stress, although she sought to resile from her affidavit evidence in that regard in cross-examination as I noted above; and that DK was likely in the very different position of welcoming the opportunity for advantage that had come his way. It is plain that DK had caused the DoA to be prepared before that meeting, and that MB and AB knew that had occurred and at least MB knew it had been done without NB's knowledge; and the DoA was presented to NB during that meeting without notice to him. I am not satisfied that NB "was unfamiliar with the legal implications of his alleged fathering of B or his relationship with B's mother" or "was convinced by [MB] and [DK] that the assets of the NBF Trust were at risk to a claim by [B] or his mother", and it seems to me that he had at least a general knowledge of the possibility that a claim might be brought by I or B, but was much less concerned as to that possibility than MB, AB or DK. NB contends (APOD [17Z]) that the Court should, for the purpose of avoiding an unjust consequence or result, refuse to enforce the provisions of the DoA or make an order declaring it void under s 7 of the Contracts Review Act.
[7]
Undue influence
NB also pleads (APOD [17L]ff) a claim in undue influence. He initially contended (APOD [17M]) that it was presumed that the DoA was procured by MB's and AB's exercise of undue influence over him. That claim is no longer pressed, although the particulars to it are relied on in other claims as I have noted above. NB presses a claim (APOD [17N]) that the DoA was in fact procured by MB's and AB's exercise of undue influence in over NB. He particularises that allegation by reference to the matters to which I have referred above and in turn alleges (APOD [17O]) that MB and AB knew, at the time the DoA was executed, of the matters alleged in respect of actual undue influence. I have indicated my findings as to those matters above.
Mr Wood in turn submits, and I accept, that influence will provide a basis for intervention in a transaction only where it properly merits the description of "undue influence", often where a party suffers from a vulnerability and enters into a transaction where one party was aware of that vulnerability and proceeded to take advantage of it. I accept, as Mr Wood points out, that matters which may indicate the presence of undue influence may include illegitimate pressure, taking advantage of weakness and necessity, inequality of bargaining power or a deliberate concealment of material facts. In Johnson v Buttress (1936) 56 CLR 113 at 134-135, after Dixon J referred to certain relationships in which undue influence was presumed, he observed that:
"… the doctrine which throws upon the recipient the burden of justifying the transaction is confined to no fixed category. It rests upon a principle. It applies whenever one party occupies or assumes towards another a position naturally involving an ascendancy or influence over that other, or a dependence or trust on his part. One occupying such a position falls under a duty in which fiduciary characteristics may be seen. It is his duty to use his position of influence in the interest of no one but the man who is governed by his judgment, gives him his dependence, and entrusts him with his welfare. When he takes from that man a substantial gift of property, it is incumbent upon him to show that it cannot be ascribed to the inequality between them which must arise from his special position. He may be taken to possess a peculiar knowledge, not only of the disposition itself, but of the circumstances which should affect its validity; he has chosen to accept a benefit which may well proceed from an abuse of the authority conceded to him, or the confidence reposed in him; and the relations between him and the donor are so close as to make it difficult to disentangle the inducements which led to the transaction.
These considerations combine with reasons of policy to supply a firm foundation for the presumption against a voluntary disposition in his favour. But, except in the well-recognized relations of influence, the circumstances relied upon to establish an antecedent relation between the parties of such a nature as to necessitate a justification of the transaction will be almost certain to cast upon it at least some measure of suspicion that active circumvention has been practised. This often will be so even when the case falls within the list of established relations of influence. Because of the presence of circumstances which might be regarded as presumptive proof of express influence, cases outside the list, but nevertheless importing a special relationship of influence sometimes are treated as if they were not governed by the presumption, but depended on an inference of fact."
[8]
Unconscionable conduct
NB contends (APOD [17R]) that he was at a special disadvantage to MB and AB, relying on the matters on which he relies for the claim that the DoA was in fact procured by MB's and AB's undue influence; that he had an impaired ability to preserve his own assets, by reason of that special disadvantage; that MB and AB were aware of his circumstances of special disadvantage and that:
"In the circumstances, it was and is unfair and unconscientious for [MB] and [AB] to procure the execution of the [DoA] from [MB] and retain the benefit of the gift of the Trust Deed from [NB]."
In Blomley v Ryan (1956) 99 CLR 362; [1956] HCA 81, the High Court identified matters which may be relevant to a claim of unconscionability including any "special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands". In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 (at 461-462), Mason J observed that:
"It almost goes without saying that it is impossible to describe definitively all the situations in which relief will be granted on the ground of unconscionable conduct. As Fullagar J said in Blomley v Ryan:
'The circumstances adversely affecting a party which may induce a court of equity either to refuse its aid or to set a transaction aside are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis à vis the other'
Likewise Kitto J spoke of it as 'a well-known head of equity' which -
'...applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands'.
It is not to be thought that relief will be granted only in the particular situations mentioned by their Honours. It is made plain enough, especially by Fullagar J, that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis à vis another and unfair and unconscientious advantage is then taken of the opportunity thereby created."
Deane J (at 474) also there noted the distinction between undue influence and unconscionability, observing that:
"The equitable principles relating to relief against unconscionable dealing and the principles relating to undue influence are closely related. The two doctrines are, however, distinct. Undue influence, like common law duress, looks to the quality of the consent or assent of the weaker party ... Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so."
[9]
Other relief sought by the Plaintiffs
In the Plaintiffs' supplementary outline of opening submissions, they refer to their application for an order seeking the taking of an account, to determine the amount of the Trust Debt, and to applicable authority. It is not necessary to address that submission, since I have found that the DoA must be set aside and the circumstances for a taking of account could not arise unless an appellate Court reached a substantially different view to mine. The question of the taking of account would have to be determined on a different factual basis.
[10]
Plaintiffs' application for removal of SHM as trustee of the NBF Trust
By paragraphs 8 and 9 of their Amended Originating Process, the Plaintiffs seek declarations that the removal on 16 June 2020 of RHPL as trustee of NBF Trust and the appointment on 16 June 2020 of SHM as trustee of NBF Trust was invalid. By paragraphs 10 and 11, they seek orders removing RHPL as trustee of the NBF Trust and an order appointing a new trustee to the NBF Trust and vesting the whole of the property of the NBF Trust in that new trustee.
The Plaintiffs contend (APOC [60]) that they are each an Eligible Beneficiary (as defined) of the NBF Trust. They also point, in submissions, to the fact that an amount of $80,000 is recorded as unpaid distributions in respect of each of them, although the evidence as to whether that amount is due to them and has or has not been paid to them is unclear. The Plaintiffs refer to several provisions of the Trust Deed, to which I have referred above, and plead (APOC [66]) several transfers by the NBF Trust to accounts held by NB in Greece and to accounts associated with the Aegean Casino in Greece and Anthousa Trading Limited in Greece. They plead (APOC [67]) that those transfers were not disclosed to or authorised by directors of RHPL other than NB; were made from RHPL's capital account rather than its income account; were not for the advancement, maintenance, education or benefit of an Eligible Beneficiary; and were not accurately recorded in RHPL's accounts. Mr Wood accepted, in oral submissions, the criticisms advanced in his written submissions concerning payments made to Greece from the NBF Trust were "a little bit overcooked" and that Mr Wong was a "fairly impressive witness" and had explained the transactions with the Aegean Casino business (T388). Mr Wong's evidence at least establishes that the relevant payments made by the NBF Trust to NB were made for the purposes of supporting the Aegean Casino's business in Greece. In my view, the evidence is not sufficient to establish any breach of trust in respect of these transactions or any unfitness on the part of RHPL to remain as the trustee of the NBF Trust.
The Plaintiffs also plead (APOC [68]) a debt recorded as due by Balagiannis (Overseas) Pty Ltd to the NBF Trust. Mr Jackman points out that the only evidence relied on for this claim is an entry in the financial statement for Balagiannis (Overseas) Pty Limited; the Plaintiffs have no basis for saying that the absence of a record of that debt is an error in the accounts of RHPL, as opposed to the presence of that debt being an error in the accounts of Balagiannis (Overseas) Pty Limited; and the financial statements of both Balagiannis (Overseas) Pty Limited and RHPL are prepared by professional advisers. Mr Jackman submits, and I accept, that any error in this respect does not demonstrate unfitness on the part of RHPL to remain as the trustee of the NBF Trust. The Plaintiffs also plead (APOC [73]-[74]) that, as I have noted above, the Trust Debt continued to be recorded as a loan to NB in RHPL's accounts after the execution of the DoA. It seems to me that little can now flow from this, given the circumstances in which that occurred, where the DoA was always liable to be and now will be set aside by an order in these proceedings.
[11]
The Cross-Claim in respect of unauthorised transactions
NB, RHPL and SHM contend that the transfer of funds to DK, MB, AB and two firms of solicitors, CJP and Shanahan Tudhope, on 17 June 2020 were not authorised by RHPL or SHM; this claim is now pressed only in relation to the payment to one of those firms, Shanahan Tudhope. They also contend that DK knew of his lack of authority; and the unauthorised transactions were made for the benefit for DK, AB, MB and entities acting on their behalf and not made in respect of any liability incurred by RHPL. They also refer to subsequent demands issued by RHPL to DK, MB and AB for the repayment of those payments, and to the absence of repayment. They contend that, by reason of those matters, each of DK, MB and AB "holds the Unauthorised Transactions received by each of them or their agents upon trust" for RHPL and is liable to account to RHPL for those funds as monies had and received to their use. DK, MB and AB respond by admitting that the relevant payments were made; admitting they have not repaid the monies paid to them; and otherwise denying the allegations.
I now turn to several of the relevant facts and aspects of the evidence as to these matters, before turning to the parties' submissions and reaching a determination as to this claim. I have referred above to the board resolution passed on 16 June 2020 in respect of the sale of Mr B's hotel, over NB's opposition. As I have noted above, NB had the power as the Principal of the NBF Trust to appoint and remove the trustee of the NBF Trust, pursuant to cl 19 of the Deed of Trust, and he exercised that power on 16 June 2020, by removing RHPL as trustee of the NBF Trust and appointing SHM as trustee in its place. NB also subsequently exercised his rights as the sole shareholder of RHPL to remove MB as director and secretary, remove AB as an alternate director and secretary, and remove DK and SB as directors of RHPL.
On 17 June 2020, DK caused payments of $510,000 to be made from RHPL's bank account, being $150,000 to him in three separate transfers of $50,000 each; $100,000 to AB in two separate transfers of $50,000 each; $100,000 to MB in two separate transfers of $50,000 each; and, relevantly, $110,000 to Shanahan Tudhope Lawyers. After those payments were made, DK identified their purpose in an email dated 17 June 2020 as that:
"Funds will be taken to secure the family for upcoming legal fees until it is all sorted out as we won't have access to them if we are taken off again illegally."
[12]
Summary and orders
Accordingly, the Plaintiffs' case fails; NB, RHPL and SHM are entitled to the declarations and orders they seek to set aside the DoA; and RHPL is entitled to judgment against DK, NB and AB for the amounts specified above and interest. In the ordinary course, costs will follow the event. I direct the parties to bring in agreed short minutes of order to give effect to this judgment within 14 days or, if there is no agreement between them, their respective draft short minutes and short submissions as to the differences between them.
[13]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 16 April 2021
It is convenient first to set out the affidavit evidence and cross-examination and reach findings of credit as necessary. I then set out a chronology of the relevant events, some of which are contentious, and reach findings as to those events as necessary. I then deal with the matters raised by the Amended Points of Defence and Amended Points of Cross-Claim, since the issues arising in MB's and AB's claims will be largely displaced if the DoA is set aside. I then return to MB's and AB's claim to remove the trustee of the NBF Trust, before dealing with the remaining issues in respect of NB's Cross-Claim for unauthorised transactions brought against MB, AB and DK.
MB accepted in cross-examination that she knew of NB's February 2018 will and of her parents' joint memorandum of wishes and she did not intend by the DoA to deprive NB of the ability to give her mother, SB, $6 million of the loan, and that it would have been unjust for her to try to do so (T46-47). The DoA in fact had that result, by bringing about the ademption of a gift of that amount to SB. MB also accepted in cross-examination that she did not consult NB about the instructions given to Ms Kavadas to prepare the DoA (to which I refer below) and did not tell NB about the DoA until 9 July 2018 (T48). MB also accepted in cross-examination that, at the time DK emailed Ms Kavadas on 17 June 2018 to request documentation for the assignment of the loan to MB, or to MB and AB, NB had not requested that the Trust Debt be assigned to her and DK's claim that NB had made such a request was false (T48-49).
Mr Wood, with whom Mr Parrish appeared for the Plaintiffs, submitted that MB made appropriate concessions, consistent with someone who was trying to give honest and accurate evidence. It seemed to me that MB was honest in some aspects of her evidence, and less so in others. There were difficulties in MB's evidence in cross-examination, for example, when she denied aspects of her own evidence-in-chief including her affidavit evidence as to her confidence that NB would sign the DoA when she requested him to do so (T51-52). While MB characterised her evidence in cross-examination as a "mistake" (T52), it seems to me to reflect the unreliability of her recollection of events and the extent to which her affidavit evidence was shaped by her perception of what could assist her case. She properly accepted in cross-examination that she understood that the assignment she sought in the DoA related to the Trust Debt, not the hotel assets owned by the NBF Trust, and she did not explain that matter to NB when he said that he was happy to sign the DoA because the hotel assets were (or, more precisely, were to be) hers anyway (T52-53). MB explained the inconsistency between her knowledge of the gift to SB in NB's will and the fact that the assignment of the loan to her and AB would defeat that gift by reference to NB's assets in Greece (T54), but that is no answer to the fact that the DoA would have defeated that gift. MB was also cross-examined as to the preparation of a power of attorney which would have allowed her and AB to transfer NB's interest in the family home to them (T56); NB was ultimately not asked to sign that power of attorney, when it emerged it would not be valid when executed in Greece, unless executed before an official from the Australian Consulate.
MB retreated, in cross-examination, from her affidavit evidence as to the extent of strain on the family relationship when she was in Greece (T59-60). She sought to explain the change in position by reference to her feelings at that time, but that did not provide an adequate explanation of the inconsistencies and she again retreated to the suggestion that the reference in her affidavit to the family relationship in mid-2018 being "tense" was simply "a mistake". She also resiled from her earlier affidavit evidence that the period of the trip to Greece in mid-2008 was a stressful time (T61). Her explanation of the fact that she deferred showing the DoA to NB until the last day of the trip, that she "didn't feel the need to show it earlier" (T62) did not provide any real explanation of that approach, and I find that the delay created, and was likely intended to create, an appearance of urgency in the decision whether to execute the DoA. MB fairly accepted in cross-examination that, notwithstanding the suggested purpose of the assignment was to protect the family business, it would not do so unless MB and AB decided not to call on the loan (T67). MB also fairly accepted that the approach taken to the assignment would have conveyed to NB, contrary to what ultimately occurred, that MB and AB would not call on the loan if it was assigned to them, although she then retreated from that concession with the response "not necessarily" (T67-68). MB denied in cross-examination that she was seeking to take advantage of NB's emotional distress or his desire to show that he still loved MB and AB, or of his tendency to make decisions quickly in family matters and in business matters when seeking to have the DoA executed (T70).
The Plaintiffs also rely on AB's affidavit dated 29 October 2020, which refers to her having been made an alternate director of RHPL from 25 January 1999; to a suggestion made by NB that AB could authorise cheques and payments when he was overseas; to her appointment as company secretary of RHPL on 23 November 2020; to the circumstances in which she became aware of NB's affair, to which I will refer below; and to her execution of the DoA. AB's evidence is that she did not forgive NB for the emotional stress he had caused the family until November 2019 (AB 29.10.20 [49]) and she also addresses events from mid-June 2020 onwards. The Plaintiffs also rely on AB's further affidavit dated 29 January 2021, which responded to NB's affidavit dated 17 December 2020 and affidavits of Mr Balayannis dated 24 December 2020 and Mr Wong dated 18 December 2020.
AB was cross-examined at some length, although she was not present when the DoA was executed. She accepted in cross-examination that the family dynamic had remained tense during her visit to Greece, which took place after the DoA had been executed (T99). She also accepted, in cross-examination, that MB was representing her in putting the DoA together (T101). Her evidence in cross-examination was that she had not seen NB's will or the joint memorandum of wishes signed by NB and SB, and it follows that the inconsistency between them and the DoA would not have been apparent to her. She also did not recall any discussion of the position in respect of the gift of $6 million to SB under the will in the context of the DoA (T103).
The Plaintiffs also rely on SB's affidavit dated 15 February 2021, which refers to her practice of tolerating NB's affairs for the family's sake and her different response to the position in respect NB's affair with a woman to whom I will refer as "I", because it involved a suggestion that he had fathered a child to whom I will refer as "B" (although it now appears that was not the case). SB also refers to the manner in which the family accessed funds from the NBF Trust and the events surrounding the execution of the DoA in 2018. There are disputes in respect of aspects of that evidence, but it is not necessary to resolve them in order to determine these proceedings. SB was also cross-examined although she also did not arrive in Greece until the end of July 2018, after the DoA was signed. There were difficulties with aspects of SB's evidence, so far as she had set out conversations in her affidavit, including as to the assignment of the Trust Debt, which she did not recall in cross-examination (T119). I do not accept her explanation that she had not understood the relevant question which was simple and where she had no difficulty with other questions of a similar character.
The Plaintiffs also rely on DK's affidavit dated 15 February 2021. DK's evidence is that he had NB's authority to have documents including an assignment of the loan prepared. I do not accept that evidence. DK also addresses the circumstances in which the DoA was signed on 9 July 2018 and the circumstances in which the engagement of an accounting firm, William Buck, was terminated (DK 15.2.21 [73]) and subsequent discussions concerning the proposal that the Trust Debt be reassigned to NB. I address other aspects of DK's evidence in dealing with the chronology of events and the claim against him in respect of several payments he authorised from RHPL below.
Mr Jackman submits that:
"As a general proposition, the Court should not accept [DK] as a witness of truth. Any evidence of [DK] cannot be accepted unless contrary to his interests or corroborated by a contemporaneous document authored by some other person. [DK's] principal affidavit was, on various occasions, objectively incorrect. He was generally unwilling to accept this in cross-examination even where that was plainly demonstrated. In cross-examination he was rarely prepared to focus on the particular questions asked and sought to use his answers to develop a point that he wished to make, which frequently involved attempting to shift blame, and cast insult, onto various others. His answers in cross-examination were on occasion utterly implausible. He would not give evidence in cross-examination about his recollection of events without first asking to see the document which he anticipated he would be shown. Finally, [DK] made three affidavits in these proceedings, including two on the morning of his cross-examination. Yet in cross-examination [DK] advanced for the first time accounts of various events which he had every reason to include in one of his affidavits if they had in fact taken place. The Court would readily conclude that Dimitri did not include any evidence about those events in his affidavits because those events did not occur."
In my view, DK was an unsatisfactory witness who was reluctant to direct his attention to the questions asked or answer them, and anxious to add gratuitous observations adverse to NB, even after the Court had drawn his attention to the desirability of focussing on the questions he was asked and seeking to answer them (T155). In cross-examination, DK maintained his claim that NB had told him that NB needed to "get rid of everything in [NB's] name urgently" and that DK should get NB's solicitors to prepare "all of the documents urgently to get rid of everything in [NB's] name", and he claimed that the email he subsequently sent (Ex P13, 2029) in relation to making MB and AB the appointors of the NBF Trust was "basically saying prepare documents to get rid of everything in [NB's] name" (T167). I do not accept DK's evidence that NB had given that instruction, which would have been disproportionate to the risk which existed in relation to potential claims by I or B and to the approach which NB took when others later informed him of the proposed transfer of assets out of the NBF Trust. DK was also cross-examined at some length as to the circumstances of transfer of funds out of RHPL on 17 June 2020, and I will address the question as to his authority to undertake that transaction and other aspects of his cross-examination below.
By his further affidavit dated 5 March 2021, DK refers to a practice by which family members requested payments of funds from the trust; DK then requested that an internal accountant with RHPL, Mr Wong, enter the transfer through the RHPL's bank's portal, and the then general manager of RHPL, Mr Balayannis, or DK approved the transaction. DK's evidence, which I do not accept, is also that he had been told by NB that there was "no limit to what you can spend in the family" but that he was to be conscious of business cashflow and make sure there was enough money for the Greek business. By a further affidavit dated 5 March 2021, DK gave evidence that the notice of assignment of the Trust Debt was signed by NB on 10 July 2018 (although it is dated 9 July 2018) and delivered by NB to Athens Airport. It is not necessary to determine whether that was the case in order to resolve the proceedings.
The Plaintiffs also rely on an affidavit dated 3 February 2021 of Ms Tjhai, a former hotel manager at one of the hotels owned by RHPL which referred to work done by MB and DK at that hotel. The extent of MB or DK's involvement in the business is ultimately not material to the matters in issue in the proceedings. The Plaintiffs also rely on the affidavit dated 4 February 2021 of Ms Maria Kentrotis ("MK"), DK's sister, which indicated her impression of the dynamic between NB and the rest of the family while they were in Greece in July 2018 and referred to the circumstances in which the DoA was signed. MK also refers to her recollection that NB agreed to sign the DoA but declined to sign a power of attorney. That evidence is inconsistent with NB's and MB's evidence and, on balance, I consider that she was mistaken and do not accept that evidence.
NB, RHPL and SHM rely on NB's affidavit dated 17 December 2020 which responded to the earlier affidavits of MB and AB. Significant parts of that affidavit, including a detailed history of the family business and a detailed account of NB's relationship with I, were of limited relevance and were not read. NB's evidence was that he had not had a conversation with DK in relation to the preparation of legal documents including the DoA or authorised the preparation of those documents or other steps referred to in DK's email dated 17 June 2018 to Ms Kavadas (which I address below) and he also denies having authorised DK to send other correspondence to Ms Kavadas and to NB's solicitors, McCabe Curwood. I accept NB's evidence in that respect and reject DK's evidence to the contrary. I will refer to other aspects of NB's evidence in dealing with the chronology of events below.
NB was cross-examined at some length. He was plainly an intelligent witness, who had an understandable pride in his business achievements, but also frankly acknowledged areas in which investments in Greece had been less successful. NB readily acknowledged in cross-examination that he had substantial experience in making business judgments, especially in relation to the sale and purchase of hotels (T197ff), although it does not seem to me that that evidence assists the Plaintiffs so far as the assignment of the Trust Debt took place in a family context and was far from an ordinary course business transaction. NB was cross-examined at some length as to steps which he been taken in respect of estate planning, including obtaining advice from William Buck. I am comfortably satisfied that NB was an honest witness, doing his best to assist the Court in cross-examination, and his evidence reflected his mixed motivations in entering the DoA; the difficulties which subsequently emerged in respect of the effects of the assignment of the Trust Debt to MB and AB; and the ambiguities which have now arisen in his attitude to family members as a result of these events, including his perception that the family or DK "blew up" the business by applying for the appointment of receivers to assets of the NBF Trust and prompting RHPL's bank to appoint receivers to those assets (T262). NB also referred to the advice subsequently given by his advisers that the execution of the DoA was "wrong, and against … my business" (T285).
NB was also cross-examined as to monies sent from the NBF Trust to his bank account in Greece, which were used for the business in Greece, and could not be transferred directly to Greece from RHPL's bank account by reason of Greek banking procedures (T281). That evidence was corroborated by Mr Wong's evidence which I address below. It appears those payments were not formally approved by the other directors of RHPL, but NB's evidence, which I accept, is that those directors knew why the money was being sent to Greece and that amounts paid to the Aegean Casino business in Greece over that period were also discussed with directors who had not disagreed with the payments (T282).
NB, RHPL and SHM also rely on the affidavit dated 17 December 2020 of Mr Wong, the internal accountant for Reserve Hotels. Mr Wong addressed the treatment of the Trust Debt in the financial records of the NBF Trust and his evidence was that he had never been informed that the Trust Debt owed to NB had been or should be transferred or "assigned" to MB and AB, or instructed to change anything in RHPL's books in relation to that Trust Debt. He also referred to the practice by which family members emailed him and indicated when they required funds, typically for personal expenses, which were charged against the Trust Debt. Mr Wong also referred to the practice by which monies were transferred to NB's personal account in Greece in order to be transferred from that account to the companies conducting business in Greece, as required by Greek banking practice. Mr Wong was a precise, careful and credible witness and I accept his evidence.
NB, RHPL and SHM also rely on an affidavit dated 24 December 2020 of Mr Arthur Balayannis, who is NB's nephew and had worked for RHPL for a long period, including as general manager from June 1999 until about November 2009 and again from March 2012 until January 2019 (T329). By Mr Balayannis' further affidavit dated 25 February 2021, he responds to DK's and SK's affidavits dated 15 February 2021. Although there are disputes as to aspects of their evidence, it is not necessary to resolve those disputes in order to determine this matter. I refer to other aspects of his evidence in the chronology of events below.
Mr Balayannis' evidence in cross-examination was that DK did not have a role in dealing with accountants and lawyers regarding RHPL in 2018, and I understand that evidence to be directed to whether DK was authorised to take such steps, as distinct from whether he did so (T331). Mr Balayannis' own role in dealing with accountants and lawyers in relation to NB's personal affairs in 2018 was limited to providing information and he provided information to a law firm to which I will refer as "CJP" in June 2018 at DK's request, without seeking NB's direct authority or approval to do so (T331-332). He understood DK was then arranging preparation of a power of attorney which would allow approval for NB's daughters to exercise some sort of control or power over companies that NB had an interest in, but did not have NB's authority in that regard; he viewed that matter as a "family matter" and understood that DK had authority to deal with it from what he was told by other members of the Balagiannis family, and he had discussions with MB about the matter in June 2018 (T333). Mr Balayannis' evidence was that the DoA raised concerns in relation to RHPL's relationship with its lender, National Australia Bank ("NAB"), he then raised those concerns with NB about December 2018 and NB responded he would deal with the matter. He did not have a conversation with NB about whether NB had a complaint about the way in which DK or his daughters went about obtaining the execution of the DoA (T339). His evidence was that DK had informed him about May 2018 of the suggestion that NB had a son in Greece, and he had advised DK that first, the child's paternity should be confirmed and, second, the family should seek legal advice (T339). Mr Balayannis was also generally a precise and credible witness and I generally accept his evidence.
NB, RHPL and SHM also rely on the affidavit dated 12 February 2021 of Mr Hatzistergos, who is the managing director of William Buck. Mr Hatzistergos refers to the scope of William Buck's engagement to provide services to the Balagiannis Group, in about July 2017, and to subsequent events to which I refer in the chronology of events set out below. Mr Hatzistergos gives evidence as to the advice that he would have given NB as to the DoA, had NB approached him for advice before he signed the DoA. His advice is that he would have advised NB not to sign the DoA, where the Trust Debt was the primary asset in NB's name, apart from his half interest in his matrimonial home, and his only liquid asset; that signing the DoA would give away control over his only liquid asset, including control over when the Trust Debt would be called on; that, if MB and AB called on the Trust Debt, the NBF Trust would not have the liquidity to pay them without selling an asset and that would likely put RHPL in breach of its financial covenants with NAB; and the effect of the DoA would be that NB would be unable to discharge his obligations to SB under his February 2018 will. Mr Hatzistergos also gives evidence as to the advice which he would have given, subject to obtaining legal advice, as to other steps which NB could take in respect of any claim against his assets. There is no reason to doubt Mr Hatzistergos' evidence in this respect, which was not significantly undermined by his cross-examination. In any event, I am comfortably satisfied that any competent legal or accounting adviser would have given advice of that character, had MB and AB recognised that a transaction of this kind should not go forward without recommending or requiring that NB first obtained independent legal or accounting advice.
By his further affidavit dated 12 February 2021, NB indicates that, if Mr Hatzistergos had given the advice referred to in his affidavit dated 12 February 2020, he would have followed that advice. I am conscious that a degree of hindsight inevitably intrudes in evidence of that kind; however, it seems to me that the probability is that NB would in fact have followed such advice, and at least would have adopted an alternative course to executing the DoA, given the significant risks to his control of the NBF Trust and the business and to RHPL's banking relationship with NAB which arose from the DoA. By a further affidavit dated 25 February 2021, NB responds to AB's affidavit dated 29 January 2021, MB's affidavit dated 3 February 2021 and DK's and SB's affidavits dated 15 February 2021, and takes issue with significant aspects of DK's evidence. I prefer NB's evidence to DK's evidence where there is a conflict between them, given the findings which I have reached as to DK's credit. By a further affidavit dated 1 March 2021, NB responds to MK's affidavit dated 4 February 2021.
Since about 1997, NB has regularly travelled to Greece each year. In mid-2008, he commenced an extra-marital affair with l and, in March 2009, I gave birth to a son, B. For a significant period, NB believed that it was likely that B was his son and a paternity test conducted in 2011 appeared to support that belief. A later paternity test indicates that that is likely not the case, although that question need not be resolved in these proceedings.
In 2017, NB was diagnosed with idiopathic pulmonary fibrosis. There is a degree of uncertainty in the evidence as to his prognosis and his understanding is that his condition has not deteriorated and to some extent has improved since 2017 (NB 17.12.20 [91]).
In July 2017, NB retained William Buck to undertake accounting and estate planning work and emphasised "his wish to maintain the assets (rather than sell them)" (Ex P7). By his will dated 23 February 2018, drafted as a result of that estate planning, NB appointed MB and AB as his executors, which would also confer the power of appointor under the NBF Trust on them after his death (cl 7.1); he left his interest in the family home to SB or life and then to MB and AB (cl 14); he declared a trust for SB of his rights, entitlements and interests in any loans up to the value of $6 million which remained owing directly and personally to him by the NBF Trust (cl 16.2, 17.1); and he declared a trust for MB and AB in respect of the residue of his estate (cl 16.2, 17.2). A Memorandum of Wishes executed by each of NB and SB recorded their intent to enter a binding financial agreement under the Family Law Act 1975 (Cth) and noted that SB's lifestyle and any foreseen circumstances would be adequately provided by the assignment of $6m of the Trust Debt (cl 12). That provision emphasises the significance of that gift, which would be defeated by the DoA as I note below.
In early 2018, NB disclosed to DK in confidence that he was having an extra-marital affair with I; that I claimed that he had fathered a child with her; that he undertaken paternity tests in Greece that indicated that he was the child's father; that he was planning to divorce SB to sort it out; and he then requested DK not to tell SB, MB or AB and that NB would tell them when he was ready, and that DK agreed. (As I have noted above, it now appears likely that B is not NB's child, by reason of a subsequent paternity test). NB's evidence (admitted with a limiting order under s 136 of the Evidence Act as evidence of his understanding) is also that he had disclosed those matters to DK in confidence (NB 17.12.20 [95]). As will emerge below, DK promptly and comprehensively betrayed that confidence, by conveying that information to SB, MB and AB and their advisers, and using that information to advance at least his own and possibly also MB's interests.
NB travelled to Athens in about February or March 2018, as he had done in previous years. By a text message dated 3 June 2018 (Ex DK1, 2040), NB's long-term accountant advised DK that I was "highly likely to cause trouble to the family" and recommended the family obtain a "good Greek lawyer and may need to make a settlement, subject to DNA Test". She also referred to NB's personal guarantee for debts of the Aegean casino in Greece which was owned by an associated entity and the potential liability of his estate in respect of that guarantee, and to a possible strategy to transfer Greek, Macedonian and other overseas assets and liabilities so that any challenge to his will in Greece was minimised, and to "expect various claims from various characters against his estate in Greece".
DK subsequently disclosed the information he had been told in confidence about NB's relationship with I and the possibility that B was NB's son to several family members and advisers. On 7 June 2018, DK disclosed that information to NB's solicitor, Mr McCabe, who recorded what he had been told in a contemporaneous email to a solicitor in his firm (Ex D12) as follows:
"I had a confidential telephone call from [NB's] son-in-law [DK] yesterday evening.
He informed me that:
1. [NB] has told him that he has an ex-nuptial child in Greece aged 10.
2. No-one in family is yet aware of this.
3. [DK] does not believe [NB's] marriage will survive after he informs his wife [SB] of the position when she travels to Greece in a few weeks' time.
4. [DK] wants to get an understanding of how a BFA [binding financial agreement] works. He does not want anything emailed to him as his wife not yet aware of position.
I said we would prepare a hard copy outline of BFAs and would let him know when that was ready."
I find that DK was then initiating steps to protect his or his and MB's financial position which were not prompted by any then wish by NB to take such steps. DK accelerated those steps as events continued.
DK then told MB, again in breach of NB's confidence, in mid-June 2018 that "your dad had an affair with a woman in Greece and he has a son with her. The mother of the child had a DNA test done in Greece" (MB 29.10.20 [60]). MB refers (at [64]) to her concern that I would make a claim on NB's assets, and to her consideration as to "how to protect the family business assets". Her evidence at [65] is that:
"… in around June 2018, together with [DK], I organised the preparation of the [DoA], whereby my father would transfer a loan of $25,057,557.44 owed to him by RHPL to myself and [AB] in equal shares. This was organised in advance of a planned family holiday to Greece."
Her evidence is that she did not know whether NB would agree to sign the DoA when it was prepared. Inconsistently with DK's evidence, MB does not suggest that NB had any advance knowledge of the DoA or any involvement in its preparation and her claimed uncertainty as to whether he would sign it would tend strongly against any suggestion that NB had requested its preparation. MB also refers to her confidence in asking NB to sign the DoA as "he had always said that the pubs are for [MB] and [AB]"; however, the DoA did not relate to the pub assets owned by the NBF Trust, but instead to the Trust Debt owed by the Trust to NB.
DK also disclosed NB's affair to AB, again in breach of NB's request for confidentiality, in June 2018 and AB gives evidence of its impact on her in strong terms, that her "world came crashing down" with the news that NB had another child from the affair (AB 29.10.20 [27]). (As I have noted above, it now appears likely that B is not NB's child.) AB also refers to several conversations between AB, MB, SB and DK in which they "echoed each other's concerns" as to aspects of the matter and to a conversation with MB, although she does not date it, in which MB said "we are getting something in place to protect our assets, because if a claim is made against [NB], we could lose the family business" and to her agreement that there was a "need to protect the family assets" (AB 29.10.20 [30]-[31]).
DK also informed Mr Bayalannis, in June 2018, that he had spoken to NB about "the child with the other woman in Greece" and that NB had told him not to say anything to anyone about it; requested Mr Balayannis to discuss the matter with NB; and Mr Balayannis sensibly responded that he would not have that conversation with NB, who should have a paternity test (Balayannis 24.12.20 [45]). Mr Balayannis' evidence is that he then recognised that, if NB wished to tell him anything about that personal matter, then NB would do so himself. Shortly after that occurred, Mr Balayannis became aware that MB also knew what NB had told DK, and DK said to him in MB's presence that:
"We are concerned about this person in Greece maybe coming to Australia and making claims against the family's assets." (Balayannis 24.12.20 [47]).
Mr Balayannis then, again sensibly, suggested that the family should take legal advice.
In a subsequent conversation with Mr Balayannis in June 2018, DK referred to putting the pubs owned by RHPL on the market "to deal with any claims against the family's estate", without informing NB of that matter until agreement with a buyer was reached. Mr Balayannis suggested, and DK rejected, obtaining professional advice including accounting advice in that respect (Balayannis 24.12.20 [48]).
By an email dated 16 June 2018 to Mr McCabe, DK advised as follows:
"Please keep this email private and confidential.
Can your firm prepare paper work that will give [NB] the option to make the girls appointors of the Trust from when [NB] signs it rather than only having the it [sic] only occur after his passing.
Also can you prepare paper work for [NB] giving a power of attorney for everything to do with Australia that could also start from when [NB] signs it.
The reason I am asking for the paper work is that [MB] is hopefully going to Greece in the next 10 days to see her father and we believe [NB] will discuss it with [SB] as soon as she arrives to Greece and we as a family want to be prepared with paper work so he isn't pressured later not to give items.
It is our opinion and from what people overseas are relaying to us that [NB] is basically a victim of entrapment and now being pressured by people overseas to get married immediately and also not to take lifesaving medication for his lung disease as the new doctor they recommended says he has nothing …"
In discussions with my father-in-law he has indicated to me that he will most likely give everything according to his Will now rather than later even if it means paying capital gains tax and we can then sort out anything from then on.
Is it possible to have something for me and my wife by this Tuesday please. If your too busy let me know as we understanding it's all last minute so we can make other arrangements."
NB denies that he had such a discussion with DK (NB 17.12.20 [105]) and I accept NB's evidence as to that matter. NB's evidence, which I also accept, is that the references to entrapment, pressure from people overseas and lifesaving medication were all false.
Mr McCabe responded, on 18 June 2018, that his firm could prepare those documents but he also prudently observed that:
"As you will probably understand we have ethical rules which means that we can only prepare these documents if we receive clear unambiguous direct instructions from [NB] and we can satisfy ourselves that he has full understanding and capacity in relation to the proposed documents.
Would it be possible to arrange a teleconference with [NB] so that we can have a discussion with him on these matters."
Mr McCabe's requirement that he confirm his instructions directly with NB appears to have brought DK's engagement of his firm to prepare those documents to an immediate halt and to have prompted DK then to engage Ms Kavadas, a solicitor with CJP, to do so. By an email dated 17 June 2018 (Ex D8, 1026), DK advised Ms Kavadas that:
"I spoke to [NB] last night and he would like me to proceed with arranging certain items to help the family out here in Australia.
Can you please make sure that your colleague contacts Risika [an accountant] first thing in the morning to arrange the paperwork for my father-in-law to sign over the remaining amount of his personal loan I think it's approximately $25 million he has left with [RHPL] according to Arthur [Balayannis] last week to be gifted to my wife [MB] out of live [sic] and affection from now so we don't have any future issues with it."
By a subsequent email also dated 17 June 2018, DK advised Ms Kavadas that AB should also be included in the transaction, and that MB and AB "will each have each [sic] of the loan". NB's evidence, which I accept, is that he was not aware of those emails at the time and he denies giving such instructions to DK (NB 17.12.20 [106]-[107]). It appears that Ms Kavadas did not seek to confirm the instructions conveyed by DK in these two emails directly with NB.
In cross-examination, DK maintained that the change of solicitor from Mr McCabe to Ms Kavadas was made at NB's request, on the basis that Mr McCabe was "too expensive" and NB wanted the work done quickly and instructed DK to contact Ms Kavadas to have it done. I do not accept that evidence, and I find that the change of solicitor reflected DK's wish to avoid Mr McCabe's seeking to confirm the instructions he had given directly with NB and his hope that Ms Kavadas would not think to do so, as was the case. DK also maintained, in cross-examination, that NB had requested him to ask Ms Kavadas to prepare documents for an assignment of the Trust Debt; denied that he took that course without asking NB, contrary to MB's evidence in that regard; and maintained that NB was "making that request daily" and "it was urgent that he move assets out of his name" (T174) and that NB was calling DK daily and "pressuring me to get assets out of his name" (T174). Again, I do not accept that evidence.
NB pleads (APOD [17C]) and I am comfortably satisfied that DK falsely represented to Ms Kavadas that he had acted with NB's knowledge and authority in this respect. NB also pleads that DK acted with MB's and AB's knowledge in this respect (APOC [17D]), and MB's evidence in cross-examination establishes that at least she knew that DK did not have MB's authority to approach Ms Kavadas and CJP in this manner. I am also comfortably satisfied that the statement in DK's email dated 17 June 2018 that he had spoken to NB about that transaction was false.
By email dated 22 June 2018 (Ex D8, 195), a solicitor at CJP emailed an amended DoA and notice of assignment of the Trust Debt to be given to RHPL, as discussed with Ms Kavadas, to MB with a copy to DK.
NB's evidence was originally that, in late June 2018, SB, MB, AB, DK and MK arrived in Athens and stayed with NB in his house (or, more precisely, in an apartment in a building in which he owned several apartments) before returning to Sydney on 10 July 2018 (NB 17.12.20 [113]). NB now accepts that he was mistaken in that respect and that SB and AB did not arrive in Greece until after the execution of the DoA and after MB and DK had returned to Sydney. The Plaintiffs sought to make much of this error to impugn NC's credit, but I am satisfied that it was no more than an error of recollection, which had some impact on the way in which he described events in his affidavit evidence, but not on his evidence in cross-examination. NB's evidence is that he was then "very embarrassed and uncomfortable"; was stressed about what he had done in his affair with I, and then realised, as was the fact, that DK had betrayed his confidence by telling his family what he had previously disclosed to DK (NB 17.12.20 [119]). NB also referred (in evidence admitted with a limiting order under s 136 of the Evidence Act) to his understanding that MB was very upset with him and to tension between him and his family. It seems to me that that position is consistent with the probabilities, and indeed with MB's affidavit evidence. NB's evidence was that he then believed that B and I would have significant claims upon him and that he had "potentially exposed my family and my life's work in building my wealth" (NB 17.12.20 [122]). NB expressed a somewhat different position in cross-examination, to the effect that his family members were more concerned than he was about such claims. I treat NB's evidence as to that matter with a degree of caution, and take it into account in assessing his credit.
DK's evidence is that, when NB and he arrived in Greece in late June 2018, he handed versions of the DoA and several powers of attorney to NB who indicated he would talk about them when he was ready (DK 15.2.21 [54]). I do not accept that evidence given the view that I have formed as to DK's credit.
NB pleads (APOD [17E]) that, in late June 2018, he had a conversation with MB, DK and MK in which MB and DK "confronted" him about his affair; they requested that he undertake a further paternity test to determine whether he was B's father; and NB said that he would undertake that test. He pleads (APOD [17F]) that, in late June 2018 or early July 2018, he undertook a further paternity test that purported to confirm that he was not B's father, but MB and DK indicated they wanted him to have a further paternity test conducted in Australia.
Turning now to the events in respect of the execution of the DoA, NB pleads (APOD [17G]-[17I]) that:
"17G. On 9 July 2018 [MB, DK and MK] attended on [NB] in the dining room of a unit he owned in Athens, Greece, for approximately 5 minutes, without prior notice to NB about the purpose of the meeting (9 July 2018 Meeting)."
17H. During the 9 July 2018 Meeting, [MB and DK]:
(a) presented [NB] with the [DoA] which was already turned to the execution page;
(b) represented to [NB] that the assets of NBF Trust were at risk to a claim by [B] or his mother (on the basis that [B's] mother might alleged that she was the de facto partner of [NB];
(c) verbally purported to explain of the effect [sic] of the [DoA];
(d) did not give [NB] an opportunity to read the [DoA];
(e) demanded that [NB] execute the [DoA] during the meeting;
(f) did not give [NB] the opportunity to obtain legal advice in relation to the [DoA];
(g) did not give [NB] any time to consider or any opportunity to negotiate in relation to the terms of the [DoA];
(h) did not propose any consideration in favour of [NB] for the assignment.
17I. [NB] and [MB] executed the [DoA] during the 9 July 2018 meeting.
17J. The [DoA] had the purported affect [sic] of transferring the Trust Debt of approximately $18,556,080 owed to [NB] by the NBF Trust from [NB] to [MB] and [AB] for no consideration.
17K. As at 9 July 2018, the Trust Debt represented approximately 60% of [NB's] assets."
On 9 July 2018, NB executed the DoA which was in relatively straightforward terms and, by cl 1, provided that NB assigned to AB and MB in equal shares all his right, title and interest in the Trust Debt, then in excess of $18.5 million. NB was mistaken in his original recollection that AB executed the DoA at that meeting, reflecting his error in believing that AB was then in Greece, and she had in fact previously signed the DoA in New York and forwarded it by courier to MB in Greece. NB has not established that the Trust Debt represented approximately 60% of his assets, since it is apparent that he and entities associated with him have significant assets in Australia and Greece, and the evidence as to his and controlled entities' assets and liabilities does not allow any assessment of his personal net asset position or his and controlled entities' net asset position. It is, however, clear that the Trust Debt represented a substantial liquid asset; that he and his family had previously paid ordinary living expenses by causing RHPL to make repayments against the Trust Debt as needed; that he would no longer have access to that debt for that purpose after it was assigned to MB and AB; and that other assets were largely in the nature of less liquid hotel properties, hotel businesses or real property.
NB's affidavit evidence as to the execution of the DoA (NB 17.12.20 [126]-[127], part of which was admitted with a limiting order under s 136 of the Evidence Act as evidence of his understanding) is that, on 9 July 2018, he came into the dining room in the Athens apartment, saw everyone was standing around the dining room table and NB could feel the tension. His evidence is that he noticed that there was a document sitting on the dining room table which was open on a page and a conversation took place as follows:
MK/DK: "You have no assets in your name in Australia except the debt that the Trust owes you. We are concerned that [B's] mum will make a claim against your assets. To protect your money from any claim, we want you to sign this document immediately to sign the debt over to Angeliki and me (Mary). Transfer it to Angeliki and me (Mary) in 50/50 shares so that [B's] mum cannot make any claim to it."
NB: "ok I will sign it."
That evidence is not very different from MB's evidence of the conversation, to which I refer below, including as to the brevity of the conversation, and the lack of any recognition of the legal or commercial effect of the DoA; NB's evidence is that he was feeling "very stressed" and "very embarrassed" and did not read the document. There is a contest as to that matter, which I need not resolve given the other findings which I reach below. NB's evidence, which I accept and which was plainly consistent with the probabilities, was also that he did not understand the significance of the document to his legal rights and that he "always believed that [he] controlled the NBF Trust completely and as managing director had control of all financial decisions" (NB 17.12.20 [130], admitted with a limiting order under s 136 of the Evidence Act as evidence of NB's understanding). His evidence was also that he "believed at the time that [he] had to show his daughters and his family that [he] loved them"; it seems to me that that was likely part of the motivation for signing the document, even if asset protection also had some part. That motivation is ultimately not material to the findings which I reach below.
In cross-examination, NB's evidence was also that he did not read the DoA when he signed it and he referred to what MB had said before he did so. He was asked what she had said and his evidence was that:
"[MB] said please sign here. … Loans that the company owes to give the money that loans to you, goes to [MB] and [AB]. So, nobody can touch it, and myself at the time, I thought fair enough, I do this the least you can do, pass this over to the kids, because it was internal, an internal loan affair. I never thought that it will damage my business by doing that. I never thought that I will leave out my wife by doing that. When I come back to Australia and I've been warned what I did was terribly wrong, then I tried to, I tried to fix the problem. I was, have a conversation with my kids. They say no. …" (T249)
NB accepted in cross-examination that he then understood there would be a transfer of the Trust Debt to MB's and AB's name and that it was his thinking that "by doing this it would mean that nobody else can touch it and that his daughters were safe hands" to look after the Trust Debt (T250).
MB also gave evidence (MB 29.10.20 [75]) of the circumstances in which the DoA was signed and set out the conversation before that occurred, as follows:
"[MB]: Dad, I'm concerned that [B's] mum is going to try to take our pubs in Australia. We prepared a document for you to sign that will transfer the money you are owed by the business, to me and [AB] and protect our family business."
[MB handed NB the DoA]
[NB]: Absolutely, the pubs are yours anyway, of course I will sign."
In her evidence in response to NB's affidavit (MB 3.2.21 [26]), MB says she does not recall saying words to the effect that "You have no assets in your name in Australia except debt that the trust owes you". She does not there deny NB's evidence that there was reference in that conversation to signing the document immediately.
It is not necessary to decide whether a conversation occurred in the terms to which NB referred or in the somewhat different terms to which MB referred. Even if a conversation occurred in the terms to which MB referred, it misstated the commercial effect of the DoA, which was not to "protect" the family business but to expose it to the risk (which subsequently eventuated) that it might face a call by MB and AB for payment of an amount that it could not pay without the forced sale of a substantial asset, and the consequential risk of appointment of a receiver by MB or AB or by NAB to the NBF Trust's assets (as occurred). That conversation also indicates a misunderstanding of the effect of the transaction on NB's part, since the proposition that the "pubs are yours anyway" did not support the assignment of the separate Trust Debt to MB and AB or recognise the several disadvantages arising from the transaction to which I refer below. MB's evidence is also that NB was "very relaxed" at the time the DoA was signed and she did not see "any concern from his words or body language"; assuming, without deciding, that was correct, it would be inconsistent with his having properly understood the significance of or the risk attached to the transaction. However, MB's affidavit evidence was also that the family relationship was "tense" at that time, although she subsequently sought to retreat from that position in cross-examination.
DK gives quite different evidence of the conversation to NB or MB (DK 15.2.21 [55]), which reflects his asking NB "what have you decided to do with the paperwork"; NB reading through the pages of the DoA and saying to MB that "It's all for you girls anyway"; NB signed the DoA but did not sign powers of attorney; and NB seemed "calm and relaxed". I am satisfied that a conversation did not take place as set out by DK, by reason of my findings as to his credit and NB's and MB's evidence and the surrounding circumstances, including as to whether powers of attorney were put before NB at that meeting.
A notice of assignment to RHPL was also dated 9 July 2018 and signed by NB. There is a dispute as to whether he signed a notice of that assignment to RHPL at that time or at the airport on the next day, prior to MB's and DK's departure from Greece, although little turns on that.
AB's affidavit evidence was originally that she was sent the executed DoA to MB on 9 July 2018 (AB 9.10.20 [33]), although she subsequently corrected that to indicate that she had received it and sent it back about 23 June 2018. AB then did not travel to Greece until 29 July 2018, after the DoA had been signed.
MB's evidence (MB 29.10.20 [78]) and AB's evidence (AB 29.10.20 [38]) is that, after signing the DoA or later, NB did not tell them that he regretted the assignment or anything similar. That is consistent with NB's initially lacking an understanding of the effect of the DoA; he later did not take steps to implement the assignment, including by altering the treatment of the Trust Debt in RHPL's financial records; and he then took steps to seek to have the Trust Debt reassigned to him by agreement, before the present dispute arose.
Mr Balayannis visited NB and SB in Greece in July 2018, after the DoA was signed, and his evidence is that NB and SB were both then upset. NB then informed Mr Balayannis that he had a child in Greece; that SB was upset; and Mr Balayannis suggested that NB obtain a paternity test to confirm whether the child was his son (Balayannis 24.12.20 [52]). Mr Balayannis did not then tell NB that DK had already told him about the child; that was understandable, given the sensitivity of the topic and Mr Balayannis' connection with the family. SB subsequently had a conversation with Mr Balayannis, which plainly indicated her anger as to NB's conduct, and Mr Balayannis responded to SB's inquiry as to whether he already knew of the matter by indicating that he first found out from DK "a few months ago" (Balayannis 24.12.20 [54]). Mr Balayannis was not told of the DoA or any assignment of any assets to MB or AB at that time (Balayannis 24.12.20 [55]).
By email dated 2 August 2018, DK sent Ms Kavadas and William Buck a copy of the DoA (Ex D8, 1070ff; Hatzistergos 12.2.21, Annexure B). Mr Hatzistergos then telephoned NB in Greece in early August 2018 in response to the receipt of the DoA and had a conversation, as follows:
"Hatzistergos: We received a document from [DK] that has been signed by you and daughters. The effect of the document is that you have given [MB] and [AB] your rights to the $20+ million loan from you to the NBF Trust. Why would you do that? If [MB] and [AB] call on the loan, the NBF Trust does not have the liquidity to pay that amount. You would need to sell assets.
NB: I didn't realise that. The family asked me to sign it to protect my money from the woman I had an affair with in Greece. I didn't think it had any legal effect. It is a family arrangement - it would only come into effect if the woman made a claim to my money.
Hatzistergos: That's not how I read the document. It has immediate effect. Your loan has been given to [MB] and [AB]. In the event of anything happening to [MB], you have effectively given control of your assets to your son-in-law DK. Did you get legal advice about the document before you signed it?
NB: No.
Hatzistergos: There are other significant legal ramifications, including potentially breaching the bank covenants on the borrowings from NAB. Furthermore, your Will is ineffective, and [SB] may be left destitute as the $6 million provision you made for her is no longer available. You should get legal advice on the effect of the document and your options."
That conversation is significant, because Mr Hatzistergos was a plainly credible and convincing witness; he was not challenged as to the scope of that conversation; NB had no reason not to be truthful or frank in a conversation with Mr Hatzistergos at that time, before any dispute had arisen between the parties; and that conversation provides strong contemporaneous evidence as to NB's lack of understanding of the transaction implemented by the DoA.
In September 2018, DK tried to take steps to move the hotels owned by the NBF Trust into a new trust, apparently under his or his and MB's control (Balayannis 24.12.20 [57]). Mr Balayannis asked DK, in October or November 2018, whether NB knew of the transfer of the assets from the NBF Trust and DK responded that he did not yet and that "we are going to do that soon". Mr Balayannis did not then inform NB about the proposal and focussed on trying to persuade DK and MB to take consolidated advice from William Buck or another qualified firm (Balayannis 24.12.20 [61]).
At a subsequent meeting on 9 November 2018 with William Buck, Mr Mills of William Buck sensibly asked whether NB was aware of the proposed transfer of assets from the NBF Trust to the new trust; DK responded that he was; and Mr Mills indicated he would need to verify that. Mr Mills then sent an email dated 9 November 2018 (Balayannis, Annexure B) to DK, copied to Mr Balayannis, which appropriately pointed out that William Buck's engagement was with NB and the firm was required to obtain approval for any major changes, such as those DK was proposing; that NB was the sole shareholder of RHPL and the directors of that company including DK and MB had obligations to act in the best interests of the company and for a proper purpose; and that a sale of the assets, without obtaining NB's approval as the sole shareholder, could open the directors to regulatory action, and that William Buck could not be party to that. Mr Mills also sensibly pointed to the complexity of the Reserve Hotels Group and the need for appropriate advice, and the risk of a poor or even disastrous outcome if appropriate advice was not taken; and again confirmed that William Buck would need to take their instructions "on a matter such as the transfer of all assets from the Trust" from NB.
By an email dated 14 November 2018 (Balayannis, Annexure C), MB responded to Mr Mills' email of 9 November indicating that only an estimate of potential capital gains tax and stamp duty was sought from William Buck; contending that DK and she understood that it was their obligation as directors of RHPL to act in the interest of all beneficiaries of the NBF Trust, which she contended include primarily MB and SB; and indicating that she found it "insulting that you suggest that we are trying to act inappropriately in regards to the Trust Assets." It seems to me that Mr Mills was rightly concerned that a transfer of all trust assets of a discretionary trust, which had not been disclosed to the appointor of the trust and the sole shareholder of the trustee company, raised matters of concern, and there was no reasonable basis for MB to be insulted by that proper concern. MB and DK then purported to terminate William Buck's engagement by that email. Also on 14 November 2018, MB instructed Mr Balayannis that she had terminated William Buck's services that morning and he was no longer to liaise with William Buck. That email referred to a discussion with NB; the evidence does not allow me to reach a finding as to whether such a discussion had occurred. Mr Balayannis, with NB's authority, subsequently requested William Buck to continue work for RHPL on preparing financial accounts which would be provided to NAB for the purposes of meeting RHPL's loan covenants (Balayannis 24.12.20, Annexure E).
Also in November 2018, while NB was still in Greece, Mr Balayannis and he had a telephone conversation (Balayannis 24.12.20 [66]) in words to the following effect:
"[Balayannis]: Uncle, I am concerned about what is going within the business. I don't want to get involved in your family issues. However, I need to make you aware that [DK] and [MB] have had concerns about this woman in Greece you had an affair with, and they are concerned about this woman coming to Australia and trying to take some of your family's assets. [DK] and [MB] are on a wild goose chase. It doesn't make sense to me, they are looking at selling assets and moving assets.
[NB]: Wait till I get back. I will fix it all up. Why didn't you tell me about this earlier?
[Balayannis]: Because they are family issues and I thought you were aware."
NB's evidence (NB 17.12.20 [148]) is that he became aware in November 2018 of the attempts by DK and MB to transfer the NBF Trust's assets to the new trust, but instructed that that should not take place, and his evidence is that he was not concerned about protecting against any claim by I and that the further paternity test had confirmed that he was not B's father.
On 21 November 2018, DK emailed Mr Giovas of Axius Partners concerning a suggested restructure from the NBF Trust to the new trust known as the "Little Nick Family Discretionary Trust", being a reference to DK's and MB's son and NB's grandson, and suggested that Mr Giovas not bother NB "as you know he has health issues amongst other things at the moment and [DK] and [MB] have been given the operations to run down as he recently explained to William Buck [a firm of accountants] and to Arthur [Balayannis]". By email dated 23 November 2018 (Ex D8, 1116), Mr Giovas recorded the instructions he then received from NB as follows:
"Gentlemen and Mary. [NB] called me last night. He has given me clear instructions as follows pending his return from Greece.
There is to be no change of Trust. The cost of doing so is prohibitive for no apparent reason. I raised the issue of an asset protection and estate planning. He doesn't believe there is an issue. …."
By email dated 15 January 2019 (Ex D5), DK advised Ms Arcos at RHPL, with copies to MB and NB that:
"Arthur [Balayannis] won't be doing the banking anymore.
I will be checking invoices uploaded to the computer system double-checking with licensees and if there are no issues then authorising them.
Any invoices that are new or high value then I will be getting Nick's approval before they are paid. …"
By an email dated 11 February 2019 (Ex P13, 2095), William Buck advised NB that they had prepared management accounts for the purpose of meeting RHPL's banking requirements, but had not yet finalised those accounts or tax returns, and recorded the position as they understood it:
"Importantly, you have agreed that you will have the assignment of your loan to the NBF Trust revoked prior to finalisation of the accounts. We understand that you were ill at the time the loan assignment document was given to you for signing, and you were not given the opportunity to take legal advice. In your opinion the [DoA] is not legally binding, and we understand that you will seek legal advice to have this formally revoked and provide us with documentation to this effect."
I pause to note that there is no suggestion that NB had any immediate health difficulties at the time the DoA was signed, although I have referred above to the condition affecting his health in the middle or longer term. William Buck was correct in recognising that he was not given the opportunity to take and did not take legal advice in that respect.
By an email dated 11 February 2019 (Ex P13, 2097), DK promptly responded to take issue with the position expressed by William Buck as follows:
"I write to you on behalf of [MB] and [AB].
I refer to the email from your firm dated Monday the 11th of February 2019 which was shown to me by [MB] earlier today.
I write to put you on notice that your 'understanding' about the validity of the assignment of loan and its circumstances is incorrect.
There is no lawful basis upon which to revoke the assignment of loan and any suggestion to the contrary is a fiction.
Further, your advice in this regard is calculated to cause mischief and divide the family."
On 6 March 2019 (Ex P2, 525), NB's solicitor emailed MB, AB, with a copy to DK, and advised that:
"We have given advice to [NB] in relation to the effect the Assignment has had on his existing estate planning structures and other matters and we are instructed that you are both now willing to enter into another deed to reassign the debt to [NB]."
That email also referred to "a degree of uncertainty and confusion among the family in relation to the continued and ongoing control and administration of the Reserve Hotels [G]roup and other matters concerning the management of potential claims on [NB's] estate" and suggested a family conference.
By letter dated 11 March 2019, Shanahan Tudhope in turn advised that they were instructed by MB and AB and responded to the suggestion from NB's solicitors of a family conference (Ex P13, 2098). It is plain that firm was not then acting for RHPL in that regard, which is significant to a later suggestion that monies that DK paid to them were paid in trust for RHPL rather than for MB, AB or DK. Shanahan Tudhope indicated that MB and AB agreed to the proposal for a family conference and observed that:
"Some of the matters proposed for consideration which you mentioned are:
1. The assignment of a debt of the Reserve Group from my clients to your client.
2. Your client's estate planning structures.
3. The ongoing control of administration of the Reserve Hotels Group.
4. Concerns in management of potential claims on your client's estate which presumably relates to both your client's marital estate and testamentary estates.
5. Other matters.
Prior to my clients confirming arrangements for the meeting, would you kindly supply further details of the above proposed matters for discussion at the meeting.
For example - I am instructed that my clients wish to ventilate the precise reasons why your client wants to be assigned the Reserve Group Debt. Once this information is provided, then my clients will be in a position properly to consider if the assignment of the debt is the appropriate strategy in the circumstances."
By a further email dated 3 April 2019, NB's solicitor noted the possibility that a family conference may not be necessary and the parties might directly proceed to execution of a deed of assignment of loan and attached a draft of that document, and expressed a view as to who should attend such a conference if it was needed. AB refers to a subsequent conversation with MB in which they decided not to transfer the loan back to NB (AB 29.10.20 [45]). By email dated 11 April 2019 (Ex P13, 2100), Shanahan Tudhope, plainly again acting for MB and AB rather than RHPL, responded that:
"My clients have instructed me that in the absence of a meeting or information addressing the matters set out in our letter to you dated 11 March 2019, they are not willing to execute the Deed of Assignment [reassigning the Trust Debt to NB].
Please note that my clients do remain open to considering executing a Deed of Assignment once they are satisfied as to the effects, circumstances and reasons for the request and the transaction."
By email dated 30 August 2019 (Ex P5), NB's solicitor forwarded a term sheet reflecting a proposed agreement among family members to the solicitor acting for other members of the family.
On 12 June 2020, MB, DK and SB, being the majority of RHPL's board, passed a resolution that RHPL grant a security interest in favour of MB and AB in respect of that part of the Trust Debt that had been assigned to them under the DoA. There is a dispute as to the adequacy of the notice of that meeting given to NB, which it is not necessary to resolve. On the same day, SB and DK executed a General Security Deed on behalf of RHPL, by which it granted a security interest in favour of MB and AB over all its assets, for no consideration. No consent was sought from or given by RHPL's secured lender, NAB, to that transaction.
On 16 June 2020, MB, DK, AB, SB as directors of RHPL resolved, over NB's opposition, to accept an offer or proposal for the sale of the Mr B's hotel to a third party for a price which NB considered undervalued the hotel. NB then made clear that he proposed to exercise the rights available to him, as the sole shareholder of RHPL and as the appointor of the NBF Trust, to regain control of the NBF Trust assets (NB 17.12.20 [178]). Also on 16 June 2020, SHM was incorporated and, by a Deed dated 16 June 2020, NB exercised his power as appointor to remove RHPL as the trustee of the NBF Trust and appoint SHM as the new trustee of that trust.
By email dated 17 June 2020 (Ex D8, 1307), DK advised Mr McCabe that:
"[NB] is not authorised to make decision on his own and we are now also concerned at how he is managing the trust and question your own agenda and advise [sic].
We do not believe he is managing the trust in our best interest and want him removed as appointor and the family to replace him. Sean [a solicitor from Shanahan Tudhope] will have to speak to you and you can work it out."
DK went on to observe that:
"[we] are again putting you on notice that if you look to make changes to any and all existing family trust [sic] like changing the trustee or shares then the family will fight and we will also sue you for the advice given to [NB]/[SB] which is not accurate. …
We reiterate that no changes are to be made to any trusts or companies associated all the companies [NB] has family trusts and that [Mr Balayannis] and [an accountant] have been banned from having any company or family information given to them.
Our concern is how he [presumably NB] is handling them and again will put you on notice that we will be also taking action against your firm with how you handled things."
On 17 June 2020, DK then caused payments of $510,000 to be made from RHPL's bank account, being $150,000 to him in three separate transfers of $50,000 each; $100,000 to AB in two separate transfers of $50,000 each; $100,000 to MB in two separate transfers of $50,000 each; and, relevantly, $110,000 to Shanahan Tudhope Lawyers. I will address RHPL's claim in respect of those payments below.
On 26 June 2020, NB (as the sole shareholder of RHPL) passed a resolution pursuant to s 249B(1) of the Corporations Act and article 13.14 of RHPL's constitution removing MB, DK, AB and SB as officers of RHPL.
On 21 August 2020, MB and AB commenced these proceedings, in which they originally sought orders appointing receivers in reliance on the General Security Deed in their favour. On 9 September 2020, NAB then appointed receivers to all assets of RHPL subject to the securities which it held and, on 23 September 2020, the Court appointed those receivers as receivers and managers of the assets and undertakings of the NBF Trust and of SHM in its own right and in its capacity as Trustee of the NBF Trust. By clause 19(c) of the Trust Deed for the NBF Trust, SHM's office as trustee was then determined and vacated and, so far as RHPL held the title to assets of the NBF Trust, it did so only as bare trustee. On the same date, the Court made orders declaring the General Security Deed in favour of MB and AB to be void by reason of s 588FP of the Corporations Act, where they were officers of RHPL and had sought to enforce that security interest within 6 months of it being granted.
RHPL and the NBF Trust subsequently refinanced its debt with NAB with another lender; the receivers appointed by the Court were then removed by orders of the Court made on 28 January 2021; and, on 29 January 2021, NAB removed the receivers that it had appointed as secured creditor. On the same date, NB reappointed RHPL as trustee of the NBF Trust, pursuant to his power of appointment as principal under the NBF Trust.
Mr Jackman submitted that the DoA conferred no benefit on NB and its effect was to give away his principal liquid asset, worth approximately $18.5 million; that the transaction was an improvident transaction because the Trust Debt was the primary asset in his name, aside from his half interest in his matrimonial home, and his only liquid asset; referred to NB's evidence as to the stress he was then feeling, to which I have referred above; and that NB did not appreciate the consequences of signing the DoA, including that NB would be unable to discharge his obligations to SB under his existing will to transfer a substantial part of the Trust Debt to her to ensure that she had adequate funds if he predeceased her.
Mr Jackman also submitted, by reference to relevant factors specified in the Contracts Review Act which I address below, that the DoA was both procedurally and substantively unjust. He submitted that it was procedurally unjust for reasons including that NB was not afforded the opportunity to negotiate its terms or consider whether some other transaction might achieve the objective of protecting the family assets against a possible claim from I and/or B; NB was told to sign it immediately, giving the impression that it was not reasonably practicable to negotiate for the alteration of any provisions of the DoA; it was presented to him at a time when he was under significant emotional strain, and "was desperate to heal the family tension which he had caused, and accordingly was unable reasonably to protect his own interests"; NB's educational background and literacy in English are limited, a submission which requires qualification given his intelligence and experience; NB did not understand the legal and practical effect of the DoA; undue influence, unfair pressure and unfair tactics were exerted upon him in several respects, including the timing of providing the DoA to him; and NB was not afforded the opportunity to obtain professional advice in relation to it. Mr Jackman submits that the DoA was also substantively unjust because it involved the transfer of an $18.5 million debt from NB to MB and AB for no consideration, where the debt was NB's principal liquid asset, and would cause the ademption of the bequest of part of the Trust Debt to SB under the will; the DoA was not reasonably necessary for the protection of any legitimate interest on the part of MB and AB; and alternative ways of protecting NB's assets from a claim based on his alleged paternity of B (I interpolate, if that could be a legitimate objective) were not considered.
In closing submissions, Mr Jackman summarised the basis of this claim for relief as follows:
"In light of the evidence, the Court should grant that relief, for reasons including that:
(a) it is perfectly clear that the [DoA] was prepared on the basis of false instructions which [DK] gave (in which [MB] acquiesced) to Ms Kavadas' firm [CJP];
(b) [MB] and [DK] arrived with the [DoA] in Athens on 25 June 2018 (and received [AB's] signed copy of the [DoA] around that date), but delayed giving the document to [NB] until 9 July 2018, their last afternoon/evening before leaving Greece. That delay can only have been deliberate, so as to take advantage of [NB's] perceived impetuousness and emotional distress, and to deny him the ability to obtain professional advice about the transaction;
(c) it would have been perfectly apparent to his daughters that [NB] wanted to demonstrate his love to them and to repair the family relationship; and
(d) under the terms of [NB's] February 2018 Will, he effectively bequeathed $6mil of the Trust Debt to his wife [SB]. That aspect of his Will could not be satisfied if [NB] transferred the Trust Debt to [MB] and [AB]. [MB] repeatedly accepted that it was unjust for her to try to deprive [NB] of the ability to give [SB] $6 million of the Trust Debt. It is clear that [NB] did not think through the consequences of executing the [DoA], whether in terms of his bequest to [SB] or in terms of conferring on [MB] and [AB] the ability to call on the entire loan, which would require the sale of substantial trust assets;
(e) the reason which [MB] put forward to [NB] for signing the [DoA] was that it would effectively dispose of his Trust Debt asset beyond the reach of those wishing to make a claim against [NB]. That objective was unachievable as a matter of law."
In opening submissions, Mr Wood dismissed this aspect of NB's claim in a somewhat perfunctory manner, as follows:
"[NB's] attack on the [DoA] is the usual recourse to statutory buyer's remorse. He pleads undue influence, unconscionable conduct, and calls in aid the Contracts Review Act. People of older age are free to enter into transactions, and there is no Yerk[e]y v Jones presumption in respect of older people. Neither old age, nor English as a second language, is a special disadvantage in the Amadio sense. Failing to give enough attention to the lasting personal or domestic ramifications of a transaction is not sufficient to invoke a jurisdiction to set aside that transaction."
As will emerge below, that submission does not sufficiently engage with the circumstances of NB's entry into the DoA in this case, or the application of the statutory factors specified in the Contracts Review Act in the relevant circumstances.
In closing submissions, Mr Wood submitted that NB's pleading sought to create a picture of a person whose will was "overborne", and to establish that the DoA was sprung on him by surprise and in an opportunistic way, leaving him with no choice but to sign it. It seems to me that NB's pleading may have somewhat overstated the extent of his distress and understated the complexity of the relevant circumstances. However, it does not seem to me that that undermines the cogency of the case which NB advanced, as set out below. Mr Wood also submits that none of DK's conduct in the 9 July 2018 meeting "can be sheeted home" to MB. It seems to me that misunderstands the appropriate analysis. DK's conduct, including preparing the relevant document without NB's authority or notice that that was being done, was known to MB, and is part of the circumstances against which the relevant transaction is to be assessed, and I address its relevance to the application of the statutory provisions below.
Mr Wood submits that NB's evidence about the meeting in July 2018 at which the DoA was executed should not be accepted and points to NB's error as to the persons who were in Greece at that time and attended that meeting. That error was shared by MB, at one point, in respect of SB's presence in Greece, and it does not seem to me that it undermines NB's credit. There is ultimately little difference, in substance, between NB's and MB's version of the meeting, and there is no dispute as to the matters that are of greater significance in this case, including the delay in raising the execution of the DoA with NB; the lack of explanation of its legal or substantial commercial effect; and the failure to take any step to raise the need for independent advice, which would likely have exposed the significant disadvantages which would arise from the transaction.
Mr Wood refers, in closing submissions, to the matters which demonstrate NB's business acumen, and I have referred above to his business experience, his intelligence and skill, or his capacity to conduct commercial transactions in English. Mr Jackman responds that:
"[NB's] evident business acumen would have been obviously relevant, if not decisive, if the contract which he sought to challenge was a commercial transaction negotiated at arm's length. It is much less relevant, if not immaterial, where the contract sought to be challenged is a deed providing for a gift of $18.5mil to his daughters, being presented in the context of the disclosure of an affair and possible illegitimate child. Experience running pubs or a poker machine business does not equip a person to deal with the latter situation. Second, it is plain that [NB's] business acumen is at a managerial or strategic level; he has always relied on professional advisers (accountants and lawyers) to assist him with the detail of his business affairs. Relevantly, he has relied on his accountants and lawyers in relation to the treatment of his loan account with [RHPL]."
There is, it seems to me, a significant difference between the conduct of commercial transactions at arm's length and the particular circumstances which may arise in intra-family transactions. Mr Wood submits that NB always planned to give his wealth to his children, and there is substantial evidence that supports that proposition. It does not, however, follow that NB planned to transfer control of his business to his children in his lifetime or to do so in a manner that exposed the business to significant commercial risk, or to default in its arrangements with its secured lender. Mr Wood also points to some videos and photographs which disclose moments of apparent happiness during the period in which the family were in Greece, around the time the DoA was executed. I give limited weight to that evidence, where it is hardly unknown for families under stress to seek to put on a good face, not least in order to seek to convince themselves and others that all will be well.
Mr Wood also submits that NB "presented as a proud man" and that "[i]f he was embarrassed, or feeling strain because of a mistake, he is unlikely to have exposed his vulnerability". That submission highlights a further difficulty with Mr Wood's approach, namely that family stresses may be concealed and are more likely to be concealed by those who would see them as a matter of weakness. Mr Wood placed weight on MK's evidence, and points out that she was not cross-examined. I have regard to that evidence, but give limited weight to it, where MK was an observer to the relevant events, although DK's sister, and her evidence of a generally relaxed atmosphere does not address the issues which give rise to difficulty in the execution of the DoA.
Mr Wood also places substantial weight on the absence of immediate complaint as to the circumstances of the execution of the DoA, as a matter which he contends impugns NB's claim under the Contracts Review Act. Mr Jackman responds, with considerable force, that difficulties with the DoA were identified by Mr Hatzistergos in August 2019; NB sought to have the Trust Debt reassigned to him in 2019; and he did not give effect to the assignment in RHPL's accounts. I find that the commercial difficulties with the DoA only came to NB's attention after it had been executed, and I have referred above to the evidence that NB sought to address those difficulties, not by complaining to his daughters as to the circumstances in which the DoA was executed, but by seeking to arrange an agreed reassignment of the debt on terms acceptable to other family members. That approach was understandable in a family context, and likely more constructive than the making of complaints or the commencement of immediate litigation in respect of the DoA. I also recognise that NB did not immediately turn against MB or DK and indeed appointed them as directors of RHPL some months later. Again, that seems to me to be consistent with a family setting, and the informal steps that were being taken to address the difficulties arising from the DoA, prior to MB's and AB's attempt to approve the sale of the Mr B's hotel, call the Trust Debt and appoint receivers to the trust assets.
It is also convenient here to address a suggestion that was implicit in DK's evidence, and explicit in Mr Russienello's opening submissions (when the limited scope of the case against DK had perhaps not fully been appreciated), that the DoA was part of NB's strategy to quarantine and safeguard the trust assets tied up in the pub businesses in the "safe hands" of his daughters. Mr Jackman notes that this approach involves at least the propositions that, first, NB instructed the DoA be prepared and was kept informed as to its drafting by CJP. Mr Jackman submits, and I accept, that this proposition is inconsistent with both NB's and MB's evidence that NB did not instruct the preparation of the DoA and did not know of it before it was provided to him and he executed it on 9 July 2018, and also inconsistent with MB's evidence that she did not know whether NB would agree to it when it was being prepared. This proposition also largely depends on DK's uncorroborated evidence, which I have not accepted. Second, this claim involves the proposition that the DoA was part of a scheme to "get rid of" all of NB's assets which included the preparation of powers of attorney which NB reviewed but later did not execute. This aspect of it is inconsistent with the absence of steps to progress or execute the powers of attorney in Greece, and I do not accept DK's evidence to the contrary. Third, this claim involves the proposition that NB took further advice from his solicitor, Mr McCabe, on asset protection and estate planning issues at about the same time that he signed the DoA, which DK claims was undertaken on NB's rather than his instructions. I also do not accept that evidence, and it appears this work was prompted by DK's call to Mr McCabe on 7 June 2018, to which I have referred above, including a request that information be provided as to how a Binding Financial Agreement worked. I am comfortably satisfied that, although the DoA was presented by MB and DK to NB as a step in protecting his assets, that was neither a strategy which NB had initiated nor one that he adequately understood at that time.
Turning now to the applicable statutory provisions, s 7(1) of the Contracts Review Act relevantly provides that:
"(1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:
(a) it may decide to refuse to enforce any or all of the provisions of the contract,
(b) it may make an order declaring the contract void, in whole or in part,
(c) it may make an order varying, in whole or in part, any provision of the contract …"
The reference to "the circumstances relating to the contract at the time it was made" in s 7(1) of the Contracts Review Act is not limited, in its terms, to those circumstances which were known to the party that seeks to rely on the contract at the relevant time, although a lack of knowledge of relevant matters may well be relevant to the exercise of the court's discretion: Re Elsmore Resources Ltd (2016) 114 ACSR 297; [2016] NSWSC 856 at [65]. That has significance here, so far as NB and AB now seek to rely on the outcome of steps previously taken by DK.
In West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620 ("West v AGC (Advances)"), McHugh JA observed that a contract may be unjust, for the purposes of s 7(1) of the Contracts Review Act, in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. In Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; [2008] NSWCA 343 at [86], Campbell JA (with whom Hodgson and McColl JJA agreed) similarly observed, by reference to authority, that a contract could be unjust by reason of substantive injustice, because its terms, consequences or effects were unjust, or because of procedural injustice, by reason of the unfairness of the methods used to make it. His Honour noted that two distinct steps are involved in applying the Contracts Review Act, the first being to determine whether the contract was unjust in the circumstances in which it was made, having regard to the factors referred to in s 9 of the Contracts Review Act, and involving a broadly based value judgment, and the second being whether any relief should be granted, and what that relief should be.
In Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36 at [7], Allsop P (as his Honour then was) in turn summarised the evaluation involved in determining whether relief should be allowed under the Contracts Review Act as follows:
"The broad evaluation of unjustness under the Contracts Review Act 1980, s 4, s 7 and s 9 involves the normative evaluation of the totality of relevant circumstances. Inevitably minds may differ as to conclusions about such questions. Also, it is often not fruitful to compare other cases with the particular circumstances at hand, lest one be deflected from an appropriate overall assessment by focus on particular aspects relevant to any such comparison. Central to the normative evaluation is the recognition that there is a need for the protection of some people in some circumstances, who are not able fully to protect their own interests against factors that may cause injustice. That vulnerability may come from one or more of many circumstances, such as lack of education or of intelligence, from gullibility, from the predation of fraud and greed, and also sometimes from loyalty and love. The characterisation of a contract as unjust and the sheeting home to the other contracting party of the consequences of its unjustness may be a difficult evaluative exercise. At its heart, however, is the recognition of the inadequacy of one party to protect her or his interests in the circumstances."
The applicable principles in respect of an application under s 7 of the Contracts Review Act were also summarised by Sackar J in White v Wills [2014] NSWSC 1160 at [107]ff in similar terms, in a passage approved by Kunc J in Crane Distribution Ltd v Yang [2016] NSWSC 620 and in my judgment in Re Elsmore Resources Ltd above, on which I have drawn for aspects of this summary.
Section 9(2) of the Contracts Review Act directs the Court to have regard to specified matters to the extent they are relevant to the circumstances, without affecting the generality of s 9(1) of the Contracts Review Act. In West v AGC (Advances) above, McHugh JA noted (at 621) that the provisions of s 9(2) of the Contracts Review Act do not exhaustively indicate the criteria that may be taken into account in determining whether a contract or any of its provisions is unjust, and the Court is entitled to have regard to all the circumstances of the case, subject to s 9(4) of the Contracts Review Act, and the public interest; and a similar view was expressed in Spina v Permanent Custodians Ltd [2009] NSWCA 206 at [105].
The first matter specified in s 9(2)(a) of the Contracts Review Act is whether or not there was any material inequality in bargaining power between the parties to the contract. I am not satisfied that was established in the present case. Although MB and DK arranged matters so as to take NB by surprise, and create a degree of urgency in addressing matters by reason of their departure from Greece the next day, it is plain that NB was a very experienced businessman who was generally capable of protecting his own interests, although I find that his ability to do so was less in a family than in a business context. The second and third matters specified in ss 9(2)(b)-(c) of the Contracts Review Act are whether or not, prior to or at the time the contract was made, its provisions were the subject of negotiation, and whether or not it was reasonably practicable for the party seeking relief under the Contracts Review Act to negotiate for the alteration of or to reject any of the provisions of the contract. The DoA was not the subject of negotiation, but little turns on that where the choice for NB was whether to assign the Trust Debt or not, and the terms of an assignment were straightforward if it were to occur. I give greater weight to the fact that the lack of notice given to NB that the issue of an assignment would be raised, the family context and the sense of urgency created by MB's and DK's departure the next day seems to have significantly impaired NB's ability to reject the DoA in its entirety.
The fourth matter specified in s 9(2)(d) of the Contracts Review Act is whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract. In West v AGC (Advances) above, McHugh JA observed, referring to s 9(2)(d) of the Contracts Review Act that:
"A contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision."
I have considered whether the DoA as a whole was not reasonably necessary to protect MB's and AB's legitimate interests, because they had no legitimate interest in seeking to establish claims to NB's assets, including the Trust Loan, to the exclusion of SB or I or B to the extent the latter had legitimate claims to NB's support. It is not necessary to reach a conclusion as to that matter given the other findings that I have reached. It seems to me that the terms of the DoA at least imposed an unreasonable burden on NB so far as they defeated his attempt to provide for SB by mutual wills, by causing the ademption of the gift to her under his will, and MB and AB had no legitimate interest in obtaining an immediate assignment to them of the amount that would otherwise have been left to SB under NB's will.
The fifth and sixth matters specified in s 9(2)(e)-(f) of the Contracts Review Act are whether or not any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity; and the relative economic circumstances, educational background and literacy of the parties to the contract (other than a corporation), and any person who represented any of the parties to the contract. The seventh matter specified in s 9(2)(g) of the Contracts Review Act is, where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed. NB did not seek to establish that he was not reasonably able to protect his interests by reason of any issue as to age or physical or mental capacity, although there was a reference to that matter in the Amended Points of Defence. The real disadvantages which he faced arose from situational factors rather than any wider disability. On balance, I do not think that NB's economic circumstances, educational background and literacy provide a basis for the grant of relief, since he was able to read and understand reasonably complex documents in the course of cross-examination, albeit he generally took some time to do so.
The eighth matter specified in s 9(2)(h) of the Contracts Review Act is whether or not and when independent legal or other expert advice was obtained by the party seeking relief under the Contracts Review Act. Plainly, it was not, and the circumstances in which MB and DK sought to have the DoA executed - in an informal setting, in circumstances of family stress and NB's regret over the affair, and where apparent urgency arose from their departure the next day - made it less likely that NB would seek such advice. I recognise that, in Raupach v Macdonald [2010] NSWSC 1326, Price J observed (at [106]) that a self-represented businessman was at a disadvantage, in entering a settlement agreement, but noted that the significance of that disadvantage was diminished by his intelligence and experience; however, here, it seems to me that the situational factors significantly reduced the likelihood that NB would delay or take steps to protects his interests, and the approach adopted by MB and DK was calculated to have that result. Mr Wood submits that NB could have sought legal advice if he thought it was necessary, but that proposition seems to me to be at best artificial and at worst unreal.
The ninth matter specified in s 9(2)(i) of the Contracts Review Act is the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under the Contracts Review Act, and whether or not that party understood the provisions and their effect. It is plain that the DoA had substantial and highly disadvantageous legal and practical impacts on NB, and to a lesser extent SB, and on RHPL and the NBF Trust, and no attempt was made by MB or DK to explain them or encourage NB to take advice about them. It is plain that NB did not understand them, as his response to Mr Hatzistergos' later identification of his concerns makes clear. I give substantial weight to this matter. It also seems to me that there is force in Mr Jackman's submission that, to the extent the DoA was presented to NB by DK and MB as an asset protection transfer, he was not sufficiently advised of and did not understand the risk or probability that it would be ineffective, so far as the assets transfer would potentially be set aside under s 106B of the Family Law Act 1975 (Cth) on SB's application and, perhaps less likely, under s 37A of the Conveyancing Act 1919 (NSW), if I or B could be properly characterised as creditors of NB for the purposes of that section.
The tenth matter specified in s 9(2)(j) of the Contracts Review Act is whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under the Contracts Review Act by any other party to the contract, by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract. I had raised in submissions the possibility that and Mr Jackman submitted (T390-391) that this paragraph allows the Court to take into account DK's actions, so far as he was purporting to act for NB in dealing with solicitors to obtain a draft of the DoA. I accept that proposition. That paragraph also authorises the Court to take into account DK's action where MB was a party to the DoA who knew significant parts of what was being done, and the Court could also take account of DK's conduct so far as it was known to MB on that basis.
In my view, DK adopted highly unfair tactics in falsely representing that he had NB's authority to prepare the DoA and associated documents, and that can be taken into account where he purported to act for NB in doing so and where MB was at least aware that NB had not authorised these documents to be prepared. MB also adopted unfair tactics in delaying raising the matter, with the result that an artificial urgency would be created by her departure from Greece on the next day. The eleventh and twelfth matters specified in ss 9(2)(k)-(l) of the Contracts Review Act is the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and the commercial or other setting, purpose and effect of the contract. There is no relevant conduct of the parties to the proceedings in relation to similar contracts. I have regard to the family setting of the arrangement.
I have regard to the fact that NB's execution of the DoA indicates his then willingness to be bound by their terms, that the general policy of the law is that people should honour their contracts and that policy "forms part of our idea of what is just": Raupach v Macdonald above at [117]-[118]. I have had regard to the decision in Williams v Commonwealth Bank of Australia [2013] NSWSC 335, on which Mr Wood relies. In that decision, an elderly plaintiff sought to set aside a guarantee and mortgage which he gave to a bank to support bank facilities provided to his son for the purchase and conduct of a business. Pembroke J there observed (at [4]), by reference to authority, that age is not a disabling condition unless it is accompanied by some other factor. That case is very different from the present case, so far as there is evidence that representatives of the bank there read and explained to the plaintiff all of the material terms of the mortgage and guarantee, he was there advised that he should or could get independent legal advice and that he need not sign the documents there and then but could instead take them away for further consideration, and none of those occurred here in respect of the DoA. The plaintiff there also took advice from his own solicitor prior to giving the guarantee, which also did not occur here in respect of the DoA. Pembroke J there noted that neither the conduct of the bank nor of the plaintiff's son deprived the plaintiff of any real or informed choice; I could not reach a corresponding finding in this case, having regard to the relevant circumstances. I also recognise that, as Mr Wood points out, Sackar J advised that he would not have allowed relief under the Contracts Review Act in respect of a mutual will in Campbell v Campbell [2015] NSWSC 784; it does not seem to me that that observation, directed to the facts of a particular case, indicates any wider limitation to the scope of the Contracts Review Act.
I am comfortably satisfied that the profoundly disadvantageous effects of the DoA to NB, SB and RHPL and to the NBF Trust in its dealings with NAB, the lack of any attempt to bring them to NB's attention or identify the desirability of his seeking independent advice which would have disclosed those effects, and the circumstances in which it was prepared and executed, makes it unjust in the circumstances at the time they were made. For the purposes of s 9(1) of the Contracts Review Act, it seems to me that the public interest would not be served, and that injustice would arise, were MB and AB to be permitted to rely on it.
I have also had regard to the question whether the DoA could be allowed to operate in part, in favour of AB rather than MB, which Mr Wood contended was an open result. I am satisfied that result would not be proper, where AB made no more attempt than MB to ensure that NB was afforded the opportunity to understand the effects of the transaction, although she was less active than MB and DK in seeking to avoid that result; that result would allow her to take advantage of DK's unfair tactics in having the documents prepared on the false basis that he had NB's authority to do so; and it would bring a result that none of the parties intended, since I accept NB's evidence that he had always intended to benefit his daughters equally, not one to the exclusion of the other, and there is no suggestion that MB or AB contemplated that one of them would benefit to the exclusion of the other, although DK may have done so in the first email to which I referred in paragraph 43 above. For these reasons, I will declare the DoA to be void under s 7 of the Contracts Review Act, without differentiating the position of MB and AB as parties to it.
In Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49, the High Court observed (at [30]ff) (citations omitted):
"In Allcard v Skinner, Lindley LJ said that "no Court has ever attempted to define undue influence". One reason for the difficulty of defining undue influence is that the label "undue influence" has been used to mean different things. It has been used to include abuse of confidence, misrepresentation, and the pressure which amounts to common law duress. Each of those concepts is better seen as distinct. Nevertheless, the boundaries, particularly between undue influence and duress, are blurred. One reason why there is no clear distinction is that undue influence can arise from widely different sources, one of which is excessive pressure. Importantly, however, since pressure is only one of the many sources for the influence that one person can have over another, it is not necessary that the pressure which contributes to a conclusion of undue influence be characterised as illegitimate or improper.
In 1836, in a passage which was copied verbatim by Snell thirty years later, Story said that a person can be subjected to undue influence where the effect of factors such as pressure is that the person "has no free will, but stands in vinculis [in chains]". He explained that "the constant rule in Equity is, that, where a party is not a free agent, and is not equal to protecting himself, the Court will protect him". In 1866, this approach was applied in equity by the House of Lords, recognising undue influence in a case of pressure that deprived the plaintiff of "free agency". In 1868, in probate, Sir James Wilde also described undue influence as arising where a person is not a "free agent". In Johnson v Buttress, Dixon J described how undue influence could arise from the "deliberate contrivance" of another (which naturally includes pressure) giving rise to such influence over the mind of the other that the act of the other is not a "free act". And, in Bank of New South Wales v Rogers, McTiernan J characterised the absence of undue influence as a "free and well-understood act" and Williams J referred to "the free exercise of the respondent's will".
The question whether a person's act is "free" requires consideration of the extent to which the person was constrained in assessing alternatives and deciding between them. Pressure can deprive a person of free choice in this sense where it causes the person substantially to subordinate his or her will to that of the other party. It is not necessary for a conclusion that a person's free will has been substantially subordinated to find that the party seeking relief was reduced entirely to an automaton or that the person became a "mere channel through which the will of the defendant operated". Questions of degree are involved. But, at the very least, the judgmental capacity of the party seeking relief must be "markedly sub-standard" as a result of the effect upon the person's mind of the will of another.
An example which illustrates the characterisation by a court of a lack of free will sufficient to amount to undue influence is the decision of this Court in Johnson v Buttress. In that case, Mr Buttress was a 67 year old man, who was "wholly illiterate, not very intelligent, and of little or no experience or capacity in business". He made a voluntary transfer of land to a relative of his wife. The land was his only property and his only means of livelihood. When he made the transfer he did not understand that he had parted with the land irrevocably. After Mr Buttress died, the administrator of his estate brought an application to set aside the transfer. The trial judge set aside the transfer on the basis of undue influence. This decision was upheld in this Court. Although other members of the Court relied upon a presumption of undue influence, which is considered below, one member of the Court, Starke J, concluded that it was open to the trial judge to find that undue influence arose without any presumption. His Honour upheld the conclusion of the trial judge that the circumstances of the transfer invited the inference that it was "not the result of the free and deliberate judgment of the deceased."
The High Court also there observed (at [43]) that:
"… in undue influence there will be questions of evaluative judgment involved in assessing whether the extent to which a person's will has been subordinated to another's is sufficient to characterise the person as lacking free will. The same evaluative exercise was described by this Court in Kakavas v Crown Melbourne Ltd in relation to unconscionable conduct, quoting from Dixon CJ, McTiernan and Kitto JJ in a passage from Jenyns v Public Curator (Qld) which emphasised how the application of these equitable principles:
"calls for a precise examination of the particular facts, a scrutiny of the exact relations established between the parties and a consideration of the mental capacities, processes and idiosyncrasies of the [other party]. Such cases do not depend upon legal categories susceptible of clear definition and giving rise to definite issues of fact readily formulated which, when found, automatically determine the validity of the disposition. Indeed no better illustration could be found of Lord Stowell's generalisation concerning the administration of equity: "A court of law works its way to short issues, and confines its views to them. A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case.""
Mr Jackman refers to several of these cases and submits that the Court should find that NB felt that he had no choice or was powerless other than to sign the DoA; artificial time pressure was imposed upon him and he was given no opportunity to obtain professional advice; and relief can be granted on the basis of undue influence against AB where she was a volunteer and the gift to her was part of the same transaction as the gift to MB and was derived from the same pressure. Mr Wood responds by pointing to authority that undue influence will less readily be found where an elderly person can manage his or her own affairs, and that his or her business experience will be relevant in that respect. Mr Wood submitted and I accept that NB was generally accustomed to making his own decisions, although he was inclined to do so quickly, and may have been less inclined to seek external legal or accounting advice in family matters. It does not seem to me that he was in any wider position of disadvantage to MB or other members of his family, although the circumstances of entry into the DoA gave rise to difficulties which I have addressed above in finding that his claim under the Contracts Review Act is established.
It is ultimately not necessary to determine the claim in undue influence, given the conclusions I have reached above in respect of the claim under the Contracts Review Act. However, I will briefly indicate the conclusions that I would have reached in that respect, had it been necessary to do so. Some aspects of NB's pleaded case in this respect were not supported by MB's evidence, although that evidence did support a claim under the Contracts Review Act which I have addressed above. On balance, I think it likely that NB was not the subject of undue influence in executing the DoA, and did so in order to mitigate his daughters' anger with him, although he did not have and was not afforded any opportunity to obtain an adequate understanding of the inconsistency of the transaction with his will in favour of SB and the substantial adverse commercial impacts of the transaction on RHPL and the NBF Trust. Those matters support relief under the Contracts Review Act as I have noted above.
In Turner v Windever [2003] NSWSC 1147 at [105], Austin J summarised the elements of unconscionable dealing as that the weaker party must, at the time of entering into the transaction, suffer from a special disadvantage as against the stronger party; second, that the special disadvantage must seriously affect the weaker party's capacity to judge or protect his or her own interests; third, that the stronger party must know of the special disadvantage or know of facts which would raise that possibility in the mind of any reasonable person; fourth, that the stronger party must take advantage of the opportunity presented by the disadvantage; and, fifth, that the taking of advantage must have been unconscientious. His Honour observed (at [106]) that, once the first three of those elements is established and the improvidence of the transaction shown, the plaintiff's task is "made easier by an equitable presumption to the effect that the improvident transaction was a consequence of the special disadvantage, and that the defendant has unconscientiously taken advantage of the opportunity presented by the disadvantage". That summary was cited with approval by Ward CJ Eq in Turner v O'Bryan-Turner [2021] NSWSC 5 at [399].
In Thorne v Kennedy above, the High Court summarised the distinction between unconscionability and undue influence (at [37]-[40]) (citations omitted) as follows:
"There was no controversy on this appeal concerning the principles of unconscionable conduct in equity. Those principles were recently restated by this Court in Kakavas v Crown Melbourne Ltd.
A conclusion of unconscionable conduct requires the innocent party to be subject to a special disadvantage 'which seriously affects the ability of the innocent party to make a judgment as to [the innocent party's] own best interests'. The other party must also unconscientiously take advantage of that special disadvantage. This has been variously described as requiring 'victimisation', 'unconscientious conduct', or 'exploitation'. Before there can be a finding of unconscientious taking of advantage, it is also generally necessary that the other party knew or ought to have known of the existence and effect of the special disadvantage.
In Commercial Bank of Australia Ltd v Amadio, Deane J said that the equitable principles concerning relief against unconscionable conduct are closely related to those concerned with undue influence. The same circumstances can result in the conclusion that the person seeking relief (i) has been subject to undue influence, and (ii) is in a position of special disadvantage for the purposes of the doctrine concerned with unconscionable conduct. For instance, in Diprose v Louth (No 1), the trial judge, King CJ, observed that both doctrines were satisfied where the defendant 'was in a position of emotional dominance which gave her an influence over the [plaintiff] which she exercised unconscientiously to procure the gift of the house'. Before the High Court in that case, Mr Diprose relied only upon the ground of unconscionable conduct.
Although undue influence and unconscionable conduct will overlap, they have distinct spheres of operation. One difference is that although one way in which the element of special disadvantage for a finding of unconscionable conduct can be established is by a finding of undue influence, there are many other circumstances that can amount to a special disadvantage which would not establish undue influence. A further difference between the doctrines is that although undue influence cases will often arise from the assertion of pressure by the other party which might amount to victimisation or exploitation, this is not always required. In Commercial Bank of Australia Ltd v Amadio, Mason J emphasised the difference between unconscionable conduct and undue influence as follows:
'In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.'
Mr Jackman submits, by reference to authority, that a party alleging unconscionability must be able to show that he or she was subject to a special disadvantage or a disabling condition or circumstance which seriously affected his or her ability to make a judgment in his or her own best interests, and the other party knew or ought to have known of the existence of that condition or circumstance and its effect on the party who was subject to that condition or circumstance. He also refers to observations in several of the judgments in Australian Securities and Investments Commission v Kobelt (2019) 368 ALR 1; [2019] HCA 18 ("Kobelt") (per Kiefel CJ and Bell J at [62], per Nettle and Gordon JJ at [146]-[147]; per Edelman J at [282]), where the High Court was dealing with statutory unconscionability, as pointing to the relevance of the innocent party's ability to safeguard their own interests.
Mr Jackman submits that unconscionability is established, where NB was affected by a "special disadvantage" at the time of signing the DoA, as a result of "extreme emotional strain" where he was "confronted" by his family (but in fact only, at best, by MB and DK) about a long-term extramarital affair and potential illegitimate child, and that strain seriously affected his ability to make a judgment in his or her own best interests. That proposition seems to me to significantly overstate any vulnerability of NB at the time, although I have found above that he lacked understanding of significant aspects of the proposed assignment including its commercial effect and associated risks. Mr Jackman also submits that the Court should find that MB and DK knew or ought to have known that NB was under that disadvantage; and that they took steps to take advantage of it, including by the way in which the DoA was prepared and presented it to him for execution shortly before their departure. He submits that, so far as AB is concerned, she knew of the plan to "protect the family assets", and I add that she had been provided with and signed the DoA even if she had not then taken steps to understand it or its commercial effects; unconscionable conduct can include the passive acceptance of a benefit in unconscionable circumstances; and, as a volunteer, AB cannot retain the benefits of a transaction procured by unconscionable conduct
Mr Wood points to NB's pleaded case of unconscionable conduct, which largely relies on the same matters as his claim for undue influence, and submits that no "special disadvantage" was established through any "embarrassment" suffered by NB, at the time he executed the DoA. Mr Wood again emphasises NB's business acumen and points out, uncontroversially, that his experience is significantly different from that of, for example, the plaintiffs in Commercial Bank of Australia Ltd v Amadio above. Mr Wood submits, as I noted above, that MB is not "tainted" by DK's conduct and that AB did not attend the meeting and that she was not part of any plan or scheme to devise a way to have him NB sign the DoA. I note that that is not a complete answer to the proposition that AB's insistence in relying on the DoA, with knowledge of the circumstances in which it was executed, may amount to unconscionability.
The question whether the matters to which I have referred above would have established unconscionability at general law is by no means an easy one. I do not think it necessary to express a view as to that question where there seems to me to be no realistic prospect that unconscionability could be established without NB also being entitled to relief under the Contracts Review Act as I have found above.
The Plaintiffs also refer to the removal of RHPL and appointment of SHM as trustee of the NBF Trust pursuant to powers conferred by the Trust Deed. They contend (APOC [78]) that the power to remove and appoint a trustee conferred by the Trust Deed was a fiduciary power which may be exercised only in the interests of the Eligible Beneficiaries. Mr Jackman responds that the proposition that the power to remove and appoint a trustee is a fiduciary one has been repeatedly doubted: Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 at [149]; El Sayed v El Hawach (2015) 88 NSWLR 214; [2015] NSWCA 26 at [69], citing Professor P Finn, Fiduciary Obligations (1977) at p 273; Mercanti v Mercanti (2016) 50 WAR 495; [2016] WASCA 206 at [320], [397]-[398]; Ying Mui Pty Ltd v Hoh (No 6) [2017] VSC 730 at [501]; Australian Conservation Services v Liladel Holdings [2017] ACTSC 162 at [27]-[33]; Baba v Sheehan [2019] NSWSC 1281 at [67]. It is not necessary to determine this question, where the evidence does not establish that this power was not exercised in those interests, for the reasons noted below, and where the range of Eligible Beneficiaries is not limited to the Plaintiffs.
The Plaintiffs previously contended (APOC [79]-[83]) that NB's exercise of the power of appointment was invalid on the basis that the effect of it was to confer all of the powers of the trustee of the NBF Trust on NB. That claim is righty not pressed where NB did not appoint himself as trustee and instead appointed SHM, a separate legal entity, to that role: see Montevento Holdings Pty Ltd v Scaffidi (2012) 246 CLR 325; [2012] HCA 48.
The Plaintiffs also plead (APOC [84]) that NB's exercise of the powers of appointment and removal of the trustee of the NBF Trust was improper. Mr Jackman responds by pointing out that the NBF Trust was established by NB; NB is named as the "Principal"; the "Eligible Beneficiaries" are defined by their relationship to NB and, as the "Principal", NB has the power to appoint and remove trustees under cl 19, as well as the power to exclude Eligible Beneficiaries under cl 9. He also points out that NB has at all times been the sole shareholder of the trustee, and was the sole director of the trustee for approximately 20 years. Mr Jackman submits that, in those circumstances, the NBF Trust falls into that category of trust where "the power of the appointor to remove and appoint trustees may be exercised for the purpose of controlling the trust estate for the appointor's benefit": Australian Conservation Services v Liladel Holdings [2017] ACTSC 162 at [22], citing Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 at [151]. He also submits that the removal of RHPL did not involve a fraud on the power, because NB had genuine concerns about the way in which the affairs of the trust were being conducted and he exercised his power to appoint a new trustee so as to protect his interests as an Eligible Beneficiary. He submits that that is a legitimate purpose and not foreign to the purpose of which the power was conferred: Baba v Sheehan [2019] NSWSC 1281 at [60].
I should also address the matters on which the Plaintiffs rely as particulars of this allegation. They particularise this allegation by contending, first, that NB's purpose in the exercise of those powers was to prevent, hinder or delay MB and AB from exercising their security under the General Security Deed with respect to any property of the NBF Trust, including Mr B's hotel. They particularise that breach by contending, second, that NB had had the purpose of preventing, hindering or delaying the payment of the Trust Debt, implicitly to MB and AB. It seems to me that the claim for impropriety in both respects is undermined where that security could not properly be exercised, where its exercise was founded on the DoA that had been obtained in the circumstances to which I have referred above, and the security itself was liable to be set aside (and has been set aside) under the Corporations Act and MB's and AB's entitlement to payment of the Trust Debt depended upon the DoA which was also liable to be and now will be set aside.
The Plaintiffs particularise that allegation, third, by contending that the purpose of the removal was to deny an Eligible Beneficiary any future benefit under the NBF Trust other than a benefit approved in respect of that beneficiary by NB. It is not apparent why that purpose would be improper, where NB was the appointor of the Trust and the sole shareholder of the trustee company and was entitled to appoint and remove its directors in that capacity; and there was no reason why persons other than NB had any better claim to control the trustee than NB. The Plaintiffs particularise that allegation, fourth, by contending that a purpose of the appointment and removal of the trustee was to make the whole of the income and capital of the NBF Trust available for NB's own use. That claim is not established, where the assets of the NBF Trust are largely committed to the continuing ownership and conduct of the hotel businesses. The Plaintiffs particularise that allegation, fifth, by contending that the purpose of appointment and removal was to advance NB's position in Family Court proceedings, by preventing members of his family from accessing information as to his dealings with the assets of the NBF Trust. No such purpose was established by evidence, nor is that purpose particularly plausible, where the compulsory powers of the Family Court provide an ample basis for SB to access any information to which she is properly entitled in those proceedings. This allegation is not established.
Alternatively, the Plaintiffs contend (APOC [87]) that, by reference to a range of matters otherwise pleaded, many of which are now not pressed, SHM is unfit to act as Trustee of the NBF Trust and should be removed. Mr Wood also relies on communications between NB and MB, once the dispute had arisen in which he was variously aggressive or dismissive of MB, in order to support the application for removal of SHM as trustee. I approach these communications in their context, as having occurred in a period of significant stress and a breakdown of family relationships, and I do not consider that they are sufficient, alone or together with the other matters on which the Plaintiffs rely, to support the relief sought.
In closing submissions, Mr Russoniello also refers to events surrounding the replacement of RHPL by SHM as trustee of the NBF Trust. Mr Russoniello advances an unpleaded claim that the Court should find that the deed of removal and appointment, if signed on 16 June 2020, was only in escrow, intended to be used by NB as leverage against SB, MB, AB and DK and could only take effect upon receipt or proper notice. There is no sufficient evidentiary basis for such a finding and I do not reach it. Mr Russoniello also points to the fact that NB does not have particularly strong understanding of the nature of a trust, and regards monies in the NBF Trust as able to be used as he sees fit for his business and his family. No doubt, that understanding may have arisen from the practical reality that NB is the Principal of the NBF Trust; he has the power to change the trustee, subject to the question of the scope of the duties to which I have referred above; he is the sole shareholder of the former trustee and the current trustee; and the trust is a discretionary trust, although I accept that the exercise of the trustee's duties and NB's duties are of course confined by the applicable legal and equitable obligations. Mr Russoniello also submits that NB has used the power of appointment to "attempt to thwart the decisions of the board" of the former trustee with which he disagrees. It may be that little turns on that proposition, as a practical matter, where NB was entitled to and did remove the directors of the former trustee other than himself and the new board of RHPL, constituted by NB, could then have readily reversed any decision which the former board had made, and reasserted control over the trust property.
The Plaintiffs originally sought an order under s 6(2)(e) of the Trustee Act 1925 (NSW) removing RHPL as trustee of the NBF Trust. That section applies "where a trustee refuses or is unfit to act in such trusts or powers, or is incapable of acting therein". In the course of oral submissions, I raised the preliminary question of the source of MB's and AB's standing to bring that application. Mr Jackman drew attention to s 92 of the Trustee Act which provides that an order for the appointment of a new trustee or concerning any property subject to a trust may be made on the application of any person interested in the property. Mr Jackman noted that the Trust Deed of the NBF Trust did not confer any interest on MB or AB in default of an appointment, and submitted that their only vested interest in trust property would arise from a reference to unpaid beneficiary entitlements in the financial statements of the Trust for the year ended 30 June 2019. He accepted that, if that reference were understood to refer to distributions that had been resolved upon by the trustee but not yet paid, it would confer a beneficial interest in the property and confer standing on MB and AB under s 92 of the Trustee Act to bring an application to remove the trustee of the NBF Trust. However, Mr Jackman submitted that it was unclear from the evidence whether there were any beneficiary entitlements unpaid to MB or AB when the proceedings were commenced or at the time of the hearing.
In supplementary submissions, by leave, Mr Wood submitted that s 92 of the Trustee Act should be construed to confer standing on a beneficiary of a discretionary trust to bring an application under the Trustee Act for the removal of the trustee of that trust. Mr Wood refers to the observations of Powell J in Spellson v George (1987) 11 NSWLR 300, where his Honour observed that:
"The question then is, whether a person whose status is only that of a potential object of the exercise of a discretionary power can properly be regarded as one of the cestuis que trust of the relevant trustee. I do not doubt that he can, and should, properly be so regarded, for although it is true to say that, unless, and until, the trustee exercises his discretion in his favour, he has no right to receive, and enjoy, any part of the capital or income of the trust fund, it does not follow that, until that time arises, he has no rights against the trustee. On the contrary, it is clear that the object of a discretionary trust, even before the exercise of the trustee's discretion in his favour, does have rights against the trustee (see, eg, Gartside v Inland Revenue Commissioners (at 605-606) per Lord Reid, (at 617-618) per Lord Wilberforce) - those rights, so it seems to me, are not restricted to the right to have the trustee bona fide consider whether or not to exercise his (the trustee's) discretion in his (the object's) favour, but extend to the right to have the trust property properly managed and to have the trustee account for his management …"
Mr Wood also referred to Fay v Omoramba Services Pty Ltd [2009] NSWSC 1428 at [20]-[24] as authority that a person who is the potential object of a trustee's discretion has standing to apply for the removal of a trustee, supported by his or her ability to invoke the Court's inherent jurisdiction to enforce his or her rights to require the due administration of the trust. Mr Wood distinguished the finding in Re Cooper Street Property Trust [2016] VSC 756 that a trustee in bankruptcy, appointed to the property of a person who was the appointor of a trust and a discretionary object of the trust, did not have standing under s 64 of the Trustee Act 1958 (Vic) to seek removal of the trustee as reflecting the requirement in that section that a person have a beneficial interest in the trust property, and pointed out that there is no corresponding requirement in s 92 of the Trustee Act. Mr Wood noted that that decision also recognised the possibility that a person who is a discretionary object of a trust could rely on his or her right to the due administration of the trust to seek the appointment of a new trustee. I am inclined to think that the authorities to which Mr Wood refers establish that MB and AB have sufficient standing to bring the application for removal of RHPL as trustee of the NBF Trust. It is not necessary to reach a final view as to that matter and I will assume, in their favour, that they have such standing and have determined the application on its substantive merits.
In Miller v Cameron (1936) 54 CLR 572 at 580-581; [1936] HCA 13, Dixon J (with whom Evatt and McTiernan JJ agreed) observed that the jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. That jurisdiction is ancillary to the Court's principal duty to see that trusts are properly executed: JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (LexisNexis Butterworths, 8th ed, 2016) at 318-319, citing Letterstedt v Broers (1884) 9 App Cas 371 at 385 and Miller v Cameron above. That text also notes that:
"In cases of positive misconduct, courts of equity have no difficulty in interposing to remove trustees who have abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce courts of equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property or to show a want of honesty or a want of proper capacity to execute the duties, or a want of reasonable fidelity."
In Hancock v Rinehart (2015) 106 ACSR 207; [2015] NSWSC 646 at [120]-[124], Brereton J observed that relevant considerations in an application to appoint or remove a trustee include the wishes of the person by whom the trust was created, if expressed or implicit in the trust instrument; that a trustee should not be appointed with a view to promoting the interests of some of the beneficiaries in opposition either to the wishes of the settlor or the interests of the other beneficiaries; and that regard should be had as to whether the appointment would promote or impede the execution of the trust.
In supplementary opening submissions, Mr Wood submitted that the Court also has power to appoint a new trustee in its inherent jurisdiction and under s 70 of the Trustee Act, and that the statutory jurisdiction arises wherever it is expedient to appoint a new trustee or new trustees and it is expedient, difficult or impractical to do so without the Court's assistance: Crowle Foundation v NSW Trustee and Guardian [2010] NSWSC 647. Mr Wood refers to, and I have had regard to, the factors to which Dixon J referred in Miller v Cameron above at 580 as relevant to whether a trustee should be removed. I am not satisfied, for the purposes of s 70 of the Trustee Act, that it is expedient to appoint a new trustee in the relevant circumstances, where SHM's appointment appears to have been directed to preserving the business of the NBF Trust and avoiding a forced sale of Mr B's Hotel, arising from a claim by MB and AB which depended on the DoA which was then liable to be avoided under the Contracts Review Act and will now be avoided, or the exercise of a security which depended on that assignment and was also liable to be and has been set aside under the Corporations Act. The payments made by NB, by causing the payment down from the Trust Debt for personal purposes, including the benefit of family members, are not made from Trust assets but from the debt the Trust owes to him, and do not seem to me to be inconsistent with the character of a family trust in general.
Mr Jackman submits, with substantial force, that:
"(a) none of the acts or omissions alleged against [NB] relate to the endangerment of the trust property or demonstrate a lack of honesty or lack of proper capacity to cause [RHPL] to execute the duties of Trustee of the NBF Trust;
(b) this is not a case where the breakdown in family relations has led to the corporate trustee being unable to perform its duties as trustee because of a deadlock.
(c) it is apparent from the Trust Deed that [NB] caused the NBF Trust to be created. The extrinsic evidence concerning the establishment of the trust supports this. NBF Trust stands for "Nicolas Balagiannis Family" Trust. Nicolas is named as the "Principal". The "Eligible Beneficiaries" are defined by their relationship to [NB]. [NB] is the "Principal", and thereby enjoys the powers to appoint and remove trustees under cl 19, as well as the power to exclude Eligible Beneficiaries under cl 9. [NB's] wishes should therefore be given significant, if not decisive, weight as to the proper Trustee. It would be contrary to the intent of the NBF Trust Deed to appoint a Trustee over the objection of [NB].
(d) the Plaintiffs readily accept that [NB] is a successful businessman who has accumulated enormous wealth. In particular he has done so since 1998 as the director (for 20+ years, the sole director) of [RHPL]. He now has considerable experience conducting the business of [RHPL] (owning and managing pubs). Absent any concerns indicating lack of honesty or capacity, history demonstrates that he is the most appropriate person to continue to control [RHPL] (and therefore the assets of the NBF Trust)."
Mr Jackman also points out that RHPL rather than SHM is now the trustee of the NBF Trust, having been reappointed to that role on 29 January 2021 after the receivers retired from office. He submits that, where the status quo that existed for the first 20 years of the NBF Trust's existence has been restored, so far as NB is the Principal of the Trust and the sole director and shareholder of the trustee, the Court should not grant relief of the kind now sought by the Plaintiffs, including appointing a new trustee to the NBF Trust and vesting the whole of the property of the NBF Trust in that trustee.
Mr Jackman initially submitted that the utility of an order replacing the trustee might also be doubted while NB remains the Principal of the NBF Trust and would be able to replace that new trustee unless there was a proper basis for the Court to restrain him from doing so. He fairly accepted in oral submissions (T407) that that question would be removed if the Court made any appointment of a new trustee until further order. I need not further address that question.
I am not persuaded that there is any reason to think that RHPL will not now conduct the NBF Trust's affairs consistently with the purposes of the Trust, and so as to preserve and properly apply the assets of the NBF Trust, and exercise its discretion as to the persons who should benefit from the trust in a proper manner. I am not persuaded that RHPL had previously acted in a manner which is inconsistent with the interests of the Trust or its discretionary beneficiaries or without regard to the individual needs of potential beneficiaries and MB and AB in particular have benefited substantially from RHPL's past exercise of discretions in their favour. I do not understand the position, as it has emerged from the evidence in this case and NB's lengthy cross-examination, to indicate that RHPL would not in future consider MB and AB as potential recipients of benefits from the trust, and it will be for the trustee to consider any issues arising from recent events in that regard. The Plaintiffs' claim for removal of the trustee or appointment of a new trustee of the NBF Trust therefore fails.
By a further email dated 17 June 2020 (Ex D8, 1367), DK provided a further account of the purpose of the transfer to a manager at RHPL, copied to NB, MB, Mr Wong, his solicitor at Shanahan Tudhope and Ms Kavadas, as follows:
"I had a concerned call from my mother-in-law and fellow director regarding some money that was held for an emergency at the home that has been taken.
We have now been advised to transfer money into [his solicitors] and [Ms Kavadas'] trust accounts to be held in trust for Reserve Hotels and used for the company as we need it.
We have also transferred some money into our accounts to be used in any potential action to protect the family trust.
If you need important items paid please email [RHPL executive] a list and include the amounts and include [NB, MB and DK] in it and first use the company money then if any left over we will instruct the lawyers to pay the balance. …"
By an email dated 18 June 2020 (Ex D6), DK advised Mr Wong, with copies to NB, MB and AB, that "we" are holding the monies paid out of RHPL "on trust due to what is happening in the family". By a second email dated 18 June 2020 (Ex D13) DK denied to NAB that there had been any theft of the relevant monies and advised NAB that "the funds were put in trust".
On 15 July 2020, MB and AB issued a letter of demand in respect of the Trust Debt. By an email dated 20 July 2020 (Ex D14) DK advised NAB that the money paid out of RHPL "was transferred initially on trust" but then claimed that it was reallocated by RPHL's directors against the Trust Debt, as now assigned to MB and AB, and that MB and AB were the largest creditors of RHPL and the Trust after NAB. Given the findings that I have reached above, that Trust Debt was not owed to MB and AB to permit such a reallocation. By a letter dated 20 August 2020 (Ex D18), RHPL by its solicitors required repayment of the amount of $100,000 from MB and the amount of $100,000 from AB. By a letter of the same date, RHPL by its solicitors required immediate repayment of the amount of $150,000 from DK.
The first disputed issue in respect of this claim is whether DK had authority to make the relevant payments without approval by a resolution of RHPL's board or consent of NB as RHPL's shareholder. RHPL's claim against DK must fail if, as he contends, he had that authority. Mr Russoniello refers to my observation as to the scope of actual authority of a company director or officer in Vanguard Financial Planners Pty Ltd v Ale (2018) 354 ALR 711; (2018) 125 ACSR 1; [2018] NSWSC 314 at [120] as follows:
"The circumstances in which actual authority of a director or company officer can be established were summarised by Giles J in Equiticorp Financial Services Ltd v Equiticorp Financial Services (NZ) Ltd (1992) 29 NSWLR 260 at 293; (1992) 9 ACSR 199; (1992) 11 ACLC 84 (aff'd in Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50; 11 ACSR 642; 11 ACLC 952 ) as follows:
'Actual authority can be found in the acquiescence by those in whom authority ultimately resides to exercise the particular function, for example from a course of business (Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 502) or from a board's concurrence in a person acting as de facto managing director and chief executive: Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 584, 592. In the latter decision Lord Denning MR said (at 584) that the actual authority was to be implied from the circumstance that the board by their conduct over many months had acquiesced in Mr Richards acting as their chief executive and committing the defendant to contracts without the necessity of sanction from the board. A recent illustration of a finding of actual authority on this basis is Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 at 361, where it was said that the particular director was "more than an ordinary director", had "assumed the role of managing director with the acquiescence of the members of the board of directors who regarded him as the 'owner' of Brick and Pipe", and had actual authority to manage the business of that company'."
Mr Russoniello also rightly submits that the Court must examine the conduct of the parties to determine whether relevant authority has been conferred upon DK, and he refers to the summary of the applicable principles in Left Bank Investments Pty Ltd v Ngunya Jarjum Aboriginal Corporation [2020] NSWCA 144 at [63]ff, where Gleeson J (with whom Bathurst CJ and Bell P agreed) observed that:
"Implied authority is an aspect of actual authority. Actual authority requires a consensual agreement between the principal and agent and arises where a principal grants, and an agent accepts, authority for the agent to perform specific tasks on behalf of the principal: Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 132 (Clarke and Cripps JJA). Notwithstanding the absence of an express agreement, the parties "may conduct themselves in such a way that it is proper to infer that the relevant authority has been conferred on the agent": Equiticorp Finance at 132; Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284; [2013] NSWCA 453 at [32] (Beazley P).
The authority impliedly granted by the principal to the agent must be such as could be validly granted by express agreement, and in the context of a company, must be an authority whose existence is contemplated by the company's memorandum and articles of association: Equiticorp Finance at 133. As Brennan J noted in Northside Developments at 173, this latter point was made by Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties at 504 -505 .
In Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 , Lord Wilberforce said at 586-587 that the implication of authority does not stop with the mere fact of the person holding the office, such as in that case director and chairman of the company, and that it is legitimate to consider what the actual circumstances of the relationship between the person and the board of directors may show.
Clarke and Cripps JJA similarly remarked in Equiticorp Finance at 134 that whether authority is to be implied and, if so, the scope of such authority, is to be found in a close analysis of the evidence upon which the case for implication relies."
DK relies on article 18.5 of RHPL's articles of association, which provides, relevantly, that the directors may entrust to and confer on each executive director such of the powers exercisable under the articles that the directors think fit, and authorises the director on which the power is conferred to exercise it for any objects and purposes and on terms and conditions and with such restrictions as the directors think fit. Mr Russoniello submits that delegation of the director's powers was necessary because NB spent a significant amount of time in Greece. Assuming, without deciding, the correctness of that contention, a question remains as to the scope of the powers that were delegated to other directors of RHPL, including relevantly DK. DK's affidavit evidence is that he was given "transactional authority" in respect of RHPL's accounts with NAB, and he had physical custody of three "toggles" issued by NAB which allowed him to conduct transactions on RHPL's accounts. That is not, however, a basis for a finding that he had legal authority to conduct such transaction without approval of RHPL's board by resolution or unanimous shareholder approval (in this case, being NB's approval) or outside the scope of any existing practice established by RHPL's board or NB as RHPL's sole shareholder.
NB's evidence is that he did not authorise DK to transfer the amount of approximately $510,000 out of RHPL's accounts; there appears to be no dispute as to that proposition, and I accept that evidence as consistent with the probabilities. Mr Russoniello cross-examined NB as to the manner in which other financial transactions were authorised within the Reserve Hotels Group. NB denied that he expected MB and DK to exercise their own judgment in making transactions out of RHPL or the NBF Trust, after Mr Balayannis left Reserve Hotels, but accepted they could authorise payments of proper expenses for the hotels and "little things like that" (T293), where RHPL's internal accountant had given the "OK" for the payment and they were verified by the managers of the relevant hotels (T294). NB also accepted that he did not approve every transaction for smaller amounts, but claimed that he trusted DK that "he would do the right thing and would draw money for the business" and not "for their pleasure" (T302).
MB accepted in cross-examination that the payments made by DK on 17 June 2020 were made without NB's consent or authority (T76). AB accepted in cross-examination that DK told her on 17 June 2020 that they would need to put money aside because NB was "cutting everyone off"; that she understood that NB was refusing to allow payments from RHPL to family members including herself; and she knew that the payments made on that day, including to her were not authorised by NB, although she was not aware that they had to be (T104). SB's evidence in cross-examination was also that DK had told her that the monies withdrawn on 17 June were needed for lawyers, and for the litigation against NB, where NB would be using RHPL's money for that litigation, and she understood the litigation would be both against NB but also against RHPL where NB was regaining control of that company (T123).
I can see no basis on which DK's authority arising from existing practices within RHPL, or any shareholder authority for those practices, extended to the funding of intra-family litigation, including litigation that may be adverse to RHPL's or the NBF Trust's interests. Funding of matters at that level were wholly outside any previous practice of RHPL or the Trust. It also seems to me that the scope of DK's authority was confined by the position reached at a meeting on 26 November 2018 between NB, DK, Mr Balayannis and MB, where NB indicated his wish to know of and approve any expenses over $5,000. I recognise that MB claimed in cross-examination that that did not apply to family members seeking to withdraw money from RHPL for personal expenses (T71). I do not accept her evidence in that regard and, to the extent that she referred to an exception for school fees for her son, it plainly did not extend to payments of the kind subsequently made by DK out of the NBF Trust, in order to fund litigation between members of the family. MB also claimed in cross-examination that it was a "mistake" that her note of that meeting referred to "any expenses", rather than only to "work expenses", where she contended the restriction applied only to the latter (T71-72). I also do not accept her evidence in that respect. A limitation in the scope of DK's authority was also acknowledged by his email dated 15 January 2019 to Ms Arcos of RHPL, copied to MB and NB (Ex D5) which referred to his taking over banking for RHPL from Mr Balayannis and advised that:
"I will be checking invoices uploaded to the computer system double checking with licensees and if there are no issues than authorizing them.
Any invoices that are new or of high value then I will be getting [NB's] approval before they are paid."
The latter statement is wholly inconsistent with the scope of the authority which DK claims to have had in authorising invoices that were new, of very high value, and not connected with RHPL's ordinary business but directed to advancing DK's and other family members' interests in the dispute with NB.
As Mr Jackman points out, any earlier assent by NB to DK's exercise of discretion to authorise payments also ceased when NB made clear on 16 June 2020 that he would be seeking to regain control of RHPL and would potentially cut off funding of family members. Indeed, it was likely DK's recognition of the fact that his authority (from RHPL's sole shareholder) to draw such funds for himself and other family members had already been withdrawn, and his ability practically to implement such funding from RHPL would likely also shortly cease, that seems to have prompted the relevant payments, as is reflected in his emails and conversations explaining why they were made.
Mr Russoniello submits that RHPL had not operated under NB's "total dominion" as managing director, so far as aspects of the day-to-day management of RHPL had been left to Mr Balayannis and, later, DK and MB, when NB spent time in Greece. Mr Russoniello refers to the scope of directors' duties in respect of RHPL and to directors' obligation to ensure that the trustee exercised its powers honestly and in the best interests of beneficiaries of the trust: Australian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd [2015] VSCA 9 at [59]. Mr Russoniello also refers to the extent to which particular matters could have been left to DK and MB under RHPL's Articles of Association. It is not necessary to address that question, where the transactions of the kind undertaken by DK were not within the scope of any authority conferred on him, whether under RHPL's Articles of Association, or by the exercise of a resolution of the directors, or by unanimous consent of RHPL's sole shareholder, NB, or under the practices to which I have referred above.
Mr Russoniello also submits that "management and transaction" of RHPL's affairs in Australia was typically left by NB to others. I do not accept that that proposition is established at that level of generality, although NB plainly permitted others to undertake some aspects of the routine management of RHPL's and the business's affairs, which did not extend to transactions of the kind undertaken by DK on 17 June 2020. Mr Russoniello characterises the relevant questions as including "the scope of [DK's] authority as a director of [RHPL] to make significant payments to lawyers retained by [RHPL] and to himself, [MB] and [AB]". I find below that Shanahan Tudhope was not, at the relevant time, retained by RHPL but instead to advise MB and DK and possibly also AB. Mr Russoniello also refers to the fact that DK was one of three persons with transactional authority on the NAB accounts; however, that did not confer authority on DK to undertake transactions without corporate authority. I have also found above that DK's actual authority did not extend to transactions of the kind undertaken on 17 June 2020.
Mr Russoniello also refers to transactions in earlier years in which amounts have been paid by RHPL to family members, but there can be no suggestion that those transactions were of a similar character to those which DK undertook on 17 June 2020. Mr Russoniello also refers to DK's "concerns" about changes to RHPL's banking and accounting arrangements without its board approval and removal of his banking access. I have no doubt that DK was concerned as to those matters, so far as they would restrict his and MB's access to the NBF Trust's funds, including for the prosecution of any litigation against NB, but that concern is not itself a source of authority to undertake the relevant transactions.
Mr Russoniello also relies on DK's account of the relevant facts, which he summarises as follows:
"On [DK's] version spending from the [RHPL] accounts by [NB], [SB], [MB], [AB] and [DK] was a completely informal process; family members contacted the internal accountant or [DK] for money, the internal accountant input the spend through the NAB portal, and [DK] approved the spend. There was no expectation of family members (who were all directors) that before [DK] did so, the family member or [DK] personally would check with [NB]."
He accepts that:
"On [DK's] version, some element of judgment or expression must have been involved in the exercise of his authority: although funds in the [RHPL] accounts were no doubt large in amount, they were not infinite' cashflow for the pubs businesses and the Group's debt commitments to NAB which were in the order of $40m plus and must have posted some practical restraint. However the position at which the discretion or judgment might miscarry is a deeply factual and specific inquiry. If [DK's] version of authority is accepted, there is insufficient evidence for the Court to find that his discretion or judgment miscarried in relation to the $510,000 payments."
Mr Russoniello submits, and I will assume, that it was open to the directors under cl 18 of RHPL's Articles of Association to confer upon DK the power to distribute monies from RHPL's account to Balagiannis family members without transactional limits as they were trust monies in which Balagiannis family members had an interest and the powers of appointment were extremely broad. He submits that it was also open to RHPL's directors to agree under cl 27 of the Articles of Association that DK and MB were to manage and transact the affairs of RHPL in Australia. There is no suggestion that the directors of RHPL passed a resolution to the former effect; I have addressed above the scope of DK's authority arising from the conduct of the parties; and I am not satisfied that the directors ever agreed that DK and MB were to manage and transact the affairs of RHPL in Australia, although they were allowed some administrative and limited managerial powers in that respect. Mr Russoniello refers at length to NB's evidence, Mr Wong's evidence and DK's evidence. I have referred to key aspects of that evidence above; I have had regard to all of the evidence to which Mr Russoniello refers; and I do not accept DK's evidence, other than where it is against interest or, rarely, corroborated by documents, given the view that I have formed as to his credit. I find that the transfer of the relevant funds was unauthorised, because the nature of the transactions were well outside the scope of the authority conferred on DK by the practices of RHPL, were not authorised by RHPL's board and were not the subject of any shareholders' consent by NB as RHPL's sole shareholder.
The next question is whether, where I have found that DK transferred the relevant funds without authority, that gives rise to a restitutionary or equitable claim against DK for the entire amount of those funds and against MB and AB for the amounts they received. Mr Russoniello addressed the scope of a claim for monies had and received by reference to authority, including Heperu Pty Ltd v Bell (2009) 76 NSWLR 230; [2009] NSWCA 252 and Australian Financial Services and Leasing (2014) 307 ALR 512 at [67]ff. A claim for monies had and received may be established in respect of monies paid over without authority, which remain the property of the payer, unless a third party has received the money in good faith and for valuable consideration: Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 572; Heperu Pty Ltd v Bell above; Break Fast Investments Pty Ltd v Giannopoulos [2011] NSWSC 1508 at [33]-[34]. In Riverwood Legion and Community Club Ltd v Repaja & Co Pty Ltd [2015] NSWSC 383 Stevenson J held that the volunteer recipient of funds paid out without authority, and in fraud upon the payer, came under a personal liability to restore the relevant funds.
Mr Wood also fairly recognised in submissions that he understood RHPL to claim a constructive trust over the amounts paid to DK, MB and AB relying at least on the principles in Black v S Freedman & Co (1910) 12 CLR 105; [1910] HCA 58. The High Court there held that money given by a thief to a third party who received that money as a volunteer could be recovered by the victim of the theft although the third party had not participated in the theft. In Wambo Coal Pty Ltd v Ariff & Anor (2007) 63 ACSR 429; [2007] NSWSC 589 at [40]-[41], White J summarised the relevant principles as follows:
"Where property is stolen, the property is trust property in the hands of the thief and can be traced into the hands of a third party who receives the property otherwise than as a bona fide purchaser of the legal estate for value without notice. The property is trust property in the hands of the thief because the thief is bound in conscience to hold the property on behalf of its true owner. Whether the trust is characterised as a resulting trust (Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75; [2004] NSWCA 82 at [1-3]-[117]), or as a constructive trust (Westdeutsche Landesbank v Islington London Borough Council per Lord Browne-Wilkinson at 716), the trust is of an institutional rather than a remedial character. It arises because the conscience of the thief is bound.
In the same way, where property is acquired by fraud and there is a complete failure of consideration, the trust arises immediately on the receipt of the property: Orix Australia Corporation Ltd v Moody Kiddell & Partners Pty Ltd [2005] NSWSC 1209 at [155]-[156] and cases cited. So, in Neste Oy v Lloyds Bank plc [1983] 2 Lloyd's Rep 658, referred to with apparent approval in Re Goldcorp Exchange Ltd [1995] 1 AC 74 at 104; [1994] 3 NZLR 385 at 404, where the payee received payment from its principal of moneys which were not impressed with an express trust, but which were to be used in performance of a contract which the payee knew could not take place, the payee held the payment on trust for the payer from the time of its receipt. The circumstances which created the trust in Neste Oy were that the payee knew (as was the fact) that there could be no performance under its contract, so that there was a total failure of consideration for the payment, and the payment could not in conscience be retained. The trust was an institutional trust which attached to the moneys from the time of receipt."
In Heperu Pty Ltd v Belle above at [92], Allsop P summarised the effect of the principle as that:
"a person entirely innocent of a fraud who comes to know that he or she has received and still retains the proceeds of, or taken advantage of, a fraud to which he or she was not party, cannot knowingly seek to retain those proceeds or that advantage, without, in effect, becoming a party to that fraud and liable accordingly…"
I also recognise that, in Agip (Africa) Ltd v Jackson [1990] Ch 265 at 284 ("Agip") (upheld by the Court of Appeal at [1991] Ch 547), Millett J referred (at 291) to a category of knowing receipt liability where:
"the person, usually an agent of the trustees, who receives the trust property lawfully and not for his own benefit but who then either misappropriates it or otherwise deals with it in a manner which is inconsistent with the trust. He is liable to account as a constructive trustee if he received the property knowing it to be such, though he will not necessarily be required in all circumstances to have known the exact terms of the trust."
Mr Jackman also relies on that case for Millett J's observation that:
"Where an agent has paid away his principal's money in circumstances which give rise to a right of recovery, either principal or agent can sue, while, if the money has been paid without authority, the principal has alternative remedies: to sue the agent or the person to whom he paid the money. By suing one he does not in any sense waive the claim against the other. He must of course elect between the alternative remedies but there is no final election until a judgment is obtained and satisfied: United Australia Ltd v Barclays Bank Ltd [1940] 4 All ER 20, [1941] AC 1."
In Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391 ("Metall und Rohstoff") at 474, the Court of Appeal in turn referred to a category of constructive trust where a party received trust property, other than as a purchaser for value without notice of the trust, and acquired notice of the trust and dealt with it in a manner inconsistent with the trust, which it described as a "wrongful dealing constructive trust". In Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81 at [45], Leeming JA (with whom Bathurst CJ and Sackville AJA agreed), referred to Agip and Metall und Rohstoff above and observed that:
"A person who receives trust property, otherwise than as a bona fide purchaser for value without notice, but innocently, and thereafter acquires notice of the trust and deals with it in a manner inconsistent with the trust, will also be liable as a constructive trustee. Although this is similar to first limb Barnes v Addy liability, it is conceptually distinct, because it is the subsequent dealing, rather than the receipt of property, that founds liability, as Professors Dietrich and Ridge have observed: J Dietrich and P Ridge, Accessories in Private Law, (2015, Cambridge University Press) at 203. This class of liability was identified by Millett J in Agip (Africa) Ltd v Jackson [1990] Ch 265 at 291 and by the Court of Appeal in Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391 at 474; see also L Tucker et al, Lewin on Trusts (19th ed 2015, Sweet & Maxwell) at 2103-9. The distinction drawn by Millett J in Agip was cited with evident approval in Sze Tu at [143]."
In Rheem Australia Pty Ltd v McInnes [2020] NSWSC 1313 at [127], Parker J found that a company whose funds had been paid out by an employee in fraud upon it was entitled to judgment against that employee for that sum, where the transaction was fraudulent and no proper consideration was provided for the payment, by way of a common law entitlement by way of restitution for monies had and received, as well as by a claim under Black v S Freedman & Co above, giving rise to an equitable personal remedy in parallel to the common law remedy by way of restitution, the entitlement in each case being to recoup the amount misappropriated. His Honour also held that claim extended, under Black v S Freedman & Co above, to a volunteer who innocently received the relevant funds, once the volunteer was made aware of the true owner's interest, in respect of whatever monies were left or the traceable product of those monies.
Here, the monies that are the subject of this claim were trust funds; they were paid out by DK without authority; and each of MB and AB received the funds as volunteers. A claim for monies had under the principles recognised in Black v S Freedman & Co, Agip and Fistar v Riverwood Legion and Community Club Ltd is established against DK for the amount paid out without authority and against MB and AB them for the monies they received as volunteers.
A further issue arises as to whether amounts paid to Shanahan Tudhope Lawyers are recoverable, which depends on whether that firm was then acting for RHPL, so the funds paid to it were held on RHPL's behalf. It seems to me that, when monies were transferred to Shanahan Tudhope, that firm was not acting for RHPL, but for DK, MB and interests associated with them. On 10 June 2020, the firm had advised DK and MB that:
"For us to act for [RHPL] there would need to be a directors' meeting and resolution, which would necessarily mean notifying [NB]. [NB] might also allege a conflict of interest for us as we have acted for him in relation to the Mitris matter."
MB also initially accepted in cross-examination that, at the time payments were made to Shanahan Tudhope, that firm was engaged to advise her as to her rights as a beneficiary of the NBF Trust and as to the possibility of litigation against her father, and was advising her and AB in that respect (T74). She also fairly accepted that, in June 2020, Shanahan Tudhope were not acting for RHPL, although she resiled from that evidence in cross-examination by Mr Russoniello, after being shown the email dated 10 June 2020 from that firm which did not in fact support the contrary view (T79). I have referred above to later correspondence from that firm which is consistent with its acting for DK and MB and possibly SB and AB rather than for RHPL.
I recognise that there is some evidence that Shanahan Tudhope has, at least at times, taken the contrary position. By an email dated 19 June 2020 to NAB (Ex DK7), Shanahan Tudhope appears to have reversed its position of nine days earlier so as to contend that it had received funds into trust from RHPL and claim that those funds were held on trust for that entity. On 1 July 2020, Shanahan Tudhope again advised that it was retained as solicitor for RHPL and was unable to act for one group of directors against another (Ex DK6). Recently, Shanahan Tudhope declined to provide information to DK's solicitors as to the extent of any monies still held on trust on the basis that that information was confidential information of their client, RHPL (Ex DK1, DK5).
Mr Russoniello contends that the claim against DK fails as regards the funds paid to Shanahan Tudhope because they were paid into a trust account for the benefit of RHPL and may still be there or may have been disbursed on the authority of NB or SHM. I do not accept the premise of that submission that the amounts were initially paid into a trust account for the benefit of RHPL, as distinct from for the benefit of DK, MB and possibly SB and AB for whom Shanahan Tudhope were then acting. However, the position is now more complicated because (as I noted above) Shanahan Tudhope now takes the position that it is acting for RHPL and holds the funds, or what remains of them, on account of RHPL. A consequential issue now arises as to the quantum of the claim against DK in respect of the amount paid to Shanahan Tudhope
By email dated 22 March 2021, apparently in response to the issue raised by DK at the hearing as to whether monies were still held by CJP and Shanahan Tudhope and were recoverable by RHPL or SHM and a question I had then raised as to the extent of the claim that could properly be put by RHPL and its legal representatives, the solicitors acting for NB, RHPL and SHM advised that they no longer pressed any claim for relief with respect to the $50,000 paid to CJP and only pressed a claim for relief in the amount of $43,872.40 with respect to the $110,000 paid to Shanahan Tudhope. The amount of the judgment that RHPL seeks against DK is therefore reduced to $393,872.40 or alternatively $150,000 (being the amount he personally received) plus interest; and the amount of the judgment it seeks against each of MB and AB is $100,000 plus interest. By an email dated 26 March 2021, sent without leave, DK's solicitors in turn advised my Associate that the Cross-Claimants' "apportionment" (or, more precisely, reduction) of their claim in respect of the amount paid to Shanahan Tudhope "should not be understood to be either assented to or acquiesced to" by DK. DK's solicitors contended that the basis of that reduction had not been made intelligible to DK and that that should be a relevant matter for the Court in addressing any relief in respect of the $43,872.40 claim".
It may have been arguable that RHPL was entitled to maintain the full amount of the claim against DK, so far as that was the amount paid out of RHPL and the NBF Trust without authority and that amount had not been restored to the trust, provided that it did not then recover more than the amount that was paid away. However, RHPL has implicitly proceeded on the basis that it should allow credit to DK for the amount that Shanahan Tudhope now claims to hold on RHPL's behalf, and it did not sufficiently address the evidentiary or legal complexities of quantification of this claim, where it has not led evidence of those amounts or how they are derived. I should not seek to formulate the way in which those complexities might have been addressed, where RHPL has not sufficiently done so, and DK would not have procedural fairness in respect of any alternate formulation of the claim. For that reason, RHPL's claim in respect of the amount of $43,872.40 referable to the payment to Shanahan Tudhope must fail.
Mr Russoniello also relies on the scope of RHPL's pleaded case to submit that RHPL should not be permitted to recover the funds paid to DK, MB and AB on the basis of any alternative claim that they were lent to them, notwithstanding that DK had subsequently asserted that that was the nature of the transaction in the correspondence to which I referred above. Mr Russoniello also submits that RHPL should not be permitted to contend that there was a declaration of express trust over the funds, although DK had also advanced that proposition in correspondence with NAB to which I also referred above. It is not necessary to determine whether those claims would be open to RHPL, where I have found that the pleaded claims for monies had and received and as recipients of trust property are established.
Finally, Mr Russoniello refers to accounting records of the NBF Trust which indicate "unpaid beneficiary entitlements" owing to each of SB, MB, AB and DK of $80,000 in the 2018 year, carried over in the 2019 year, and contends that an "unpaid present entitlement" concerns an amount that the beneficiary has a present legal right to demand immediately. He submits that, if RHPL is to obtain equitable compensation to make up its loss of trust property, it should be on condition that SB, MB, AB and DK retain their "unpaid present entitlements". I do not see any necessity to impose such a condition, either to preserve or extinguish such entitlements, where there is no claim to either recover or extinguish them in these proceedings. Mr Russoniello also refers to a later reference to the monies distributed to MB, AB and DK in the Trust's account as a loan. It does not seem to me that that assists the Cross-Defendants, where any such loan was payable on demand, and a demand for payment has been made both in correspondence and in these proceedings. RHPL rightly recognises that it cannot establish more than the amount paid out, and so it will only be entitled to recover compensation to the extent that the amounts are not paid to it by repayment of the relevant loans.
For these reasons, and consistent with the approach in Agip to which I referred above, RHPL is entitled to judgment against DK in the amount of $350,000 plus interest being the total amount paid out to him, MB and AB outside the scope of his authority, and also to judgment against each of MB and AB of $100,000 plus interest, although it cannot recover more than $350,000 plus interest in enforcing those judgments.