[1991] HCA 54
Coulls v Bagot's Executor and Trustee Co Limited (1967) 119 CLR 460
Source
Original judgment source is linked above.
Catchwords
[2006] FCA 814
Beswick v Beswick [1968] AC 58[1967] 2 All ER 1197
Clark v Macourt (2013) 253 CLR 1[2013] HCA 56
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64[1991] HCA 54
Coulls v Bagot's Executor and Trustee Co Limited (1967) 119 CLR 460[1967] HCA 3
Cypjayne Pty Ltd v Rodskog [2009] NSWSC 301
Johnson v Perez (1988) 166 CLR 351[2009] HCA 8
TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130
Wenham v Ella (1972) 127 CLR 454[1972] HCA 43
White v Shortall (2006) 68 NSWLR 650
Judgment (39 paragraphs)
[1]
Background
Prior to his death, the deceased, together with Joseph and Maria's husband (Sam Fayad), operated a large construction and property development business. One of the projects being developed by the business was a retail and residential development of a property at Baulkham Hills (the Hills Shoppingtown Property).
Hills Shoppingtown was the registered owner of the Hills Shoppingtown Property, which it acknowledged it held on trust for the five entities who had contributed to its acquisition (see the Resulting Trust Deed executed in August and September 2004 and an earlier Resulting Trust Deed dated 20 December 2002 as referred to in cl 1.1 of the Deed of Agreement). The land in question was not an asset of the deceased's estate; rather, the deceased held one share (a minority shareholding) in Hills Shoppingtown (see Inventory of Property annexed to the grant of probate).
The Hills Shoppingtown Development was conducted as a joint venture through a partnership between five entities (GK3, as trustee of the GK3 Trust, and four other trustee companies). A Hills Shoppingtown Partnership Agreement had been entered into on 20 December 2003 between GK3 and the four other trustee companies for the purpose of acquiring, improving and developing the said property. Each of the five partners had a 20% interest in the venture conducted through the partnership. Of the five entities, four were associated with members of the Khattar family (JK3 Pty Ltd, RK3 Pty Ltd, GK3 and SF3 Pty Ltd), the fifth entity being TONYM2 Pty Ltd, as trustee for the Silver Family Trust No 2, an entity associated with a Tony Merhi.
The GK3 Trust is a discretionary trust that was established by trust deed in 2002. Each of Carol, Georgia, and Alana is a discretionary object of the GK3 Trust. Under the Trust Deed, GK3 has a broad discretion in relation to distributions of income and capital of the trust. Clause 22 of the Trust Deed conferred on the Appointor the right to remove GK3 and appoint a new trustee. The deceased was the Appointor under the Trust Deed until his death.
The deceased was the sole director of GK3 until his death. At most material times after the deceased's death, GK3 was controlled by the Executors (Maria and Joseph) or members of Maria's family (Sam and, for a brief time, their son, Remon). Relevantly, the directors of GK3 after the deceased's death were, until 22 November 2016, the Executors; then until 14 November 2017, Sam was the sole director; from 14 November 2017 until 8 August 2018, Remon was the director; from 8 August 2018 to 31 July 2020, Sam was again the director; and from 31 July 2020, Sam and Carol were the directors. (See further amended statement of claim at [10]; ASIC company search).
[2]
Probate proceeding
The deceased died on 29 April 2010. By his Will dated 20 January 2002, the deceased left his estate on trust for Carol (as to a one-half share) and as to the remaining half share on trust for their children (Alana was born after the Will was made). The deceased appointed Maria and Joseph his joint executors and trustees. Probate was granted on 13 April 2011 to Maria and Joseph. At the time of his death, the deceased's estate included a 25% shareholding in Hills Shoppingtown and a 100% shareholding in GK3.
As adverted to earlier, a dispute subsequently arose as to the administration of the deceased's estate which led to an application by the respondents (in November 2015) in the probate proceeding, as the Beneficiaries, for the revocation of the grant of probate, a grant of letters of administration with the Will annexed in favour of Carol, and the removal of Joseph and Maria as trustees and executors of the estate. No claim for damages or claim for compensation was made against Joseph and Maria in the probate proceeding. As noted above, Carol was the tutor for her daughters in the probate proceeding.
[3]
February 2016 joint venture agreement
On 24 February 2016, the five partners involved in the Hills Shoppingtown Development (including GK3) and Hills Shoppingtown entered into an Unincorporated Joint Venture Agreement. Clause 3.1 acknowledged that Hills Shoppingtown, as trustee, held the Joint Venture Assets on trust for each of the partners. Clause 3.7, headed "Senior debt financing", required each of the partners to grant security over its interests in the Joint Venture Assets and the Project (those being defined terms) in favour of any financier who provides Senior debt financing to carry out the Project and, if required by that financier, to procure that each director provide a personal guarantee in favour of that financier, in form and substance satisfactory to that financier. By Deed of Amendment dated 14 March 2016, the term of the agreement and the joint venture was to end on the earlier to occur of the completion of the Project or the repayment in full of the Senior debt financing (cl 1.1(b)).
[4]
ANZ Fiduciary mortgage - March 2016
On or about 17 March 2016, Hills Shoppingtown entered into a Facility Agreement with Australia and New Zealand Banking Group Limited (ANZ) and ANZ Fiduciary Services Pty Ltd (ANZ Fiduciary) for the advance of moneys in connection with the Hills Shoppingtown Development; and Hills Shoppingtown granted a mortgage in favour of ANZ Fiduciary over the Hills Shoppingtown Property to secure repayment of moneys advanced to it by ANZ. On 17 March 2016, GK3 provided collateral security for the advances in favour of ANZ Fiduciary, by way of entry into a general security agreement. (See [21] of the affidavit of Todd Gammel, one of the joint voluntary administrators appointed to Hills Shoppingtown in December 2020, sworn on 11 February 2021.)
[5]
Settlement of probate proceeding - Summary of Agreement
On 23 July 2016, an "in principle" agreement was reached between the parties for the settlement of the probate proceeding. This was recorded in a document headed "Summary of Agreement" and signed on behalf of the Executors (Maria and Joseph) by Sam. The Summary of Agreement document commenced with the following (on which emphasis is placed by the respondents as showing the intent of the in principle agreement):
Agreement Deal = $20m + [the deceased and Carol's matrimonial home at Castle Hill].
Item 1 of the Summary of Agreement dealt with the transfer (unencumbered) of a Castle Hill property (the deceased and Carol's matrimonial home) to Carol and the couple's daughters. Item 1 stated that Sam was to pay stamp duty on the transfer, which was to be provided to the respondents' lawyers and held in escrow pending executors' approval from certain other parties and payment/transfer of current Westpac loan on title. (This transfer was ultimately completed.)
Items 2, 3 and 4 of the Summary of Agreement provided for the payment in tranches of sums totalling $4.5 million over a period of some 20 months. Of those amounts, item 3 included the statement that the payment of $2 million by way of monthly instalments of $100,000 per month commencing on 1 September was "irrespectively of whether the projects [sic] is completed or not". (Some but not all of those payments were paid to the respondents.)
Item 5 made provision for the remainder of the $20 million (i.e., the $15.5 million balance - that being approximately equal to what was acknowledged in the Deed of Agreement to be the agreed value of the Units) as follows:
Remainder of $20m deal to be provided in property. 20 units (or equal value) in Hills Shoppingtown development - Executors to work out way in which property can be transferred to GK3 Pty Ltd atf George Khattar Family Trust No. 3. If not Hills Shoppingtown properties, then other properties will be provided to the same value.
Item 6 of the Summary of Agreement provided for Carol to become director/shareholder of GK3 ("i.e. to take control of trustee company of George Khattar Family Trust No. 3") and for the Trust Deed to be amended to provide that Carol, Georgia and Alana are discretionary beneficiaries of the trust, and that Carol would become the Appointor under the Trust. This was stated to be subject to the Executors obtaining "tax advice with respect to the transfer of property through the trusts".
Item 7 provided that Carol would "pick out the units of the Hills Shoppingtown Development"; item 8 that the Executors would be liable for any taxes and duties; and item 9 recorded that there was a dispute as to the treatment of Carol's legal fees (with an indication as to the possible way that might be able to be resolved "to save both sides money"). Item 10 provided for the plaintiffs to notify the Court of the agreement in principle and to adjourn the hearing then scheduled for 26-28 July 2016.
The respondents accept that this agreement was one that was not binding (as noted, it was in principle only) but they emphasise that the Summary Agreement was referred to in the recitals to the subsequent Deed of Agreement Deal and they maintain that there can be no doubt that the intent of the "in principle" agreement was to benefit the individuals (the respondents) and that the Executors were to work out a way to effect this. The respondents say that to suggest that there is some difference in the value of the properties in the hands of the GK3 Trust as opposed to what they would be worth in the hands of the respondents (as they say is the thrust of the appellants' argument) fails to recognise that the intent of the "deal" was that GK3 was to be subject to the complete control of Carol, subject only to Mr Malkoun's role to protect the interests of the two minor beneficiaries (appeal transcript T 47). The respondents argue that, in order to have the benefit of the Units, the respondents did not need to have the assets transferred to themselves personally because the assets sitting in a trust controlled by them were as useful to them as the property sitting in their own names.
The parties then negotiated two deeds to give effect to their "in principle" agreement.
[6]
Deed of Agreement - 21 October 2016
On 21 October 2016, Joseph and Maria, expressly in their capacity as Executors of the deceased's estate, entered into a Deed of Agreement with the respondents (collectively referred to in the Deed as the Beneficiaries) and with Hills Shoppingtown. Sam and Joseph signed the Deed of Agreement in their capacities as directors of Hills Shoppingtown.
The recitals to the Deed recorded, among other things, that the Beneficiaries had commenced proceedings against the Executors and had made various allegations against the Executors in relation to the administration of the estate (Recital G); that the Executors were defending the proceedings (Recital H); and that the parties had agreed to settle the proceedings in accordance with the Deed of Settlement and this Deed (i.e., the Deed of Agreement) (Recital I).
Recital J of the Deed of Agreement recorded that Carol (on behalf of the Beneficiaries) and Sam (on behalf of the Executors) had signed the Summary of Agreement document. Recital K of the Deed of Agreement then recited that, without admission and in consideration of a resolution of the dispute and settlement of the proceedings, "the Executors have agreed to transfer the Units [defined in the Deed as the 20 units chosen by the Beneficiaries to be built as part of the development of the Hills Shoppingtown Property, the details and values of which were set out in Schedule A to the Deed - see cl 1.1] to GK3 free of any encumbrance". (Pausing here, this is not phrased as an agreement to facilitate the transfer; rather it appears to be predicated on the Executors being in a position to cause that to occur.)
Recital L stated that, to "effect the acquisition of the Units" by GK3, the Executors "have agreed to facilitate for GK3 to acquire the Units in the Hills Shoppingtown Land, appoint Carol in her own capacity, and Jason and Carol in their capacity as trustees for the Georgia and Alana Trust, as directors of GK3, the corporate trustee of the GK3 Trust". Recital M stated that "[t]he Executors have also agreed to facilitate a transfer of the shares in GK3 to Carol in her own capacity, and Jason and Carol in their capacity as trustees for the Georgia and Alana Trust". (Both these recitals, in contrast with Recital K use the terminology of facilitation.)
Clause 3 of the Deed of Agreement, headed "Acquisition of Units", is comprised of various sub-clauses. Relevantly, those include the following:
3.2 GK3 Trust
…
(c) The Executors shall, within seven (7) days from Effective Date [defined in cl 1.1 as meaning "the date in which [sic] the Deed of Settlement is approved by the Court"], do all things reasonably necessary to facilitate the following:
(i) the appointment of Carol in her own capacity, and Carol and Jason [Mr Malkoun] in their capacity as trustees for the Georgia and Alana Trust, as the appointors of the [GK3 Trust]. Carol and Jason acknowledge and agree that their appointment pursuant to this clause is strictly on the basis that they will not replace GK3 as the nominated trustee for the GK3 Trust until the parties have completed all of their obligations pursuant to this Deed. The parties acknowledge that strict compliance with this obligation is required in order to give this Deed commercial efficacy, and also waives[sic] any obligation of the Beneficiaries to provide guarantees or offer security in respect of any loans procured for the purpose of facilitating the Development;
(ii) an amendment of the GK3 Trust Deed to nominate Carol, Georgia and Alana as the specified beneficiaries of the GK3 Trust.
3.3 GK3
…
(d) Maria shall, within seven (7) days from the date of this Deed, do all things necessary to facilitate the transfer of the Deceased's share in GK3 to Carol in her own capacity, and Carol and Jason in their capacity as trustees for the Georgia and Alana Trust in equal share.
(e) Maria shall, within fourteen (14) days from the date of this Deed, do all things necessary to resign as director of GK3 and appoint Sam Fayad as the sole director of GK3.
(f) Sam undertakes that he will perform all acts in accordance with and in compliance with the obligations set out in this Deed, and shall do so in the best interest of the Beneficiaries.
3.4 Acquisition of Units
(a) The Executors agree to facilitate GK3 acquiring an unencumbered interest in the Units. The Executors shall have sole and absolute discretion, subject to their duties at law and in equity, in determining the mechanism of GK3 acquiring the land, whether by partition, transfer or otherwise;
(b) The Executors agree that prior to entering into this Deed, the Executors have sought the consent of the JV Companies to facilitate the action required in accordance with Clause 3.4(a) of this Deed.
(c) The Beneficiaries and Hills Shoppingtown agree to assist with and perform all acts and sign all documents to effectively comply [sic] with their obligations pursuant to this Clause 3.4(a) of this Deed. [The parties agree that "their obligations" in this sub-clause is probably a typographical error and the clause should read "comply with the obligations …".]
(d) The Parties acknowledge that an acquisition of the Units by GK3 irrevocably constitutes a surrender of any further entitlement or interest GK3 has, had or might have in Hills Shoppingtown, the Hills Shoppingtown Property, or the Unincorporated JVA. In this regard, the Parties agree to do all things necessary to formally document [sic] such surrender, which may include the assignment of GK3's interest to the remaining JV Companies (or their nominees).
3.5 Value of Units
(a) The Parties acknowledge that the agreed value of the Units as set out in Schedule A is $15,346,498.42.
3.6 Post-Acquisition
(a) Within seven (7) days of the acquisition of the Units by GK3, the Executors shall facilitate:
(i) the resignation of Sam Fayad as sole director and secretary of GK3; and
(ii) the appointment of Carol in her own capacity, and Carol and Jason in their capacity as trustees for the Georgia and Alana Trust, as joint directors and secretaries of GK3.
(b) The Beneficiaries acknowledge that the reason for the appointment of Carol in her own capacity, and Carol and Jason in their capacity as trustees for the Georgia and Alana Trust, as joint directors and secretaries of GK3 after the acquisition of the Units to GK3 [sic], is to ensure that the Beneficiaries are not exposed to any obligation to provide guarantees or offer security in respect of any loans procured for the purpose of facilitating the Development, as they otherwise may have been required in their capacity as directors of GK3, being one of the JV Companies and for this purpose Carol in her own capacity, and Carol and Jason in their capacity as trustees for the Georgia and Alana Trust are hereby restrained and must not take any action to remove GK3 as trustee of the GK3 [sic] or remove Maria as a director of GK3 until such time as the Units are acquired by the GK3 Trust.
[It should be noted that the reference to removal of Maria as a director must here be a reference to Sam, since by cl 3.3(e), Sam was to have become the director in Maria's place.]
3.7 Insufficient Properties
(a) If for whatever reason any or all of the Units are not able to be acquired or unable to be acquired within twenty (20) months from the date of this Deed, the Executors shall cause other properties owned by related Corporations (as that term is defined in the Corporations Act) and chosen by the Beneficiaries in their absolute discretion, from a selection of units as proposed by the Executors and/or Sam Fayad ("the Replacement Units") to be transferred to GK3 to the value of the shortfall being the difference between the value of the Units and the value of the Units not otherwise acquired by GK3 in accordance with this Deed. The value of such Replacement Units shall be determined by a registered valuer as chosen by the Beneficiaries in their absolute discretion and as valued as at the date of this Deed.
(b) The Replacement Units shall be transferred on or before fourteen (14) days from the date Carol gives notice of the shortfall.
(c) The Executors can elect to pay any such shortfall amount in cash based upon the applicable current value of any respective Unit.
(d) The Parties acknowledge that an acquisition of Replacement Units by GK3 and/or receipt of a cash payment for any shortfall amount shall be on the same basis and have the same effect as Clause 3.4(d) of this Deed.
3.8 Obligations of the Executors to ensure completion of the Units
(a) The Executors shall cause Hills Shoppingtown to complete the building development and strata subdivision of Hills Shoppingtown in a timely manner (no more than 20 months) and to a proper standard and quality, and with all keys and other security devices handed over at settlement and with the benefit of any warranties in relation to the building works and the fit-out, and in strict compliance with this Deed and with the plans in Schedule A.
(b) The Executors shall cause Hills Shoppingtown to notify the Beneficiaries within 7 days, time being "of the essence", of the registration of the strata plan and the registration of the Beneficiaries as registered proprietors of the units.
(c) The Executors shall on or before the date of this Deed procure the Hills Shoppingtown Undertaking as set out at Schedule B.
(d) The Parties acknowledge that the release provided by the Beneficiaries to the Executors in relation to Hills Shoppingtown, in accordance with the Deed of Settlement, shall be subject to Hills Shoppingtown complying with its obligations in accordance with the Hills Shoppingtown Undertaking and in accordance with this Deed.
(e) The Executors must procure the acquisition of the Units within 28 days of registration the strata plan.
3.9 Security for the Obligations of the Executors
As security for the obligations of the Executors as set out herein:
(a) The Beneficiaries are at liberty to commence proceedings against the Executors for recovery of any losses or damages occasioned by any breach of this Deed.
(b) The Executors shall provide the Hills Shoppingtown undertaking as set out in Schedule B.
(c) If the Executors are in breach of any provision under this Deed, the Beneficiaries are required to issue a Notice, providing the Executors with no less than fourteen (14) days to remedy the breach. The Beneficiaries acknowledge and agree that Clause 4.6(a) of this Deed shall not apply under any circumstances unless and until a Notice has been served pursuant to this Clause 4.6(c), and the Executors have failed to comply with or remedy any breach in accordance with the Notice. Nothing in this Deed constitutes a waiver of this provision.
[The references here to cl 4.6 must be references to cl 3.6, there being no cl 4.6 in this document.]
The appointment of Carol and Mr Malkoun as Appointors under the GK3 Trust, as provided for under cl 3.2(c), duly occurred and was recorded in a separate Deed of Retirement and Appointment of Appointor. Thus, from that time, Carol and Mr Malkoun have had the power to appoint the trustee of the GK3 Trust, subject of course to the restraint imposed by cl 3.6 of the Deed of Agreement.
Similarly, the transfer of the deceased's shareholding in GK3 was duly effected in accordance with cl 3.3(d) and the change in shareholding was recorded in the ASIC register in late December 2016.
Clause 4 of the Deed of Agreement, headed "Taxes", provided that any tax liabilities arising from the acquisition of the Units by GK3 were the sole responsibility of the Executors (including any stamp duty or income tax arising from the acquisition at the time of the acquisition) (cl 4.1(a)) and the Beneficiaries acknowledged that the Executors and the estate were not liable for any duty or other tax that might subsequently arise due to any taxable event caused by or in connection with an event or action taken by the GK3 Trust or any change in trustee of the GK3 Trust by Carol and Jason or any tax that might be payable by way of distributions from income or gains derived by the Trust from the date of acquisition (cl 4.1(b)).
[7]
Deed of Settlement - 21 October 2016
The Deed of Settlement, entered into between the three Beneficiaries and the two executors (the Executors, expressly in their capacity as executors) similarly to the Deed of Agreement contains recitals in relation to the commencement of the proceedings by the Beneficiaries against the Executors; allegations made against the Executors; and that the Executors were defending the proceedings (see Recitals E-F). Relevantly, Recital J records that "[w]ithout admission, the parties have agreed to enter into this binding Deed to settle all disputes relating to the administration of the estate, the Beneficiary Allegations and the Proceedings and to enable the administration of the estate to come to an end".
Clause 3.4 contains an acknowledgement and acceptance by the Beneficiaries that the Family Trusts (defined to mean not only the GK3 Trust but also three other trusts - the GK Trust, GK2 Trust and K4 Trust - all apparently trusts established by or relating to the deceased) do not form part of the estate of the deceased; that the Executors are the appointors of the Family Trusts and that:
(c) The Beneficiaries will allow the Executors to deal with the family trusts at their discretion;
(d) The Beneficiaries have no expectation to proceeds from the Family Trusts, and any entitlement to the Family Trusts is discretionary only, at the discretion of the trustees of the Family Trusts, who may be appointed by the appointors.
(e) If required by the trustees of the Family Trusts, the Beneficiaries may be removed as specified beneficiaries of the Family Trusts (or any of them) and agree to do all things necessary to facilitate their removal as specified beneficiaries.
Sub-clause 3.4(f) (curiously contained in a clause comprising acknowledgements and acceptances by the Beneficiaries) is framed in terms of an agreement by the Executors:
(f) Notwithstanding the terms of this Clause 3.4, the Executors, in their capacity as appointors of the GK3 Trust, agree to appoint Carol in her own capacity, and Carol and Jason in their capacity as trustees for the Georgia and Alana Trust, as the appointors of the GK3 Trust.
Clause 4, headed "Distribution to the Beneficiaries", makes provision for the payment of various amounts to or for the benefit of the Beneficiaries. Clause 4.1 contains the Executors' agreement to pay the Beneficiaries' legal costs in the sum of $1.2 million. Clause 4.2 records the agreement of the parties that "for the purposes of settlement, the Executors are authorised to administer the estate by any means and at its [sic] sole and absolute discretion, subject to their obligations at law and in equity, including the disposal of any assets and payment of any liabilities, subject to procuring the following net payments to the Beneficiaries …", the clause going on to specify a series of payments totalling around $4 million to be paid over a period of around two years.
Clause 4.3 contains a provision headed "Security for the Obligations of the Executors" in similar form to that in the Deed of Agreement (and with the same obvious typographical error in the references to cl 4.6).
Clause 5, headed "Obligation to Administer", contains an acknowledgement and acceptance by the parties that the distributions to the Beneficiaries contemplated by cl 4 of the Deed "are made in consideration of" the settlement of the Proceeding and the final administration of the estate (cl 5.1); as well as the irrevocable agreement of the Beneficiaries "to provide the Executors with liberty to Administer the estate in their sole and absolute discretion, subject to their duties at law and in equity, and [that the Beneficiaries] shall have no input whatsoever in procuring and implementing the mechanisms adopted by the Executors during the Administration of the estate, to allow the net value of the settlement to be provided to the Beneficiaries in accordance with the provisions of this Deed" (cl 5.2).
Clause 7 deals with the transfer of the deceased and Carol's matrimonial home to the respondents, cl 7.1 containing the Executors' agreement to procure its transfer and cl 7.2 containing the agreement of the Executors to pay and irrevocably to indemnify the Beneficiaries in relation to the mortgage (including the payout of the mortgage and all fees associated with the discharge of the mortgage; and any claims raised by the mortgagee in relation to the mortgage). The Executors are also obliged by cl 7.3 to pay any and all tax associated with the transfer of the property including but not limited to any stamp duty arising from the transfer of the property to the Beneficiaries (cl 7.3). (It is perhaps of some interest to note that the statement of claim in the probate proceeding alleged that the then registered proprietor of the Castle Hill property was the deceased's mother and that the plaintiffs alleged that the property was held on constructive trust for their benefit. It was alleged that the Executors were in a position of conflict of duty and/or conflict of interest and duty in relation to this property, they holding a power of attorney in respect of the deceased's mother and being the Executors under her then current Will (see statement of claim at [54]-[58]).)
Clause 9.1 contains mutual releases provided by the Beneficiaries and the Executors jointly and severally in respect of any and all claims in connection with, including or concerning: the "Beneficiary Allegations"; the proceedings; the Dispute (as defined); all distributions made by the Executors on behalf of the estate to, for and/or on behalf of the Beneficiaries between the date of the deceased's death and the date of the Deed; and the administration of the estate. Pursuant to cl 9.2(a), the Beneficiaries acknowledge and accept that payment of the "Settlement Sum" in accordance with cll 4.1 and 4.2 of the Deed constitutes a settlement in respect of the assts of the estate (including the deceased's interest in any of the corporate entities listed at Annexure B); and that the Beneficiaries "hereby irrevocably release the Executors from any Claim associated with the Deceased's interest in those entities or assets".
The Deed of Settlement also provides for the resignation of Joseph and Maria as trustees (under the Will) for Georgia and Alana; and for the establishment of a trust for the benefit of Georgia as to 50% and Alana as to 50% as tenants in common with the trustees to be Carol and her accountant, Mr Malkoun (cl 6.1). (The Georgia and Alana Trust was established by deed dated 31 August 2016.)
In passing, it may be noted that although the Deed of Settlement bears a footer suggesting that the document was prepared by the respondents' solicitor, there is no footer on the Deed of Agreement, which might suggest it was prepared by someone other than the respondents' solicitor (although nothing was made of this in the course of submissions).
[8]
Deed of Undertaking - 21 October 2016
As contemplated by the Deed of Agreement, a Deed of Undertaking was executed on 21 October 2016 by Hills Shoppingtown and the respondents, by which, in consideration of the amount of $1, the receipt of which was thereby acknowledged, Hills Shoppingtown irrevocably and unconditionally undertook under cl 2 to:
(a) Complete in a proper and workmanlike manner the building and development of Hills Shoppingtown including the lodgement and registration of all relevant strata plans..
(b) The completion of the building of the Units and the acquisition of the Units by GK3 in accordance with the Deed of Agreement.
Sam and Joseph signed the Deed of Undertaking in their capacities as directors of Hills Shoppingtown.
[9]
Deed of Guarantee and Indemnity - 21 October 2016
Also on 21 October 2016, Sam, as guarantor, executed a Deed of Guarantee and Indemnity with the respondents, in which it was recited that Sam had agreed on 23 July 2016 to guarantee and indemnify the Beneficiaries "in respect of the due performance and any monies agreed to be paid by the Executors to the Beneficiaries and the performance of the Executors pursuant to an agreement in principle dated 23 July 2016 and the Deed". The term "Deed" was defined in cl 1.3 to mean the Deed of Settlement.
Pursuant to cl 2.1 of the Deed of Guarantee and Indemnity, Sam irrevocably and unconditionally guaranteed to the Beneficiaries the due and punctual payment of the Debt (defined in cl 1.4 as including the Executor's obligations to pay any or all moneys under the Deed) by the Executors to the Beneficiaries and the due performance of all the obligations, undertakings and provisions contained or implied by the Deed other than those imposed on the Beneficiaries. Sam also indemnified the Beneficiaries against all loss, damage, costs and expenses sufferance or incurred by the Beneficiaries as a result of any failure by any person to pay in a due and punctual manner the debt on the due dates or as a result of any breach of the covenants and conditions contained in or implied by the Deed. The Guarantee was expressed to be continuing and irrevocable (cl 3.1) and a principal obligation (cl 5.1).
Hence it is said by Joseph that Sam was fully aware of the arrangements put in place for settlement of the probate proceeding.
[10]
Approval of settlement
As noted above, Lindsay J approved the settlement on 25 October 2016. The confidential opinion of Senior Counsel as provided to the Court in support of the application for approval of the settlement indicated that the estate had net assets of about $9 million, subject to a potential tax Iiability.
In response to the submission for the respondents on the present appeals to the effect that the purpose of the settlement was to give effect to a separation of Carol and the children's interests from the interests of the property development companies (i.e., the business interests amongst, inter alios, the respective family members) not just to give Carol control of the Units; and to allow Carol and her children effectively to accept a sum of money and the Units in return for giving up whatever entitlement or interest the deceased had in the business (see at T 45.40; T 46), counsel for Maria argued that obtaining $20 million as a settlement of an estate dispute in which it was accepted as the basis of the settlement that the value of the estate was only in the vicinity of some $9 million meant that this was not a settlement to give effect to the respondents' rights as beneficiaries under the Will. Counsel for Maria said that the Beneficiaries' rights would amount at the very most to some $12.2 million, yet the respondents were to receive some $20 million under the Deed of Agreement. That response appears to me to misstate the respondents' submission. The respondents were not submitting that the purpose of the Deed of Agreement was to allow them to receive their entitlements under the Will; rather the submission was that this was a settlement whereby the respondents were agreeing to a separation of the deceased's interests in the joint venture (in return for a sum of money and the Units) and the Executors would then be free to deal as they wished (subject to their obligations as Executors) with the joint venture assets (and without, I might add, any concern that the Beneficiaries would persist with their allegations of wrongful administration of the estate).
[11]
Drawdown
By July 2017, Hills Shoppingtown had fully drawn down on the ANZ facility ($21.6 million). That sum remained outstanding until Persephone took an assignment from ANZ on 14 November 2018 (see below).
[12]
Date by which Units were to be transferred
The primary judge found that the date of breach of the contract was 25 June 2018 (see at [171]), the primary judge having concluded that the obligations in cll 3.4(a) and 3.8 of the Deed of Agreement required the Executors to cause the corporate entity (Hills Shoppingtown) to: complete the Hills Shoppingtown Development within 20 months; notify the Beneficiaries within 7 days of the registration of the strata plan; and procure the acquisition of the Units within 28 days of the registration of the strata plan (see [125]-[126]).
[13]
Amendment and Restatement Deed
In November 2018, at a time when Sam remained the sole director of GK3 (and the suspensory effect of the Deed of Acknowledgement applied), Sam procured the refinancing of the ANZ facility. In so doing, Sam procured an advance of the sum of $114 million to Hills Shoppingtown to fund the Hills Shoppingtown Development. Sam also procured that Hills Shoppingtown guarantee other loans made by Persephone, such that the result of the November 2018 transactions was to increase Hills Shoppingtown's total potential indebtedness to somewhere in the order of $354 million (and gave rise to what the primary judge recognised was a crippling debt). This was effected by the execution on 14 November 2018 of the following documents.
Persephone took an assignment from ANZ and ANZ Fiduciary of their rights against Hills Shoppingtown and its guarantors, including GK3, by Deed of Assignment.
On behalf of Hills Shoppingtown and GK3, Sam executed with Persephone an Amendment and Restatement Deed. Clause 2.1 of that Deed bound the parties to the Facility Agreement which constituted Annexure A thereto. Pursuant to cl 7.1(x) of that Facility Agreement, both Hills Shoppingtown and GK3 warranted that no determination had been made to distribute trust property on a date preceding the latest date by which it could be distributed under the Trust Deed. (For Joseph, it is noted that this warranty was untrue, to Sam's knowledge, in relation to Hills Shoppingtown.)
By cl 8.3(i), GK3 gave an undertaking not, except with Persephone's prior written consent, to make any distribution of capital from the Trust. By cl 8.11(b), GK3 gave an undertaking not to transfer or otherwise deal with any "Secured Property". (For Joseph, it is said that those undertakings made performance of the Deed of Agreement impossible.) Clause 9.1 identified Events of Default, one of which was if there was (in Persephone's opinion) a material change in the Control or Ownership of GK3 (defined to include replacing a director) (cl 9.1(l)); another was if the Trust's capital was distributed without consent (cl 9.1(t)).
Also on 14 November 2018, Sam executed, on behalf of GK3, a General Security Deed under which Hills Shoppingtown and GK3 granted Persephone a security interest in the "Secured Property" (cl 3.1) and GK3 agreed not to dispose of any part of the "Secured Property" (cl 7.2). (Joseph says that this too made performance of the Deed of Agreement impossible.)
On the same day, Sam executed, on behalf of GK3, a Deed of Cross-Guarantee and Indemnity, by which GK3 guaranteed the liabilities of entities controlled by Sam. This was authorised by the Amendment and Restatement Deed (see cll 5.4(e) and 5.5). Thus, Sam caused GK3 to guarantee debts in the sum of about $354 million (far greater than the potential $114 million liability). The entry by Hills Shoppingtown into a series of cross securities that benefited companies within Sam's control (by which GK3 likewise became bound) precluded Hills Shoppingtown from completing the project and transferring the Units to GK3.
All of the November 2018 financing documents were also signed by Maria (none was signed by Joseph).
[14]
Deed of Acknowledgement - 1 August 2019
On 1 August 2019, Carol (in her own right, and with Mr Malkoun as trustees of the Georgia and Alana Trust) and Georgia entered into a Deed of Acknowledgement with Maria and Joseph (referred to in the Deed as Executors but not stated to be entering into the Deed in, or only in, that capacity) and with Hills Shoppingtown.
Recital A recorded that the parties had entered into the Deed of Agreement. Recital B and cl 2(a) of the Deed of Acknowledgment contained an acknowledgement by the appellants and by Hills Shoppingtown that they were in breach of the Deed of Agreement and, in cl 2(a), the acknowledgement was that they were in breach "including but not limited to clause 3.7(a) and clause 3.8(a)" (defined as the Executor Breach). (It will be recalled that cl 3.8(a) required that the Hills Shoppingtown Development be completed within 20 months and cl 3.7(a) related to the provision of the Replacement Units if for whatever reason the Units were not able to be transferred.) There was no express reference to cl 3.4(a) of the Deed of Agreement.
Pursuant to cl 2(b), the Beneficiaries agreed not to exercise their rights arising from the Executor Breach subject to the "strict performance of each of the following terms", those following terms being set out at (i) as the Executors and Hills Shoppingtown making a series of payments there set out (from (1) to (6)) and, significantly, the following:
(7) compliance with all other obligations under the Agreement Deed, including clause 3.4(a) of the Agreement Deed as amended by clause 2(c) of this Deed.
Clause 2(c) provided that, in the event of strict performance and compliance with cl 2(b), the parties agreed to proceed with the Deed of Agreement as if there had not been any Executor Breach; and that the Deed of Agreement was enforceable save to the extent that there were amendments to cll 3.7(a) and 3.8(a) in effect to extend for a further 20 months from 31 December 2019 the obligations under those clauses. The requisite payments included certain additional payments (at items (4)-(6)) being monthly payments to (or in Alana's case in trust for) each of the respondents, commencing on 1 August 2019 and continuing until either the transfer of the Units or 1 August 2020. The Deed of Acknowledgment further provided (by cll 2(d) and (e)) that in the event that the Executors and Hills Shoppingtown were in breach of any of their obligations under cl 2(b), the Beneficiaries could issue a written notice requiring the breach to be remedied within 14 days and, in the event of a failure to remedy the breach then the whole of the amounts set out in cl 2(b) would become immediately due and payable to the Beneficiaries as a debt.
Most but not all of the payments under cl 2(b) of the Deed of Acknowledgment were made. Some remained outstanding until the commencement of the hearing.
[15]
June 2020 loan facility
On 5 June 2020, Sam executed on behalf of Hills Shoppingtown and GK3 a Loan Agreement with SCL AUS Limited (SCL AUS) as lender for a $10 million cash advance facility repayable three months after the date of the document. The facility was guaranteed by each of Hills Shoppingtown, the five trust companies in their trustee capacities, two other corporate entities, and Sam.
On 9 June 2020, SCL AUS entered into a General Security Deed with, among others, Hills Shoppingtown and GK3, in its capacity as trustee of the GK3 Trust, by which each of the grantor entities (including GK3) charged all of its assets in favour of SCL AUS and was prohibited from, inter alia, disposing of or dealing with any part of the Secured Property (cl 7.2).
[16]
Receivership of GK3
On 11 August 2020, Persephone appointed receivers and managers (Jonathan Henry, Jason Preston and Barry Kogan of McGrath Nicol) to the property of GK3 in its personal capacity and as trustee of the GK3 Trust (see Mr Gammel's affidavit at [27]).
[17]
Receivership and administration of Hills Shoppingtown
On 31 December 2020, Hills Shoppingtown went into voluntary administration. Mr Gammel and Barry Taylor of HLB Mann Judd were appointed joint and several administrators by resolution of Sam as the company's sole director (see Mr Gammel's affidavit at [3]; [12]).
[18]
Status of Development and position of Hills Shoppingtown
In his affidavit of 11 February 2021, Mr Gammel deposed that, as at that date the Hills Shoppingtown Development was partially completed ([7]); that the strata plan for the Development was registered on 3 November 2020 ([8]); and that Hills Shoppingtown was listed as the registered proprietor of 162 lots of land within the development ([19]). Mr Gammel deposed that Persephone had made a claim in the amount of $353,742,326.89 in the administration of Hills Shoppingtown and that claim had been admitted by the administrators for voting purposes at the second meeting of creditors ([26]).
Mr Gammel also deposed that, on 5 January 2021, Persephone, in its capacity as trustee of the Persephone Trust, had enforced its security over the property of Hills Shoppingtown by taking possession of that property through the appointment of the receivers and managers of GK3 as agents for the mortgagee in possession ([28]). Mr Gammel noted that in addition to Persephone there were a number of creditors who had made claims in the administration of Hills Shoppingtown (the claims, though not then determined by the administrators, totalling in excess of some $154 million).
In his affidavit affirmed 17 February 2021 in opposition to the grant of leave for the continuance of the proceeding against Hills Shoppingtown, Mr Henry (one of the receivers and managers of the assets of Persephone and having been appointed as one of the agents for Persephone as mortgagee in possession of the assets of Hills Shoppingtown) deposed that: the Receivers had calculated that the company owed Persephone $371,705,390.98 with interest accruing at the rate of approximately $300,000 per day (and compounding) ([10]); the Hills Shoppingtown Development comprised 233 units and, at the time of the appointment of the controllers to Hills Shoppingtown, of those units 114 had been sold or were under contract and 119 were not under contract ([15]); there were further works ongoing in relation to the Development and it was estimated that the ongoing and future works would require funding in excess of $6 million to complete (those works being necessary to ensure completion of the contracted sales and to ensure that the remaining units could be marketed and sold as soon as reasonably practicable) ([17]). Mr Henry deposed that at that stage it was expected that the ongoing works would be completed by the end of 2021 and that the final sales of the remaining units could be marketed and sold within about 12 to 18 months of the date of making the affidavit ([18]).
Based on the current debt figure at that time, Mr Henry considered that, even if all of the remaining units were sold, there would remain a debt significantly in excess of $150 million owing to Persephone, which would be secured under the Hills Shoppingtown General Security Deed and Mortgage ([20]).
On 26 February 2021, GK3 became subject to a deed of company arrangement under which Mr Gammel and Mr Taylor were appointed deed administrators.
[19]
Proceeding
In 2020, Carol brought a proceeding to this Court on behalf of herself and her daughters (Carol acting as their tutor) against Hills Shoppingtown, Maria and Joseph, seeking specific performance of the obligations under the Deed of Agreement and Deed of Acknowledgement.
As the payments due between May and August 2021 under the Deed of Acknowledgment were not paid within the time required (although they were ultimately paid on the eve of the hearing before the primary judge), and there was no transfer of the 20 unencumbered Units in the Hills Shoppingtown Development within the period provided under the Deed of Acknowledgment, the plaintiffs maintained that there was a failure by the defendants to observe strict performance and compliance with cl 2(b) of the Deed of Acknowledgement and thus, pursuant to cl 2(c) of the Deed of Acknowledgement (which had the effect that it was only in the event of "strict performance and compliance with clause 2(b)" that there was to be any amelioration of the time limits for performance), the rights and obligations of the parties once again fell to be determined in accordance with the Deed of Agreement (but with the benefit for the respondents of an admission that the appellants had breached that deed). Thus, the respondents contended that, from May 2021, the appellants were to be regarded as having been in breach of their obligations under the Deed of Agreement since June 2018.
By notice of termination dated 15 July 2021, the respondents' solicitors notified of the termination of the Deed of Agreement on the basis that there had been a repudiation of that Agreement. Further notices of termination were sent on 20 July 2021 to the Deed Administrators of Hills Shoppingtown and to the third defendant (Joseph) (see further amended statement of claim at [61N]-[61Q]).
A further amended statement of claim was served by letter dated 21 July 2021 by the respondents' solicitors. In the amended pleading, GK3 (which had been joined in the first amended pleading as the fourth defendant) was no longer named as a party. The relief sought by the further amended statement of claim was for damages for repudiatory breach of the settlement agreements. Relevantly, the further amended statement of claim filed on 9 August 2021 pleaded, among other things, breaches of the obligation to facilitate an acquisition by GK3 of an unencumbered interest in the Units by 19 July 2018 and to cause Hills Shoppingtown to complete the development by no later than 21 June 2018 (see at [46]) but also breach of the obligation in cl 3.7 of the Deed of Agreement as to the Replacement Units (see [47B]-[51E]).
At [64], the loss and damage was pleaded and particularised as follows:
Loss and Damage Claimed
64 The plaintiffs have suffered and continue to suffer loss and damage by reason of the Repudiation (and underlying breaches) of the Deed of Agreement by each of the defendants
Particulars of Loss and Damage
By their repudiatory breaches of the Deed of Agreement, the second and third defendants deprived the plaintiffs of the benefit of the bargain they struck under the Deed of Agreement, that is the benefit of:
(i) having an unencumbered interest in the Promised Units transferred by 19 July 2018 to GK3 in its capacity as trustee of the GK3 Trust;
(ii) using the first plaintiff's practical control of the GK3 Trust to effect a transfer of the Promised Units to each of the plaintiffs so that the plaintiffs obtained by 19 July 2018 (or very shortly thereafter) the benefit of registration as registered proprietors of the Promised Units;
(iii) thereby obtaining absolute title in real property having a value of $15,346,498.42,
and, accordingly, they are entitled to damages in that sum together with interest thereon.
In submissions before the primary judge, the respondents argued that the admission in cl 2(a) of the Deed of Acknowledgment by Maria and Joseph that they were in breach of cl 3.8(a) of the Deed of Agreement was an admission that was the subject of estoppel by deed (see as recorded at [55]-[56] of the primary judgment).
There was also a cross-claim brought by Joseph against Sam alleging breach by Sam of the undertaking in cl 3.4 of the Deed of Agreement (to perform all acts in accordance and in compliance with the obligations set out in the Deed and in the best interest of the Beneficiaries), as well as involving the principles of conventional estoppel (arguing that Joseph was acting on the assumption that Sam would not depart from the assumption that he would act in the manner stipulated in cl 3.3(f) of the Deed of Agreement). Further, there was an allegation that Sam was liable for tortious interference with contractual relations (having caused Hills Shoppingtown to pledge its assets for purposes foreign to its needs to support Sam's other related companies and their indebtedness to Persephone (see as outlined at [95] of the primary judgment)).
[20]
Primary judgment
The primary judge rejected the submission that the word "facilitate" in cl 3.4(a) of the Deed of Agreement meant no more than, in effect, a reasonable endeavours clause ([135]). The primary judge considered that the word "facilitate" in cll 3.4(a) and cl 3.6(a) must be viewed in the context of the obligations otherwise undertaken by the Executors, referring to the obligations in cl 3.8 that the Executors cause certain things to happen and the obligation in cl 3.7(a) in relation to the Replacement Units ([125]-[127]). The primary judge also referred to the fact that under cl 3.9 the Beneficiaries were given the right to sue for any breach of the Deed ([131]). The primary judge concluded at [132] that the obligation to "facilitate" or to "cause" things to happen, together with the requisite releases, assumed positive obligations on the part of the Executors in return for a settlement of the probate proceeding and any claim the Beneficiaries might have.
The primary judge noted the admission in the Deed of Acknowledgment that the parties, which included Hills Shoppingtown, were in breach of cll 3.7(a) and 3.8(a) of the Deed of Agreement and that this admission was without any limitation as to what may otherwise amount to breaches ([136]); and attached weight to the acknowledgment in cl 1.3 that the Executors were to be liable not just as trustees but also in their personal capacity ([125]).
The primary judge was of the view that, construed as a whole, the two deeds gave rise to promises personally by each of the Executors to pay the amounts specified in each agreement ([142]); and said that the Deed of Acknowledgement made abundantly clear that if the payment of moneys as agreed or the Units had not been transferred then the whole of the amounts set out in cl 2.1(b) became payable and that the better view of that clause was that in that context it preserved the right to claim damages accruing because the Executors had failed to effect the transfer of all or some of the Units ([142]).
At [146], the primary judge found that the Executors had failed also to comply with cl 3.7(a) of the Deed of Agreement (noting that such a breach was admitted in the Deed of Acknowledgement - [147]). At [148], the primary judge found that the conduct of Maria was clearly repudiatory and at [149] that, as they were entitled, the plaintiffs had accepted the breaches as repudiatory and elected to terminate the Deed of Agreement. At [154], the primary judge reiterated this conclusion in saying that he had no doubt that the conduct of the Executors evinced an intention or inability substantially to perform the contract.
As to the issue raised at the hearing as to whether Carol would have brought about a transfer of the Units from the GK3 Trust to herself and her children, the primary judge considered that to some extent that was a "red herring" ([150]), noting that since 2016 Carol and Mr Malkoun had been the sole appointors under the GK3 Trust and had the power at all times to remove the trustee and appoint the trustee of the Trust; and that between them they owned 100% of the shares in GK3 and controlled the board of directors of that company. Noting that, had there not been breaches by the Executors, Sam would have been obliged to retire as a director by July 2018, the primary judge accepted the evidence of Mr Malkoun that he would, had it been necessary, have used his role as Appointor to remove GK3 as trustee of the GK3 Trust and replace it with a trustee of Carol's choosing. The primary judge considered that the assets and income of the Trust could have been distributed to the plaintiffs (i.e., the respondents) and noted that the trustee of the Trust had the power to distribute capital and make payments as it thought fit to any beneficiary (see [151]-[152]).
At [154], the primary judge said that the fundamental obligation under the Deed (there referring to the Deed of Agreement) was to ensure the transfer of the unencumbered Units to GK3 or Replacement Units to the same value.
The primary judge rejected the proposition that the plaintiffs had unequivocally affirmed the Deed of Agreement by commencing the proceeding claiming specific performance, saying that it was abundantly plain that they were pursuing alternative and inconsistent remedies (the claim for specific performance being accompanied by a clearly pleaded alternative claim for loss of bargain damages), as they were entitled to do (see [155]). The primary judge said that the institution of proceedings where alternative and inconsistent remedies were sought could not, without more, amount to an election in favour of either remedy ([156]).
At [157], the primary judge said that a fresh act of repudiation occurred when the Executors failed to procure the acquisition of the Units within 28 days of registration of the strata plan on 3 November 2020; and said that "[t]here can be little doubt that the acquisition (unencumbered) of the Units as promised was a fundamental obligation which the two defendants persisted on a continual basis in breaching".
The primary judge considered that it was open to the plaintiffs to accept that repudiation on 15 July 2021 and to proceed only with the claim for damages for the loss of the bargain ([160]).
The primary judge, turning to the issue of loss and damage, considered it untenable for the defendants to suggest that the plaintiffs suffered no loss in being deprived of their bargain under the Deed of Acknowledgement because the transfer was being made to GK3 (for their benefit and at their direction) ([166]); the primary judge saying that it was clear that the parties contemplated that, whilst legal title in the Units would pass to GK3 as trustee, that would occur in circumstances where the plaintiffs, as part of their bargain, would gain complete control of the GK3 Trust and could therefore, after transfer, deploy the Units in any way they saw fit.
As to the further argument that the plaintiffs had suffered no loss because they (or presumably the Units) would have been the subject of guarantees and charges in favour of lenders and whatever other obligations GK3 owed as a joint venture partner, the primary judge saw none of those considerations as relevant ([169]) on the basis that the promise was to "secure the transfer unencumbered" of the relevant Units. The primary judge said that it was of no business or concern of the defendants what the position of GK3 was; that all that mattered was their relinquishing control over GK3 to permit the plaintiffs to decide what they would or could do with the Units.
The primary judge concluded that:
170. The plaintiffs lost their contractual bargain in that the Units as agreed (and at an agreed price) were not transferred unencumbered. The defendants' obligations dealt with all sides of the matter, to "facilitate" the acquisition by GK3 of the Units and to "cause" Hills Shoppingtown to transfer them. And "unencumbered" meant that the defendants assumed a contractual obligation to put GK3 (notwithstanding its financial obligations) into a position where it could receive them "unencumbered" which in turn in my view obliged the defendants to perform their obligations under the Deed so that GK3 could indeed receive the Units in that form which is reflective of the terms and the purpose of the Deed of Agreement.
171. Further the date for the assessment of damages for breach of contract is the date of the breach not at the date of the termination by acceptance of the repudiation. It is the economic value of the performance of the contract at the time when the performance was intended to occur. In my view the date of the breach was 25 June 2018. At that stage GK3 had a liability under a facility advanced by ANZ. The subsequent crippling facility entered into with Persephone and SCL is not in my view relevant.
At [172], the primary judge accepted the evidence of Carol that she would have caused the GK3 Trust to distribute the Units to herself and her daughters but also that she would have taken advice on the transfers including the issue of stamp duty. The primary judge regarded the potential liability for stamp duty as "one of a number of red herrings raised by the defendants". The primary judge also accepted Carol's evidence that she would have taken the course that was needed to protect her daughters; and accepted that Mr Malkoun would have assisted Carol to have given effect to the best way to deal with the Units and would have attended to whatever necessary formalities were required ([173]). As to whether Carol had the means to pay whatever the stamp duty might be (the primary judge there referring to a range of between $500,000 and $1 million), the primary judge noted that nothing was put to Carol that there was any particular liability or obligation that would have stood in the way of her being unable to make the distribution of the Units and saw this as one of a number of red herrings unconvincingly raised by the defendants.
The primary judge (at [174]) rejected the proposition that the case should properly be seen as one of loss of a chance or opportunity; saying that the plaintiffs simply sued for the loss of the bargain they were promised by the defendants and to be placed in the same situation with respect to damages in which they would have been had the promises been performed (noting that the promises they were made included the unencumbered Units and complete control of GK3 after the Units were transferred to it).
The primary judge said at [175] that:
Here there is no doubt the plaintiffs were by reason of the defendants' breaches deprived of the benefit of the transfer of the twenty unencumbered shares [sic; this must be a reference to the Units] to GK3 which was the Trustee of a trust the plaintiffs would have entirely controlled within 28 days of the registration of the strata plan which would have occurred at the latest in July 2018. Later events in particular those identified by the defendants as to why for example there were difficulties or issues which the plaintiffs may or may not be called upon to resolve are simply not to the point. It is the value of those contractual rights as at July 2018 not some other issues that may or may not have arisen at a later point in time. What the plaintiffs may or may not have done was a matter for them entirely with advice from the appropriate professional if required.
The primary judge adopted the agreed value specified in cl 3.5(a) of the Deed of Agreement, noting that this was "the yardstick agreed by the parties in making quite express what the monetary obligations were on the part of the defendants to make good as it were"; and saw no reason to give the defendants any discount on that figure ([176]).
As to the cross-claim against Sam, the primary judge considered that insufficient evidence had been put forward by Joseph to make any findings in relation to the cross-claim ([183]). There is no appeal from this aspect of the decision.
On 21 April 2022, the primary judge made orders entering judgment for the respondents against the appellants in sums totalling $18,126,621.82, comprising an award of damages for breach of the Deed of Agreement plus interest under s 100 of the Civil Procedure Act (effectively payment of the agreed value of the Units - $15,346,498.42 - under the Deed of Agreement together with interest).
[21]
Joseph's amended notice of appeal
Joseph ultimately pressed only the following four grounds of appeal (not sequentially numbered) (as per the amended notice of appeal for which leave was given at the hearing of the appeal):
1. The primary judge erred in finding that the respondents had suffered more than nominal loss and damage in circumstances where:
(a) on the true construction of clause 3.6 of the Deed of Agreement, the appellant and Maria Fayad (the Executors) were not contractually obliged to procure Sam Fayad's resignation as the sole director of GK 3 Pty Ltd;
(b) for so long as the Units were owned by GK 3 Pty Ltd, the respondents had no proprietary legal or equitable interest in the Units;
(c) the respondents were required to pay stamp duty on any transfer of the Units by GK 3 Pty Ltd to themselves (or had proved that they were not liable to pay stamp duty in such circumstances);
(d) the respondents had not proved that they were both willing and able to cause GK 3 Pty Ltd to transfer the Units to themselves; and
(e) the actions of GK 3 Pty Ltd itself in November 2018 would have prevented the transfer of the Units to the respondents, in that by granting securities in favour of Persephone Co Ltd:
(i) the beneficiaries of the GK Trust were prevented from giving a direction to GK 3 Pty Ltd as trustee to distribute the assets thereof: and
(ii) GK 3 Pty Ltd as trustee was unable to vest or distribute any capital of the trust to a beneficiary;
(f) the Executors were not liable for the consequences of GK 3 Pty Ltd's actions in granting the securities in favour of Persephone Co Ltd.
2. The findings of the primary judge that (i) Carol Khattar would have caused GK 3 Pty Ltd to distribute the Units to herself and the remaining respondents: (ii) that Mr Malkoun would have so assisted her: and (iii) that Mr Malkoun would if necessary have used his role as Appointor to remove GK3 Pty Ltd as the trustee of the GK3 Trust and replace it with a trustee of Carol's choosing, were glaringly improbable and were inconsistent with inferences to be drawn from incontrovertible facts, in circumstances where:
(a) the witnesses did not indicate any particular reason why they would have caused GK 3 Pty Ltd to transfer the Units:
(b) the witnesses called by the respondents accepted that they would have made enquiries about whether GK 3 Pty Ltd should retain the Units or transfer them to the respondents having regard to a number of matters, including the cost of transfer:
(c) no such enquiry had been undertaken and no evidence was proffered as to what the witnesses would likely have concluded had such an enquiry been undertaken: and
(d) Carol Khattar's evidence was that she saw no reason to differentiate between GK 3 Pty Ltd and the respondents, and was, as late as May 2020, reluctant to transfer the Units out of GK 3 Pty Ltd.
…
5 The primary judge ought to have concluded that Carol Khattar would not have caused, or would not likely have caused. GK 3 Pty Ltd to transfer the Units to herself and the other respondents.
6 In the alternative, the damages recoverable by the respondents should have been reduced by the costs associated with transferring the Units from GK 3 Pty Ltd to themselves, including the amount of any stamp duty.
[22]
Maria's amended notice of appeal
Maria similarly did not press all the grounds of appeal included in her initial notice of appeal, relying only on the following (again not sequentially numbered) grounds:
2. The learned primary judge erred in finding that the word "facilitate" in the context of cl 3.4(a) and 3.4(v) of the Deed of Agreement, properly construed, imposed an obligation on the appellant that extended more than a "reasonable endeavours" clause would require the appellant to undertake.
…
4. The learned primary judge erred:
a. in finding that the question as to whether Carol would have brought about a transfer of the Units from the GK3 Trust to her and her children was, to some extent, a red herring (PJ at [150]);
b. in accepting that Mr Malkoun would have had it been necessary used his role as Appointor to remove GK3 as the Trustee of the GK3 Trust and replace it with a Trustee of Carol's choosing (PJ at [152]);
c. in finding that by the time the proceedings were commenced, the appellant was more than 2 years overdue in the fulfillment of her contractual obligations under the Deed of Agreement (PJ at [154]), particularly having regard to the Deed of Acknowledgment and the appellant's performance of her obligations thereof;
…
6. The learned primary judge erred in finding that:
a. the proposition that the respondents suffered no loss in being deprived of their bargain under the Deed of Agreement because the transfer was being made to GK3, and not the respondents, was untenable (PJ at [166]);
b. the respondents suffered loss and damage by reason of the appellant's alleged breach of the Deed of Agreement;
c. the loss and damage suffered by the respondents was referable to the value of the Units as at July 2018 that were, pursuant to the Deed of Agreement, required to be transferred to GK3.
…
9. The learned primary judge erred in asserting that the appellant promised she would secure the transfer unencumbered the relevant Units to GK3 (PJ at [170]).
10. The learned primary judge erred in:
a. accepting that Carol would have caused GK3 as Trustee of the GK3 Trust to distribute the Units to herself and her daughters (PJ at [172]);
b. regarding the potential liability for stamp duty on any transfer to be a "red herring" (PJ at [172]); and
c. therefore, finding that the total value of the alleged loss suffered by the respondents is referable to the value of the Units as at July 2018, without having regard to any consequential costs or expenses GK3 would undoubtedly have occurred in seeking to transfer the Units to the respondents as they alleged they would have done.
…
[23]
Preliminary observation
At the outset, it is relevant to note that, to the extent that the appellants' submissions (see in particular Joseph's submissions at [46]ff) were premised on the proposition that the contractual promise in the present case was akin to a promise for the benefit of a third party (Joseph citing Windeyer J's observations in Coulls v Bagot's Executor and Trustee Co Limited (1967) 119 CLR 460; [1967] HCA 3 (Coulls) at 504-505, endorsed by Lord Upjohn in Beswick v Beswick [1968] AC 58; [1967] 2 All ER 1197 at 1212, as to the recoverability of liquidated damages for breach of such a promise), that analogy is not apt to the circumstances of the present case.
The respondents accept that they are not entitled to recover what GK3 lost; and could only sue to recover their own foreseeable loss; and it is not disputed that, as Beneficiaries of a non-exhaustive discretionary trust, the respondents had no proprietary legal or equitable interest in the trust fund of the GK3 Trust (see Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509; [2006] FCA 814 at [26]-[30] per French J sitting in the Federal Court as his Honour then was; Cypjayne Pty Ltd v Rodskog [2009] NSWSC 301 at [41] per Brereton J, as his Honour then was).
However, the respondents say that their claim was not (at least directly) a claim to recover the legal or equitable interest in the Units. The respondents say that they sued to recover the loss of their contractual bargain, pointing out that the suite of promises in the Deed of Agreement included not only a promise to transfer the unencumbered Units to GK3 as trustee but also a promise to place the respondents in control of the GK3 Trust by: appointing Carol and Mr Malkoun as the appointors of the GK3 Trust thereby having control over the appointment of the trustee (cl 3.2(c)(i)); transferring the shares in GK3 to Carol and Mr Malkoun (cl 3.3(d)); and appointing Carol and Mr Malkoun as the directors of GK3 (cl 3.6(a)).
Thus, the respondents say that the right to effective control of the assets of the GK3 Trust, including the (unencumbered) Units, was something which was an express part of their bargain (the respondents here referring also to Recital L of the Deed of Agreement). Indeed, they point to Maria's acceptance in her evidence that the objective of the Deed of Agreement was that "the Beneficiaries would take over GK3 on receipt of the units from Hills Shoppingtown, GK3 could continue to own the units and facilitate distributions to the Beneficiaries via the GK3 Trust on receipt of rental income, or otherwise do as GK3 pleased with the units". The respondents say that the right to have complete control of the assets of the GK3 Trust was a valuable right in and of itself separate to rights of legal and equitable ownership of the Unit; that it is the loss of that right of control which constitutes the loss of the bargain; and that that loss is not suffered by the intended legal owner of the Units (i.e., GK3) but by the respondents who were promised rights to control the assets of the GK3 Trust, including the Units.
The respondents also point to the terms of the Deed of Acknowledgement, referring to cl 2(b)(i) which enumerated certain "payments" to be made by Maria and Joseph and included provision for their compliance with all other obligations under the Deed of Agreement, including cl 3.4(a) (see cl 2(b)(i)(7)). The respondents emphasise that the specific reference to cl 3.4(a) is to Maria's and Joseph's obligation to facilitate the transfer of the Units. It is noted that under cl 2(e), failure to remedy the breach after the issue of a notice had the effect that "the whole of the amounts set out under clause 2(b) will become immediately due and payable to the Beneficiaries as a debt". The respondents disavow any suggestion on their part that the terms of the subsequently entered Deed of Acknowledgment can inform the proper construction of the earlier Deed of Agreement. However, they say that cl 2(e) has the effect that (if it were not already the case), upon entry into the Deed of Acknowledgment, they had a right to sue to recover the value of the promise to transfer the Units because clause 2(e) reflects an intention that they are to have the direct benefit of the promise to transfer the Units (and, consequently, they say that they personally sustained loss upon the failure to transfer the Units).
As I see it, the difficulty with the suggestion that the case should be seen through the prism of the observations in Coulls as to recovery of damages for breach of a promise to pay (or provide a benefit to) a third party is that in the present case the relevant promise (as recognised by the primary judge at [174]) was for the respondents to be placed in the position where they would have complete control of the GK3 Trust at a time when there had been a transfer of the unencumbered Units to GK3. I accept that the loss suffered by the respondents is that they did not obtain control of the GK3 Trust with the benefit of GK3 holding unencumbered Units the agreed value of which had been acknowledged by the parties to be $15,346,498.42. That is the position in which the primary judge's award of damages was intended to place the respondents. What the respondents may have chosen then to do with their effective control of the GK3 Trust was a matter for them (as the primary judge in my opinion correctly recognised).
[24]
Proper construction of the Deed of Agreement
Turning then to the issues raised on the respective appeals, logically, the first issue to be considered is as to the proper construction of the Deed of Agreement; relevantly, as to the meaning of "facilitate" in cl 3.4(a) of the Deed of Agreement. This was the subject of lengthy submissions by Maria (see, in particular, Maria's submissions in reply).
Joseph, for his part, does not here challenge the primary judge's construction of cl 3.4(a) (see his submissions at [24]); Joseph's submission being that cl 3.4(a) takes its meaning from the balance of the provisions found in that clause (and also cl 3.8, which he notes uses emphatic language directed to the Executors); and, in the course of his submissions, Joseph appears to concede that "facilitate" in cl 3.4(b) amounts to a requirement to ensure the outcome provided for in that clause. Where Joseph maintains there is a difference (arising in the context of his "no loss" submissions) is that he claims that in cl 3.6 the obligation to "facilitate" Sam's resignation as an officer of GK3 and his replacement by Carol and Mr Malkoun should be construed as meaning that the Executors would render easier the performance of that action or attainment of that result; not that they would bring about such an outcome (see at [23] of his submissions). The significance of this goes to whether the respondents would have had, or exercised, the benefit of practical control of the GK3 Trust at the relevant time. I consider this issue in due course. For present purposes, it is necessary to deal only with Maria's submissions as to cl 3.4(a).
[25]
Maria's submissions
Maria maintains that cl 3.4(a), on its proper construction, did not oblige the Executors to ensure that GK3 acquired the Units; rather that the obligation to "facilitate" the acquisition by GK3 of an unencumbered interest in the Units from Hills Shoppingtown was to "help" this to occur or to make it easier for this to occur. Moreover, Maria argues that the obligation in cl 3.4(a) to facilitate GK3 acquiring an "unencumbered" interest in the Units did not oblige the Executors to pay out or compromise the moneys that would have become secured against the Units (as after acquired property) pursuant to the terms of the general security agreement between GK3 and ANZ once the Units were transferred to GK3.
In support of that construction of the word "facilitate" in cl 3.4(a), Maria points to the factual context in which the Deed of Agreement came to be entered into by the parties.
First, that the Deed of Agreement arose out of the claim brought by the respondents in the probate proceeding, which did not involve any monetary claim against the Executors. Maria argues that the Executors were merely acting as Executors and trustees under the Will and Maria contends (and (places no little weight on the submission) that the Executors did not obtain any personal benefit (or net economic benefit) as a result of being permitted, by virtue of the Deed of Settlement, to continue to administer the estate.
Pausing here, this argument singularly fails to recognise both that the Executors obtained releases in respect of any claims against them (presumably of some value in circumstances where various breaches of their duty as Executors had been alleged and where their removal as Executors would not necessarily have precluded later monetary claims against them) and also that, as a result of the settlement, the Executors obtained the benefit of the separation of the deceased's interests from the partnership or joint venture in which their respective family trusts were engaged and with the ability to administer the deceased's estate (including the deceased's indirect interest in those joint ventures) without reference to or consideration of the respondents' interests as beneficiaries under the Will.
Maria nevertheless submits that the settlement of the probate proceeding was intended to be on the basis that, by reason of the terms of the Deed of Settlement, on the parties carrying out their obligations under the Deed, the Executors would end up in an economically neutral position (having paid a total amount from the estate by way of net distributions and estate taxes and outgoings in the administration of the estate which was agreed to be equal to the total of the proceeds that had been received by the estate during its administration). Maria submits that this points away from an obligation being undertaken by the Executors to ensure that a transaction (which all of the parties knew the Executors did not have the legal ability to bring about) would occur.
Maria argues that a reasonable person with knowledge of these matters would have understood that the Executors would not derive any economic benefit or commercial advantage from the settlement of the probate proceedings or from entering into the overall settlement embodied in the Deed of Settlement and the Deed of Agreement and with that understanding would be most unlikely to read the terms of the Deed of Agreement as requiring the Executors to take on a significant personal liability to the respondents (in excess of $15.3 million) unless that obligation was expressed in unarguably clear and unequivocal terms.
Second, that Hills Shoppingtown was not a party to the Deed of Settlement but was a party to the Deed of Agreement. Maria argues that this involves a clear recognition by the parties that it was Hills Shoppingtown (and not the Executors) which was responsible for the completion of the Hills Shoppingtown Development and was the necessary party to bring about the transfer of the Units to GK3 (Maria pointing to Recitals E and F to the Deed of Agreement, where it is acknowledged that the Hills Shoppingtown Property was not an asset of the deceased's estate).
In this context, Maria also emphasises that a reasonable person would have known that: the Executors themselves would never have the legal capacity actually to transfer the Units to GK3; the Executors themselves would never have the legal capacity to discharge the securities over the Hills Shoppingtown Property or to deal with the lenders so as to remove the encumbrance in respect of the Units (once transferred to GK3) in circumstances where a loan of at least $21,600,000 was secured against the Hills Shoppingtown Property; and that Hills Shoppingtown (the legal owner of the Hills Shoppingtown Property, the intended future legal owner of the Units and the entity with the legal capacity to ensure that the Units were unencumbered by the loan secured over the Hills Shoppingtown Property and to transfer the unencumbered Units to GK3) had itself agreed by virtue of the Deed of Agreement to ensure that the unencumbered Units worth in excess of $15.3 million were transferred to GK3. Maria submits that these additional factors make it most unlikely that cl 3.4(a) of the Deed of Agreement would convey to a reasonable person that the Executors had assumed a personal obligation given that the promise would have been unnecessary (as the future owner of the Units had made the same promise to the respondents) and was out of the control of the Executors to perform.
Maria also submits that a reasonable person considering the meaning of cl 3.4(a) would know that the genesis of the Deed of Agreement (and the reason why the respondents needed the Executors' assistance to facilitate GK3 acquiring the Units) was that, on the death of the deceased, Joseph and Maria, in their capacity as Executors under his Will, had become the appointors of the GK3 Trust and the legal owners of the shares in GK3, and that Maria claimed she was the director of GK3. Maria says that it is for this reason that the Executors were necessary parties to the Deed of Agreement so that agreement was reached on the steps necessary to put the respondents in control of the GK3 Trust so as to facilitate the transfer of the Units from Hills Shoppingtown to GK3; and that it is for this reason that the Deed of Settlement and the Deed of Agreement provided that Joseph and Maria entered into the deeds in their capacity as Executors of the estate and not in any personal capacity. Maria argues that this was the sense in which the Executors agreed to facilitate GK3 acquiring the Units (that they agreed to assist, in their capacity as Executors, by taking such steps as were in their power, such as appointing Carol and Mr Malkoun as the appointors of the GK3 Trust, transferring GK3 shares to Carol and Mr Malkoun, and appointing Carol and Mr Malkoun directors of GK3); rather than agreeing to take on a massive personal liability by effectively guaranteeing that Hills Shoppingtown transfer the unencumbered Units to GK3.
Further, in reply submissions as to the context provided by the Deed of Agreement as a whole, Maria points to cl 3.6(b) of the Deed of Agreement (which she argues makes clear that the contemplated loans were to be procured for the purpose of "helping" or "assisting" the Hills Shoppingtown Development, and that the loans would not, by themselves, "cause" the development to occur); and to the definition of the term "Development" in cl 1.1 to mean the "development of the Hills Shoppingtown Property, as facilitated by the JV Companies" (which Maria says makes clear that the role of the JV Companies was clearly to "assist" or "help" the development rather than themselves to "cause" the development to occur). Maria invokes the presumption that words appearing more than once in a document are construed as meaning the same on each occasion; and thus says that the use of "facilitated" in cl 1.1 and "facilitating" in cl 3.6(b) makes it plain that the parties intended "facilitate" in cl 3.4(a) to have its corresponding ordinary and natural meaning (to "assist" an action).
As a textual indicator, Maria says that the Deed of Agreement shows that the verb "facilitate" was used "almost exclusively" by the parties in a particular context; namely, where the Executors were entering into an obligation in respect of an action that they could not carry out by themselves or at all. Maria points in this regard to the use of the verb "facilitate" in each of Recitals L and M and in cll 3.2(c)(ii), 3.3(d), 3.4(a), 3.4(b), 3.6(a)(i) and 3.6(a)(ii). It is submitted that the repeated use of this formula (i.e., of the Executors agreeing to "facilitate" a stated action where they could not themselves carry out that action) indicates that the parties deliberately used the verb "facilitate" in these provisions with the intention that its natural and ordinary meaning (to "assist" an action) would define the secondary obligations here being created, rather than intending that the verb take on a different meaning (i.e., to "cause" an action to occur) based on other provisions of the deed outside the limited context in which the verb "facilitate" was being put to use in the Deed of Agreement or based on common background knowledge (as argued by the respondents).
Maria attaches weight to the use of the infinitive verb in cl 3.4(a), in contrast to the language used in cll 3.7(a) and 3.8(a). Maria argues that in cll 3.7(a), 3.8(a), 3.8(b), 3.8(c) and 3.8(e) of the Deed of Agreement (where further obligations were placed on the Executors in respect of actions that they could not carry out themselves) the parties used the verbs "cause" and "procure". (Pausing here, this to my mind suggests that the parties were not attaching any particular significance to the difference between an obligation to facilitate something and an obligation to cause something to occur, since in both cases Maria seems to accept that the obligation concerned actions that the Executors could not themselves carry out).
Maria accepts that where the Deed of Agreement expressly required the Executors to "cause" certain actions to occur (using emphatic language) then the parties contemplated that the Executors were obliged to cause those actions to occur notwithstanding that the Executors could not carry out those actions themselves. However, Maria says that where the Deed of Agreement expressly required the Executors merely to "facilitate" an action, then the use of this different language shows that the parties clearly contemplated that, in this Deed, an obligation to "facilitate" an action was different from an obligation to "cause" that action to occur.
In response to the weight placed by the respondent on cl 3.7, Maria says that the fact that the Executors would be obliged (by the differently worded cl 3.7) to cause Replacement Units to be transferred to GK3 if Hills Shoppingtown failed to transfer the unencumbered Units to GK3 within the required time (an obligation that the respondents contend was also breached by the Executors) provides no basis for reading cl 3.4(a) as if it also used this "emphatic language of obligation". Maria says that the fact that the Replacement Units would, by definition, not be owned by Hills Shoppingtown (unlike the Units) explains why the primary obligation to transfer the Replacement Units under cl 3.7 must be placed on the Executors (not Hills Shoppingtown) and highlights the distinction with cl 3.4(a), where Maria says that the obligation of the Executors is secondary to a separate primary obligation on Hills Shoppingtown to transfer the Units to GK3. Maria submits that cl 3.7 sheds no light on the construction of cl 3.4(a), other than as an example of different language demonstrating different obligations.
Further, as to the weight attached by the respondents to cl 3.8, Maria submits that the fact that, by cl 3.8, the Executors expressly agreed to "cause" a different action to occur does not provide a basis for arguing that cl 3.4(a) should be read the same way when it expressly uses different language. Maria says that the function of cl 3.8(e) was only to set the timing of when the acquisition of the Units was to occur (within 28 days of registration) and therefore that this ancillary clause cannot outweigh the other factors which convey the proper construction of cl 3.4(a).
It is contended by Maria that the Deed of Agreement makes plain that it is based on the premise that the Executors themselves would never be in a position to transfer the Units to GK3 (noting that the Units were identified as units to be built as part of the strata development of the Hills Shoppingtown Property, which land was legally owned by Hills Shoppingtown as a corporate trustee for the five joint venture partners; that the Executors were not the legal or beneficial owners of the Hills Shoppingtown Property; and that the Deed of Agreement contemplated that Hills Shoppingtown, as facilitated by the JV Companies, would undertake the strata development and the registration of the strata plan). Further, it is noted that the Deed of Agreement made plain that the Hills Shoppingtown Property was not an asset of the estate being administered by the Executors.
Maria also places weight on the fact that the Deed of Agreement brought into existence a primary obligation owed by Hills Shoppingtown (the intended future owner of the Units) to the respondents to cause GK3 to acquire an unencumbered interest in the Units (referring to cl 3.8(c), by which the Executors were obliged, on or before the date of the Deed of Agreement, to procure Hills Shoppingtown and the respondents to enter into the Hills Shoppingtown Undertaking, cl 2(b) of which contained an irrevocable and unconditional undertaking to the respondents, among other things, to cause the acquisition of the Units by GK3 in accordance with the Deed of Agreement). Maria says that this primary obligation covered the very same subject matter as the secondary obligation undertaken by the Executors under cl 3.4(a) to facilitate GK3 acquiring an unencumbered interest in the Units; and that the connection of these two obligations (and the primacy of the obligation owed by Hills Shoppingtown) is further confirmed by the terms of the Deed of Agreement (referring to the use of the word "their" in cl 3.4(c) and arguing that this expressly identified obligations owed by Hills Shoppingtown in accordance with cl 3.4(a), being the clause by which the Executors agreed to facilitate GK3 acquiring an unencumbered interest in the Units). Maria submits that the fact that the Deed of Agreement expressly provided that Hills owed obligations under cl 3.4(a) reinforces that the Deed of Agreement contemplated that the obligation on the Executors under that clause was to assist or help Hills Shoppingtown perform its primary obligation to cause GK3 to acquire an unencumbered interest in the Units.
Maria contends that the fact that the Deed of Agreement brought into existence a primary obligation owed by Hills Shoppingtown to the respondents (to cause GK3 to acquire an unencumbered interest in the Units with an acknowledged agreed value of $15,346,498.42) provides a complete answer to two of the arguments raised by the respondents: first, the respondents' reliance on the "Summary of Agreement" document and, second, the submission made by reference to the advice of Senior Counsel tendered on the approval application.
As to the first, Maria points out that the parties to the Deed of Agreement agreed that the Deed expressed the entire agreement between the parties and excluded any prior agreement in relation to the subject matter of the deed; and that the respondents' argument ignores the primary obligation owed by Hills Shoppingtown under the Deed of Agreement. Maria's contention is that the Deed of Agreement should be construed in a way in which the respondents were "entitled to receive the benefit of the additional $15.5 million [to be transferred in property]", as the respondents submit, but that they were to receive that benefit from Hills Shoppingtown pursuant to its primary obligations under the Deed of Agreement to cause GK3 to acquire an unencumbered interest in the Units and not from the secondary obligation of the Executors under cl 3.4(a) merely to facilitate that acquisition.
As to the second, Maria accepts that the advice in question weighed the benefit of the settlement in terms which stated that the respondents "are to receive" units to the value of $15.3 million under the Deed of Agreement, but points out that the advice did not state or in any way suggest that the Units were to be received pursuant to the obligation imposed on the Executors by cl 3.4(a), rather than pursuant to the primary obligation imposed on Hills to cause the Units to be received by GK3. Maria cavils with the proposition that her contention as to the proper construction of the Deed of Agreement involves any inconsistency with the basis on which the settlement was put forward to Lindsay J for approval.
Maria accepts that an important factor in the construction of the Deed of Agreement is that it arose directly out of the settlement of the probate proceeding but maintains that this counts strongly against a construction of cl 3.4(a) to the effect for which the respondents contend (emphasising in her reply submissions the matters asserted in her submissions in chief as to the ambit of the probate proceeding and the proposition that a reasonable person with knowledge of those matters would have understood that the Executors stood to gain no economic benefit upon the probate proceeding being discontinued against them; and that it was known by all the parties to the Deed of Agreement that, under the terms of the overall settlement of the probate proceeding that was embodied in the Deed of Settlement and the Deed of Agreement, it was contemplated by the parties that the Executors would receive no net economic benefit under that overall settlement).
Maria argues that (contrary to the respondents' submissions), when read in context, Recital K of the Deed of Agreement does not support the respondents' construction of cl 3.4(a). Maria says that the statement in Recital K that "the Executors have agreed to transfer the Units to GK3" is at odds with the substantive provisions of the Deed of Agreement which establish that the Executors themselves would never be in a position to transfer the Units to GK3; and that it is clarified by Recital L, which explains that, in order to effect the "transfer" in Recital K, the Executors have agreed "to facilitate for GK3 to acquire the Units in the Hills Shoppingtown Land and appoint Jason and Carol as directors of GK3". Maria says that these recitals lead back to the same language used in cl 3.4(a) (i.e., that the Executors agreed to "facilitate" GK3 acquiring the Units by taking steps to put the respondents in charge of GK3) without further clarifying or illuminating that language.
As noted above, Maria places weight on the use of the infinitive form of the verb used in cl 3.4(a), in contrast to the language used in cll 3.7(a) and 3.8(a). Maria submits that the language in cl 3.4(a) is deliberate in not requiring the Executors to cause the transfer of the Units but, instead, to facilitate the transfer between Hills Shoppingtown and GK3. It is submitted that even if the Executors repudiated the Deed of Agreement (and committed underlying breaches of other clauses), if cl 3.4(a) did not on its proper construction oblige the Executors to ensure that GK3 acquired an unencumbered interest in the Units, then the respondents have not suffered the pleaded loss of bargain as the respondents were not deprived of the claimed benefit of having an unencumbered interest in the Units transferred to GK3 in its capacity as trustee of the GK3 Trust by 19 July 2018 pursuant to cl 3.4(a).
Separately, Maria contends that even if cl 3.4(a) obliged the Executors to ensure that GK3 acquired an unencumbered interest in the Units, that obligation did not require them to ensure that an unencumbered interest acquired by GK3 did not subsequently (after being acquired) become encumbered (as after-acquired property under the general security agreement with ANZ Fiduciary) or require the Executors to pay out or compromise any such subsequent encumbrance. In these circumstances, it is said that Carol would not have been in a position to transfer the Units from GK3 to each of the respondents free of the interests securing the moneys owed to ANZ Fiduciary and the respondents would not have been put into the position of obtaining absolute title in real property having a value of $15,346,498.42 (as pleaded); and, thus, the respondents are entitled only to nominal damages.
Insofar as the respondents raise a claim of estoppel by deed arising under the Deed of Acknowledgement (see below), Maria says that it is not enough that, by cl 2(a) of that Deed, the Executors acknowledged that they were in breach of the Deed of Agreement including but not limited to cll 3.7(a) and 3.8(a). Maria says that the terms of cl 2(a) of the Deed of Acknowledgement do not constitute any admission by the Executors of a breach of cl 3.4(a). Furthermore, Maria says that the relevant question on this ground of appeal is as to the proper construction of cl 3.4(a), not whether it has been breached. It is submitted that an admission of breach in terms of cl 2(a), without more, would not give rise to any relevant estoppel as to the proper construction of cl 3.4(a).
Thus Maria submits that the primary judge erred in holding that cl 3.4(a) of the Deed of Agreement obliged the Executors to cause an unencumbered interest in the Units to be transferred to GK3; and that it follows that, on the proper construction of cl 3.4(a), the respondents never had the benefit of a bargain with the Executors that the Executors would cause an unencumbered interest in the Units to be transferred to GK3, were never deprived of having any such contractual right and did not suffer the pleaded loss.
[26]
Respondents' submissions
The respondents maintain that, read in the context of the Deed of Agreement as a whole, by cl 3.4(a) the appellants assumed a duty to ensure the transfer of the Units (or the Replacement Units to the same value) (rather than, as Maria argues, in effect assuming only an obligation to use their best endeavours to achieve that outcome). In this regard, they submit as follows.
First, that Maria's submissions ignore Recital K of the Deed of Agreement (which states that "the Executors have agreed to transfer the Units to GK3").
Second, that the use of the word "facilitate" in cl 3.4(a) (rather than the more emphatic language such as "shall cause" in other clauses) in part reflects the remaining part of cl 3.4(a) which gives the appellants discretion as to the mechanism by which GK3 was to acquire the Units.
Third, that the provision for the transfer of Replacement Units in cl 3.7 of the Deed of Agreement uses the language "shall cause" (placing emphasis on this as critical in relation to the construction of cl 3.4(a) since it is said that it was not enough for the appellants to use their best endeavours to see that GK3 acquired the Units because, if they did not cause GK3 to acquire the Units, they were obliged to provide the Replacement Units). It is noted that Maria does not challenge the primary judge's finding that no Replacement Units were offered by the appellants.
Fourth, the respondents say that the contention that the appellants were only required to use their best endeavours to bring about the acquisition of the Units cannot stand in light of the mandatory language of obligation in cl 3.8 (which required the appellants to ensure that the Units be acquired). The respondents say that it is not to the point that Hills Shoppingtown, which was ultimately responsible for completing the Development, was also a party to the Deed of Agreement because, by cl 3.8, the appellants assumed the responsibility of ensuring that Hills Shoppingtown did complete the Development.
The respondents argue that, contrary to Maria's submissions, the surrounding circumstances of the settlement of the probate proceeding do not support a construction of cl 3.4(a) which requires only that the appellants use their best endeavours, pointing to the "Summary of Agreement" document referred to in Recital J to the Deed of Agreement (which contemplated an "Agreement Deal" where $4.5 million was paid in cash and the remaining $15.5 million to be transferred in property and hence that the probate proceeding was to be settled on the basis that the respondents would obtain $20 million plus a property in exchange for giving up their interest in the estate) and to the independent advice received on the approval application before Lindsay J on 25 October 2016. It is said that for Maria now to say that the Deed of Agreement included no obligation on the appellants to cause the Units to be received by GK3 is inconsistent with the basis upon which the settlement was put forward to Lindsay J for approval (which referred to the benefit of the settlement in terms that the respondents "are to receive" Units to the value stated in the Deed of Agreement).
Finally, the respondents point out that the primary judge noted, but did not need to decide, the respondents' claim of estoppel by deed. The respondents maintain that, in light of the admission by the appellants in cl 2(a) of the Deed of Acknowledgement that they were in breach of the Deed of Agreement, including by breaching cl 3.7(a) (the obligation to provide Replacement Units) and cl 3.8(a) (the obligation to ensure completion of the Development), Maria cannot now be heard to argue that she was not obliged to ensure completion of the Development and to ensure that GK3 would become the registered owner of the Units. In response, Maria says that the only clause in question is cl 3.4(a), and that the admissions in cl 2(a) do not refer to cl 3.4(a). Maria places emphasis on her submission that the relevant question is the proper construction of cl 3.4(a), not whether it has been breached.
[27]
Determination
As already noted, there was no dispute as to the principles to be applied when construing the settlement documents and, in particular, the Deed of Agreement. Those were summarised by the primary judge at [24]-[44].
In my opinion, the primary judge was correct in his construction of cl 3.4(a) of the Deed of Agreement. The context in which the Deed of Agreement was entered into, as part of the overall settlement of the probate proceeding, makes clear that the respondents were (through control of GK3) to receive property (and/or cash) to the value of $20 million and that the bulk of this was to be comprised by Units (or, if necessary, Replacement Units). The apparent concession by Maria as to the obligation in relation to the Replacement Units points strongly to the obligation in cl 3.4(a) being more than an obligation to "assist" or to use best endeavours to help achieve the promised outcome in relation to the Units themselves. The question as to who was to bear that obligation is answered by the very acknowledgement of the Executors in the Deed of Acknowledgement that they were in breach of the Deed of Agreement, including cll 3.7 and 3.8. I do not accept that the admission in Recital K that the Executors had agreed to transfer the Units can be dismissed (as Maria seeks to do) as some kind of ancillary recital to be read down by later provisions of the Deed. Rather, it makes clear that the Executors (through the efforts of Sam who signed the Summary of Agreement and negotiated the "deal" on the Executors' behalf) well understood that by this settlement they were agreeing to cause the Units to be transferred to GK3 and that Carol (in her own right and with Mr Malkoun as joint trustee of the family trust in favour of her daughters) was to obtain control of those Units, unencumbered, on their transfer to the trustee of the GK3 Trust.
The inconsistent use of language ("facilitate" in some clauses, "cause" in others) does not assist the appellants because there is not a consistent differentiation between clauses in which the Executors (not having the ability themselves to effect the requisite outcome) were required to facilitate that outcome as opposed to causing that outcome. Moreover, in circumstances where the drafting of the Deed of Agreement was not a model of draftsmanship in other respects, the inconsistency in the use of the respective verbs does not point to "facilitate" having the meaning for which the appellants contend.
As to the complaint that it would be unlikely for the Executors to have assumed a personal obligation to do something that they were not legally in a position to compel, this ignores the fact that the parties were together involved in a joint venture arrangement (albeit one not comprised wholly of family entities) and the settlement was negotiated with the active involvement of Sam (who was in a position to cause Hills Shoppingtown to take the requisite steps and who was clearly being relied upon by the Executors to deal with the matters surrounding the Hills Shoppingtown Development and the separation of the interests of the deceased's estate in that development).
The fact that Hills Shoppingtown also undertook an obligation to effect the transfer of the Units (through the Deed of Undertaking) does not of itself lead to the conclusion that all the Executors assumed was a "secondary" obligation to "assist" with the transfer. Rather, it simply placed an obligation on all three parties in different ways to achieve the same outcome.
Critically, the obligation on the part of the Executors in relation to the Replacement Units (see cl 3.7) and their obligation to ensure completion of the Hills Shoppingtown Development (see cl 3.8) point clearly to the Executors having assumed an obligation under cl 3.4(a) to effect or cause to be effected the transfer of the Units unencumbered to the respondents; and the requirement that they be transferred unencumbered to my mind obliged the Executors to take steps to discharge any encumbrance to which, on such a transfer, they would automatically be subject. It seems to me to be a triumph of form over substance to argue that there would be compliance with an obligation to transfer the Units "unencumbered" to GK3 in circumstances where at the very instant of transfer what was to be received would no longer be unencumbered.
Thus grounds 2 and 9 of Maria's amended notice of appeal are not made good.
[28]
"No loss" submission - on basis of Persephone's security over Units
[29]
Preliminary matters
The second issue raised on the respective appeals (Maria adopting Joseph's submissions on this issue) is the contention by the appellants that there was no or nominal loss by the respondents as a result of Sam's conduct in causing GK3 to bind itself to the contractual arrangements with Persephone which had the effect of precluding the transfer of the Units to GK3. This issue to some extent overlaps with (and was addressed by Joseph together with) the third issue (namely, as to whether the primary judge erred in finding that Carol would have caused the Units to be transferred to the respondents), which is addressed in due course.
This is because Joseph maintains that an essential element of the respondents' case was that Carol would have exercised her assumed practical control of the GK3 Trust to effect the transfer of the Units to them, Joseph noting that it was no part of the respondents' case that their damages were to be assessed by reference to a lost opportunity (no such case having been pleaded). Hence, Joseph argues that the respondents were not entitled to damages unless they proved that (had the Units been transferred to GK3) they would have caused GK3 to transfer the Units to them personally. Further, in reply submissions, Joseph argues that, given the terms of the refinancing entered into with Persephone on 14 November 2018, it was necessary that the respondents establish that they would have arranged for the transfer of the Units in specie before that date.
Pausing here, the respondents accept that at the hearing at first instance they disavowed a loss of opportunity case and they made clear that in this Court they do not here seek to maintain such a case; however, the respondents cavil with the proposition that it was essential that they prove that Carol would have exercised her control to effect the transfer of the Units out of the GK3 Trust to the respondents personally. It is therefore convenient first to address this pleading issue.
The respondents say that the particulars to [64] of the further amended statement of claim (see as extracted at [86] above) pleaded damage in a way that allowed (but did not require), the respondents to prove a counterfactual involving transfer of the Units; and that there is no reason to read (i)-(iii) of those particulars as cumulative. In any event, the respondents say that the case was conducted on the basis that the respondents' primary position was that damage was incurred simply by the failure to transfer the Units to GK3.
In his reply submissions, Joseph argues that the cumulative nature of the particulars of loss (at [64]) is apparent from their content and sequencing, as well as from the use of "thereof" in particular (iii); and Joseph maintains his contention that the respondents needed to prove the matters particularised in order to establish loss. Joseph also disputes the proposition that the case at first instance was conducted on some basis other than the pleaded case.
The respondents point out that the primary judge accepted that the respondents' loss did not depend on ownership of the Units but on the fact that the respondents were deprived the benefit of the bargain from the date of promised performance (the respondents here referring to [162] and [169] of the primary judgment); and they say that it is for that reason that the primary judge found that the issue whether Carol would have caused GK3 to transfer the units was, to some extent, a "red herring". (The respondents further say that, in light of the findings as to loss being suffered upon breach, the primary judge's subsequent findings that Carol would have brought about the transfer of the Units from the GK3 Trust must be understood as alternative reasoning not essential to the primary judge's ultimate conclusion.)
The respondents argue that in the absence of a challenge by Joseph to what they characterise as the primary judge's dispositive conclusion (that loss was suffered when the respondents were not provided with the promised rights of control over the GK3 Trust and did not depend on subsequent events) the challenges to the primary judge's alternative reasoning in grounds 1, 2 and 5 of Joseph's amended notice of appeal are of no utility. The respondents nevertheless accept that ground 6 of Maria's further amended grounds of appeal does maintain a challenge to that dispositive conclusion.
In reply to the suggestion that he does not challenge the finding that loss was suffered when the respondents were not provided with the promised rights of control over the GK3 Trust, Joseph simply refers to his submissions in chief on the no loss issue; and he cavils with the proposition that this finding is dispositive in any event.
[30]
Consequence of subsequent grant of security to Persephone
In his submissions in chief when addressing collectively his appeal grounds 1, 2 and 5, Joseph points out that it was no part of the respondents' case that any breach of the Deed of Agreement by the Executors had, as a foreseeable consequence thereof, Sam's refinance of the loan facilities through Persephone and SCL AUS and the subsequent appointment of the receivers. The respondents do not dispute that proposition.
Joseph accepts that it was theoretically open to Carol and Mr Malkoun to use their practical control of the GK3 Trust to effect a transfer of the Units to the respondents personally, such practical control arising upon the appointment of Carol and Mr Malkoun as appointors of the GK3 Trust (referring to cl 3.2 (c) of the Deed of Agreement) and had they been appointed the sole officers of GK3 pursuant to cl 3.6 of the Deed of Agreement.
However, as noted above, Joseph contends that the Executors were not contractually obliged to cause Sam to retire as a director of GK 3; rather, he says that cl 3.6(a) of the Deed of Agreement merely required the Executors to "facilitate" that outcome, not procure it; and Joseph notes that the respondents themselves took no steps to cause Sam to retire as a director. (The respondents here point out that they were contractually precluded from so doing.)
Joseph argues that it is objectively unlikely that the Executors would have agreed to assume an obligation actually to bring about an outcome (Sam's resignation as a director of GK3) which was not within their power to achieve, noting that the Executors were to cease being directors of GK3 about a month after the execution of the Deed of Agreement, and that Carol was the company's only member. It is noted that Carol agreed that Sam would be appointed the sole director and secretary of GK3 (see cl 3.3(e)), through which appointment Sam was able to take control of what GK3 did (through his sole responsibility for managing GK3's financial position) outside the power and control of the Executors. Joseph also says that the parties can be taken to have had regard to the fact that cl 3.3(f) of the Deed of Agreement recorded Sam's undertaking to perform all acts in accordance with any compliance with the obligations set out in the Deed and to do so in the best interests of the respondents (despite his not being a party to the Deed of Agreement).
Joseph also points out that Carol and Mr Malkoun did not purport to act as Appointors at any time prior to Sam's dealings with Persephone or SCL AUS, noting that Carol's own evidence was that, as late as May 2020, she was reluctant to agree to have the Units transferred to another entity (when Sam informed her of the liabilities to which GK3 might be exposed).
As discussed above, the respondents deny that it was an essential element of their case that they prove that the Units would have been transferred out of the GK3 Trust to the respondents personally.
As to the Persephone security over the Units, the respondents emphasise that the time for performance under the Deed of Agreement was 25 June 2018 (as the primary judge found), whereas GK3 (acting under the direction of Sam) did not grant a security in favour of Persephone until 14 November 2018. The respondents say that the primary judge made a finding consistent with the ruling principle explained in Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56 (Clark v Macourt) by holding that "the subsequent crippling facility" entered into with Persephone was not relevant ([171]). The respondents argue that the subsequent securities granted by GK3 in favour of Persephone (and SCL AUS) are not relevant to determining loss as at the date the obligation should have been performed.
In any event, the respondents say that the issue raised by Joseph depends upon a further false premise concerning the appropriate counterfactual to apply to the assessment of damages. They argue that it is essential to Joseph's contention that the grant of the Persephone security would still have occurred if the appellants had performed their obligations under the Deed of Agreement; and the respondents contend that this is not correct. The respondents say that, had the appellants performed their obligations, Sam would not have been in a position to commit GK3 to the arrangement with Persephone in November 2018.
The respondents point to the obligation of the appellants under cl 3.6(a) to "facilitate" the resignation of Sam as the sole director and secretary of GK3 within seven days of the acquisition of the Units. The respondents argue that this did not simply require the use of something akin to the appellants' best endeavours; rather, they say that it required the appellants to procure Sam's resignation. The respondents say that Joseph's proposed construction would give the term "facilitate", when used in cl 3.6(a), a different meaning to the same word when used in cl 3.4(a) (contrary to the basic canon of construction that words appearing multiple times in a written contract are presumed to have the same meaning throughout).
Moreover, the respondents say that the suggestion that the appellants had no obligation to procure Sam's resignation is contrary to the very purpose of the Deed of Agreement. It is noted that [6] of the Summary of Agreement stated that the intention of the parties was that the settlement would result in the respondents taking control of GK3; and that, to do so, it was necessary to replace Sam as a director.
The respondents argue that it is not improbable that the directors would have assumed an obligation to bring about a result that was beyond their control, noting that they did exactly that in relation to the obligation to ensure that Hills Shoppingtown complete the Hills Shoppingtown Development and pointing to the familial and business relationship between Sam and the Executors. It is also noted that Sam had negotiated the settlement with Carol on behalf of the appellants. The respondents say that, given that close relationship between Sam and the Executors, it is not improbable to think that the appellants would, in effect, commit themselves to bringing about Sam's resignation as a director.
In his reply submissions, Joseph emphasises that the obligation on Joseph and Maria was ''to facilitate" rather than "to ensure" that Sam was removed as a director of GK3; and, insofar as the respondents place reliance on the fact that Joseph and Maria had promised to cause Hills Shoppingtown to complete the development (cl 3.8(a) of the Deed of Agreement), Joseph argues that the two promises are not comparable. Joseph says that the promise to cause Hills Shoppingtown to complete the Hills Shoppingtown Development (cl 3.8(a)) is concerned with clarifying where the risk lay of the development not being completed within time under the Deed of Agreement (in circumstances where Joseph and Maria were separately required to transfer the Units within 20 months). Joseph says that, by contrast, Sam's removal as a director would have been a matter fully within the respondents' control (with Carol and Mr Malkoun as the shareholders of GK3 and appointors of the GK3 Trust) and was not a matter about which the allocation of risk needed to be addressed. Joseph submits that the obligation on Joseph and Maria "to facilitate" Sam's resignation, in the sense of rendering it easier, is fully coherent within that framework. Joseph maintains that speculation about whether Sam enjoyed a "close business relationship" with the appellants is not to the point; emphasising instead that, upon the transfer of the Units, only the respondents would have had the power to remove Sam as a director.
Returning to the respondents' submissions on this issue, the respondents say that the fact that they took no action to remove Sam as a director, or to exercise their power of appointment to appoint a new trustee, prior to the grant of security to Persephone is of no consequence. The respondents point out that for Carol and Mr Malkoun to take either of those steps prior to the transfer of the Units would have been a breach of cl 3.6(b) of the Deed of Agreement (noting that, having regard to cl 3.3(e), the reference in cl 3.6(b) to Maria must be read as a reference to Sam). In any event, it is said that the steps which Carol and Mr Malkoun did not in fact take (in circumstances where GK3 did not hold the Units on trust for the respondents) are not probative of what steps they might have taken in a counterfactual scenario in which the appellants performed their obligations and the Units were held by GK3.
Apart from the above, the respondents say that there are substantive difficulties with Joseph's argument on this issue. Reference is made to the judgment of Keane J (with whom Hayne, Crennan and Bell JJ agreed) in Clark v Macourt in which his Honour noted that the ruling principle is that contractual damages are assessed as at the date of the breach. The respondents say that in this sense the measure of loss is "the economic value of the performance of the contract at the time that performance was promised"; and that subsequent events have no bearing on the assessment of damages (subject to questions of mitigation which were not pleaded and are not presently relevant). The respondents say that there is no reason to depart from the ruling principle in the present case in order to achieve fairness between the parties.
As to the respondents' substantive submissions on the no loss issue, Joseph reiterates his position that the failure to transfer the Units to GK3 (as trustee of the discretionary GK3 Trust), without more, involved no loss to the respondents. Joseph accepts that damages are to be assessed as at the date of breach but says that it does not follow from that rule that everything occurring after the date of breach is irrelevant for all purposes.
As to the submissions by the respondents as to whether GK3 would have committed to the financing arrangement with Persephone on the counterfactual scenario, Joseph says that this was a matter for the respondents to prove.
[31]
Determination
In my opinion the submission that no or only nominal loss was suffered (because, had the Units been transferred to GK3, they would have become encumbered with the Persephone security before steps would or could have been taken to transfer the Units to the respondents personally) fails because it is premised on the wrong counterfactual. That counterfactual does not involve or require the transfer of the Units to the respondents. Had the Units been transferred, unencumbered, to GK3 as provided for under the Deed of Agreement, what was contemplated was that Sam would resign as a director and that would have left Carol and Mr Malkoun in a position to control both GK3 and through it the GK3 Trust at a time well before Sam in fact caused Persephone to obtain security over the Hills Shoppingtown Property. It is not an answer to this to say that the Executors were not obliged to cause Sam to resign (even if Joseph is correct in the submission that "facilitate" in cl 3.6 meant no more than "assist" that outcome to occur). That is because it would have been open to Carol and Mr Malkoun as shareholders to remove Sam as director themselves. The fact that they did not actually do so at the time is also not to the point, since at that stage the Units had not in fact been transferred to GK3 (and the provisions of the Deed of Agreement operated to restrain such a change at that time).
The subsequent grant of security to Persephone does not affect the loss suffered by the respondents since, as the primary judge correctly recognised, damages were to be assessed as at the date of the breach (25 June 2018) and the re-financing with Persephone occurred in November 2018. I consider the issue as to when subsequent events can be taken into consideration in the assessment of loss when addressing the third issue below.
The grounds of appeal raising this second issue are therefore not made good.
[32]
Challenges to finding that Carol would have caused transfer of Units
The third issue raised on the appeals is as to the findings that, had the Units been acquired by GK3, Carol and Mr Malkoun would have caused those Units to be transferred to the respondents personally.
[33]
Joseph and Maria's submissions
It is convenient to consider the appellants' respective submissions on this issue collectively, as there is substantial overlap. Joseph and Maria challenge a raft of factual findings in this respect. In their separate submissions, Joseph and Maria challenge the findings made by the primary judge, when accepting the evidence of Carol and of Mr Malkoun, that: Mr Malkoun would, if need be, have used his role as appointor to remove GK3 as the trustee of the GK3 Trust, and to replace it with a trustee of Carol's choosing; that Carol would have caused GK3 to distribute the Units to herself and her daughters because she wanted to protect them; and that Mr Malkoun would have assisted Carol to give effect to the best way to deal with the Units and attend to the necessary formalities. Complaint is made by both Joseph and Maria that those findings were expressed as statements of conclusion and were unaccompanied by detailed reasons (other than the conclusion reached by the primary judge that the potential for stamp duty was a "red herring"). (It should be noted that, notwithstanding this submission, no adequacy of reasons ground, as such, is here raised.)
As to the finding that Mr Malkoun would have removed GK3 as trustee, Maria says that the reality was that Carol and Mr Malkoun did not seek to act as appointors of the GK3 Trust at any time prior to 2019. It is noted that Carol's evidence was that, even as late as May 2020, when Sam informed her of the liabilities to which GK3 might be exposed she was reluctant to have the Units transferred to another entity; and that Carol declined to make a decision at this time in May despite the Executors having failed to pay the April instalment due under the Deed of Acknowledgement.
As to the finding that Carol would have caused GK3 to distribute the Units to herself and her daughters, Maria argues that (even accepting that Carol had practical control of the GK3 Trust and even if the Executors had facilitated GK3 acquiring an unencumbered interest by 19 July 2018), Carol would not have been in a position to transfer the Units from GK3 to each of the respondents so that they obtained absolute title in real property having a value of $15,346,498.42 (as pleaded by the respondents) because of the interest which would have arisen securing the debt owed by GK3 to ANZ Fiduciary in excess of $21,000,000. As noted above, Maria argues that, on the proper construction of cl 3.4(a), the Executors were not obliged by cl 3.4(a) to pay out or compromise the moneys that would have become secured against the Units under the general security agreement between GK3 and ANZ Fiduciary as after acquired property of the GK3 Trust on GK3 acquiring an unencumbered interest in the Units.
Joseph and Maria point to the evidence of each of Mr Malkoun and Carol in cross-examination as to the question of transfer of the Units. It is noted that Mr Malkoun accepted that he would have undertaken an analysis of whether it was more advantageous for GK3 to retain the Units as opposed to transferring them to the respondents; that he had not undertaken any such analysis; and that, amongst the matters he would have considered, would have been the stamp duty payable on the transfer of the Units from GK3. Maria says that this should have been fatal to the claims of the second and third respondents for loss and damage but was not dealt with by the primary judge.
It is further noted that Carol accepted that she would have wanted to investigate the financial costs and benefits of GK3 holding or disposing of the Units but she had not conducted any such analysis. Joseph and Maria say that, although Carol stated that she would have been prepared to pay stamp duty in the order of $1 million in order to protect herself and her family, there was no evidence of how stamp duty or other tax liabilities would have been paid (that is, whether Carol had that money available or whether she would have sold assets to generate it). In this regard, Joseph and Maria say that stamp duty would have been payable on any transfer of the Units by GK3 to the respondents (Joseph noting that the burden of any stamp duty would have fallen on the respondents). The stamp duty payable on transfers of the Units at the values given in the Deed of Agreement was calculated by Joseph as being in the order of $1,051,670. Maria says that this amount of duty would have weighed heavily against a decision immediately to transfer all of the Units. Maria argues that the primary judge's statement that the potential for stamp duty was a red herring suggests a fundamental problem with the fact finding. Joseph points out that the respondents would also have incurred other transaction costs, such as the professional costs of the conveyancer on a transfer of the Units.
Joseph submits that the primary judge ought to have had regard to the fact (said to have been established by Carol's own evidence) that, both before and after the date of breach, Carol saw no practical need to differentiate between GK3 and the respondents. Joseph says that the compelling inference is that Carol would not have taken steps to transfer the Units when she continued to trust Sam and never signalled that she wanted the Units transferred to the respondents.
Moreover, Joseph says that Carol and Mr Malkoun bore the evidentiary onus of demonstrating that they would have taken the course of transferring the Units to the respondents. It is said that, to the extent that such matters included the incidence of, for example, stamp duty, the respondents bore the onus of establishing their willingness and capacity to pay it as a price of the transfer; and, ultimately, that by reference to all such matters, they would (on the balance of probabilities) have transferred the Units to the respondents out of the GK3 Trust. Further, Joseph says that, given GK3's own disabling conduct in November 2018, the respondents needed to demonstrate that they would have undertaken the above analysis as to the transfer of the Units, and transferred the Units, before GK3 became incapable of so doing in that month.
Joseph and Maria thus contend that the primary judge should have concluded that the respondents failed to prove an essential element of their claim (namely, what they would have done as a result of the postulated enquiries and that they had the financial resources to pay the costs of conveyance) and hence that they had not proved on the balance of probabilities that they would have procured the transfer of the Units from GK3 to themselves.
It is submitted that, in that event, the respondents would be entitled only to nominal damages. In the alternative, Joseph (and, as I understand it, Maria also) acknowledges that the consequence of this ground of appeal being upheld is that there must be a new trial.
[34]
Respondents' submissions
As to the fact that, by the time of performance under the Deed of Agreement, i.e., 25 June 2018, GK3 had provided a security over all present and after-acquired property in favour of ANZ Fiduciary and hence the Units would have been subject to that security, the respondents say that this misconstrues the appellants' obligation under cl 3.4(a). The respondents say that the obligation was to facilitate the acquisition by GK3 as trustee of the GK3 Trust of an unencumbered interest in the Units; and that such an obligation could not be met simply by transferring unencumbered units to GK3. The respondents say that the obligation required that, when they were acquired by GK3, the Units did not immediately become subject to any encumbrance.
The respondents argue that, given that the agreement with ANZ Fiduciary attached to after-acquired property of the GK3 Trust, GK3 could never acquire an unencumbered interest in the Units unless either the security in favour of ANZ Fiduciary had been discharged or ANZ Fiduciary agreed to exclude the Units from its security. Thus, it is said that, in order to perform their obligations under cl 3.4(a) of the Deed of Agreement, the appellants were required to put GK3 in a position where it could receive the Units free from all financial obligations connected with the Hills Shoppingtown Development. The respondents maintain that this reflects both the terms and the purpose of the Deed of Agreement. It is noted that, upon transfer of the Units, GK3 was taken to have surrendered its interest in the joint venture (cl 3.4(d)). The respondents say that the Deed of Agreement was structured to ensure that the respondents were not exposed to any obligation to provide guarantees or offer security in respect of any loans procured for the purpose of facilitating the Hills Shoppingtown Development (reference here being made to cl 3.6(b)). Thus, the respondents argue that the terms of the Deed of Agreement itself provided that, upon transfer of the Units or Replacement Units, GK3 (or at least its interest in the Units held on trust for the respondents) would be "entirely disentangled" from the web of financial arrangements concerning the Hills Shoppingtown Development.
In any event, the respondents take issue with the assumption that, if the Units had been transferred at the promised time for performance on 25 June 2018, the Units would have become subject to the security granted in favour of ANZ Fiduciary. The respondents say that the evidence suggested that the principal under that ANZ Fiduciary facility was $21,600,000 (the facility being secured to complete the Hills Shoppingtown Development). The respondents say that any counterfactual scenario which assumes the transfer of the Units necessarily involved completion of the Hills Shoppingtown Development and registration of the strata plan. It is noted that the strata plan proposed 234 residential units, only 20 of which were to be transferred to GK3. The respondents argue that the value of the remaining 214 completed units would have been more than sufficient to discharge the liability to ANZ Fiduciary given that the value of the 20 Units alone was agreed by the parties to be in excess of $15.3 million. It is submitted that it is unlikely that ANZ Fiduciary would have insisted that its security apply to the Units in the hands of GK3 when the remaining units in the (hypothetically completed) Development would have been available to meet any remaining liability.
As to whether the Units would have been transferred to the respondents (grounds 4, 10 of Maria's appeal and grounds 1(d), 2 and 5 of Joseph's appeal), i.e., the appellants' challenge to the finding by the primary judge that Carol would have caused the Units to be distributed in specie from the GK3 Trust to Carol and her daughters, the respondents make the following observations.
First, as noted above, the respondents say that the primary judge's factual findings were an alternative justification for the award of damages separate from the principal reasoning that the respondents suffered loss from the date the Units should have been, but were not, transferred to GK3. Accordingly, the respondents say that, even if the appellants were to succeed on this issue, that would not, of itself, be sufficient to disturb the orders made by the primary judge.
Second, the respondents say that the primary judge was correct to assess loss as at the date of breach and to dismiss as irrelevant subsequent events, including the possible distribution in specie (see Clark v Macourt).
Third, insofar as this issue is raised by the appellants to support a contention that the respondents suffered no loss because, if the Units had been transferred to GK3, the Units would eventually have become subject to the security granted to Persephone, as adverted to above the respondents say that this adopts an incorrect counterfactual as the relevant comparator. The respondents say that, had the appellants performed their obligations under the Deed of Agreement, the respondents would have had control over GK3 and Sam would not have been in a position to grant the security in favour of Persephone.
In any event, the respondents say that, to succeed on this issue, the appellants must demonstrate that the primary judge's factual findings were contrary to "incontrovertible facts or uncontested testimony", or that they were "glaringly improbable" or "contrary to compelling inferences". The respondents note that the appellants' contentions depend on the proposition that it is improbable that Carol and Mr Malkoun would have distributed the Units in specie to the objects of the GK3 Trust because that would have incurred a liability to stamp duty (and, possibly, other taxation liabilities); and that the appellants rely on the fact that neither Carol nor Mr Malkoun had in fact conducted an analysis into the duty that would have been payable.
The respondents say that Carol's evidence (that she would have caused GK3 as trustee of the GK3 Trust to distribute the Units because she would have done "what [she] needed to protect [her] girls") reflects the common sense proposition that the Units would have been dealt with in a way to remove any risk that they would become entangled with the business dealings of Maria, Joseph and Sam (noting that the apparent intention of the settlement of the probate proceeding was to remove that entanglement).
As to Mr Malkoun, the respondents say that his evidence (of the support and assistance he would have been prepared to give Carol in the conduct of the GK3 Trust, including by authorising a resolution to distribute ten of the Selected Units to Carol and the remainder split on trust for Georgia and Alana; and that, although he would have considered the tax implications of the transfer, his objectives were not "purely tax driven" and that the "goal is to ensure that the girls effectively get what's been promised") is not an improbable response from a professional adviser.
The respondents submit that the evidence of Carol and Mr Malkoun was also consistent with the objective probabilities. It is noted that the Units had a total value of approximately $15,000,000. The respondents say that if there was some meaningful risk that the benefit of this value would be lost, it would make commercial sense to ensure the safety of the assets by incurring a tax liability equivalent of between about 3.7% - 6.7% of the total value, depending on the calculation of the stamp duty. It is said that Carol had the means to meet any liability for stamp duty, either by borrowing money against her house or selling the Units. In this regard, it is said that Carol had an immediate need to sell two of the Units to finance renovations on her home and therefore that she was clearly open to selling some of the Units to raise money if required.
Further, the respondents say that, while it was suggested to Carol in cross-examination (and she accepted) that she would have had regard to GK3's liabilities, financial position and obligations under any loan facilities before transferring the Units from the GK3 Trust, it was not put to either Carol or Mr Malkoun that there was any particular obligation or circumstance arising in relation to GK3's financial obligations which would have caused Carol not to transfer the Units (a submission that the primary judge accepted at first instance). The respondents say that, not having directly challenged the witnesses' evidence, it is not open for the appellants to submit that GK3's financial position would have meant the Units would not have been transferred. The respondents say that, in any event, it is not correct to assert that the security granted in favour of ANZ Fiduciary would have prevented the transfer of the Units. Rather, it is said that upon completion of the Hills Shoppingtown Development, the likelihood is that the ANZ Fiduciary security would have either been discharged or disapplied to the Units.
In reply submissions, Joseph again complains as to hindsight bias. Joseph says that the evidence of both Carol and of Mr Malkoun as to what they would have done amounts to no more than ex post facto forecasts by Carol and Mr Malkoun.
Joseph emphasises that: Carol did not see any difference between the Units being held in the GK3 Trust and being held by the respondents personally; Carol refused to consider any alternative to a transfer of the Units to the GK3 Trust despite Sam's "earnest" explanation of the risks that involved as late as May 2020; no investigation was ever in fact undertaken into the benefits or disadvantages of a transfer of the Units in specie despite Carol's and Mr Malkoun's acceptance that this would have been necessary before a decision could be reached about any such transfer. It is said that Carol had an understandable preoccupation with ensuring that any stamp duty liability arising from the transfer of the Units was minimized; and that neither Carol nor Mr Malkoun had any idea of the magnitude of the stamp duty liability when preparing their affidavits.
Joseph further argues that, even if Carol had been willing to pay the stamp duty on a transfer of the Units, she lacked the means to do so. Joseph says that Carol had lacked the finances to remedy electricity and plumbing defects in the family home; and that she failed to adduce evidence of her financial position. Insofar as the respondents submit that Carol might have sold one or more Units to pay any stamp duty liability, this is unsupported by any evidence and assumes that between 21 June 2018 and 14 November 2018: Carol and Mr Malkoun would have decided to consider the transfer of the Units to the respondents in specie; would have obtained the financial records necessary for them to make an informed decision about the transfer (the evidence being that Mr Malkoun, the accountant, did not have those records); would have taken advice on that proposal, including on the extent of the likely stamp duty liability, and decided to proceed; and would then have marketed, exchanged and settled on the sale of such of the Units as was necessary to be sold solely for the purposes of paying stamp duty; and then have concluded the transfer of the Units.
Joseph says that, in light of the above matters, weighed against the sparse evidence adduced by the respondents, the "conclusory" finding of the primary judge amounted to a glaring error in fact finding.
In her reply submissions as to this issue, Maria complains that Carol's evidence that she would have caused GK3 to distribute the Units in July 2018 was not properly considered and tested by the primary judge, noting that: Carol and Mr Malkoun did not seek to act as appointors of the GK3 Trust at any time prior to 2019; even as late as May 2020, Carol was reluctant to have the Units transferred to another entity; and Carol's view was it did not matter whether or not the Units were to be transferred to GK3 or to the respondents directly as the respondents owned GK3. Similarly, in relation to Mr Malkoun's evidence that he would have authorised a resolution transferring the Units to the respondents, Maria says that his evidence was not properly considered and tested by the primary judge. Thus, Maria contends that the fact finding process miscarried and that the finding of the primary judge to the effect that Carol would have used her practical control of the GK3 Trust to cause the Units to be transferred to the respondents involves glaring error.
[35]
Determination
I do not accept that the fact finding process carried out by the primary judge has miscarried, as the appellants contend. To the extent that the findings that the primary judge made as to what Carol and Mr Malkoun would have done had the Units been transferred as provided for under the Deed of Agreement were clearly informed by the primary judge's assessment of their credit as witnesses, it has not been shown that those findings are glaringly improbable or contrary to incontrovertible facts. Nor am I persuaded that the primary judge's conclusions, succinctly expressed as they were, suffer from an inadequacy of reasons. It is clear that the primary judge accepted, as he was entitled to do (and as accords with common sense) that Carol would have acted with her family's best interests in mind and it is unsurprising that Mr Malkoun's evidence is to the effect that he would have assisted Carol in that regard. On the proper counterfactual, the Units (at an agreed value of over $15 million) would have been transferred unencumbered to GK3. That provides a ready source for any stamp duty to be met were the decision ultimately to have been made (after consideration of the various options that would then have been available to the respondents) to transfer the Units to the respondents personally. I do not accept that the respondents' evidence (necessarily being hindsight evidence) is so tainted with hindsight bias as to be glaringly improbable.
In any event, I consider that the respondents were not required to prove that, had the Units been transferred to GK3, the Units would have been transferred to the respondents personally. I accept that this was part of the particularisation of loss (and that the case was conducted in part by reference to that issue). However, the claim for loss was not confined to that scenario. I consider that it was open on the pleadings, and in accordance with the evidence before the primary judge, for it to be concluded (as the primary judge recognised) that the respondents lost the benefit of the bargain under which they were to have complete control of the GK3 Trust at a time when that trust comprised the Units that were to be transferred unencumbered to GK3. It would then have been a matter for the respondents as to how they chose to deal with the Units or extract the benefit of the ownership by GK3, as trustee, of those units.
When assessing damages for breach of contract, the "ruling principle" is the classic statement of Parke B in Robinson v Harman (1848) 1 Exch 850 at 855, that where "a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed" (see Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [3] per French CJ, Gummow, Heydon, Crennan JJ and Kiefel J, as her Honour then was). In Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 (Amann Aviation), Mason CJ and Dawson J re-stated and explained the principle at 116 as follows:
The general principle governing the assessment of compensatory damages in both contract and tort is that the plaintiff should receive the monetary sum which, so far as money can, represents fair and adequate compensation for the loss or injury sustained by reason of the defendant's wrongful conduct. The application of that general principle ordinarily involves a comparison, sometimes implicit, between a hypothetical and an actual state of affairs: what relevantly represents the position in which the plaintiff would have been if the wrongful act (i.e. the repudiation or breach of contract or the tort) had not occurred and what relevantly represents the position in which the plaintiff is or will be after the occurrence of the wrongful act.
Damages are assessed at the date of breach of contract, and the oft-cited remarks of Keane J (with whom Hayne J, Crennan and Bell JJ agreed) at [109]-[110] of Clark v Macourt (relied upon by the respondents) bear reproduction:
The value to be paid in accordance with the ruling principle is assessed at the date of breach of contract, not as a matter of discretion, but as an integral aspect of the principle, which is concerned to give the purchaser the economic value of the performance of the contract at the time that performance was promised. In this way, the measure of damages captures for the purchaser the benefit of the bargain and so compensates the purchaser for the loss of that benefit.
The application of the ruling principle to measure value lost at the date of breach of contract serves the important end of bringing finality and certainty to commercial dealings. It ensures that whatever might befall the purchaser after the date of breach, for good or ill, and whether by reason of the purchaser's acumen, or lack of it, in dealing with other persons who were not party to the contract, and whatever movements may occur in the market, these developments have no bearing on the entitlement of the purchaser and the liability of the seller.
Nevertheless, this rule "must give way in particular cases to solutions best adapted to giving an injured plaintiff that amount in damages which will most fairly compensate him for the wrong he has suffered" (Johnson v Perez (1988) 166 CLR 351; [1988] HCA 64 at 355-356). Accordingly, when undertaking an assessment of damages for loss of bargain, the court is not precluded from looking at events subsequent to the breach; as Gibbs J said in Wenham v Ella (1972) 127 CLR 454; [1972] HCA 43 at 473-474:
The general principle that damages are normally measured by reference to the circumstances at the date of the breach of contract does not mean that events that have occurred after that date may never be considered. The appellants' contention on this point, if correct, would mean that evidence could never be given of the amount of profits lost as the result of a breach and that the every-day practice of receiving evidence as to the damage that had in fact flowed from a breach and as to steps that were or could have been taken to mitigate a loss is erroneous. However, the evidence as to the income in fact lost by the breach was in my opinion plainly admissible. As to the contention that it was wrong that the amount of damages should have depended on the time that elapsed until judgment, the answer simply is that until that time the respondent was kept out of his profits as well as deprived of his asset and its value.
The English decision Maredelanto Cia Naviera SA v Bergbau-Handel GmbH; The "Mihalis Angelos" [1971] 1 QB 164 (Mihalis Angelos) concerns proceedings to recover damages for breach of contract in which the defendant had a right under the contract to alternative methods of performance. Relevantly, in that case the contract (as to the chartering of a vessel for trade) provided that should the vessel not be ready to load on or before a certain date, the charterers had an option to cancel the contract. The charterers repudiated the contract before the relevant date, however upon referral to arbitrators, it was found that the vessel would not have been ready to load on the relevant date, and the charterers would have exercised their option to cancel the contract. Megaw LJ said at 209-210:
In my view, where there is an anticipatory breach of contract, the breach is the repudiation once it has been accepted, and the other party is entitled to recover by way of damages the true value of the contractual rights which he has thereby lost, subject to his duty to mitigate. If the contractual rights which he has lost were capable by the terms of the contract of being rendered either less valuable or valueless in certain events, and if it can be shown that those events were, at the date of acceptance of the repudiation, predestined to happen, then in my view the damages which he can recover are not more than the true value, if any, of the rights which he has lost, having regard to those predestined events.
In TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130, the Court considered the case of Mihalis Angelos. Hope JA (with whom Priestley and Meagher JJA agreed) cited the above passage of Megaw LJ, in addition to the reasons of Lord Denning MR at 196-197 and Edmund Davies LJ at 202-203, and gave the following commentary at 153-154:
Thus while the view of Megaw LJ was concerned with "predestined" events, the views of Lord Denning MR and Edmund Davies LJ seem to be related to a mixture of contractual right and fact. It may be that references to fact intruded because of the nature and strength of the finding of fact which the arbitrators made. Be that as it may, the statements of principle included references to the probable consequences, and not to hypothetical consequences unrelated to probabilities.
… In Maredelanto Compania Naviera SA v Bergbau-Handel GmbH; The Mihalis Angelos, the arbitrators had resolved the facts, and the court did not arrive at its conclusion by reference to an improbable factual hypothesis. I have concluded that the true principle does allow, indeed require, that regard be had to the facts, although of course the rights and obligations flowing from the contract are the starting point of the matter. [emphasis added]
In my opinion, the appellants have not established a sufficient basis upon which to depart from the rule in Clark v Macourt and to have regard to subsequent events, including the financing arrangement with Persephone in November 2018. As emphasised by Hope JA in the citation above, the starting point is the contract itself. The obligation which flowed from the contract was to provide properties to an agreed value or cash equivalent as expressed in cl 3.5 (and as much was conceded by Joseph's counsel at AT 24.12 and 25.30-40). To the extent that cl 3.7 of the Deed of Agreement provided the appellants' alternative methods of performance, it was expressly acknowledged that this would not have any effect upon the agreed value, as any Replacement Units provided were to be to the value of the shortfall being the difference between the value of the Units and the value of the Units not otherwise acquired by the trust in accordance with the Deed. Moreover, the respondents' claim was not formulated as to loss of profits or wasted expenditure, which would require regard to subsequent events in order to ascertain the value of the units over time; rather, the respondents' claim was for the value of what should have been provided under the contract. The reasons of Hayne J in Clark v Macourt at [13] are apposite in this regard:
13. The answer depends upon determining the content of the unperformed promise. The answer does not depend upon whether the contract can be described as one for the sale of goods or for the sale of a business. How much the appellant paid for the benefit of the promise is not relevant. It does not matter whether the value of what she did not receive was more than the price she had agreed to pay under the contract or (if it could have been determined) the price she had agreed to pay for the stock of sperm. The extent to which the appellant could have turned the performance of the promise to profit would be relevant only if the appellant had claimed for loss of profit. She did not. She sought, and was rightly allowed by the primary judge, the value of what should have been, but was not, delivered under the contract. [Emphasis added]
Moreover, if the promise is as to property that is unencumbered, the value of the unencumbered property is the correct measure of damages, and it is no answer to say that the property which was promised is actually encumbered (even if the encumbrance occurred as at the time of performance of the promise). In White v Shortall (2006) 68 NSWLR 650; [2006] NSWSC 1379 (upheld on appeal - see Shortall v White [2007] NSWCA 372), Campbell J approached the question of assessing damages for breach of a contract to transfer shares in the following manner:
144. The defendant breached his contractual obligation to transfer 222,000 shares in Unitract to the plaintiff upon her request. For the purposes of assessing damages for that breach of contract, it does not matter … whether all the shares that the defendant held were, on 1 August 2003, subject to a restriction on transfer - the shares that he promised to transfer were 222,000 Unitract shares, not 222,000 Unitract shares that were subject to a restriction on transfer. The plaintiff did not know, on 17 March 2003, that the shares of which the defendant was the holder were the subject of a restriction on transfer until 1 November 2004. (Indeed, she did not know that they were subject to a restriction on transfer of any kind, just that she could not have the shares until 1 August 2003.) …
145. The measure of damages for breach of contract is that sum of money that would place the plaintiff into the position she would have been in if the contract had been performed.
Accordingly, neither the fact that the Units promised to be transferred to the respondents subsequently became encumbered (the second issue considered above) nor the fact that Carol and Mr Malkoun might not ultimately have decided to transfer the Units to the respondents personally (the third issue) is of any moment as to the assessment of damages.
Accordingly, the grounds of appeal challenging these factual findings are not made good.
[36]
Should damages be reduced on account of stamp duty?
The final issue raised on the appeal was as to whether any damages for breach of the obligation to transfer the Units unencumbered to GK3 should have been reduced to take into account the cost to the respondents of effecting a transfer of the Units out of the Trust to themselves personally (i.e., the costs of the conveyance, principally stamp duty).
To the extent that the respondents contend that the primary judge had insufficient evidence to make a proper assessment of the amount of duty (referring to the primary judge's reasons at [65]), Joseph submits that the onus of proving the loss suffered by the breach rested on the respondents and says that, if the amount of stamp duty cannot be agreed or calculated, then the matter should be remitted to a judge of the Equity Division for determination. As already noted, if the matter gets to this point the respondents have indicated that they would accept Joseph's calculation of the likely stamp duty.
Similarly, Maria says that, where the pleaded case of the respondents is that they lost the benefit of their contractual bargain by not being able to use Carol's practical control of the GK3 Trust to effect a transfer of the Units to the respondents thereby losing the value of those Units, the assessment of those damages must take account of the transaction costs that the respondent would have incurred in order to receive the value of the Units. Maria says that stamp duty would have been payable on the transfers of the Units and the respondents would have been liable for that stamp duty under the Deed of Agreement; and that the award of damages should have been reduced by the amount of the stamp duty that would need to have been paid to have put the respondents into the position they would have been in had the contract been performed and the Units had been transferred to the respondents.
The respondents say that the appellants fail on this issue, essentially because the respondents' damages are to be assessed as at the time of breach and not by reference to any subsequent events including the possible distribution of the Units; and that their loss is to be determined by reference to the economic value of complete control of the Units exercised through their control of GK3 and the GK3 Trust. The respondents say that the amount of that loss does not depend on what they would have done once they came to have that complete control, including incurring costs in transferring the Units.
In reply submissions, Joseph complains that the respondents' submissions on this issue fail to distinguish between assessing damages by reference to subsequent events (which Joseph accepts is not permissible and says forms no part of his case on this appeal), and the fact that GK3's loss does not equate to the respondents' loss.
Finally, in her reply submissions, Maria says that the respondent's case is that their damages are to be assessed as the value to them of the contractual rights they lost to be able to exercise practical control of the GK3 Trust so as to obtain absolute title in the Units. Maria says that if the value of those rights is to be assessed by reference to the ability of the respondents to obtain absolute ownership of the Units, then the value of those contractual rights to the respondents at the time they are lost is affected by the costs that would need to have been incurred at that time in exercising the practical control so as to transfer the ownership of the Units to the respondents. Maria says that this does not involve the vice of assessing damages by reference to subsequent events.
[37]
Determination
The final issue (the alternative basis on which the relief sought on the appeals was put) does not arise in light of the conclusion that the compensable loss suffered was as a result of the unperformed promise under which the respondents were to have control of the GK3 Trust with the benefit of the unencumbered Units. What they chose then to do with the Units (and whether that gave rise to tax liabilities that would have to be borne by them) is irrelevant (and, as the primary judge accepted, a red herring).
Accordingly, the final ground of appeal is also not made good.
[38]
Conclusion
For the reasons set out above, the respective appeals should be dismissed with costs.
MEAGHER JA: I agree with the reasons of and orders proposed by Ward P.
GRIFFITHS AJA: I have had the advantage of reading Ward P's reasons for judgment in draft. I agree with them and with the orders proposed by her Honour.
[39]
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: 14 June 2023
WARD P: This matter involves a dispute between members of the family of the late George Khattar (the deceased), who died in 2010 leaving his widow (Carol), the first respondent, and their two children (Georgia and Alana), the second and third respondents. I refer to the family members, with no intended disrespect, by their first names. The appellants (Maria and Joseph), who have brought separate appeals, are the deceased's siblings and the executors of his estate (the Executors).
The dispute between the family members has its genesis in contested probate proceedings (2011/118108) in which the Beneficiaries of the deceased's estate (Carol, Georgia and Alana) sought revocation of the grant of probate that had been made in favour of the Executors. Allegations were made in the probate proceeding that the Executors had failed properly to administer the estate (including allegations as to the failure to identify assets of the estate and as to "unexplained dealings" in real property by companies in which the estate holds or held shares (T 44.28ff; see statement of claim filed on 22 April 2016 in the probate proceeding)). The relief sought in the probate proceeding was in essence the removal of the Executors and the appointment of Carol as administrator of the estate. The Executors denied liability and were actively defending the probate proceeding.
That dispute was resolved in October 2016, following an agreement reached in principle at a mediation of the dispute on 23 July 2016. The parties entered into two separate agreements (a Deed of Settlement between the parties to the probate proceeding and a Deed of Agreement, to which not only each of the parties to the probate proceeding but also a company with which the deceased was associated (Hills Shoppingtown Pty Ltd) (Hills Shoppingtown) was a party). The relevant terms of those deeds will be referred to in due course. Both deeds were executed on 21 October 2016. Settlement was conditional on court approval of the settlement (the children at that stage both being minors and represented in the probate proceeding by Carol as their tutor). Lindsay J approved the settlement on 25 October 2016 pursuant to s 76 of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act). In approving the settlement, Lindsay J had the benefit of a confidential opinion dated 24 October 2016 from independent Senior Counsel.
As part of the settlement, the appellants agreed to "facilitate" the acquisition, by the trustee of a trust (the George Khattar Family Trust No 3 (GK3 Trust)) to be controlled by Carol and her accountant (Mr Jason Malkoun), of 20 unencumbered residential apartments (the Units) in a residential development the construction of which was then being undertaken by Hills Shoppingtown (the Hills Shoppingtown Development). The agreed value of the Units was acknowledged by the parties to be $15,346,498.42 (see cl 3.5 of the Deed of Agreement).
Completion of the Hills Shoppingtown Development and the registration of the strata plan - steps that were necessary for the transfer of the Units to GK3 Pty Ltd (GK3) (being the trustee of the GK3 Trust) to occur - did not take place within the 20-month period provided for under the Deed of Settlement (i.e., by June 2018) and hence there was no transfer of the Units to GK3 as contemplated by the Deed of Agreement.
A further agreement (the Deed of Acknowledgment) was then entered into by various parties, including the appellants in their capacity as Executors. By this deed, executed on 1 August 2019, the appellants (and Hills Shoppingtown) expressly acknowledged that they were in breach, inter alia, of the Deed of Agreement (see Recital B; cl 2(a)), including but not limited to cll 3.7 and 3.8(a) (see below); and time for compliance with obligations under the Deed of Agreement was extended (in consideration of certain payments to be made to the respondents at specified intervals) (cl 2(b)).
Relevantly, particularly in circumstances where Maria's counsel on this appeal contended more than once that the Executors obtained no benefit from the settlement with the respondents, it may be noted that under the terms of the settlement the Executors obtained the benefit of releases in respect of the alleged breaches by them of their duties as executors and that the intent of the settlement was to effect a separation of the estate's interests from the business operations in which the deceased and his family, together with another party, were involved through their respective family trusts and their interest in Hills Shoppingtown.
Ultimately, however, there was never any transfer of the Units nor of any Replacement Units (for which the Deed of Agreement had made provision), in circumstances addressed more fully in due course. Proceedings were commenced in the Supreme Court by Carol and her daughters (for whom Carol was appointed as tutor), to which GK3 was initially a party, in which specific performance was sought of the relevant obligations under the Deed of Agreement. The claim against GK3, which by then was in administration, was subsequently discontinued before the hearing.
The primary judge held that the appellants had failed to perform their obligations under the Deed of Agreement and that this amounted to a repudiation entitling the respondents to recover damages for the loss of the bargain struck by the settlement of the probate proceeding (Khattar v Hills Shoppingtown Pty Ltd (subject to Deed of Company Administration) [2022] NSWSC 363). Damages were awarded by reference to the acknowledged agreed value of the Units (as noted above, this was in the order of $15 million).
Each of Joseph and Maria then commenced separate appeal proceedings. Broadly, the issues raised on the respective appeals are as follows.
First, the proper construction of the obligation imposed on the Executors under the Deed of Agreement to "facilitate" the transfer of the Units to GK3 (grounds 2 and 9 of Maria's amended notice of appeal).
Second, the contention that the respondents suffered no (or no more than nominal) loss on the basis that, if the Units had been transferred to GK3 (to be held on trust), they would subsequently have become subject to a security granted by GK3 to another entity Persephone Pty Ltd (Persephone), which had re-financed the construction loan for the Hills Shoppingtown Development (see below) (ground 1 of Joseph's amended notice of appeal, adopted by Maria during the course of oral submissions at the hearing of the appeal).
Third, whether the primary judge erred in finding that Carol would have caused the Units to be transferred (out of the GK3 Trust) to the respondents personally or otherwise for their benefit (grounds 4 and 10 of Maria's amended notice of appeal; grounds 1(d), 2 and 5 of Joseph's amended notice of appeal).
Fourth, whether any damages should have been reduced on account of the stamp duty associated with a transfer of the Units from GK3 to the respondents personally (or to the trustee of other trusts for their benefit) (ground 10(c) of Maria's amended notice of appeal; ground 6 of Joseph's amended notice of appeal). As to this issue, the position of the respondents was that if (which they contest) the appellants' appeals were to succeed only on this last issue, then (rather than the matter being remitted to the Equity Division for resolution of the amount of the deduction to be made from the award of damages to reflect the position as to stamp duty) the respondents would accept the (higher) calculation of likely stamp duty that was proffered in submissions at the hearing before the primary judge by Joseph, namely, the sum of $1,051,670 (see appeal transcript at T 54.10).
Maria did not press an earlier challenge to the primary judge's finding as to loss (namely, her contention that no loss was suffered because the Units were to be transferred to the trustee of the GK3 Trust rather than to the respondents personally).
For the reasons set out below, I am of the view that both appeals should be dismissed with costs.