Kekatos v Stafford [2009] NSWCA 219 | Case summary

Kekatos v Stafford [2009] NSWCA 219 | Case summary | Zoe

[16]

4 Before 8 December 1999, the land was owned by a company called Australian Machinery Equipment Sales Pty Limited ("AMES") which was owned by the Stafford and Kekatos families. In November 1995, AMES leased the land to Heggies for a five year term with three options to renew of 11 years each. Royalties were payable by Heggies under the lease by reference to the operation of the quarry. In December 1995, AMES entered into a joint venture agreement ("the Land Fill Agreement") with Heggies and Collex in relation to the use of the land. Under the Landfill Agreement, AMES granted an unregistered mortgage over the land (in respect of which a caveat was lodged) to secure performance of obligations by it under that agreement. 5 Later, caveats were lodged on the title to the land by Collex, claiming an option to acquire a lease of the land, and by a company called Ostabridge Pty Limited ("Ostabridge") claiming an interest pursuant to a contract for the sale of the land. 6 In December 1999, the Staffords and Mrs Kekatos advanced $1.2 million to Global which purchased the land from AMES, paying off a National Australia Bank mortgage. The Staffords and Mrs Kekatos were shareholders and directors of Global. This money had been raised from the Commonwealth Bank using various securities, including other properties owned by the Staffords (and their husbands) and Mrs Kekatos. The advance to Global by the Staffords and Mrs Kekatos was made pursuant to a deed of loan which included a charge by Global over any freehold or leasehold property and its assets and undertaking and a covenant to execute a registrable mortgage of the land. Global also granted to the Staffords and Mrs Kekatos a fixed charge over the land and an unregistered mortgage over the land, both securing all moneys owing by Global to them. 7 Thus the several loans of the Staffords and Mrs Kekatos to Global were secured by what the primary judge referred to as the Loan Deed, the Global Charge and the Global Mortgage. 8 In May 2001, Heggies commenced litigation over the lease and in September 2003, Austin J ordered that Global grant a new lease to Heggies. 9 In April 2003, a dispute arose between the families over Global's share register and the Staffords commenced winding up proceedings. As part of resolving this dispute Mr Daniel Cvitanovic was appointed receiver and manager of Global's assets and undertaking, pursuant to the Global Charge. 10 Meawhile, Ostabridge, which had commenced proceedings against AMES and Global, had gone into receivership, Mr Kevin Shirlaw being appointed its receiver and manager in July 2000. In January 2003, these proceedings were settled on terms which obliged Global to pay sums to Ostabridge, secured by an unregistered mortgage over the land. Further proceedings were brought by Ostabridge against Global and receivers (Messrs McDonald and Albarran) were appointed to the land under the mortgage by Mr Shirlaw. These further proceedings were settled in May 2003 by an agreement requiring Global to pay $4.65 million to Ostabridge partly secured by the land and payable in instalments up to June 2006. Global defaulted on these payments and it was wound up in October 2003, Mr Michael Jones being appointed liquidator. 11 Meanwhile, in September 2003, Mr Cvitanovic retired as receiver under the Global Charge, but was reappointed in early October of the same year. Under this second receivership, Mr Cvitanovic began to seek buyers for the land. The Staffords and Mrs Kekatos believed the land could be bought at an advantageous price. Mr Cvitanovic held discussions with Mr Wayne Stafford (as agent for the Staffords) and Mr Kekatos (an agent for his wife). Of course, any dealing with the land would necessarily have to involve Mr Shirlaw, the receiver of Ostabridge, and his appointed receivers of the land (Messrs McDonald and Albarran). 12 The Staffords and Mrs Kekatos had, since 2000, made further advances to Global such that by late October 2003 the Global Charge secured $741,561.00 lent by Ms Susan Stafford, $1,370,955.92 by Ms Rhonda Stafford and $1,080,932.20 by Mrs Kekatos (a total of $3,193,449.12). 13 On 30 October 2003, consequent upon the discussions among Messrs Cvitanovic, Stafford and Kekatos, Mr Cvitanovic sent a letter recording an offer to purchase the land for $5,403,213, being cash of $2,209,764 and assignment of the secured debts of $3,193,449. A tender process with other bids was to take place. 14 There was a working paper attached to Mr Cvitanovic's letter setting out: (a) the existing debts owed by Global to the Staffords and Mrs Kekatos (as identified above) and two sums estimated to pay out Ostabridge ($1.7 million) and the receiver's costs (presumably of Mr Cvitanovic, being $509,763) which appeared to be to Mrs Kekatos' account. This working paper indicated that the land would be bought, in effect by Mrs Kekatos (but not the Staffords) paying out Ostabridge and the receiver (by payments totalling $2,209,763.84) and such sums would be added to her secured debt, raising it from $1,080,932.20 to $3,290,696.04. 15 An associate of Mr Wayne Stafford, a Mr Hallinan, made another offer also involving a cash injection, a transfer of the secured debt, payment of Ostabridge and receivers. One important difference was that this proposal involved paying out Mrs Kekatos' secured debt, that is Mrs Kekatos being bought out. 16 By 5 December 2003, Mr Kekatos, Mr Wayne Stafford and Mr Cvitanovic had refined the former proposal. A tender would be lodged on behalf of a unit trust in which the Staffords would hold a 50 per cent interest and Mrs Kekatos a 50 per cent interest, but with voting control lying with Mrs Kekatos. The offer price was $4.893 million being the transfer of the debt under the Global Charge and $1.7 million in cash to be raised by Mrs Kekatos using the land and her Vaucluse home as security. This $1.7 million lying with Mrs Kekatos was to deal with Ostabridge. It was also intended that Mrs Kekatos would, in the first instance, be responsible for paying out the receiver's costs. 17 Steps took place to put this arrangement in place. A unit trust deed was prepared and sent to Mr Wayne Stafford in February 2004. Also a schedule to a pro forma unit trust deed was executed by Mrs Kekatos as "trustee of the Penrose Quarry Unit Trust". Other tenders came forward. 18 For a time in December 2003 it appeared that the proposal under which Mrs Kekatos funded a payout to Ostabridge that was satisfactory to Mr Shirlaw would proceed. On 22 December 2003, Mr Shirlaw gave his consent to the proposal subject to conditions. 19 No trust as yet was established, there being no property subject of the trust and no contract to purchase the land yet exchanged. 20 At this stage in the narrative, it is convenient to interweave the allegations of the parties. Though no trust was yet in existence, the Staffords claimed in their pleading that by this time there was a binding and enforceable agreement, called the "Penrose Trust Agreement" under which Mrs Kekatos agreed to purchase the land as trustee for herself and the Staffords. Paragraph 29 of the Amended Statement of Claim (the "ASC") was in the following terms: "[29] On or about 29 October 2003, or alternatively, in or about December 2003, [Mrs Kekatos] by her agent and attorney [Mr Kekatos] entered into an agreement with the [Staffords], by their agent Wayne Stafford, pursuant to which [Mrs Kekatos] and the [Staffords] would form a trust ("the Penrose Trust"), the terms of which, and the purpose of which, would be a. [Mrs Kekatos] would be the trustee of the trust; b. the property of the trust would be held by [Mrs Kekatos] on trust for the beneficiaries; c. the entitlement to the trust property would be divided 50% and/or a controlling interest (by voting) to the Kekatos' interest (either [Mrs Kekatos] herself or a company associated with the [Kekatoses] "the Kekatos' Interest") and 50% or a non-controlling interest by voting to the [Staffords]; d. That the Penrose Trust would make an offer to Cvitanovic to purchase the Penrose Land for a price up to $4.83 million or such other figure agreed to between the parties. e. The purchase price would be paid by the assignment to the Penrose Trust by Global of the Charge valued at $3,193,449 and the balance by cash. f. The cash component referred to in subparagraph 29 e above and the funds needed to payout Cvitanovic's costs would be funded by way of a registered first mortgage secured over the Penrose land ("the Penrose Funding"), g. the Kekatos' [I]nterest would do all acts and things necessary to raise the Penrose Funding. h. the Penrose Land, when purchased, would constitute property of the Trust. ("the Penrose Trust Agreement") Particulars (i) Discussion on 29 October 2003 between [Mr Kekatos] on behalf of [Mrs Kekatos] and Wayne Stafford on behalf of the [Staffords] in the presence of Cvitanovic, and recorded in a letter from Cvitanovic addressed to George Kekatos dated 30 October 2003. (ii) Alternatively, the Penrose Trust Agreement was agreed by way of a discussion between Wayne Stafford on behalf of the [Staffords] and [Mr Kekatos] on behalf of [Mrs Kekatos] in the presence of Cvitanovic in or about December 2003." 21 In paras 40 and 40A the Staffords pleaded that in about August 2004, the Penrose Trust or Penrose Trust Agreement was varied or the Penrose Trust Agreement was novated to include or to conform with the following proposition: "(a) [Mrs Kekatos] would use her Vaucluse home to raise and offer as additional security to facilitate the Penrose Funding to allow the Penrose Trust to purchase the Penrose Land. (b) That [Mrs Kekatos] on the raising of the Penrose Funding would as trustee of the Penrose Trust do all acts and things necessary to proceed with the purchase of the Penrose Land; (c) in the event that the purchase of the Penrose land did not proceed she would as trustee of the Penrose Trust do all acts and things necessary to recover, at her costs the monies due under the Charge. (d) in consideration for [Mrs Kekatos'] promise as detailed in subparagraph 40a, b and c above, the [Staffords] would assign their interests in the Charge to [Mrs Kekatos] who would then hold the Charge as trustee of the Penrose Trust; (e) that she would on receipt of any monies repaid to reduce the amount secured under the Charge pay such monies to the Penrose Trust ('the Variation'). Particulars Conversation between Wayne Stafford and George Kekatos on or about August 2004." (I will deal with the underlying facts giving rise to these assertions as they arise in chronological order.) 22 The primary judge rejected this contractual case at [18] of his reasons, stating: "[18] … However, in this case, as at December 2003, there was no consideration moving from the Staffords to support any such agreement, let alone had any consideration passed; and although in a sense the parties had 'agreed' that Mrs Kekatos would submit a tender on behalf of the proposed trust - to purchase the Penrose Land, subject to the Global Charge, at a price not exceeding $1.7 million, to be raised on the security of Mrs Kekatos' Vaucluse home and the Penrose Land - there was no 'concluded agreement' in the sense of a binding and enforceable contract to that effect: not only because of the absence of consideration, but also because it is clear enough, from the circumstance that the Staffords were contemporaneously engaged in negotiations with another potential purchaser of the land - High Quality, who also lodged a tender on 5 December 2003, which contemplated the Kekatos interests being bought out - that the Staffords did not then intend to be bound with Mrs Kekatos to the terms of the alleged 'Penrose Trust Agreement'. Had Mrs Kekatos' tender been accepted, she would, upon acquiring an interest in the property, indeed have held it as trustee, but not pursuant to a binding and enforceable agreement - rather, because she purchased expressly as trustee." 23 Because the question arises in the submissions of Mrs Kekatos on appeal it is convenient at this point to note what the primary judge said about the pleading of the Conveyancing Act 1919 (NSW), s 54A to the asserted "Penrose Trust Agreement" at [19] of his reasons: "[19] I mention, only to reject, Mr and Mrs Kekatos' further submission that any such agreement would have been unenforceable by operation of (NSW) Conveyancing Act 1919, s 54A, which provides that no action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement or some memorandum or note of it is in writing signed by or on behalf of the party charged. The alleged 'Penrose Trust Agreement' was not 'a contract for the sale or other disposition of land': it was not an agreement between vendor and purchaser, or disponor and disponee, but an agreement between three people who hoped to become purchasers. An agreement between A and B that they will together purchase land from a third party is not an agreement for the sale or other disposition of land within s 54A. Nor is an agreement between three persons that, in the event that one of them purchases certain land, she will hold it on trust for all three." 24 By the time the Staffords conveyed their agreement to Mr Shirlaw's conditions of 22 December 2003, he was no longer prepared to sell on those terms. Also, Heggies at this time foreshadowed a claim in the order of $600,000 for restitutionary steps taken on the land. Nevertheless, negotiations continued with Mr Shirlaw to acquire the land. 25 In June 2004, further complications arose. Heggies commenced proceedings against Global and Ostabridge and their liquidators and receivers seeking a registered mortgage over the land ("the Heggies Mortgage Proceedings"). The dispute also involved a priority dispute between Heggies and Ostabridge. Mr Cvitanovic brought a cross-claim in these proceedings challenging the validity of the Ostabridge mortgage. 26 At this time, an offer to purchase the land was renewed by the Staffords and Mrs Kekatos through the "Penrose Quarry Trust". Mr Cvitanovic obtained advice which dealt with the difficulties of selling to that trust. Nevertheless, a draft contract was prepared describing the purchaser as the "Penrose Quarry Trust". 27 On 7 July 2004, Mr Shirlaw entered into a contract for the sale of the land to a company called Adelaide Brighton Ltd ("Adelaide Brighton"). At the same time, Mr Shirlaw gave a settlement proposal to Mr Cvitanovic. This was conveyed to the Staffords and Mr and Mrs Kekatos. There was a demand on the two families by Mr Cvitanovic for his fees, a suggestion (rejected by the Staffords) that Mrs Kekatos buy out the Staffords' interest in the Global debt and charge and ultimately a rejection by Mr Cvitanovic of Mr Shirlaw's settlement proposal. 28 As will be referred to in due course, the sale of the land to Adelaide Brighton was eventually completed on 25 September 2005. Between July 2004 and that date there took place events that were central to this controversy. 29 As at 29 August 2004, the debts secured by the Global Charge were, to Ms Susan Stafford: $975,931, to Ms Rhonda Stafford $1,907,162 and to Mrs Kekatos: $1,375,234. On that day, 29 August 2004, a deed was executed assigning the debt owed by Global to, and the interest in the Global Charge of Ms Susan and Ms Rhonda Stafford to Mrs Kekatos (the "Deed of Assignment"). At [27] of his reasons the primary judge succinctly recorded the centrality of the deed and the essence of the parties' contentions about it litigated before him: "[27] … The basis of this transaction - and in particular whether the assignment of the charge was to Mrs Kekatos beneficially or as a trustee - is the fundamental issue in the case. The Staffords contend that there was an agreement to the effect and intent that, in consideration of the Staffords assigning to her, as trustee of the Penrose Quarry Trust, their interests in the Global Charge - with the result that her proportionate interest in the Global Charge, and the debt secured by it, would be increased from 32.25% to 50% (because the Global Charge would be held pursuant to the Penrose Quarry Trust), and the interests of the Staffords correspondingly reduced - Mrs Kekatos would raise the necessary funds for the purchase of the Penrose Land, using her Vaucluse home as additional security for that purpose. (Although this was said to be by way of variation or novation of the "Penrose Trust Agreement", that characterisation is really immaterial). Mr and Mrs Kekatos contend that there was an absolute assignment of the charge to Mrs Kekatos beneficially."

[17]

30 Mr Kekatos prepared the deed of assignment and another document, an "Undertaking and Authority", which were both executed by Mrs Kekatos on or about 29 August. The assignment was in the following terms: "WHEREAS A. Rhonda, Susan and Voula are the Lenders pursuant to a Registered Deed of Company Charge Registered No: having provided certain financial accommodation totalling as at 30 th September 2003 $3,929,332.00 ('the Monies') to Global Minerals Australia Pty Ltd (in Liquidation) and (Receiver Manager appointed) ('Global'), ('the Charge'). B. Global having defaulted in the repayment of the monies the Lenders appointed Ferrier Hodgson's Daniel Cvitanovic as Receiver and Manager pursuant to the charge to secure the repayment of the monies. C. The Receiver has requested that the Lenders provide continued funding in order for the Receiver to meet legal and other disbursements incurred by him pursuant to his obligations as Receiver of Global. D. Susan and Rhonda are not able to provide such further funding and have requested that Voula provide such funding and that Voula acquire the land held by Global being Lots 1-5 Hume Highway Paddy's River from the Receiver and on the terms and conditions herein. NOW THIS DEED WITNESSES that in consideration of the premises and of these presents the parties hereto HEREBY MUTUALLY COVENANT ACKNOWLEDGE AND CONFIRM as follows: 1. In consideration of Voula providing the funding required by the Receiver of Global Rhoda and Susan hereby assign and transfer on and from the date hereof to Voula all their right title and interest in the Charge and all monies secured thereunder and all collateral security held by the Receiver of Global. 2. Rhonda and Susan on and from the date hereof authorise and direct Voula to carry out all actions as may be required at her sole discretion and authority under the charge to instruct and deal in her own and unfettered right with the Receiver in relation to all matters and authorities required by the Receiver under the charge and the authority, instructions and written directions of Voula to the Receiver in relation to any matters under the Charge or his action will be sufficient and the only authority required by the Receiver to discharge all his obligations to Rhonda and Susan. 3. This instrument shall be construed in accordance with and governed by the laws of the State of New South Wales and the Courts of New South Wales shall have jurisdiction. AS WITNESS the parties have hereunto affixed their hands and seals on the day and year first hereinbefore written. SIGNED SEALED and DELIVERED by the said RHONDA STAFFORD in the presence of: WAYNE STAFFORD" The Undertaking and Authority was in the following terms: "TO: RHONDA STAFFORD

[18]

SUSAN STAFFORD I, Voula Kekatos hereby undertake and acknowledge that I will enter into the Agreement for Sale of Land to acquire Lots 1-5 Hume Highway Paddys River with the Receiver on behalf of the Penrose Quarry Trust signed this day by all the parties and shall apply all monies held by the parties pursuant to the Deed of Charge over Global to each respective party in accordance with the amounts stated in the accounts prepared by Peter Hawketts for 30 September 2003. Dated 29 th August 2004 Voula Kekatos" 31 Before and after 29 August 2004, discussions, in effect, negotiations, took place between Mr Wayne Stafford and Mr Kekatos about how to extract the families from the position they were in. At [30]-[32] of his reasons, the primary judge recorded evidence that he accepted about these negotiations, as follows: "[30] Mr Stafford says that in August or September he had a conversation with Mr Kekatos in which the latter said that the 'only way out' was if he could raise $2.5 million to pay out Mr Shirlaw, so that the trust could then acquire the Penrose Land, which he believed he could achieve using the Kekatos' Vaucluse home as security, but was only prepared to do so if compensated ' for taking the risk and for funding the security to pay out Shirlaw' . He proposed that the Global Charge be assigned to the trust, so that in the end the property and the charge would each be held as to 50% for the Staffords and 50% for Mrs Kekatos, which would be ' compensation for the money that we are putting in to fund the legals and also for raising the security to pay out Shirlaw '. Mr Stafford says that negotiations began with Mr Kekatos seeking a 75% interest in the trust, and that after days of negotiations they agreed on 50%. It is noteworthy that, having regard to the calculations referred to above (at [16]), increasing the Kekatos' interest in the charge to 50% (from 32.25%) would not by any means compensate them for the further expenditure it was anticipated that they would incur - unless that further expenditure were to be recoverable by them in addition to the amounts already secured by the Charge. [31] Mr Cvitanovic says that in August or early September, Mr Kekatos told him that if he was going to fund the litigation he wanted a bigger share of the proceeds, and subsequently that the Staffords would assign their interest under the charge to Mrs Kekatos as trustee, so that each would get 50%, with the Kekatos' interests to have control. Mr Kekatos denies any such conversation - with either Mr Stafford or Mr Cvitanovic - in or about August or September 2004, saying that the only occasion on which anything like that was discussed was in December 2003. Indeed, at one point he suggested that the relationship between him and Mr Stafford had broken down to the extent that they were not then speaking. However, on 8 September, Mr Stafford sent an email to Mr Cvitanovic: Have finally agreed on terms of the deed with George!, I am in Melbourne until Friday AM, Sue and Rhonda will sign the documents that will release your funds and complete the sale. When payment of the royalty is released I would expect you will release the moneys owed to Garry and the $35,000 Williams took from myself. When this is completed George and I would like to have a meeting arranged with HBL and Boral to discuss the transfer and conditions that we want.

[29]

[63] Mr Kekatos, who for all relevant purposes was Mrs Kekatos' duly authorised agent, induced the Staffords to adopt that expectation. This is established by his presence at the 16 July meeting when Mr Stafford refused to agree to an absolute assignment; the absence of any conversation or communication to which he can point in which the Staffords departed from that position; the conversations between him and Mr Stafford prior to 8 September as to the basis of the assignment; and most significantly by his representation to Mr Cvitanovic and Mr Stafford that Mrs Kekatos was acting as trustee but that there could not be express reference to the trust for taxation and commercial reasons. It is corroborated by his subsequent conduct vis-à-vis the Staffords, in which he continued to treat them (but no-one else) as if they retained a beneficial interest. [64] The Staffords acted in reliance upon their expectation, by executing and delivering the Deed of Assignment in its ultimate form, omitting reference to the Trust. Mr Southwick, for Mrs Kekatos, submitted that when Rhonda and Susan Stafford signed the Deed, the interlineations were not on it - they were subsequently inserted by Mr Stafford - and that as the act of reliance pleaded was the execution of the Deed, reliance at that time could therefore not be established. There are several answers to this. The first is that on a fair reading of the pleading, execution involves signing, sealing and delivery; and the interlineations were made before ultimate delivery, which was effected by forwarding the Deed the second time, with the interlineations omitted, to Mr Cvitanovic. The second is that the presence of the interlineations is only one of several indicia of reliance on the expectation; even at the time of original signature, the 16 July meeting and the 8 September conversations had already taken place, and the act of forwarding the Undertaking and the Fifth Schedule with the Deed speaks volumes as to their then expectation and belief. That there was, and had been since at least April 2003, a level of distrust between the Staffords and Mr Kekatos does not negative reliance on an assumption to the existence of which he had contributed: distrust, even amounting to suspicion, does not negative reliance, and a person can rely on a representation made by another, even though he distrusts him.

[48]

. Mrs Kekatos incurred legal costs of $132,834.42 with MD Nikolaidis, solicitor, between December 2004 and July 2006, in connection with the assertion and enforcement of her rights under the Heggies/Collex Mortgage and the Global Charge; . Finally, Mr Cvitanovic brought proceedings against Mrs Kekatos to recover his outstanding remuneration of $253,000. Those proceedings were ultimately settled for $185,000, for which Mrs Kekatos is liable, in respect of receiver's remuneration and expenses." 58 The primary judge then dealt with the Staffords' claims to the royalties and settlement proceeds. They put their claim on two bases. The first basis asserted the failure of what was said to be a joint venture to purchase the land. This was, it was submitted, the reason for the assignment. Thus, it was submitted, Mrs Kekatos received the proceeds and royalties as trustee, but as a constructive trustee referable to the contributions of the parties. This basis relied on Baumgartner v Baumgartner [1987] HCA 59; 164 CLR 137 at 148 and Muschinski v Dodds [1985] HCA 78; 160 CLR 583 at 620, as to restoration of parties' contributions made to a failed joint endeavour. The working out of that approach and the advantage to the Staffords can be seen in the discussion by the primary judge in the reasons at [89], as follows: "[89] On the basis of failure of the substratum of a joint venture, equity would have sought to return to each of the parties their respective contributions . The contributions of the parties to be repaid, to the extent of the available assets would include the sums secured by the Global Charge at the time of its assignment in August/September 2004 - namely as to Susan Stafford $975,930.56, as to Rhonda Stafford $1,907,161.58, and as to Mrs Kekatos $1,375,233.90. However, the Staffords acknowledge that on this approach, allowance would also have to be made for any other contributions actually made pursuant to the joint venture or undertaking - including the net amount of payments to the receiver by Mrs Kekatos and any payments she has made for legal expenses relevant to the venture, as well as the cost of acquisition of the Heggies/Collex Mortgage - which would have the effect of increasing her contribution to $2,143,867, with the resultant proportionate contributions being 37.94% (Rhonda) Stafford, 19.41% (Susan) Stafford, and 42.65% (Mrs Kekatos), so that on a pro rata return of contributions Rhonda would be entitled to $647,852 and Susan to $331,518, with Mrs Kekatos to retain $728,260."

[59]

66 As to the settlement sum payable to Mr Cvitanovic his Honour gave leave for the ascertainment of that sum. This issue does not arise, however, because the lesser sum of $185,000 has been paid and no further sum is due to Mr Cvitanovic. 67 As to the question of interest the primary judge rejected the reopening at [19] and [20] of his supplementary reasons (Stafford v Kekatos (No 4)) in the following terms: "[19] There are numerous difficulties with this submission. First , unlike the issue in relation to the amount of her liability under the Cvitanovic terms of settlement, it was in no way raised, orally or in writing, during the trial, and there is no explanation or apparent reason for it not having been raised inconsistent with fault on the part of Mrs Kekatos' side of the record. Accordingly, there is simply no basis to grant leave to reopen in that respect in the first place. Secondly , as Mr Finnane, who appears for the plaintiffs points out, her entitlement to interest would be a charge not against the plaintiffs but a charge against the trust fund, thus she would be entitled to only one half of the amount claimed. Thirdly , while I did not provide for interest in favour of Mrs Kekatos on those payments, I also did not allow interest to the plaintiffs in respect of the period before 25 September - notwithstanding that Mrs Kekatos had received trust moneys before that date from the royalty distributions - on the basis that she was entitled to retain the moneys so received until the amount of her expenditure had been fully recouped. If I were to allow interest on the sums she had paid out, I would correspondingly have to allow interest on those other receipts in her hands. Superimposed on the reduction just mentioned (of half), this would practically extinguish her interest claim. Fourthly , and in my view decisively, as Mr Finnane again points out, ordinarily when a trustee advances his or her own money to the trust he or she is not entitled to interest thereon [ Sichel v O'Shanassy (1877) 3 VLR (E) 208; Re Jones [1917] St R Qd 74; Jacobs' Law of Trusts in Australia , 5th ed, [2107]; Ford and Lee, Principles of the Law of Trusts , [14.3370]]."

[62]

71 Mrs Kekatos' arguments on appeal involved a significant departure from the conduct of the trial. It was conceded, on the day of the hearing of the appeal, that the respondents retained a beneficial interest in the Global Charge. No attempt was made to challenge the rejection of Mr Kekatos' evidence. No attempt was made to support a case (being the case run below) that the assignment unconditionally vested the beneficial interest in Mrs Kekatos. Rather, the argument on appeal concentrated on the contract asserted by the Staffords to have been made in October 2003 and varied in about August 2004, being referred to in Mrs Kekatos' submissions as the "Joint Venture Agreement" (the "JVA"). 72 The central submission was that the JVA was "void ab initio" and consequently the assignment was of no force and effect. So, it was submitted, the interests of Ms Susan and Ms Rhonda Stafford never left them. There was thus no call, it was submitted, for the primary judge to analyse the parties' respective positions by reference to the assignment having taken place. Rather, the relief to which the Staffords were entitled was said to be limited to restitutionary relief based on the value of the charge as at the date of the purported assignment. In propounding a document encapsulating the relief sought on the appeal senior counsel for Mrs Kekatos put forward alternative dates for the valuation. It was recognised that this relief would require a further hearing. The order sought if the appeal was successful was handed up at the appeal as an amendment or explication of the amended notice of appeal and was as follows: "At such remittal the Learned Judge be required to inquire into and determine the value of the Respondents' interests in the Charge as at the date of the Assignment and/or the date of Judgment (as determined by this Honourable Court) and award to the Respondents the amount determined by his Honour in accordance with the date fixed by this Court." 73 Mrs Kekatos argued that the JVA was void ab initio. Seven bases were put:

[68]

Because of the failure or voidness of the underlying JVA, the assignment was said to be void. 74 There are a number of answers to this way of putting the matter, each is fatal. 75 First, no attention was directed at the trial to the value of the charge at the date of the assignment. This was because the matter was not an issue. Mrs Kekatos did not contend a circumstance whereby the assignment was inoperative. This makes good the first objection of the Staffords to this way of putting the matter - it was not raised below where it could have been dealt with in the evidence. It can be accepted that the Staffords propounded an underlying contract and they themselves propounded the failure of the substratum of the trust. It can also be accepted that Mrs Kekatos pleaded the Conveyancing Act, ss 23C and 54A in dealing with the contract as pleaded. Nevertheless, no case was put at trial that any contract was void in the manner put on appeal thereby avoiding the assignment. A case that the assignment was void or a nullity was directly contrary to how Mrs Kekatos put her position below. If it had been ventilated, it might well have led to a body of evidence or at least cross-examination different to that led and undertaken: Coulton v Holcombe [1986] HCA 33; 162 CLR 1. Even if doubt could be cast on this proposition and even if it could be argued that there would have been no effect on how the proceedings were conducted below had this point been raised, it would be neither expedient nor just in a case such as this to permit such a departure from the case run below, a case below sought to be supported by evidence that was rejected: cf Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 at 633, 645-646 and 647. 76 Secondly, none of the asserted bases of the voidness of the underlying agreement vitiates, in any way, the effectiveness of the deed of assignment. Lack of consideration in the underlying bargain could not affect the validity of the deed. The frustration of the agreement (whether at common law or under the Frustrated Contracts Act) could not affect the operation of the deed to transfer the interests dealt with by it. It may be that the circumstances giving rise to the making of the deed and any frustration of the underlying mutual endeavour would create an equity to have the assignment set aside; but that was not asserted by Mrs Kekatos (although it was asserted by the Staffords below and rejected by the primary judge). Any operation of the Conveyancing Act, ss 23C and 54A on the underlying agreement could not affect the operation of the deed. Neither provision could avoid the deed. Similarly, even if (as indeed was found by the primary judge) the underlying agreement was void for vagueness or uncertainty, that could not affect the operation of the deed otherwise clear on its face. 77 Thirdly, the underlying agreement was found by the primary judge to be uncertain and not relevantly operative. None of the primary judge's conclusions about the deed, its surrounding circumstances and the estoppel that bound Mrs Kekatos depended upon any certainty or enforceability of the contract pleaded after para 29 of the ASC. 78 Fourthly, the failure of the underlying substratum was relied on by the Staffords in the manner and for the reasons I have already identified. The reasons given by his Honour for not accepting the Baumgartner submission of the Staffords were, with respect, on the facts, not only open, but clearly correct. The purchase of the land by the two families was always problematic. There was a maze of potential difficulties preventing its success. The legitimacy of compensating Mrs Kekatos under the arrangement for the steps she took by increasing her share of the Global Charge to 50 per cent was not invalidated by the failure of the ability to purchase the land. 79 Once it is accepted, as it must be, given that it was common ground among the parties at the hearing, that the deed had operative effect, and once it is accepted, as it was by Mrs Kekatos on appeal, that Mr Kekatos' evidence can be put to one side, the case for the estoppel found by the primary judge is undeniable. The following propositions reflecting the underlying estoppel findings were amply supported by the underlying evidence:

[84]

(g) The Staffords would suffer detriment if their expectation was not fulfilled, because they would have disposed of their beneficial interest in the Global Charge upon terms to which they would otherwise not have agreed, and for no, or inadequate, recompense: [25], [27] and [66] of the reasons. 80 The above is sufficient to reject the essential thrust of the attack by Mrs Kekatos. Nevertheless it is appropriate to deal with some particular aspects of Mrs Kekatos' submissions. At the outset it should be said that the submissions were detailed and, with respect, not entirely focused upon the thrust of the argument as finally put on behalf of Mrs Kekatos at the appeal. 81 The written submissions filed prior to the appeal being argued dealt substantially with the reasons why the underlying contract lacked certainty. I have dealt with this above. The only further matter that should be addressed is the notion that there was a condition precedent to the operation of the agreement, being that the so called Penrose Trust acquire the land. To the extent that this argument was put in the written submissions as a matter which affected the operation of the deed this argument was not run at the trial. To the extent that the argument was that there was a condition precedent to the operation of the underlying agreement this aspect of the appeal was sufficiently dealt with by the primary judge in his dealing with the rejection of the Staffords argument based on the asserted failure of the substratum of the arrangement. It can also be dealt with at this level by noting that the underlying agreement was irrelevant to how the primary judge resolved the controversy, that is by reference to the Deed of Assignment and the estoppel arising in connection with it. However, to the extent that the argument was put that the condition precedent to the operation of the contract also affected the operation of the deed no such case was put below. It was a matter which could conceivably have been dealt with by cross-examination and further evidence and it is not a matter which should be allowed to be addressed now. 82 If one rejects the attack on the effectiveness of the assignment, then the arguments put forward in relation to the royalties also fall away. There can be no doubt that Mrs Kekatos obtained her position in relation to the Heggies/Collex mortgage by reason of her position as having taken control of the Global Charge and by paying the $29,300. As the primary judge pointed out, holding the Heggies/Collex Mortgage only entitled Mrs Kekatos to the payment of funds due under that mortgage, being $29,300. Thus, the receipt of the royalties was principally related to the entitlement of Mrs Kekatos as the assignee of the Global Charge. The royalties were income from the exploitation of the land. She was entitled as holder of the Heggies/Collex Mortgage to receive these moneys, but only as mortgagee for the money secured under the mortgage ($29,300). Thereafter, Mrs Kekatos held the moneys for the next ranking security which was the Global Charge. 83 Once the case put on appeal that no assignment took place is rejected the fate of the receipt of the royalties becomes bound up with the conclusions of the primary judge as to the estoppel as to the trust relationship. 84 Any debate about the question of the taking of the Heggies/Collex Mortgage is relevant only to the capacity in which Mrs Kekatos held the first $29,300. 85 It was asserted that there had not been a case made out to impugn Mrs Kekatos' taking of the Heggies/Collex Mortgage in her own right. It was submitted by the appellant that it had no relationship to the underlying trust (formed by the estoppel as found by the primary judge) and that she paid for the mortgage with her own funds. I cannot agree. It can be accepted that she paid for the mortgage with her own funds. That is one of the aspects which was anticipated by the underlying arrangement supporting the trust by way of estoppel. But it is factually wrong to assert that the acquisition of the Heggies/Collex Mortgage could not have facilitated the acquisition of the land. As the respondents submitted on the appeal, any incumbrance on the land, including a first mortgage such as the Heggies/Collex Mortgage, was potentially an obstacle to the acquisition of the land by any person. Likewise, the acquisition of an incumbrance such as the mortgage by a potential purchaser might facilitate the acquisition of the land by removing such an obstacle or placing it into the control of the purchaser. 86 The underlying case can be over refined and made more complex than it really is. In large part, with great respect, that is a feature of the appellant's submissions. On the findings by his Honour the case was a tolerably straightforward one. The facts were that, after some competing proposals, Mr Kekatos on behalf of his wife and Mr Wayne Stafford on behalf of Ms Susan and Ms Rhonda Stafford put in place an arrangement, which did not have sufficient certainty to be a binding and enforceable contract, whereby Mrs Kekatos would take up the burden of expenditure, in the first instance, to attempt to obtain the land for the three of them as a means of extricating themselves to the extent they could from the morass of difficulties attending the land and its operation. An essential aspect of this proposal as it fell out was the assignment in the Deed of Assignment of the interests of the Staffords in the debt owed by Global and in the charge of Global's assets including the land. The case fought out at trial was whether this assignment and the rights under it were held on trust by Mrs Kekatos. An important aspect of this question was the extent of the trust. The underlying arrangement, for instance, as reflected in the undertaking and authority, could on one view be seen to be limited to the purchase of the land. What occurred was the land was sold to a third party and proceeds came into Mrs Kekatos' hands together with the royalties from the use of the land. The primary judge found on ample and adequate evidence that Mrs Kekatos was bound by an equitable estoppel that prevented her from dealing with the rights taken under the assignment of the charge otherwise than pursuant to the essential terms of the arrangement of holding on trust the proceeds 50:50. The primary judge also found that the trust which she was estopped from denying extended to receipt of the funds for the sale of the land to a third party. 87 As I have sought to show earlier, the findings of the primary judge in this respect were amply founded in the evidence. Indeed no real effort was made to attack those findings. Rather, the attack was centred upon the failure of the underlying agreement, as a contract, and the asserted effect that had upon the assignment. That attack fails principally because it was not run below, but in any event, must fail because the mechanism for assignment was a deed and capable of assigning and effective to assign to Mrs Kekatos the interests covered by the deed. The fundamental question for the primary judge was the capacity in which those interests were held. 88 Complaint was made as to the choice of remedy identified by his Honour in Stafford v Kekatos [No 4]. It was submitted that the primary judge misdirected himself as to equitable remedies. First, there can be no doubt that if the primary judge was correct in the conclusion that there was an equitable estoppel denying Mrs Kekatos the entitlement to deal with the matter otherwise than on terms of the trust that his Honour made the appropriate remedial choice. Any debate about remedy is limited to the consequences of the argument put on appeal that no assignment of rights took place under the deed of assignment. This would raise issues similar to those raised by the first case propounded by the Staffords based on what they said was the exhaustion of the purpose of the trust. Mrs Kekatos sought to argue (by reference to its new claim put on appeal) that the primary judge should have simply awarded restitution, valued at the time of the purported assignment. 89 This argument has no merit. If the Staffords are to be awarded a restitutionary remedy by reason of the failure of the underlying arrangement and the ineffectiveness of the assignment, there is no reason why it should be limited in time to the date of the purported assignment. The parties continued to act thereafter. Moneys came into the hands of Mrs Kekatos pursuant to events which followed from the attempted execution of the arrangement. By reason of the rejection of Mr Kekatos' evidence, it is clear that the parties had an underlying arrangement even if it failed. In these circumstances, there is no necessary justice in allowing Mrs Kekatos to take the benefit of any restitutionary position other than one that takes into account the receipt by her of the sale proceeds and royalties. 90 In any event, it is far from clear that any valuation of the interest of the Global Charge as at the date of purported assignment would properly take into account later events as they have become known. It is not clear that the events do not simply reflect the true value of the underlying rights in the charge, as at the date of the purported assignment, rather than reflect new events irrelevant to such a valuation task. In any event, that valuation task has never been undertaken because this point was not raised at the trial, it being irrelevant to the cases put forward for resolution by the parties. 91 The minimum equity to do justice and the justice of the case for any restitutionary remedy should, in the light of the rejection of Mr Kekatos' evidence and the behaviour of the parties as detailed in his Honour's reasons, would require and permit Mrs Kekatos to bring to account the moneys that she has received and the expenditures that she has made. As the primary judge showed when dealing with the Baumgartner case, this would put Mrs Kekatos in a worse position than she was under the orders of the primary judgment. 92 Finally, in relation to the primary judgment, I should deal with the asserted factual challenges to the primary judge's reasons. First, it was submitted that the primary judge did not make any findings of fact supporting his conclusion that the assignment of the Heggies/Collex Mortgage was available to the Staffords. This misunderstands the reasoning of the primary judge. His Honour characterised his opportunity to acquire the mortgage as "being available to the trust": [72] of the reasons. That is to say, his Honour found that the opportunity was one which was available to the appellant, but only in circumstances where she was not entitled in equity to it for herself except on behalf of the trust. If the primary judge's conclusions as to the estoppel and trust are maintained (as they are) this conclusion must be correct. 93 Secondly, it was submitted that the primary judge erred when he held at [90] that the joint venture had not entirely failed. With respect, this is misconceived. This finding did contradict the basis upon which the Staffords put their principal case. It was a rejection of that case. Their principal case was not common ground at trial, as Mrs Kekatos' submissions put. Rather, Mr Kekatos and Mrs Kekatos said that the transfer had been complete and absolute without any attendant circumstances of the joint venture binding them. The finding of the lack of complete failure of the joint venture was the that the judge refused the Staffords' contentions to be entitled to more than 50 per cent of the net proceeds and royalties. 94 Thirdly, it was submitted that there was no evidence to support the finding that the payout to the appellant had anything to do with or involved the Staffords' interest in the charge. With respect, this ignores the fundamental structure of the case. His Honour dealt with this at [81] and [82] of his reasons (see [56] above). As the Staffords submitted on appeal, the reasoning in these paragraphs is supported by the following facts which were not seriously in dispute:

[100]

Appeal on the second judgment 103 The decision of the primary judge not to permit reopening was a matter of discretion in practice and procedure. An error of the kind in House v The King [1936] HCA 40; 55 CLR 499 is required to be shown. No particular error of principle was identified as having vitiated the exercise of discretion. Rather, it was said that the calculation of interest was something which could have been done by the use of a calculator and so it was unreasonable, in effect, not to permit the reopening of the interest issue. 104 The reasons of the primary judge reveal a close attention to the conduct of the case and the implications of the raising of further matters. I am not persuaded that the question of interest would not have opened up significant issues as to the reciprocal rights and obligations of the parties in relation to moneys that had been paid. In my view, no error of principle has been shown on the part of the primary judge to deny the correctness of his conclusion that there should be no further debate about interest. 105 Likewise, the time for raising the question of the amount spent in litigating the Cvitanovic claim and the reasonable costs of financing the same was during the trial. His Honour was entitled to take the view that the need for finality of this litigation required that the litigation between these parties cease, he having written a judgment quelling the controversy as propounded before him. 106 No error has been shown in the primary judge's refusal in these two respects and therefore this aspect of the appeal fails. 107 On Monday 27 July 2009 the Court received a facsimile from the solicitors for the respondents asking the Court not to deal with costs. Such matters as to the reservation of costs, whether because of offers that have been made or otherwise should as a general rule be at least flagged at the appeal. They should not be the subject of correspondence made without leave. If any party has an application as to costs it should be made on notice by motion with any necessary evidence. The parties should note UCPR Pt 36 rr 36.11 and 36.16 and the time limits therein.

Kekatos v Stafford

At a glance

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Judgment (102 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (9)

Cited By (4)