Khalifeh v Rahme & Anor

CATCHWORDS : EQUITY - equitable remedies - freezing orders - application to amend existing freezing orders to permit payment of defendant's legal expenses and business expenses - proven legal fees reasonable and freezing orders varied - insufficient material available to provide for variation to freezing orders to allow payment of the defendant's business expenses

Cretanor Maritime Co Limited v Irish Marina Limited (1978) 1 WLR 966 Dumas v Macintosh (2002) NSWSC 713 Frigo v Culhaci [1998] NSWCA 88 CASES CITED : Galaxia Maritime SA v Mineral Import Export (VT "Eleftherios") (1982) 1 WLR 539 Jackson v Sterling Industries Limited (1987) 64 CLR 612 PCW (Underwriting Agencies) Limited v Dixon (1986) 69 ALR 92 Riley McKay Pty Limited v McKay (1982) 1 NSWLR 264

Plaintiff: Adele Khalifeh PARTIES : First Defendant: Marwan Michael Rahme Second Defendant: Mida Trading Pty Limited (ACN 130 714 199)

COUNSEL : Plaintiff: Ms I Ryan Defendants: Mr A Iuliano (Solicitor)

SOLICITORS : Plaintiff: Benjamin & Khoury Solicitors Defendants: Champion Legal

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST

2197/09 ADELE KHALIFEH v MARWAN MICHAEL RAHME & MIDA TRADING PTY LIMITED (ACN 130 714 199) JUDGMENT 1 HIS HONOUR: Adele Khalifeh and Marwan Rahme entered into a series of financial transactions during the period 2004 to 2008 which have become the subject of disputes between them. Ms Khalifeh says she formed a friendship with Mr Rahme during that period. He says they were in a de facto relationship. Whatever the nature of their relationship they cannot now agree on the resolution of the financial obligations that arose between them or the disposal of property acquired jointly by them during the period. 2 Ms Khalifeh commenced these proceedings by statement of claim seeking declarations as to her entitlement to certain property and the repayment of certain moneys she says were advanced to Mr Rahme between December 2004 and May 2008. Mr Rahme resists these claims. He has cross claimed against Ms Khalifeh. 3 At the same time as Ms Khalifeh commenced these proceedings she sought freezing orders against Mr Rahme and the second defendant in the proceedings, Mida Trading Pty Limited (ACN 130 714 199) ("Mida Trading") trading as The Big Butcher Shop. Those orders were made by the duty judge on 3 April 2009. They effected restraints on assets held by Mr Rahme and Mida Trading and required the provision of information by them to the Court. Those orders continued until late June 2009 when these proceedings were heard before me in the Equity Division Duty List. In the hearing before me Mr Rahme sought by notice of motion the amendment of the orders made on 3 April 2009 and the discharge of other orders made on 20 April 2009. The question now before the Court is whether the orders so made should be respectively amended and discharged. 4 More detailed background to the disputes between the parties in the proceedings is useful in order to understand the issues joined between them on the motion. The convenient way to understand those issues is to identify the various disputed assets and obligations. The Issues in the Proceedings The Morwick Street Property 5 The parties are in dispute about several properties. Ms Khalifeh identifies some of them in the statement of claim. The first of these is the property known as Unit 15/4 Morwick Street Strathfield NSW 2135. Ms Khalifeh seeks a declaration that she is the sole owner of the Morwick Street property. In answer to that Mr Rahme says that he paid $45,000 towards the deposit, that they both paid for its purchase and that he paid moneys towards the stamp duty and legal fees upon its acquisition. Ms Khalifeh claims that Mr Rahme should transfer his interest in the Morwick Street property to her, so that she is the sole owner. Mr Rahme resists the grant of this relief. 6 Ms Khalifeh says that the parties each provided $25,000 towards the purchase price of $250,000 for the acquisition of the Strathfield property. She says that $200,000 is still owing on the property and that $1,208.33 is deducted monthly from a St George Freedom Account held jointly between her and Mr Rahme. Ms Khalifeh claims that although the property is currently tenanted there are other liabilities associated with it and that she is personally required to meet that short fall as and when it arises. Mr Rahme's response to these allegations is his statement of the financial contributions to that property set out in the previous paragraph. The Victorian Property 7 The second property the subject of a dispute between the parties is Unit 6/79A Rathcown Road, Reservoir, Victoria, 3073. By her statement of claim the plaintiff seeks a declaration that the proceeds of sale of that property are held by the defendant on trust for her. Ms Khalifeh alleges that the Victorian property was purchased in August 2007 for $250,000 and sold in March 2009 for $292,000. She says that the net proceeds of sale of the Victorian property are held on trust for her. Mr Rahme admits the purchase and sale of the Victorian property but denies that the proceeds of sale are held on trust for Ms Khalifeh. The Big Butcher Shop 8 The third asset in dispute between Ms Khalifeh and Mr Rahme relates to Mida Trading's purchase of the retail business, "The Big Butcher Shop". Ms Khalifeh says she advanced $96,470 for the acquisition of that business on or about 30 May 2008. She says she borrowed that capital sum and has since paid the interest accrued on it. In answer Mr Rahme admits that on 30 May 2008 Ms Khalifeh paid him $25,000 to enable Mida Trading to acquire the butcher shop. He does not concede that Ms Khalifeh made any greater advance than this either to him or to Mida Trading. Mr Rahme says that he made payments to Ms Khalifeh between May 2008 and March 2009 totalling $16,170 in reduction of moneys that she had advanced to him in relation to the acquisition of this business. The Miscellaneous Advances 9 The fourth and last area of dispute between the parties arising out of the statement of claim are several advances which Ms Khalifeh says she made to Mr Rahme and to Mida Trading in the 2004 - 2005 period as follows: (a) $15,500 on 17 December 2004;

(d) $3,000 on 28 June 2005. 10 In her principal relief claimed in the proceedings, Ms Khalifeh claims that Mr Rahme should repay these sums totalling $29,500 together with interest. She says these are miscellaneous loans advanced for domestic purposes or for private projects of Mr Rahme. He denies that these advances occurred. 11 There are other issues raised by Mr Rahme's cross claim in addition to those raised by the statement of claim. Mr Rahme alleges in the cross claim that a bona fide de facto relationship existed between himself and Ms Khalifeh between September 2004 and June 2008. He alleges that he made substantial financial and non financial contributions directly and indirectly to the acquisition, conservation and improvement of a number of properties held by the parties. These included the following properties and assets.

(i) 83 The Boulevard, Strathfield, ("the Boulevard property") is a property registered in the sole name of Ms Khalifeh. It was a property in which Mr Rahme claims that he and Ms Khalifeh lived.

(ii) 55 Albert Road, Strathfield ("the Albert Road property"), is a property which Ms Khalifeh purchased some two months before the relationship between them allegedly commenced. Mr Rahme claims that he provided Ms Khalifeh with cash sums to meet the short fall between the income received from the tenant in this property and outgoings from the property. He also said he carried out improvements to the Albert Road property.

(iii) The Morwick Street property which Ms Khalifeh and Mr Rahme jointly purchased in 2006. The disputes about the respective financial contributions to this property have already been set out.

(iv) Ms Khalifeh owned the hairdressing salon ("Adele's Hair Studio") prior to the commencement of the relationship, that Mr Rahme asserts. Mr Rahme says that he assisted with the full renovation of the salon and other aspects of the operation of the business.

(v) Ms Khalifeh is alleged to have purchased a new 318i BMW motor vehicle in 2006 for $64,000 financed in part from a trade in a Jeep Cherokee motor vehicle for $25,000 and the draw down of $35,000 from the portfolio loan security raised against the Boulevard property. Mr Rahme also says that he made a substantial contribution to the acquisition of this asset. The Freezing Order Issues 12 The original freezing orders made on 3 April 2009 were lengthy but their terms can briefly be summarised. The defendants were restrained from dealing with the proceeds of sale of the Victorian property, the assets of The Big Butcher Shop and the ANZ Bank Account conducted by Mida Trading. A further restraint was imposed preventing the defendants' removal from Australia of assets so as to leave less than $145,000 in the jurisdiction. In addition to the freezing order the defendants were required to inform Ms Khalifeh as to the quantum and whereabouts of all their assets. Exceptions to the freezing orders ("the excepting orders") granted liberty to the defendants to expend up to $750 a week on ordinary living expenses; to expend a total sum of $10,000 for reasonable legal expenses; and otherwise, to deal with or dispose of assets in the proper and ordinary course of business. 13 On 24 April 2009 further orders were made providing that the funds in the St George Freedom Account maintained in the names of both parties "be released to the plaintiff until further order [for the payment of the mortgage on the Marwick Street property]". This order seemed to contemplate that Ms Khalifeh would be responsible for drawing funds out of this joint account and making the mortgage payments. 14 Mr Rahme's present motion seeks the discharge of the order made on 24 April and a number of variations to the excepting orders made on 3 April. He proposes that additional rights to make particular payments be added to the excepting orders, so that Mr Rahme may transfer the balance of his ANZ Progress Saver Account into an ANZ Business Classic Account which operates as the company overdraft for The Big Butcher Shop. Mr Rahme also sought liberty to pay from that company overdraft account a series of expenses ("the subject expenses") as follows: (i) Original Kebab Factory Pty Limited in the approximate sum of $7,200;

(ii) Mark Leigh Pty Limited in the approximate sum of $6,029;

(v) Power Direct in the approximate sum of $1,951.97;

(vii) Macquarie Collections Group in the approximate sum of $266.07;

(viii) Champion Legal Trust Account in the approximate sum of $10,000 on account of reasonable costs and disbursements. 15 Mr Rahme sought a variation to the regime governing the St George Freedom Account styled "Adele Khalifeh and Marwan Rahme". He sought the discharge of order 2 of the orders made on 24 April 2004. He then sought its replacement by the following: "neither party be entitled to operate [the St George Freedom Account] other than for the making of mortgage payments and outgoings in relation to [the Marwick Street property]". 16 Mr Rahme's motion does not seek the discharge of all the freezing orders made in the proceedings. Rather as I have indicated above, the motion seeks a variation to certain of the orders made on 3 April and the discharge of order 2 made on 24 April and its replacement. The matter to be considered now is to whether that variation and that discharge should be ordered. 17 When the proceedings were called on for hearing Mr Rahme amended his notice of motion to seek orders in accordance with a handwritten document headed up "Amended Notice of Motion". This was thenceforth treated as the form of orders sought by Mr Rahme in these proceedings. The orders sought were as follows: "Amended Notice of Motion 1. That Order 2 made on 24 April be discharged.

That neither party be entitled to operate the St George Freedom account number 002 965 754 other than for the making of mortgage payments and outgoings in relation to the property at 15/4 Morwick Street, NSW. 3. That order 10(b) of Orders made on 3 April 2009 be amended as follows:

10 (b) paying $75,200 on your reasonable legal expenses. 4. That the Second Defendant be permitted to make the payments referred to in 2(i) - (vii) in the Notice of Motion from the Second Defendant's ANZ Business Classic Account. 5. That the First and Second Defendants pay their solicitor Champion Legal the sum of $10,000 forthwith from the first defendant Progress Saver Account. 6. Any further order the Court deems appropriate."

The payments referred to in 2 (i) - (vii) in the amended notice of motion are for the subject expenses. The amended notice of motion should probably refer to items (i) - (viii), rather than (i) - (vii) as there were eight items of expense identified in the notice of motion. 18 The issues raised by the amended notice of motion fall into three categories: (i) what is a satisfactory operating regime for the St George Freedom Account opened by Mr Rahme; and

(ii) what payments of Mr Rahme's legal fees should be authorised.

(iii) which of the subject expenses should be paid out of the business; 19 The Court will deal with these matters in this order. First though it is necessary to identify the applicable legal principles. Applicable Legal Principles 20 The relevant legal principles that are applicable to the grant of freezing orders are the following. (a) Such orders may and should be varied to allow payment of debts incurred in the ordinary course of business even if those debts are not legally enforceable: Riley McKay Pty Limited v McKay (1982) 1 NSWLR 264.

(b) The orders made should be made or varied to allow the defendant sufficient funds to meet reasonable living expenses: PCW (Underwriting Agencies) Limited v Dixon (1986) 69 ALR 92.

(c) The orders made should be made or varied to prevent interference with the rights of third parties: Galaxia Maritime SA v Mineral Import Export (VT "Eleftherios") (1982) 1 WLR 539.

(d) The practice in granting such orders is inconsistent with the acquisition by a plaintiff of rights in respect of the assets the subject of the order: Jackson v Sterling Industries Limited (1987) 64 CLR 612 at 642 per Gaudron J and Cretanor Maritime Co Limited v Irish Marina Limited (1978) 1 WLR 966 at 977. Such orders are not intended to operate as some form of defacto security for the plaintiff but to stop the defendants from spending their moneys in ways that are not legitimate: Dumas v Macintosh (2002) NSWSC 713 at [23] per Barratt J.

(e) To deny access to funds needed for ordinary living expenses or to fund the litigation, the integrity of which the order is designed to protect, "causes the order sought to be a means of exerting pressure foreign to the underlying purpose": Dumas v Macintosh (2002) NSWSC 713 at [27] per Barrett J.

(f) Freezing orders are on exceptional interlocutory remedy the function of which is to minimise the possibility of an unscrupulous defendant seeking to render himself or herself judgment proof by taking steps to ensure that no assets within the jurisdiction can be found in the day of judgment but it is a drastic remedy and should not be granted lightly: Frigo v Culhaci [1998] NSWCA 88.

(g) The purpose of a freezing order is to preserve the status quo and not to change it in favour of the plaintiff: Frigo v Culhaci [1998] NSWCA 88. (i) St George Freedom Account 21 It is necessary for some arrangement to exist between the parties so that mortgage payments and other the outgoings on the Morwick Street property can be paid out of the St George Freedom Account. Whatever the outgoings are on the Morwick Street property they should not unfairly fall upon one or other of the parties whilst the issues in these proceedings are resolved. To the extent that there are funds available in the St George Freedom Account from the rent received from the Morwick Street property, those funds should first be applied towards the making of monthly mortgage payments on the property and secondly on account of other outgoings for the Morwick Street property such as council rates and land tax. 22 The current regime created by the orders of 24 April 2009 provides for those payments to be made. Ms Khalifeh has been making them. I see no reason to adjust those orders in the way suggested by Mr Rahme. Indeed, subject to any submissions of the parties which I will hear once the parties have read this judgment, it would seem reasonable to vary order 2 to permit the payment of other outgoings on the Morwick Street property, if there are funds available for that purpose after the mortgage obligations have been met. This will prevent them becoming a burden on Ms Khalifeh who says she has had to bear these expenses if there are insufficient funds in the account to cover them. 23 Someone must take responsibility for making these mortgage payments, otherwise the Morwick Street property will be placed at risk of compulsory sale. Whoever is given the responsibility of meeting them, that person should also be given the liberty to meet other outgoings from the rent received from the property if there are funds available. Obviously the contents of the St George Freedom Account should only be used to meet such expenses and should not be expended for any other purpose. That is the clear intent of the present orders. There seems to be no good reason to vary them. Mr Rahme has failed to persuade me that order 2 of the orders made on 24 April 2009 should be discharged and replaced by other orders. (ii) Mr Rahme's Legal Fees 24 In relation to legal costs the defendants seek the amendment of order 10(b), one of the exceptions to the freezing orders. Order 10(b) provides "this order does not prohibit you from: ... (b) paying $10,000 on your reasonable legal expenses." 25 The present solicitors for the defendants, Champion Legal, commenced acting for them on 28 April 2009. The defendants had previously retained Messrs Shad Partners to act for them. The defendants' evidence is that pursuant to order 10(b) of the freezing orders made on 3 April 2009 that the amount of $10,000 was paid into the trust account of Messrs Shad Partners. 26 Messrs Shad Partners had incurred legal fees on behalf of the defendants prior to 28 April 2009. Messrs Shad Partners had rendered a tax invoice dated 27 April 2009 to the defendants in amount of $3,788. The first defendants also were liable to pay counsel's fees to Mr R Battley in the sum of $6,999.50. The amount of $10,000 which was paid to Messrs Shad Partners pursuant to the orders of 3 April 2009 was applied in satisfaction of the fees of Messrs Shad Partners and Mr Battley. The sum of $10,000 does not appear to cover those combined fees fully but would have left a balance of $787.50. It may be that the obligation to pay this sum was waived. 27 The issue in relation to legal fees is the payment of Champion Legal both in the past and in the future. Mr Anthony Iuliano deposes in paragraph 7 of his affidavit of 30 June 2000 that Mr Rahme and Mida Trading had as at 29 June 2009 incurred legal fees with Champion Legal in the sum of $20,714.50 as follows: (a) a billed amount of $6,714.50 as at 18 June 2009, and

(b) an unbilled amount of approximately $14,000 as at 29 June 2009. 28 Champion Legal currently holds the sum of $3,974 in trust which Mr Iuliano says it will offset against the amount due to the firm of $20,714.50. 29 Mr Iuliano also says that it will cost Mr Rahme and Mida Trading approximately $44,550 inclusive of GST and legal fees from 29 June 2009 to defend these proceedings and to pursue its cross claim. That sum is divided the following way: $24,500 on account of solicitors' fees at Champion Legal; $16,000 on account of counsel's fees; and $4,050 in respect of GST. Of course, the amended notice of motion seeks an even higher sum in legal fees namely $75, 200. 30 Mr Iuliano says that the billed legal fees and disbursements, as at 18 June 2009 of $6,614.50, should be paid forthwith to Champion Legal from the first defendant's ANZ Progress Saver Account in the name of "Marwan Rahme". 31 The defendant's submissions are not that the whole of the $44,550 (or $75,200) of further fees be paid into the trust account of Champion Legal on account of fees and disbursements but a that a further sum of $10,000 should be paid from that account to the trust account of Champion Legal. This separate amount of $10,000 is distinct from the $10,000 which has already been paid to Messrs Shad Partners. 32 The applicable principles identified above indicate that the defendants should not be prohibited by the freezing orders from retaining lawyers to advise them and conduct the defence of these proceedings and to pursue any applicable cross claims. To do otherwise would create the potential for the freezing orders to operate oppressively. 33 The plaintiff has concern that the further legal fees estimated, a further $44,500 (and possibly $75,200 in due course) are large and that as no adequate explanation has been given that the defendants do not have other sources of funds to pay those legal fees, that the orders requested should not be made. 34 Two questions now arise. First, should the past legal fees in the sum of $6,714.50 be paid. Second, what sums should be allowed to be paid on account of future legal fees. 35 As to the first question I see no reason why the sum of $6,714.50 billed up to 18 June 2009 should not be paid to that firm immediately. Although this Court does not on an application such as this, act as an assessing authority a general judgment of reasonableness can be made about these fees. Although I have not examined the underlying bills the incurring of fees of the order of $6,714.50 between 28 April 2009 and 18 June 2009 on a proceeding of this character does not seem inherently unreasonable. Any concern which the plaintiff may have that the fees are excessive are in my view are unfounded with respect to past fees. 36 As to the second question I would not have been inclined to allow the full amount of $44,550 (let alone $72, 500) to be paid to Champion Legal on account of future legal fees. Rather like a security for costs order this kind of payment should be made on a progressive basis. There is no date yet fixed for hearing. However, given some of the issues that are likely to be in contest on the statement of claim and the cross claim in this matter, the figure of $44,550 for future fees does not appear to be unreasonable. I will immediately allow the sum of $10,000 to be paid to Champion Legal on account of future legal fees payable by the defendants to their firm for the firm's work in these proceedings. Future applications can be made for the payment of further legal fees as and when they are needed as further steps are taken to bring these proceedings to hearing. (iii) Payment of the Subject Expenses out of the Business 37 In relation to this issue after my analysis of the evidence and the submissions, the Court is still left with an uncertain understanding of the basis on which the defendants say that the relevant expenses should be paid in order for the defendants business to be conducted. It is unclear to the Court how these expenses relate to any business actually being conducted by Mida Trading in light of the plaintiff's contentions. 38 This third issue has been a contentious issue between the parties. The plaintiff says that insufficient evidence is available to show that Mida Trading is operating its business at all. The defendants say that the business is being pressed by creditors. In order to afford procedural fairness to both parties on these issues, I have some questions about the evidence that I wish to put to both sides on these issues and to hear brief supplementary submissions before giving judgment about those questions. I will list the matter for that purpose next week.

Conclusion 39 In the result I have found that: (a) there is no basis to vary order two of the orders made on 24 April 2009 in the way proposed by the defendants;

(b) the defendants can pay an increased amount in legal costs to their lawyers but not the full amount claimed.

(c) I call for further submissions in relation to the payment of the expenses of the Big Butcher Shop business.

The parties should bring in short minutes of order next week to reflect the orders made here. 40 Once the parties have had an opportunity to read this judgment they may wish to put submissions about the third issue and about any consequential orders. There are however matters that I wish to ask the parties about this issue before I determine it. I will list the proceedings for mention at 9.30am one day next week that is suitable to the parties, who may wish to contact my associate to arrange a time and date.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST

2197/09 ADELE KHALIFEH v MARWAN MICHAEL RAHME & MIDA TRADING PTY LIMITED (ACN 130 714 199) SHORT MINUTES OF ORDER

1 HIS HONOUR: The court orders that: 1. The first and second defendants pay the sum of $16714.50 to their solicitor, Champion Legal, forthwith on account of legal fees.

2. Both parties to exchange a proposal to allow the business of the second defendant to be reactivated by 3 November 2009.

The Defendant to file and serve any further affidavit upon which he intends to rely upon by 20 November 2009.

The Defendant to serve and provide to the associate any further submission in support by 24 November 2009.

The Plaintiff to serve and provide to the associate any submission in reply by 30 November 2009.

The matter to be stood over to 2 December 2009 for further hearing before Slattery J.

8. This order may be taken out forthwith.

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