Kossaifi v ACN 111 804 383 Pty Ltd

Background facts

1. The plaintiff is currently 73. He came to Australia from Lebanon in 1969. He says that he is a capable businessman but that in 2009 he spoke limited English. [12] He said he had a hearing problem and that he generally could not understand things that were said to him. Most of his business relationships were with Arabic speakers. Despite his extensive period in Australia prior to 2009, he maintains that it was only in the last 10 years that his English has improved significantly. He tended to emphasise when giving evidence that he speaks and reads English much better now than he did back in 2009. There is certainly a significant issue between the parties about this.
2. He has been engaged in property development both before and after the events the subject of these proceedings. He worked as a builder and also as a project manager.
3. The plaintiff and the members of the Elias family were long-time acquaintances prior to 2005. In March 2005, Tony Elias approached the plaintiff asking him whether he would join with him in a development at North Narrabeen.
4. On 8 April 2005, the company was registered for the purposes of undertaking the development. The issued capital in the company comprised 100 shares. The plaintiff and the second plaintiff held 25 shares each. The other 50 shares were held by members of the Elias family.
5. George Elias was nominated as the licensed builder for the project during the period 2005 to 2008.
6. The land situated at 11 Gondola Road and 12 Rickard Road in North Narrabeen was successfully developed. At the end of construction in February 2007, a strata plan was registered. The development comprised of two commercial or retail units, eight commercial offices, four residential units and five townhouses. By the time of engagement of the defendants, there remained two residential units and five commercial units available for sale.
7. By March 2007, a disagreement had emerged between the plaintiff and the Elias Interests as to what to do with the units. The plaintiff says that he was looking for a quick end to the relationship and simply wanted to split the assets in the company so that he and the Elias Interests could go their separate ways. The plaintiff says that Tony Elias would not agree on any of his proposals. He says that in May 2008, he spoke to the solicitor who had undertaken the conveyancing work in respect of the land, Robert Whebe. He says that he told Mr Whebe that he had attempted to work out how to split with Tony Elias but Tony Elias would not listen. [13]
8. Thereafter, the plaintiff spoke to his neighbour, a barrister who he says is fluent in Arabic, about his problems. The barrister recommended the law firm Eakin McCaffrey Cox.
9. On 21 May 2008, the plaintiffs instructed Mark Doble of EMC, he says, for the purposes of organising the splitting of the assets of the company and terminating his relationship with the Elias Interests. Tony Elias instructed Grant Butterfield of Marsdens in response.
10. On 26 June 2008, there was a meeting at the offices of EMC during which there was an altercation between the plaintiff and members of the Elias Interests. The plaintiff says that Tony Elias punched him in the face. The matter was reported to the Police.
11. On 15 July 2008, EMC wrote to Marsdens setting out that, as the relationship between the parties was such that the Board could no longer effectively function, they were instructed to make an application for the winding up of the company.
12. On 21 July 2008, the plaintiffs filed proceedings in this Court for the winding up of the company by way of application under ss 461 and 462 or alternatively ss 232, 233 and 234 of the Corporations Act 2001 (Cth).
13. The plaintiffs pleaded that there was a deadlock in the company management and that it was just and equitable that the Court wind up the company pursuant to s 461(1)(k) of the Corporations Act.
14. In the alternative, the plaintiffs pleaded that the affairs of the company were being conducted by Tony Elias in an oppressive or unfairly prejudicial and discriminatory manner within the meaning ss 461(1)(f) or 232(e) of the Corporations Act.
15. On 21 October 2008, the plaintiff attended a mediation before the Registrar with his solicitor and barrister. Tony Elias and his solicitor were also in attendance. An agreement in principle was reached to the effect that either the plaintiffs or the Elias Interests would buy each other's shares but it was up to the Elias Interests to decide which would happen. Following the mediation, Mr Doble circulated a draft deed of settlement.
16. There was no appearance before the Court when the proceedings were listed on 30 November 2008. The plaintiff says this was because Mr Doble had told him that the matter had settled, albeit the plaintiff had cautioned Mr Doble not to trust the Elias family. The proceedings were dismissed.
17. However, the proposed settlement fell apart and on learning that the proceedings had been dismissed the plaintiff decided to change solicitors. He subsequently met with the defendant.
18. On 26 July 2008, the defendant wrote a cold-call letter to the company and Tony Elias noting their involvement in the proceedings and promoting his services to them.
19. It must be that this letter came to the attention of the plaintiff, as in November 2008, the plaintiff contacted the defendant having recalled the letter of 26 August 2008.
20. On 15 December 2008, the defendant forwarded a costs agreement to the plaintiffs. On 17 December 2008, Ms Cavill swore an affidavit in support of reinstatement of the proceedings.
21. On 15 January 2009, the defendant sent an email to Ms Cavill, noting that the plaintiff was coming in on Monday and that she should take some evidence to support an urgent application for the appointment of a provisional liquidator to the company and that Counsel should be retained.
22. On 15 January 2009, the defendant wrote to the plaintiff referring to a conversation that the defendant had had with Mr Butterfield. Mr Butterfield had apparently advised the defendant that the Elias Interests were still prepared to settle on the terms proposed in the earlier deed of settlement and apologised for the delay on the part of his clients. The plaintiff was asked to contact the defendant to indicate whether he was still prepared to settle the dispute on the basis of the plaintiff buying out the Elias Interests in the company.
23. On 19 January 2009, the defendant wrote to Marsdens enclosing consent orders in respect of the reinstatement of the proceedings and seeking consent for the appointment of a provisional liquidator. It is notable that the Elias Interests did not indicate their consent to this proposed course at any time prior to 9 February.
24. On 23 January 2009, Marsdens wrote to the defendant in response to the plaintiffs' offer of $645,000 for Unit 6 suggesting that the plaintiffs had demonstrated that the corporation is well able to function and sell the assets of the corporation without the appointment of a liquidator. Marsdens opposed a provisional liquidator being appointed.
25. Marsdens sought orders for a timetable to put on evidence in reply to the plaintiffs' evidence on the motion (that is, they were opposing the reinstatement of the proceedings for the appointment of a liquidator). Then on 29 January 2009, Ms Cavill wrote to Mr Butterfield agreeing to Marsdens' approach (for the exchange of evidence) and agreeing to mention Marsdens' appearance when the matter was next before the Court on 3 February 2009. Up to this time, the Elias Interests continued to oppose the appointment of a liquidator to the company.
26. However, the plaintiffs and the Elias Interests, through their solicitors, then agreed on the appointment of a voluntary liquidator. Consent orders were filed adjourning the proceedings seeking a court-appointed liquidator until 9 February 2009. Having not been able to agree on the appointment of the defendant's original suggestions as to liquidator, the parties then agreed on the appointment of Blair Pleash of HC. A meeting at HC was convened to take place at 9.00am on 9 February. The defendant agreed to stand the proceedings in the list to allow that meeting to go ahead.
27. Mr Butterfield wrote at 12:02pm on 6 February 2009 as follows: "The parties have exhausted all attempts to settle and therefore, on the basis that the proceedings are NOT re instituted, we will agree to the VL. … George Elias is the representative for the Director - Tony Elias and the Elias family. I note George and Joe will be joint chairpersons to the extent it matters."
28. At 1.38pm, Jovan Singh of HC forwarded appointment documents to the defendant, that is, documents to effect the voluntary winding up of the company. The defendant then wrote to Mr Butterfield as well as the representatives of HC confirming that he would have his clients execute that day, being 6 February 2009. Mr Butterfield also sent a group email to the effect that George Elias would just bring the application to Mr Pleash on Monday at 9.00am.
29. At 2.48pm on 6 February 2009, Ms Cavill sent an email to Mr Pleash and the defendant confirming that she had spoken with the plaintiff and he awaited a call from Mr Pleash. She also sent an email to Counsel retained to appear in Court on the Monday, noting that the parties were signing up to a CVL and thus he would not need to appear on the Monday.
30. At 4:50pm on Friday 6 February 2009, Mr Singh, an employee of HC, circulated a consent for a provisional liquidator by way of precaution in the absence of an agreement on Monday. Then at 5.00pm, Ms Cavill sent a group email confirming that she had spoken with Tim from HC who had spoken to both directors and that everyone was on-board. She would be going to Court at 9.15am to stand the matter over for six weeks. I take the reference to "Tim" to be Tim Cook and that he had said to Ms Cavill that he had spoken to both directors, being Tony Elias and the plaintiff, and that they were both on board as to the appointment of a liquidator. Contained within the court book is Ms Cavill's handwritten note as to her conversation with Mr Cook.
31. It is clear that as at 5.00pm on the business day before the meeting of 9 February 2009, all involved had agreed to the course of appointing HC pursuant to a CVL and standing over the proceedings for the appointment of a liquidator whilst that occurred.
32. A meeting was arranged at the offices of HC on 9 February 2009. The plaintiff was asked by the defendant or a solicitor employed on behalf of the defendant to attend at the meeting. The defendant thought that the plaintiff would be attending for the purposes of signing documents appointing the representatives of HC by way of a CVL.
33. On 9 February 2009, the plaintiff attended at HC. There is a dispute as to who he met with, who participated in the meetings and whether he attended the offices of the defendant during the day, spoke to anyone on behalf of the defendant during the day or obtained advice from the defendant about signing the documents during the day.
34. During the course of 9 February, Richard Albarran and Blair Pleash of HC recommended that they be appointed as voluntary administrators. There is a dispute as to whether anyone, being either the defendant or his employed solicitor, Ms Cavill, found out prior to the signing of the documents that HC had recommended a VA rather than CVL.
35. It is the plaintiff's evidence that it had been suggested to him by HC that the company was unable to pay its debts, with which he did not agree. He did not want to sign the documents but only did so having been told by the defendant through Ms Cavill that he must do so. There are competing versions as to what occurred on that day. The plaintiff says that he would not have signed the documents on 9 February 2009 without the defendant's advice to do so.
36. On the very day of the meeting with HC, the application to reinstate the winding up proceedings was listed for directions in this Court. Ms Cavill attended and, with the consent of Marsdens, had the matter stood over to 17 February 2009.
37. I will review in detail what happened between 9 February and 31 March 2009 later in this judgment.
38. Suffice to say that there is again a dispute as to the instructions and advice provided. There is a dispute as the extent to which the plaintiff relied on the defendant for the drafting of the DOCA and again the extent to which the plaintiff simply took matters into his own hands.
39. On 31 March 2009, the DOCA was signed. Messrs Albarran and Pleash were appointed deed administrators.
40. As the DOCA was signed within the required time, the company did not fall into liquidation.
41. By May 2009, there were issues relating to the administrator's costs, which the defendant was instructed to deal with on behalf of the plaintiff. At the same time, the plaintiff retained the defendant to deal with EMC's costs. An objection to EMC's costs was signed by the defendant on behalf of the plaintiff on 20 May 2009.
42. On 27 May 2009, there was a further meeting of creditors chaired by Mr Albarran. Tony Elias raised issues as to the conduct of the administrators. Mr Elias maintained that the administrators were never asked to investigate the company but were just there as administrators. Mr Elias maintained that the administrators had made it difficult to implement the deed.
43. On 11 June 2009, the plaintiffs made a first tranche payment of $250,000 to the deed fund. In accordance with clause 26.4(c)(1) of the deed, in consideration for an executed share transfer of 30% of their shares, Lot 4 was transferred to the plaintiffs. The administrators lodged a caveat over Lot 4.
44. The Elias Interests also paid their first tranche but reached agreement with the administrators that their Lot (Lot 6) could be transferred to a third party, apparently to avoid stamp duty. As the administrators could not lodge a caveat on Lot 6, the administrators retained the whole of the proceeds of sale of Lot 6 that is, the first tranche payment of $250,000 and the balance of the proceeds of sale being $390,000.
45. The shareholders were required to make a second tranche payment within 84 days of the DOCA, being 23 June 2009. No one made the payment for the second tranche as required.
46. On 13 August 2009, the defendant circulated an email specifying that the plaintiff was in a position to pay his additional $150,000 but had concerns as to whether such a payment would create a sufficient fund from which all creditors could be paid. On the defendant's calculations, having regard to the administrative fees, there would be a shortfall of $213,974.60.
47. By August 2009, the administrators had formed the view that to bring the DOCA to an end, either party could make a payment of $470,849.14 or contribute 50% of that total liability. On receipt of that amount the administrators would transfer the remaining titles to Lots 12 and 15 to the plaintiffs and Lots 16 and 18 to the Elias Interests. The defendants wrote to the plaintiff on 18 August 2009 about this.
48. There continued to be an issue as to the administrators' fees and the fees of their solicitors.
49. By September 2009, the plaintiffs were having difficulties with cash flow and were unable to raise the funds for the second tranche which had been payable by 23 June 2009.
50. On 27 November 2009, the administrators commenced their own proceedings seeking directions from the Court and orders for the termination of the DOCA on the basis that both the plaintiff and the Elias Interests were in breach of their obligations under the DOCA.
51. In his affidavit sworn 27 November 2009 for the purposes of those proceedings, Blair Pleash refers to receiving a series of complaints from Tony Elias about the fees.
52. Mr Pleash says that between 9 February 2009 and 31 March 2009 when the DOCA was signed, HC spent 315.545 hours at a total cost of $115,525. During the period 31 March 2009 to 31 October 2009, administrators expended a total of 365.95 hours at a total cost of $129,433.
53. Unfortunately, the deed administrator's fees continued to escalate thereafter as they became embroiled in litigation with the Elias Interests and the plaintiffs.
54. By December 2009, the plaintiff (through the defendant) was calling on the administrators to attend a settlement at which the plaintiffs could pay the second tranche.
55. The administrators did not attend. Instead, by letter dated 9 December 2009, Etienne Lawyers stated that the shareholder groups had been in non-compliance of the DOCA since 23 June 2009 and took issue with the complaints and criticisms of the administrators' conduct.
56. Whilst all this was taking place, the defendants were endeavouring to deal with the plaintiff's objections to the EMC assessment of costs. When that was concluded and the plaintiffs did not pay, EMC served a bankruptcy notice on the plaintiff in claiming a debt in the amount of $51,149.16.
57. By January 2010, the defendants were: 1. dealing with the ongoing dispute with the Elias Interests; 2. attempting to stave off EMC's threatened bankruptcy in respect of fees owing to EMC; and 3. continuing to deal with the issues raised by the administrators.
58. On 2 February 2010, the plaintiff swore an affidavit for the purposes of the proceedings being pursued by the administrators with the company as defendant.
59. In March 2010, the plaintiffs were joined as second defendants to the proceedings being pursued by the administrators and the Elias Interests were joined as third defendants.
60. On 7 May 2010, the parties finally reached agreement in respect of the proceedings pursued by the administrators and short minutes of order were filed in Court. The settlement essentially involved the parties acknowledging that the sum of $1,100,000 should be regarded as contributions to the deed fund constituted by the DOCA and that the plaintiffs and the Elias Interests should be regarded as having complied with the obligations under clause 26.8 of the DOCA.
61. By January 2011, the legal costs incurred by the deed's administrators totalled approximately $600,000. This had been paid entirely from the assets of the company. The plaintiff sought advice from the defendants on challenging that assessment.
62. On 7 December 2011, the plaintiffs terminated the retainer of the defendants.
63. In 2012, the Elias Interests commenced proceedings against the administrators.
64. In 2016, the Elias Interests pursued orders that the company be placed into liquidation.
65. The proceedings were resolved on 7 February 2017, including terms that the plaintiffs be released from their guarantee to the administrators.
66. The company was deregistered on 6 July 2018, being 10 years after the plaintiff sought to split the assets held in the company.
67. It is not surprising that the plaintiff expresses considerable frustration. He seeks to attribute responsibility to the solicitors who acted for him in 2009-2010 and specifically identifies their conduct over a two-month period, February to March 2009.
68. The plaintiffs commenced these proceedings on 6 February 2015.

The plaintiff's evidence

1. The plaintiff initially sought to give evidence through an interpreter. He quickly abandoned the interpreter and chose to answer almost all questions in English. English is not his first language and his vocabulary is not that of a person whose first language is English. In that sense, it might be said that his English is limited or deficient as he maintains.
2. I formed the view that he had difficulty understanding lengthy questions and tended to answer based on a part of the question or a concept. However, I also formed the view that he understood shorter questions using ordinary English words. There were times during cross-examination when I had the impression that his understanding was very limited and other times when he was quick to answer in a way which demonstrated that he understood the question completely.
3. He says his English is much better than it was previously and specifically much better than it was in 2009. He could read documents in English when giving evidence although he did not necessarily understand every word.
4. He refers to generally only dealing with Arabic-speaking people prior to 2009. Although he had been in Australia 40 years and had operated a building and project management company, he says that he used to obtain assistance from other persons when he had to speak in English. He maintains a significant improvement in his English over the past 10 years. That is, he asks the Court to consider his vulnerability, not on how he presents in 2020, but on the basis that his English and general ability to understand English concepts were much more deficient in 2009.
5. On one view, it is surprising that his English would have improved so much over the past 10 years, that is, between his 40th and 50th year in Australia. However, on his evidence he has been dealing with more English-speaking persons in the past 10 years and thus his English has improved.
6. Further, he maintained when answering questions in cross-examination that he could read English better than understand it when spoken. He signed documents when told to by a person such as the defendant without reading them. An example of cross-examination is as follows (in respect of an earlier affidavit prepared by EMC): "Q. And do you remember putting your signature on‑‑ A. WITNESS: Yeah, I sign it. Yeah, I sign it. Actually, as I said before, when the solicitor tell me sign, I don't read, I sign. Because I was trust. I don't know what they do. I was trusting them. I never read anything before. I start reading every sentence and even after I start, no, doing wrong, then I start to read with my dictionary. Q. So you said you remember putting your signature on your affidavit? A. WITNESS: Yes. Q. Do you remember signing every single page? A. WITNESS: No. I signed, yeah, I signed, but every single, I don't know. I don't remember that. But I signed, yes. Q. So your evidence is that you were given a typed up affidavit? A. WITNESS: Yes. Q. And you just signed it? A. WITNESS: Whatever they tell me sign I sign. Q. So you didn't satisfy yourself‑‑ A. WITNESS: Even I don't read them. When we talking, they writing and I don't read it because I was trust everybody before. I was dumb. I know, I say myself I was dumb. Nobody approve that, but this is why. … Q. And you did not read‑‑ A. WITNESS: No. … Q. Did you tell the lawyers the truth about what was going on at that time? A. WITNESS: Choice what I was going to do? My choice? … Q. I suggest to you, Mr Kossaifi, that what really happened is that you did read a draft of this affidavit before you signed it? A. WITNESS: Never. Q. And I suggest to you, Mr Kossaifi, that you read the final version of this affidavit before you signed it? A. WITNESS: Never. Never I read it. This is the first time I see it. I saw it when I signed it, but I do not know what I signed and now I read. Now maybe I understand most of it, but now I read. … Q. Can I ask you to read that, Mr Kossaifi. Would it help if I read it out loud, Mr Kossaifi? A. WITNESS: "The board of the company can no longer function"‑‑ HIS HONOUR Q. No, you don't have to read it. Can you read it to yourself? A. WITNESS: Yeah. Q. Okay, just read it to yourself? A. WITNESS: Here he mention my wife and I never, never mention - ".

The processes of external administration

1. As the plaintiff seeks to contrast the process of liquidation with voluntary administration, it is necessary to say something about those processes.
2. Liquidation and voluntary administration are forms of external administration. A company may be placed into liquidation if the company is insolvent but there may be other reasons for liquidation.
3. The general grounds on which a company may be wound up by the Court are set out in s 461 of the Corporations Act. In the proceedings commenced by EMC and taken over by the defendants, the plaintiffs sought winding up of the company under ss 461 and 462 or alternatively ss 232, 233 and 234. As set out in s 233 of the Corporations Act, the Court can make an order that the company be wound up if it considers it appropriate. If an order is made under s 233, it is as if the order were made under s 461: Corporations Act s 233(2).
4. In Fexuto Pty Limited v Bosnjak Holdings Pty Limited & Ors [2001] NSWCA 97; (2001) 37 ACSR 672 at [89], Spigelman CJ observed: "It may be accepted that the existence of irreconcilable differences among persons involved in what is, in effect, a partnership, will destroy the personal relationship involving mutual confidence, that lies at the heart of the partnership analogy. This analogy has been applied both to applications for winding up on the just and equitable ground and also to oppression suits. (Although the differences in form are not immaterial: see Re a Company (No 002567 of 1982) [1983] 2 All ER 854; [1983] 1 WLR 927 at 935-6 per Vinelott J.) Irreconcilable differences may establish a basis for winding up, they do not of themselves constitute oppression or unfair prejudice: see McMillan v Toledo Enterprises International Pty Ltd (1995) 18 ACSR 603 at 604."
5. Leaving aside the willingness of the Elias Interests to agree to liquidation, the type of breakdown in the relationship between the plaintiffs and the Elias Interests which had occurred prior to 2008 would have been grounds for the liquidation of the company as sought by the plaintiff in the proceedings commenced in 2008.
6. A Court order for winding up must be distinguished from a voluntary winding up. The company may resolve by special resolution that it be wound up voluntarily. In those circumstances, the winding up is taken to have commenced when the resolution was passed or if immediately before the resolution was passed the company was under administration, the day on which the administration began: Corporations Act s 513B.

The first allegation of breach

1. The plaintiff identifies the first breach as occurring before and up to the time of the appointment of the administrators on 9 February 2009. As there appears to be no dispute that, prior to the plaintiff's attendance at HC on 9 February 2009, the defendant thought that the meeting at HC was for the purposes of initiating a CVL, the conduct of the defendant allegedly comprising the first breach happened over a narrow time frame.

The plaintiff's version

1. The plaintiff says that in early February 2009, he received a call from either the defendant or Ms Cavill informing him that he needed to go to the offices of HC to sign documents so that they could do the split. He did not know how HC would split the assets of the company but believed that the defendant had sorted everything out for him.
2. He says that he attended at the defendant's offices at 9.00am and spoke to Ms Cavill. He says he was expecting the defendant to go with him to HC. He says that he wanted to talk to the defendant about what was going to happen and wanted the defendant to go to the meeting with him. He was told by Ms Cavill that he should go to the meeting without the defendant and that he should go upstairs to sign up. The firms were located in the same building.
3. On attending at HC he was met by Mr Albarran who told him that there was a problem because the company was insolvent. He asked Mr Albarran what he meant. They continued: "When I arrived at Hall Chadwick for the 9.00am meeting I was met with Mr Albarran. George Elias was also in reception. The three of us went into an office, where a conversation to the following effect took place: Mr Albarran: "[Speaking to George] We are signing papers for me to take over the company. We have a problem because the company is insolvent." Me: "What do you mean by "company is insolvent" I want know what is going on." Mr Albarran: "It means the company does not have any money to pay its debts." Me: "Wait a minute, what do you mean we have no money. Money was never a problem. We have $100,000 in the cheque account. The problem is I want to split the company and that is it. I don't want to be with them anymore. That is the reason we are here. Why are you only talking to George, talk to me as well." Mr Albarran: "Shut up, you don't know what you are talking about." George Elias: "I will ring my brother to see whether I should sign." Mr Albarran: "Are you going to sign Joe?" Me: "No"." [14]
4. On the plaintiff's recollection of what occurred at HC: 1. Mr Albarran must have already discussed the issues with George Elias prior to the plaintiff arriving; 2. The only comment of substance made by Mr Albarran was that the company was insolvent, which he explained as meaning that the company could not pay his debts; 3. Mr Albarran's response to the plaintiff's protest and rejection of this was to tell him to shut up as he did not know what he was talking about; and 4. there was no one else such as Mr Cook in the meeting.

The defendant's version

1. The defendant says that after the initial objection from Marsdens to the appointment of another firm, they agreed on the appointment of HC for a CVL.
2. On 6 February 2009, the defendant wrote to HC as follows: "Gents, New job for you. A CVL (or MVL) required arising from a dispute between the two directors of JOE & JOE DEVELOPMENTS PTY LTD ... The directors want the company shut down and the properties sold. I just need to check the position regarding the extent of creditors so as to determine whether MVL more appropriate." Has to happen today, as the matter is back in Court on Monday for the purpose of appointing a provisional liquidator..."
3. There is an email from Mr Butterfield to the defendant dated 6 February 2009 in the following terms: "The parties have exhausted all attempts to settle and therefore, on the basis that the proceedings are NOT re instituted, we will agree to the VL. I note Blair Pleash of Hall Chadwick will send the documents for signature. … As discussed can you mention the motion subject to the VL confirming the appointment have the matter, as a safety net in case we need to approach the court again …".
4. The defendant says that he understood from the plaintiff's instructions that the plaintiff wanted immediate displacement of control and realisation of assets. Therefore the company was, in his opinion, a suitable candidate for a CVL. The defendant says that at no time in the lead-up to the appointment of HC did he recommend, advise on or suggest to the plaintiff that he should appoint an administrator to the company. [16]
5. Further, he did not think a VA would bring about the finality the plaintiffs desired and the VA was inconsistent with the orders sought in the Court process already filed.
6. Further, he refers to the far greater level of consideration required for a VA than a CVL. [17] He says he had not been engaged to and not considered nor advised upon all the matters that should have been considered prior to the entry into a VA.
7. He refers to the document produced by HC on the Friday before the meeting which was consistent with his belief that HC would be appointed pursuant to a CVL on the morning of 9 February 2009.
8. The defendant denies telling the plaintiff that it would only take one month to split the assets and denies having a conversation about the likely costs. [18]

Ms Cavill

1. Ms Cavill refers to email exchanges with the defendant and HC on 6 February 2009. Relevantly, she sent an email to the defendant at 5.00pm as follows: "I sent an email to Farshad at 5pm which relevantly recorded the following: 'I have spoken with Tim (Cook) from Hall Chadwick and he has spoken to both directors and everyone is on board. The meeting is at 9am at Hall Chadwick offices. I will be going to Court at 9.15am to stand over for 6 weeks. Tim asked if we want to go to the meeting?'" [22]
2. She also refers to a file note dated 6 February 2009, which is in similar terms, and to a response from the defendant at 5:03pm in the following terms: "We don't. We want all the legal work though."
3. Ms Cavill says that she attended the directions hearing before the Registrar at approximately 9.00am on 9 February 2009. [23] She refers to her time recording records and a reference to the matter being number five in the list. Her records refer to telephone calls to the liquidator and "Court Appearance Directions Hearing". At 10.19am she received a call from the receptionist asking her to call Tim from HC regarding Joe & Joe Developments. At 10:20am she received an email from the receptionist to the effect that the plaintiff called and asked that his call be returned. She does not recall whether she was actually in the office at the time the email was received.
4. At 12:39pm she received another email from the receptionist asking that she call Tim from HC, although she does not recall speaking to Mr Cook.
5. There is a file note dated 9 February 2009 which refers to HC signing them up to a VA and other matters. She has no recollection of speaking to the plaintiff on 9 February 2009, although she acknowledged in cross-examination that it was a possibility. There was no time recording in respect of any conversation with the plaintiff and no fee charged for any conversation with the plaintiff. Bearing in mind that even on the plaintiff's version, the conversations were very brief, I do not consider that the absence of a time record is determinative of the proposition that the conversation did not occur.

Mr Cook

1. Mr Cook's evidence is particularly relevant to the plaintiff's claim in respect of the events of 9 February 2009. His affidavit was prepared in 2014, not as part of these proceedings, but he adopted it as his evidence in these proceedings.
2. He says that on the morning of 9 February 2009 and at some time before 9.00am, he walked into Mr Albarran's office and saw another man in with Mr Albarran who was introduced to him as the plaintiff. In answer to Mr Cook's question whether the meeting was still going ahead, Mr Albarran said: "Cook: Oh hi Joe, nice to meet you. My name is Tim and I will be helping Richard on this job. Kossaifi: Hi Tim. Nice to meet you. Cook: Is the meeting still going ahead this morning? Albarran: Yeah, Joe was just raising a few things with me which may need to be considered when the other director gets here. He says there is some dispute about misuse of company money and contribution to construction costs. Cook: Oh right." [24]
3. Mr Albarran's phone rang and they were informed that Mr Elias was there. Mr Cook then met George Elias. He was taken into Mr Albarran's office and Mr Albarran said, "We need to work out what is going on first before we sign any documents".
4. According to Mr Cook, there was then a conversation in Mr Albarran's office during which Mr Albarran said that he needed to know more about the solvency of the company and dispute between the shareholders. The conversation is quoted at some length.
5. According to Mr Cook, George Elias and the plaintiff each made allegations against each other and the conversation continued as follows: "Kossaifi: That's why we want to sign these documents, to end the partnership. Albarran: Ok but there are different implications when you put a company into liquidation and the way in which you do it hasn't been settled yet? Kossaifi: What do you mean? Albarran: Well a liquidation will have impacts on your insurance and may also affect your ability to be a director in the future. George: Well does that affect my Home Warranty Insurance? Albarran: I am not one hundred percent sure but I expect it will. George: I want this done in some way which there is no effect to my building license. Albarran: There is an option where we can save the company going into liquidation and we can have a look at the accounts and work out who put in what and who should get what once they are sold. Kossaifi: That will be good. George: Yes that will show them how much more money we put in. Albarran: What you want is a voluntary administration because of the issues with the Home Warranty Insurance, account reconciliation and the final distribution of the assets. A voluntary administration is more expensive than a liquidation but from the sounds of it could bring a resolution to the fight you guys are having because we will look at what each of you have paid in and taken out and work out the split according to an agreement. George: How much is more expensive? Albarran: A normal VA usually costs around 50 grand and the standard process takes a month. But it depends on the investigations you want us to do so we will need to get some more details and know more about the company. But saying that it seems that it is what is needed for you both to move on. Kossaifi: You will have to speak to him. I can't even get access to the property because he won't let me. George: He has all the financial documents as they are with his accountant. Albarran: Joseph do you want to speak to Farshad? Kossaifi: No its ok. I want to show them that I didn't rip them off. George: I will probably need to speak to my brother. Kossaifi: Fine go and do that then because we need to get this thing done." [25]

Determination

1. The version of events as set out by the defendant, Ms Cavill and Mr Cook was put to the plaintiff in cross-examination. He: 1. denied the meeting with Mr Albarran in Mr Albarran's office before George Elias arrived ever happened; 2. gave inconsistent evidence about whether he ever met or spoke to Mr Cook, referring to things being fabricated; 3. denied raising with Mr Albarran any concern about misuse of company money by the Elias family; 4. denied that he was ever inside a room in a meeting with Mr Cook; 5. denied that Mr Albarran said he needed to know more about the solvency of the company and the dispute between him and the Elias family; 6. denied that there was any oral dispute with George Elias during the meeting as to who had been putting in more money; 7. denied there was any discussion about home warranty insurance or building licence implications or liquidations; 8. denied that he was asked at the meeting with Mr Albarran whether he wanted to speak to the defendant; 9. says he stayed at the meeting only five to ten minutes and then went outside and rang Yates Beaggi and then turned up at Yates Beaggi at 9.15am. He saw Ms Cavill coming out and thought she was in a hurry. He told her what happened and she said he would let the defendant know and ring him back; 10. maintained that he said to Ms Cavill that "this fellow [Albarran] say we have no money and we have money, and he wants me to sign that the company have no money. I didn't sign"; 11. denied that he stayed in the offices of HC whilst they prepared papers for administration; 12. said that he had a further conversation with Ms Cavill around 1.00pm, during which he was told to go back and sign the documents. He was at home at the time; and 13. said he signed the documents around 3.00pm at the offices of HC.
2. The plaintiff responded to the question in cross-examination as to his options as follows: "Q. Mr Albarran said to you that there is an option where Hall & Chadwick could save the company going into liquidation, they could have a look at the accounts and work out who had put in what and who should get what once they are sold? A. WITNESS: I deny all things. What I said a few words. What I said and I get out. What happened I don't know. What they fabricate I don't know. Maybe they have a meeting with Elias, he have the book, and never happened. How they did it ‑ and the same day. I read it last week. I get upset what's going on. I met with George and Tony on that day, and I'm telling you in here in front of the Court, if we met, one in the grave and one in the jail, and they say we met. See how they fabricate things."

The second allegation of breach

1. The second allegation of breach is described by the plaintiffs in their closing submissions as being that, having been advised that the company was placed into VA, the defendant failed to advise the plaintiffs of the option of taking steps to terminate the VA. This submission is a reference to the particulars of breach pleaded in para 28 of the further amended statement of claim. The plaintiffs' contentions on this point are expanded upon in the closing submissions as follows: "19. An opportunity arose for the defendants to take action to terminate the administration when the second defendant was told by Ms Gleeson and Mr Cook that Hall Chadwick advised the directors that VA was the best option because the parties would avoid difficulties with their credit rating, builders license and home warranty insurance. Quite apart from the fact that this advice was clearly wrong, a prudent solicitor of the second defendant's experience would have been alerted to the fact the preservation of builder's licenses and insurance is not a valid reason to place the company into administration. It was a purpose extraneous to the provisions of s 436A of the Act, and accordingly invalid. 20. The way was then open for a competent practitioner of the second defendants experience to bring an action under s 447A of the Act to terminate the administration. The second defendant agrees that the company could be taken out of administration if the appointment of the administrator was shown to be invalid."
2. There are three parts to this allegation being that: 1. there was an option to immediately terminate the VA by way of an action under s 447A of the Corporations Act; 2. the defendant should have advised the plaintiff to do so; and 3. the VA would have been terminated and the company would have been placed into liquidation.
3. It is important to emphasise that prior to 9 February 2009: 1. the plaintiff had specifically instructed the defendant that he wished to have someone else take control of the company, split the assets and pay the creditors; 2. the defendant had advised the plaintiff that the best way of achieving his aims was to proceed by way of liquidation, that is, to reinstate the proceedings originally commenced by EMC as soon as possible and have a liquidator take control. Although the Elias Interests did not ever agree to a court-appointed liquidator, in the days before 9 February 2009, they did agree on appointing HC pursuant to a CVL; 3. the defendant believed that this was the best course for the plaintiff. Indeed, he says so in his affidavit and sets out the reasons why he considered that liquidation was preferable and did not favour a VA; and 4. the defendant did not ask or arrange for HC to give advice to the plaintiff as to whether VA or CVL would be preferable.

The third allegation of breach

1. As identified by the plaintiff, the third period of breach is up to the signing of the DOCA on 31 March 2009 and particularly the defendant's advice to sign the DOCA.
2. It is necessary to consider what happened between 9 February and 31 March in some detail.
3. On 11 February 2009, HC prepared its first report to creditors. They also wrote to the plaintiff regarding their role and the obligations of the plaintiff as the director.
4. On that same day the plaintiff was contacted by the Elias Interests' accountant, Mr Georgiou, regarding doing a deal. There was a meeting involving the plaintiff his accountant, Mr Khoury, Mr Georgiou and George Elias. By 16 February, those persons had worked out an agreement, without any involvement of the defendant.
5. Independently of what the plaintiff was doing to reach agreement with the Elias Interests, on 16 February 2009, the defendant wrote to Mr Cook confirming that Ms Cavill would attend upon the plaintiff to complete the report to affairs and also confirming that when they last engaged with the plaintiff, he was desirous of a complete realisation of the property held by the company on a forthwith basis and was not in a financial position to interact and entertain any other arrangement. The defendant says that based on his time records, he must have conferred with the plaintiff on 16 February and was informed of the plaintiff's meetings with the Elias Interests to do a deal.
6. As referred to earlier in this judgment, on 17 February 2009, the plaintiff wrote directly to Mr Albarran (by handwritten facsimile) asking him to freeze everything and stop doing any further work.
7. It is apparent that within days of the appointment of the VA, the Elias Interests thought they would do a deal with the plaintiff and thus the VA process could just be terminated, without the company being placed into liquidation.
8. The plaintiff agreed in cross-examination that he did the deal without involving the defendant but that he told him that he had done the deal to do the split. He agreed that it was Mr Georgiou who was preparing the draft document.
9. On 18 February 2009, HC wrote to Mr Elias, the plaintiff, Marsdens and the defendant in relation to the role of the administrators, the enquiries they were carrying out and requesting details of the agreement referred to (presumably the agreement referred to by the plaintiff in his handwritten facsimile). Mr Cook then sent an email on 19 February noting that the parties were finalising their negotiations for the purposes of settling their dispute.

Liabilities Administrators' Fees (inc. GST) 88,000 88,000 Administrators' Disbursements (inc. GST) 10,000 10,000 Deed Administrators' Fees (inc. GST) 77,000 N/A Deed Administrators' Disbursements (inc. GST) 15,000 N/A Liquidators' Fees (inc. GST) N/A 187,000 Liquidators' Disbursements N/A 30,000 (inc. GST) Secured Creditor 114,184 114,184 Unsecured Creditors 332,388 332,388 Total Liabilities 636,527 761,572

Estimated Surplus 2,095,367 1,541,367

1. Again, it is clear that the question of liquidation rather than a DOCA was an issue for consideration. According to HC, proceeding by way of DOCA would result in a better return to shareholders of nearly $500,000. HC estimated that the liquidator's fees would be $100,000 more than fees incurred by the deed administrators.
2. The plaintiff was cross-examined on the second report to creditors and the second meeting of creditors and events which were happening around that time. His answers were unsatisfactory. He denied attending the meeting and then said he could not remember. He maintained that he did not read documents at all that he must have received. He said he knew nothing. He never understood anything. He said he did not care about the price. He denied some aspects of the proposed agreement which had been settled through his accountants. He denied claiming any additional amount for himself (which is contrary to the letter from the defendant raising the claim for $500,000).
3. It was put to him that in March 2009 he had a meeting with his own accountant, Mr Khoury to work out the calculations about how things should be done and what financing might look like. He said, "It may be true. I don't remember but I could say it might be true. I don't remember. It's okay." He said he did not care about money. However, he agreed that he asked Mr Khoury to communicate with Mr Georgiou.
4. It was put to the plaintiff that he told the defendant at the creditors' meeting that he wanted a short adjournment in order to agree to the terms of the DOCA and for the DOCA to be signed over the course of the following weeks. The questioning was met with the same response. For example: "Q. You were saying to Farshad? A. WITNESS: No, he wasn't telling me exactly what was going on. I never understood what was going on. Never."
5. On 5 March 2009, Mr Butterfield of Marsdens circulated an email regarding what needed to be done to hand the company back to the directors. Mr Cook responded, stating that the company could only be handed back to the directors upon execution of a DOCA and that a number of issues needed to be clarified before that happened.
6. On 6 March 2009, Mr Cook circulated an email noting that the ATO had submitted a proof of debt for the amount of $258,883.67.
7. On 9 March 2009, he circulated an email requesting further information prior to the forthcoming meeting of creditors, regarding the progress of Mr Elias and the plaintiff's proposal for a DOCA.

Other issues

1. Whilst it is not strictly necessary to consider all of the other issues raised by the parties, I will deal briefly with the other issues.

Contributory negligence and proportionate liability

1. The defendant alleges that the plaintiff was guilty of contributory negligence and further that: 1. HC is a concurrent wrongdoer having regard to Pt 4 of the CLA; and 2. the plaintiff and Tony Elias, in their capacity as directors of the company, are concurrent wrongdoers.
2. It is not possible to make alternative findings for the purposes of considering contributory negligence and proportionate liability. It will be plain from this judgment that I have rejected the plaintiff's assertions of complete reliance on the defendant for all purposes and have rejected his assertions that he had no understanding of anything that was happening and could not communicate or understand any advice.
3. Much of the problem that arose, arose both from the refusal of the Elias Interests to stick to any arrangement, deal or proposal, as well as from the plaintiff's failure to stick to the process (in the sense that he regularly returned to the Elias Interests to seek a deal independently of those who were advising him). However, it does not necessarily follow that in doing so he was failing to exercise reasonable care for his own interests.
4. It may also be fair to suggest that if the defendant should bear some responsibility for the losses sustained by the plaintiff then HC should bear a similar responsibility. Despite being instructed by the defendant that they were being appointed pursuant to a CVL, HC recommended to the shareholders that they would be appointed as administrators without reference to the lawyers advising the shareholders.
5. However, again, that is too simplistic an approach. I was not directed to any evidence that HC failed to take care. HC, as the deed administrators, became embroiled in litigation, both because there was a dispute as to the level of their fees and because the plaintiff and the Elias Interests failed to comply with the terms of the DOCA.
6. Absent a detailed analysis on different alternative factual findings, I am unable to comment further on whether HC or Tony Elias may have been concurrent wrongdoers.

Damages

1. The plaintiffs plead that the defendant's advice and conduct caused or contributed to the plaintiffs being deprived of the opportunity to consider alternative, more cost-effective methods of realising the value in their shareholding in the company. The primary claim for loss is based on the diminished value of their shares in the company: 1. they say that if the company had been wound up rather than put into voluntary administration, they would have received a return on their shares of between $1,073,145 and $1,048,525; 2. they say that as a result of the voluntary administration they received a return of $580,000. The loss is thus calculated as the difference between their expected return on their investment minus what they received, being $493,145 to $468,525; 3. secondly, they say that based on the expert report of Phillip Stern, solicitors' fees in respect of winding up proceedings would have been between $4,800 and $7,695. They ultimately paid the defendant $299,020 including an overpayment of $54,250. They thus calculate their loss at $345,575 to $348,470; 4. they also claim loss of rent of $10,600 in respect of the rental loss of Lot 4; and 5. they say that the financial spiral that resulted from the delay in finalising the split of the assets and the requirement that the plaintiffs make payments into the fund meant that the plaintiff was required to obtain a $372,000 mortgage against Lot 4 and liquidate other assets and take out high interest loans. For example, the plaintiff says that he was forced to sell units owned at Mount Pritchard, which he had owned since 1985, due to the financial duress he was suffering in February 2014. He relies on a valuation report from David Bird to the effect that, if he had not sold the properties, in December 2019 there would have been an increase in value of $200,000 in respect of each property. He would have further obtained rental income for the same period of between $240,000 and $245,000.
2. It is again difficult to assess loss, having regard to the findings that I have made. It is important to emphasise that damages are compensatory but there are limits normally arising through the principles of causation and remoteness.
3. The plaintiff's approach to loss is based on the assumptions that: 1. the liquidator's fees would have been a fraction of the administrators' fees; 2. there would have been no shareholder disputes; 3. there would have been no dispute between directors; 4. his own lawyers would have charged him less than $10,000 instead of $250,000; 5. he would not have been asked to raise any money or make any payment to any fund; 6. he would have suffered no financial duress in 2014; 7. he would not have sold any of his properties; 8. he would have continued to rent these properties; 9. the value of his properties in 2019 would have been considerably higher (not that he would have sold them); and 10. he would not have borrowed money and even if he did borrow money he would have obtained better interest rates.

Consequential loss

1. The losses claimed as set out in [377(5)] of this judgment could be described as consequential losses. They are in addition to the alleged loss in value of the shares in the company and the cost of borrowing to fund the deed payments.
2. The plaintiff says that he owned other properties that he was forced to sell because of the inability to realise the anticipated profit from the liquidation of the company in 2009. He says that in 2014, he sold a property at Mt Pritchard that he otherwise would have retained. He would have earned regular income from that property and then would have made a capital gain in 2019. He claims both the loss of rental income and the lost capital gain.
3. He says, further, that as a result of the reduction in return from the development undertaken by the company as a result of the VA process, he did not have the available funds to finance his other developments. He needed to effect interim finance and entered into two loan contracts to do so. He says that he personally incurred fees, interest and other expenses, including litigation expenses in association with loan contracts taken out by another property of which he was a shareholder, Banda Developments Pty Ltd.
4. In other words, he says that he was continuing to pursue other property development ventures in the years subsequent to 2009 and that finance costs associated with a development undertaken by another company should be paid by the defendants.
5. As is well known, direct loss is generally the type of loss falling within the first limb in Hadley v Baxendale [42] being the loss arising naturally or in the usual course of things from the breach of contract.
6. Consequential loss may be losses falling within the second limb of the rule in Hadley v Baxendale, being a type of loss which may reasonably have been in the contemplation of the parties at the time of entry into the contract as the probable result of the breach of the contract.
7. In Regional Power Corporation v Pacific Hydro Group Two Pty Ltd (No 2), [43] Martin J described consequential loss as "a loss at a step removed from the transaction and its immediate effects."
8. As was said in Wallace v Kam, [44] the liability for breach of a duty to exercise reasonable care and skill to avoid harm does not extend beyond harm that was foreseeable at the time of breach.

Conclusion

1. If the plaintiff had established breach of duty of care or contract then I would be prepared to accept that the plaintiff suffered some loss as a result of loss of opportunity to realise a greater value from his shareholding in the company through the alternative process of liquidation. In a sense, it is difficult to envisage how the process could have turned out any worse or more time-consuming and expensive.
2. The process of voluntary administration and administration of a DOCA, which required both the plaintiffs and the Elias Interests to make payments into the deed fund in return for transfer of property to them, led to significant dispute whilst all the while requiring the plaintiffs and the Elias Interests to pay more money into the fund just to cover the ongoing accounting and legal expenses.
3. I have not accepted that this resulted from the defendants' tortious conduct but, if I had, I would have accepted there was a better opportunity to receive a greater return through the liquidation process, originally envisaged and proposed by the defendant. I would have assessed damages in the order of $250,000 plus interest on the loans necessary to fund the deed payments. Interest would then be payable on those sums.

Orders

1. I enter judgment for the defendants. I order that the plaintiffs pay the defendants' costs.
2. I grant liberty to the parties to apply on three days' notice should the parties seek any alternative costs order.

Endnotes

1. Leary v Federal Commissioner of Taxation (1980) 47 FLR 414 at 434; [1980] FCA 112.
2. Hawkins v Clayton (1988) 164 CLR 539 at 544; [1988] HCA 15.
3. Further Amended Statement of Claim paras 15-18.
4. Hawkins v Clayton at 544-545.
5. Sparks v Hobson; Gray v Hobson [2018] NSWCA 29; 361 ALR 115 at [24], [326].
6. [2009] NSWCA 8 at [76] (Allsop P).
7. [1939] 1 K.B. 194 at 222.
8. [1979] Ch 384 at 409 (Oliver J).
9. David v David at [76].
10. Uniting Church in Australia Property Trust (NSW) v Miller; Miller v Lithgow City Council (2015) 91 NSWLR 752; [2015] NSWCA 320 at [102]; Port Macquarie Hastings Council v Mooney [2014] NSWCA 156; (2014) 201 LGERA 314 at [52].
11. Sellars v Adelaide Petroleum NL; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 332 at 355 (Mason CJ, Dawson, Toohey and Gaudron JJ), 368 (Brennan J); [1994] HCA 4 ("Sellars v Adelaide Petroleum").
12. Affidavit, Joseph Kossaifi, 5 May 2017 at paras 3-11.
13. Affidavit, Joseph Kossaifi, 5 May 2017 at para 43.
14. Affidavit, Joseph Kossaifi, 5 May 2017 at para 75.
15. Affidavit, Joseph Kossaifi, 5 May 2017 at para 78.
16. Affidavit, Farshad Amirbeaggi, 6 January 2019 at paras 78-79.
17. Affidavit, Farshad Amirbeaggi, 6 January 2019 at para 82.
18. Affidavit, Farshad Amirbeaggi, 6 January 2020 at para 85.
19. Affidavit, Farshad Amirbeaggi, 6 January 2020 at para 98.
20. Affidavit, Farshad Amirbeaggi, 6 January 2020 at para 110.6.
21. Affidavit, Farshad Amirbeaggi, 6 January 2020 at para 110.8.
22. Affidavit, Danielle Gleeson, 13 December 2019 at para 7.3.
23. Affidavit, Danielle Gleeson, 13 December 2019 at para 8.1.
24. Affidavit, Timothy James Cook, 14 March 2014 at para 24.
25. Affidavit, Timothy James Cook, 14 March 2014 at para 27.
26. Affidavit, Timothy James Cook, 14 March 2014 at para 33.
27. Affidavit, Timothy James Cook, 14 March 2014 at para 34.
28. Affidavit, Timothy James Cook, 14 March 2014 at para 33.
29. Affidavit, Joseph Kossaifi, 2 February 2010 at paras 28-29.