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[2005] WASC 68
Supreme Court of WA
2005-04-29
Mr J, Smith J
Original judgment source is linked above.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : LEE -v- MAVADDAT [2005] WASC 68
HEARD : 8-12, 15-19, 22-26, 29 NOVEMBER 2004 & 17 JANUARY 2005
Contract - Partnership agreement to acquire and develop property - Purchase of property negotiated by defendant - Defendant taking "extreme" commission on sale - Whether disclosed to plaintiff - Whether authorised - Whether unjust enrichment - Price paid - Whether breach of defendant's duty of care - Loan from bank to fund project in plaintiff's name only and security only over her property - Whether to be a joint loan and jointly secured - Whether false or misleading conduct - Whether undue influence, breach of fiduciary duty or unconscionable conduct - Project management and other fees taken by defendant - Whether authorised - Whether informed consent - Use of partnership funds
Fair Trading Act 1987 (WA) , s 79
Boardman v Phipps [1966] UKHL 2; [1967] 2 AC 46
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Gemstone Corp of Australia Ltd v Grasso [1993] SASC 4211; (1994) 62 SASR 239
Hill v Rose [1990] VicRp 13; [1990] VR 129
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 CLR 413
Madden v Kevereski [1983] 1 NSWLR 305
March v E & M H Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506
Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211
Birtchnell v Equity Trustees Executors & Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384
Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362
Brickenden v London Loan & Savings Co [1934] 3 DLR 465
Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447
Freeway Hotel v Ugle, unreported; FCt SCt of WA; Library No 940017; 21 January 1994
Fry v Lane; Whittet v Bush (1888) 40 Ch D 312
Harrison v Schipp [2001] NSWCA 13
Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449
Mahoney v Purnell [1996] 3 All ER 61
McKenzie v McDonald [1927] VicLawRp 19; [1927] VLR 134
New Zealand Netherlands Society 'Oranje' Inc v Kuys [1973] 1 WLR 1126
Nocton v Lord Ashburton [1914] AC 932
R v Birks (1990) 19 NSWLR 677
Seymour v ABC (1997) 19 NSWLR 219
1 ROBERTS-SMITH J: This case involves financial and business dealings between the plaintiff, the Korean wife of a wealthy Chinese businessman living in Hong Kong, and an entrepreneurial real estate agent and businessman in Perth, Western Australia.
1.1 is the registered proprietor of the property situated at 116 Forrest Street, South Perth, being the land contained in certificate of title volume 1895 folio 823 ('the South Perth Property');
1.2 is a director of Courtza Pty Ltd (ACN 009 368 450) ('Courtza');
1.3 is a Korean citizen and has a poor understanding of spoken and written English;
1.4 has limited experience in business matters;
1.5 at all material times reposed trust and confidence in the defendant in relation to her involvement in the Partnership (defined in paragraph 4 below) and the Project (defined in paragraph 3.1 below).
2.1 the registered proprietor of the property situated at 28 Simpson Street, Applecross ('the Applecross property');
2.2 a licensed real estate agent under the Real Estate and business Agents Act 1978;
2.3 a director of Keywest International Group Pty Ltd (ACN 070 201 384) ('Keywest')
3. In May 1999 the plaintiff and the defendant entered into an agreement ('the Agreement') for the acquisition, development and sale for profit of a property situated at 237-241 Hay Street, Subiaco ('the Subiaco Property') on the following terms:
3.1 they would incorporate a company as the vehicle for the acquisition, development and sale of the Subiaco property within 12 months ('the Project') and they would each:
3.1.1 hold 50% of the issued shares in the company;
3.1.2 be directors of the company;
3.2 they would jointly borrow $1,650,000.00 from a bank for a term of 12 months to fund the purchase price for and all redevelopment costs of the Subiaco Property, and they would mortgage the South Perth and Applecross Properties to secure that loan;
3.3 the defendant would, on behalf of himself and the plaintiff:
3.3.1 take the necessary steps for the matters set out at 3.1 above to be achieved;
3.3.2 conduct negotiations with the registered proprietor of the Subiaco Property, Absica Pty Ltd (ACN 236 219 675) ('Absica') in relation to the price and terms on which the Subiaco Property was to be acquired by the company to be used for the Project;
3.4 the plaintiff and the defendant would do all things reasonably required by them to obtain the loan referred to in subparagraph 3.2 above ('the Implied Term').
Particulars
The terms set out at subparagraphs 3.1 to 3.3 above were express and were agreed upon discussion between the plaintiff and the defendant in around May, 1999;
3.5 The Implied Term was implied into the Agreement to achieve business efficacy.
4. By their entry into the Agreement, the plaintiff and the defendant constituted themselves as partners ('the Partnership') in the carrying out of the Project.
5. By reason of the matters pleaded in paragraph 1.3, 1.4, 1.5, 2.2 and 3 above, a relationship of trust and confidence arose between the plaintiff and the defendant in relation to their involvement in the Project.
6. By reason of the matters pleaded in paragraphs 3 alternatively 4 alternatively 3 and 5 above, the defendant in taking steps as part of the Project owed to the plaintiff fiduciary duties:
6.1A To act in good faith towards the plaintiff as a partner;
6.1B To act in good faith towards the plaintiff in carrying out the Project;
6.1 To refrain from preferring his personal interests to the interest of the plaintiff;
6.2 To refrain from securing for himself any benefit to the exclusion of the plaintiff.
7. During September, 1999 and pursuant to the term of the Agreement pleaded at subparagraph 3.1 above, the defendant took steps to incorporate Ark Securities Pty Ltd (ACN 089 490 728) ('the Company') with himself and the plaintiff as its directors and holders of 50% each of its shares."
3 The statement of claim then continues in relation to what are described as "the St George Bank loans and the plaintiff's loan".
4 The plaintiff pleads that in late 1999 and early 2000 the defendant had dealings with officers of St George Bank Ltd ("the Bank") purportedly to obtain a loan for himself and the plaintiff as pleaded in par 3.2. In his dealings with the Bank the defendant acted as agent for himself and the plaintiff and owed fiduciary duties to her.
5 By written loan offer ("the loan offer") dated 4 January 2000, the Bank offered to lend the plaintiff $1,625,000 for a period of 12 months, to be secured by registered mortgage over the South Perth property.
6 It is then pleaded that about 4 January 2000 at the South Perth property, the defendant showed the plaintiff those pages of the loan offer which required her signature and advised her that if she did not sign the loan offer immediately, the Bank would not be prepared to make the proposed loan and there was not sufficient time for her to take advice on it from her accountant Robert Lim. It is pleaded that he did not tell the plaintiff that the loan offer was made to her but not to him and that the Bank did not require any security from him for it. He then witnessed the plaintiff's signature on the loan offer.
7 By par 12 it is pleaded that by his conduct the defendant impliedly represented that the loan offer had been made to him as well as the plaintiff and that the Bank required him to mortgage the Applecross property to secure the loan ('the loan offer representation").
8 The plaintiff pleads that in reliance on the loan offer representation, she accepted the loan offer and took out a loan from the Bank in the terms there set out ("the first bank loan") and executed a mortgage over the South Perth property ("the mortgage") to secure it.
9 Upon the plaintiff accepting the loan offer and executing the mortgage, the Bank credited $1,625,000 to the company's account held with the Bank. The loan was to be repaid in full on 4 January 2001 together with all interest accruing to that date.
10 As the company did not repay the plaintiff's loan by 4 January 2001, on or around 29 January that year the plaintiff took out a further loan from the Bank for the full amount then owing, namely $1,745,000, repayable with interest on or around 29 January 2002, and otherwise on the same terms and conditions ("the second bank loan").
11 It is pleaded that the loan offer representation was false, in that the Bank did not require the defendant to be a party to the first bank loan and did not require any security from the defendant to secure it.
12 The defendant's conduct in making the loan offer representation ("the Contravention") is then pleaded as constituting misleading or deceptive conduct in breach of s 79 of the Fair Trading Act 1987 in the following manner:
"20. The plaintiff has suffered alternatively is likely to suffer loss and damage by reason of the Contravention, in that:
20.1 if the defendant had not engaged in the Contravention, the plaintiff would not have accepted the Loan Offer, granted the mortgage, made the Plaintiff's Loan, or taken out the First and Second Bank Loans;
20.2 by her solicitors' letter of demand dated 6 June, 2001, the plaintiff made demand of the Company for payment of the full amount then owing on the Second Bank Loan, namely $1,671,796.99 in response to which no payment has been made;
20.3A As at 29 October 2004 the amount owing on the Second Bank Loan was $2,000,000 with interest continuing to accrue.
20.3 on 15 June, 2001, the company was placed into voluntary liquidation, and will be able to pay only approximately $500,000 to the plaintiff by way of repayment of the Plaintiff's Loan. Further particulars will be provided after expert reports have been obtained;
20.4 in the premises, the plaintiff after recourse to the company under the Plaintiff's Loan will be unable to pay approximately $1,500,000 required to make full payment of the principal and interest owing under the Second Bank Loan, and will suffer loss and damage to that extent."
13 There are alternative pleas of breach of fiduciary duties, undue influence, unconscionable conduct and breach of contract in relation to the first bank loan and the mortgage.
14 Paragraphs 27 to 35 inclusive of the statement of claim concern what is described as "The Purchase of the Subiaco Property and the Commission":
"27. By a written Offer and Acceptance dated 30 August 1999, Absica agreed to sell the Subiaco Property to Courtza and Keywest ('the Purchaser') (as agents for the Company) on terms all of which had been negotiated by the defendant on behalf of the Company inter alia as follows:
27.1 the purchase price was $843,000.00, of which:
27.1.1 a deposit ('the Deposit') of $133,000.00 was payable upon acceptance by Absica of the offer by the Purchaser;
27.1.2 the sum of $80,000.00 was payable by the transfer of Courtza to Absica of 2 residential units owned by Courtza that formed part of the Emerald Hotel situated at 24 Mount Street, Perth;
27.2 settlement was to take place on or before 30 days after finance approval had been obtained by the Purchaser for a loan of $610,000.00.
28. By an agreement ('the Commission Agreement') made in around mid August, 1999, Absica agreed to pay to Keywest alternatively the defendant a commission on the sale by it of the Subiaco Property to the Purchaser of $133,000.00 ('the Commission'). ...
29. In or around September 1999, the defendant:
29.1 caused the Company to pay him $133,000.00 as payment of the Commission; alternatively
29.2 lent the Commission to the Company which in turn treated that amount as payment of the deposit on the purchase of the Subiaco Property from Absica ('the Commission Loan').
30. The Commission Agreement was made without the fully informed consent of the plaintiff.
31. By entering into the Commission Agreement and by reason of the matters pleaded in paragraph 29 above, the defendant:
31.1 obtained a benefit that was to the detriment of the plaintiff, in that Absica would have been prepared to sell the Subiaco Property to the Purchaser for a price of $710,000.00 if no commission was payable to Keywest alternatively the defendant;
31.2 thereby breached his obligations owed to the plaintiff as pleaded in paragraph 6 above."
15 There are claims of unjust enrichment and breach of duty of care also pleaded in relation to the Subiaco property and the commission.
16 Paragraphs 36 to 39 inclusive are headed "Project Management Fees". The plaintiff pleads that as a director of the company, the defendant caused it to make payments to him totalling $372,000 for services allegedly provided by him to the company, all of which the defendant claims were "project management fees", between September 1999 and March 2001.
17 It is further pleaded that the defendant caused the company to make further payments to him totalling $150,000 between 3 November 1999 and 27 June 2000, described as "further fees".
18 The plaintiff pleads that she had not given fully informed consent for the payment of any such fees and the defendant did not provide any services, or any sufficient services to justify payment of them. It is pleaded that the payments constituted breaches of the defendant's fiduciary obligations to the plaintiff, breach of contract and that he was unjustly enriched at the expense of the plaintiff by the amount of the payments.
19 There is a further claim in relation to the use of partnership funds, at par 40 and par 41 of the statement of claim. At par 40 it is pleaded that in breach of his fiduciary obligations to the plaintiff, the defendant, without the plaintiff's agreement or consent, applied (or caused the company to apply) the funds of the partnership other than for the business of the partnership. Particulars of specific payments, including an amount of not less than $157,231 for the purchase of shares, are given.
20 By his defence and counterclaim the defendant admits par 1.1 but denies par 1.2 to 1.5 of the statement of claim.
21 As to par 3 of the statement of claim, the defendant admits that one of the purposes for which the company was incorporated was to purchase real property for development and sale, that the plaintiff and defendant were to equally hold 50 per cent of the issued shares in the company and were to be directors of it, that the defendant took the necessary steps to acquire the property and conducted negotiations with Absica, the registered proprietor of it.
22 Paragraph 3 of the statement of claim was otherwise denied.
"4. In further answer to paragraph 3 of the Amended Statement of Claim, the Defendant says that:
(a) in or about August 1999, the Plaintiff and the Defendant agreed with each other to carry on, in partnership:-
(1) the establishment and operation of a health and beauty therapy business;
(2) the acquisition, development and ultimate sale for profit of real property
(b) in or about December 1999 the Plaintiff and the Defendant agreed, that:
(1) As the Plaintiff did not want either her husband or her financial adviser, Robert Lim to know the full extent of her business interests and dealings the agreement set out below in this sub-paragraph (b) ('the Relationship Agreement') would not be recorded in writing and nor would the Defendant disclose to any person the fact that the Plaintiff had loaned the Defendant $150,000 at the end of 1998;
(2) The Defendant would continue to devote his time, operate the accounts and attend to the running of all of the ongoing business affairs of the Company and draw from the Company a minimum of $20,000 per month as 'project management fees' as and from the time the Company was formed in September, but in the presence of the Plaintiff's husband or Lim, he was to refer to these payments as 'drawings';
(3) The Defendant could, if necessary, draw against those fees in advance;
(4) On settlement of the Subiaco property, the Defendant, instead of taking his commission of $133,000, would contribute that sum as part of the purchase price by way of loan to the Company and thereafter could, if necessary, draw against that amount separately from his project management fees;
(5) The Plaintiff would be entitled to take moneys from the Company as required by her;
(6) The Defendant should establish a professional office, in which the Plaintiff would also have an office, as a base for all their future activities;
(7) The Plaintiff would establish with funding from the Company, the beauty business that had previously been discussed between the Plaintiff and the Defendant in August of 1999 and would later sell that business into the Company which would then pay her a monthly minimum fee;
(8) The Plaintiff and the Defendant would try to expand the real estate business of the Company; at a later time the Plaintiff would become a partner with the Defendant in all of his business ventures, including those of Key West Realty and Key West International Group Pty Ltd;
(9) Any and all net profits of the Company would be distributed to the family trusts of the Plaintiff and Defendant after all expenses and adjustment for drawings on a 50%-50% basis;
(c) by entry into the Relationship Agreement the Plaintiff gave to the Defendant her informed consent to the matters therein agreed."
24 The rest of the plaintiff's claims were generally traversed by the defendant.
25 The defendant does admit that the plaintiff loaned the sum of $1,625,000 to the company which he pleads then became the company's and not that of the partnership.
26 The defendant asserts that the plaintiff has not pleaded, nor is it the fact, that any conduct of the defendant caused the plaintiff to take out the first bank loan, grant the mortgage and/or make the plaintiff's loan.
27 Paragraph 40 of the statement of claim was denied:
"... save to admit that the Defendant , as a director of the Company, caused the Company, from its funds, to:
(a) purchase shares in the name of the Company;
(b) pay an option fee of $40,000 to Linpark Holdings Pty Ltd;
(c) pay him $60,000 on or about 27 June 2000;
(d) pay to the Plaintiff the amounts alleged in paragraph 40.4 for and on behalf of Key West, with such amounts being by way of a loan of funds to the Defendant;
(e) advance to the Defendant $150,000 on funds payable to him from the Company which funds were used by Key West as part of the consideration paid by it in its acquisition of 817 Canning Highway, Applecross;
(f) pay $4,000 to Key West on or about 24 November 1999 and $7,000 to Absica on or about 24 January 2000;
(g) pay the amounts referred to in items 1-7 (inclusive) of Schedule A and that the same were expended on 'Dizzy Lamb Park'."
28 In his counterclaim the defendant asserts that about August 1999, he and the plaintiff agreed with each other to carry on, in partnership, the establishment and operation of a health and beauty therapy business and the acquisition, development and ultimate sale for profit, of real estate. By reason of their partnership they owed each other duties of a fiduciary nature. It was an express term of the agreement that the partnership would be carried on through a company which the plaintiff and the defendant would be the joint shareholders and directors. The company that was acquired for the purpose of the partnership was Ark Securities Pty Ltd ("Ark Securities").
29 The defendant pleads that on 21 January 2000 the partnership, through Ark Securities, purchased the Subiaco property for the purpose of developing the property, establishing and operating a health and beauty salon on part of it, and renting and/or selling the balance at a profit.
30 The defendant pleads that the Subiaco property was fully leased when purchased by Ark Securities, but that in about May 2000, the plaintiff and defendant took steps to remove two of the three tenants from the Subiaco property so that the plaintiff, on behalf of the partnership, could establish the beauty salon. He pleads that the plaintiff wished the third tenant (a barber business) to remain, as she considered it could coexist with the beauty salon. The tenants vacated the Subiaco property about January 2001.
31 It is then pleaded that in breach of her duties to the partnership, the plaintiff opened her own health and beauty therapy salon at South Perth in about January 2001, as a consequence of which the defendant has suffered, and will continue to suffer loss and damage and the plaintiff has earned and will continue to earn a profit for her own benefit to the exclusion of the partnership.
32 It is then pleaded that in breach of her duties the plaintiff refused to join with the defendant to cause Ark Securities to lease the Subiaco property (two specific proposed leases are referred to).
33 Finally, the defendant pleads that the plaintiff refused to meet with the defendant for the purpose of making decisions with respect to the partnership, as a consequence of which it became moribund, leaving the defendant with no option but to agree to the appointment of a provisional liquidator and ultimately the liquidation of Ark Securities.
34 In all essential respects the plaintiff denies, or does not admit the pleadings in the counterclaim.
35 The plaintiff is now 53 years of age, having been born in South Korea in January 1952.
36 She attended a Korean private school at which she learned a little English. She left school at 19 years of age and then studied Home Economics but did not finish the course.
37 She worked as a hostess for Korean Air, a domestic airline, for about 18 months, before working as a secretary in the Department of Defence in South Korea. She remained in that employment for 2 years.
38 Between 1975 and her marriage in 1978 she worked as a kindergarten teacher in South Korea.
39 She married Yuen Ling (Johnson) Lee in January 1978. She became a full-time housewife and has not been employed as a wage earner since. The only time she did work outside the home was when she opened a beauty salon in South Perth in March 2001, which she operated for about a year.
40 The plaintiff and her husband lived with their two children in Hong Kong until about 1987 or 1988 when she brought them to Australia to attend school. Her husband continued to live in Hong Kong in order to look after his business affairs.
41 Their children, both boys, were born in Hong Kong in 1979 and 1980 respectively. The youngest son was killed in a car accident in 2002.
42 The plaintiff has lived in Western Australia ever since she moved here in 1987/1988. When she arrived she did not know anyone here. Her evidence was that she does not make friends easily and since she has been in Western Australia, has rarely mixed socially. According to her, her time generally is spent with her children, shopping and at the gymnasium. She says that since she has been in Western Australia, she has continued to speak mainly Korean. When she speaks with her husband on the telephone or when they are together, they speak a mixture of some Korean, some Cantonese and some English. Her husband's native language is Cantonese and she can speak a little of that. Her husband speaks a little Korean.
43 The plaintiff says that her friends are mostly Asian people and her close friends are Chinese and Korean, with whom she mainly communicates in a mixture of Chinese, English and Korean. She goes to a Korean church and the people she speaks to there speak only Korean.
44 Although both her sons attended Wesley College, she says that at home and with her they have always spoken a mixture of English, Chinese and Korean.
45 The plaintiff says that she does not speak English often and does find understanding and speaking in English to be difficult and limited. She finds it difficult to read English and does not read books in that language. Nor does she read English newspapers.
46 The plaintiff says further that until mid-1999, and her involvement in the matters the subject of these proceedings, she had not been involved in any business and had limited knowledge of it.
47 The defendant was born in Iran in July 1956. He grew up mainly overseas, living as a child in Germany, the United Kingdom and Sweden.
48 When he was approximately 14 years old he was sent to New York to live with family friends and to continue his studies. He states that he finished his secondary high school certificate at New Town High School, New York, and then went to Long Island University where he studied Science leading to Medicine but did not complete his degree and left university in 1981.
49 About October or November 1982 the defendant moved to Sydney with his father and stepmother, under the business migration scheme.
50 About 6 or 7 months later, about June 1983, they moved to Perth. When they first arrived they rented a house on the Esplanade at South Perth.
51 In 1983 the defendant bought a master franchise from Sydney called "Auto Bake" and established the first "The Cookie Man" shop in Perth, located in the Carillion Centre.
52 In 1984 he undertook a real estate agent sales representative's course. That lasted for some two or three weeks, upon completion of which he became a qualified sales representative.
53 He then gained employment as a real estate representative with a firm in Booragoon. Whilst there, he commenced part-time study for a Diploma in Real Estate and Business Management at TAFE at Perth.
54 The defendant met his wife about the beginning of 1986 and they married in September of that year.
55 He left the real estate firm in 1987 and for some five or six months worked with another real estate firm in Applecross before moving to another firm ("The Professionals") in the same suburb.
56 The defendant first met the plaintiff and her husband in January 1988 when they attended a home open that he was conducting at Applecross. They told him they had just moved from Hong Kong to Perth and were looking to purchase a house.
57 Not long after that meeting, Mr Lee bought 51 Elizabeth Street, South Perth through the defendant and The Professionals.
58 The plaintiff and her two boys took up residence at that property whilst her husband mainly lived in Hong Kong.
59 About 18 April 1988, Johnson Lee purchased an investment property at 4 Elston Place, Booragoon for $135,000. The defendant assisted with the purchase of the property which was listed with The Professionals at Applecross. The defendant received a commission from the sale of the property.
60 In May 1991 the property was transferred to Courtza, the Lee's investment company. Robert Lim of Chin Lim Pty Ltd, the Lee's accountant, was a co-director of Courtza. The property was sold in October 1993 for $174,000. The sale was made through the defendant, who received a commission on it.
61 In October 1990 the defendant recommended to the Lees that they purchase a commercial property in Malaga. They subsequently did so through him and again he received a commission. They sold that property in December 1994, again through the defendant, who received a commission.
62 The defendant completed the TAFE course for an Associate Diploma of Business in Real Estate in 1993.
63 Also in 1993 a property at 116 Forrest Street, South Perth ("the Forrest Street property") came on the market. This was a one thousand square metre residential house and land in a very prominent and elevated position. It was passed in at auction. According to the defendant, he advised the Lees of this property whilst they were in Hong Kong. Upon their return they purchased it for approximately $615,000 - again through the defendant, who received a commission on the sale.
64 The plaintiff and her children continued to live at the Elizabeth Street property. She and her husband wished to build a new house on the Forrest Street property and eventually did so through a builder, Brian Burke.
65 In his statement the defendant maintains that at all times in his presence, the plaintiff spoke to Brian Burke and the architect in English and that she dealt with them on a regular basis during the course of the development of the Forrest Street property over the next 1½ or 2 years.
66 In mid-1989 The Professionals became involved in a block of residential units known as the Mounts Bay Apartments.
67 These were turned into serviced apartments with a guaranteed income return for the first two years. The development is now known as the Emerald Hotel. The defendant presented the Lees with information about the development and about July 1989, through Courtza, they purchased three separate apartments in the complex for $400,000 cash. The defendant received a commission from the sale.
68 The defendant was involved in a car accident in 1991. In the same year he filed a Part X arrangement under the Bankruptcy Act and also left the employ of The Professionals.
69 He was discharged from the Part X arrangement in 1992 or 1993 and then formed his own business called "West One" the name of which he changed a year later to "Key West Realty".
70 Thus far there is nothing particularly remarkable about the case on the pleadings.
71 However, the apparently commercial relationship there set out was in fact presented in the evidence in a wholly different light which at times bordered on the bizarre.
72 Broadly, the defendant says that he and the plaintiff commenced an intimate sexual relationship in about 1988, which continued until late 2000. He asserts that in the course of that relationship, the plaintiff told him she wanted to leave her husband and be with him and to look at business opportunities with him using money supplied by Johnson Lee. He says many of the matters pleaded arose out of her express desire to give the defendant money and to engage in business activities with him. He says it was only when her husband became aware that the plaintiff had secretly made a loan of $150,000 to the defendant and against the background of her jealousy over an affair the defendant had been having with his secretary, that she made allegations against him about their business dealings.
73 The plaintiff denies any intimate or sexual relationship with the defendant and instead says he took advantage of her lack of understanding of written or spoken English and her reliance upon him in financial and business matters.
74 According to the defendant, shortly after the Lees purchased the property at 51 Elizabeth Street, the plaintiff asked him to arrange an inspection of the vacant property across the road which was being marketed by another real estate firm. He says he did so and they met at the property and that was where they had sex for the first time. The defendant asserts that thereafter they met regularly, sometimes daily, and conducted an intimate physical relationship until late 2000, other than for about 1½ or 2 years between 1994 to 1996.
75 The defendant says that about 1998, the plaintiff started seeing him far more frequently, saying to him in effect that no-one had ever treated her like he had and that she would really like to be with him and look at business opportunities together using money to be supplied from Johnson Lee.
76 He says that it was in that context that in December 1998 she loaned Keywest $150,000. The funds were lent on the basis that Keywest would pay interest to the plaintiff of 10 per cent over 12 months, being $1250 per calendar month, payable in advance. A written heads of agreement document concerning this loan was signed. The defendant says that Keywest made repayments of interest to the plaintiff until the two of them fell into dispute about some Persian carpets.
77 The plaintiff's account of this was somewhat different. She says that she mentioned to the defendant that she had $150,000 cash in the bank and asked him how she should invest it. She asked him because she did not know anyone else who knew anything about investments and he had bought and sold properties and always told them he was a good businessman. She says he was consistently asking her for money to invest and telling her that she should do so because he could get better than bank interest. She says he said that if she loaned the money to him, he would get her 10 per cent interest and if he made a profit on it, he would also pay the profit to her. She says it was on that basis she loaned him the money for one year on the understanding that it was repayable on 30 days notice.
78 According to the plaintiff, the defendant did make some interest payments first by cheque but later by direct deposit into her bank account but has never returned the $150,000 principal to her. That loan is the subject of a separate action between the plaintiff and defendant in the District Court.
79 The first transaction which is the subject of these proceedings is the purchase of the Subiaco property.
80 The plaintiff's description of what happened about that is as follows.
81 About May 1999 the defendant came to her home many times asking her to go into business with him. He told her that he could buy the Subiaco property and that they should go into business together with everything being 50/50. He told her they could buy the Subiaco property for around $850,000, knock down the building, build a much nicer building, perhaps rent it for a while and then sell it for more than they had paid.
82 He showed her a newspaper which described Subiaco as being a good suburb for property and said he would send a copy of the newspaper clipping to Johnson Lee, which he did.
83 The plaintiff did not know anything about property in Subiaco, nor the value of properties generally.
84 The defendant told the plaintiff that if they demolished the property and rebuilt it, they could make over $1 million and that even if they did not demolish the property, he could easily get $1.1 million for it. He said he could sell the property for "$1.1 million tomorrow".
85 The defendant told the plaintiff that the vendor's partners were always fighting and arguing about the property and that was why he could get it for about $850,000, which would be a bargain.
86 In addition to saying they "would be 50/50" he told the plaintiff that they would both put their houses "into the bank" in return for a loan which would then be advanced to the company they would form.
87 The plaintiff understood from this that she would put her home into the bank and the defendant would do the same. She knew his family home was in Applecross. He told her the loan would be in both their names.
88 He said the company which they formed could repay the loan within 12 months so they could then repay the bank and get the titles to her home and his back.
89 He first told her they would need to borrow $850,000, but later said they would need more money to demolish and rebuild and that would be about $1.65 million. He said it was better to borrow more whilst the interest rate was low rather than get another loan later when the interest rate was higher.
90 At first the plaintiff did not want to be involved in taking out any loan because she did not want to mortgage her home to the bank. However the defendant came to her house almost every day urging her to do this and about June 1999 she told him she would go into business with him on the basis he had explained to her.
91 Accordingly, the defendant told the plaintiff that he would talk to the bank to borrow the money, set up the company and arrange to buy the Subiaco property.
92 At one point the defendant took her to Subiaco to see the Subiaco property. He took her to Black Tom's Bar and showed her the property across the road. He told her to wait in the Bar whilst he went across the road to get some documents. When she said she would go with him he told her it was not necessary. She says she "was not allowed" to go and see anybody or talk to anybody about it or inspect it.
93 He said nothing about the property being owned by his accountant.
94 At that time the defendant was also trying to sell the three Mounts Bay units ("the Emerald Hotel suites"). He told her that it would be necessary to put up one of those units as part of the deal to buy the Subiaco property and for that purpose the unit would be valued at $80,000 as part of the purchase price.
95 The plaintiff asserts that it was important to her that the defendant and she would be equal partners and that if her house was given as security to the bank, then his should also and they would both be equally liable. She would not have entered into the deal to purchase the Subiaco property if she had understood that would not be the result.
96 Before the contract for the purchase of the Subiaco property was signed, the defendant tried to convince the plaintiff that she should take only a 40 per cent interest and he would take 60 per cent. She refused.
97 The defendant brought the contact for the purchase of the Subiaco property to the plaintiff at her home. He pointed out that the 40 per cent/60 per cent he had previously put in the contract had been ruled out and 50 per cent/50 per cent had been written in. That is the only change she can remember reading on the contract.
98 After he had pointed that out to her, he turned the contract over and asked her to sign it. She did not read the front page. Clauses numbered 4-7 were not on the contract when she signed it.
99 The defendant told her she had to sign "now". She said she wanted to show the contract to Robert Lim. He said there was no time for that. She had to sign the contract quickly otherwise they would lose the property because it would be sold quickly. He reiterated this was a very good location and good for business.
101 When she did so, Courtza's seal was not on the contract, nor was the Keywest International Group seal. She could not remember if the defendant had signed. She was unable to recognise the (Chinese) signature of the other person between the two stamps. There was only her and the defendant at her home at the time.
102 The defendant then told the plaintiff that he needed money for the deposit. She arranged for her brother in Korea to send $53,000. She paid that amount to the defendant. Ark Securities repaid that amount sometime later.
103 Again, what the defendant says about this, is quite different. He gives the following account.
104 From 6 April to 20 July 1999 the defendant was overseas on holiday with his family. He maintained contact with the plaintiff whilst he was away. She told him she was nearing completion of a beauty therapy course and wished to start a business of her own and wanted to acquire premises from which to conduct it.
105 When he returned from holidays about August 1999, the plaintiff and he discussed the idea of setting up a company (ultimately Ark Securities) for the purpose of investing in real estate. They also discussed the plaintiff establishing and operating a beauty therapy salon from one of the properties to be purchased.
106 He says that at the time, one of the properties he was selling was the Subiaco property. That had been advertised in the newspaper by Keywest Realty for approximately $820,000.
107 The plaintiff and defendant were having lunch at a restaurant called Black Tom's in Subiaco across the road from the Subiaco property. The defendant told the plaintiff that he was selling the Subiaco property and that it was owned by a company associated with his accountant.
108 They discussed the idea of purchasing the Subiaco property for the purpose of redevelopment and for the plaintiff to occupy the ground level commercial portions for her beauty salon.
109 Accordingly, about 9 September 1999, Ark Securities was formed by the plaintiff and defendant, they being co-directors with equal shares in the company.
110 The original offer to purchase the Subiaco property was executed by the defendant for Keywest and the plaintiff for Courtza. The sum offered was $823,000. That offer was not accepted.
111 Consequently, the defendant prepared a new offer and acceptance form in the amount of $843,000. He signed that document about 28 August 1999. the ownership ratio was changed from 50 per cent/50 per cent to 40 per cent for Courtza and 60 per cent for Keywest International Group Pty Ltd. The defendant calculated the new ratio by reference to what he described as his loan contribution of $133,000 and Courtza's loan contribution of $80,000 through the Emerald Hotel unit which was part of the consideration payable to the vendors.
112 About 30 August 1999 the defendant took the offer and acceptance form to the plaintiff at her Forrest Street property for her to sign. He pointed out to her that as requested by her and Johnson Lee, he had changed the percentages back to equal shares.
113 When the plaintiff signed the offer and acceptance, it included special conditions 4, 5, 6 and 7. Only special condition 8 was added later when Ark Securities was identified as the purchaser's nominee.
114 The defendant faxed the document to Johnson Lee who signed it and returned it to him by facsimile.
115 The reference to $133,000 is to the amount of the defendant's commission on the transaction.
116 The plaintiff asserts that she first found out about that sometime after May 2001.
117 She says that prior to that the defendant never said anything to her about being paid a commission and she did not realise he was to get one.
118 She does say that after she signed the contract the defendant came to her home on a number of occasions with documents for her to sign. Whenever he put a document in front of her he simply presented the signing page and told her to sign it. She never had an interpreter with her and did not read any document. She trusted the defendant. He never explained to her that he was getting a commission on the sale of the property. She says that if she did sign a disclosure document, she does not remember seeing anything about a commission which would be paid in the sum of $133,000 and if she had, she would never have agreed to it. If the vendor was prepared to receive $133,000 less than the price they were paying, she would have wanted the property to be purchased for a sum less by that amount.
119 As against this, the defendant's evidence is that about 30 August 1999, the plaintiff (on behalf of Courtza) signed in his presence a disclosure statement relating to the payment of the commission of $133,000 to Keywest as a result of the sale of the Subiaco property. He says that before she signed it, he told her in substance that the disclosure statement was required so as to confirm the fact that all parties were aware that Keywest, a party to the transaction, was receiving a commission from the sale and the amount of it.
120 The document is headed "Disclosure as a Principal" and gives notice that the defendant, a director of Keywest International, is a licensed real estate agent and that Keywest Realty is entitled to charge a commission of $133,000 under contract with Absica on settlement of the purchase of the Subiaco property which was to coincide with simultaneous settlement of the Mount Street unit as per offer and acceptance signed on 30 August 1999. The plaintiff's signature appears against the common seal of Courtza and there are two signatures against the common seal of Absica.
121 It was the defendant's evidence that about 1 September 1999 he sent a facsimile to Johnson Lee advising that the offer to purchase the Subiaco property for $843,000 had been accepted by Absica. He erroneously attached to that facsimile the offer and acceptance showing the 60 per cent/40 per cent division. He told Johnson Lee that stamp duty would be approximately $40,000 and they should pay half each. He asked Mr Lee to forward his $20,000. Johnson Lee did so.
122 It was of course necessary for the partnership to obtain a bank loan. As to that, the plaintiff says she never spoke to anyone from any bank with respect to any loan. The defendant told her that he would handle all matters concerning the purchase of the Subiaco property and the loan. She asked to go to the bank with the defendant but he said there was no need to do so. He told her he would arrange an interpreter later on and that if she did what he asked her to do, there would be no problems.
123 At some stage the defendant asked her what property and assets she had. He then typed up a statement of position and she signed it. It had a list of assets but no dollar values at that time. He told her this was to keep in his records.
124 The plaintiff saw a man outside her home at some stage. He did not come inside. When she asked the defendant later who that was, he told her it was an insurance person.
125 A few days after that conversation the defendant brought an insurance broker to the house. The plaintiff was not sure if he was the same one she had seen a few days earlier.
126 Apart from the insurance broker the defendant brought to her home on that occasion the plaintiff did not meet or talk to anyone involved in setting up the company, applying for any loan or obtaining the loan from the St George Bank or the payment by the Bank to the company of the amount borrowed.
127 It was the plaintiff's evidence that she did not receive a copy of the contract until about March 2000.
128 The plaintiff accepts that she signed a Borrower Acceptance and Acknowledgement on a St George Bank facility letter dated 5 November 1999 offering a fixed rate interest only cash advance facility in the sum of $704,000 for the purpose of the purchase of the commercial land and improvements of the Subiaco property ("the St George facility letter").
129 About that, she says that when she signed it, all the defendant told her was that it was a document for the Bank which she had to sign. He had the document open at the part where her signature was required and so she signed it. He kept saying she should trust him and they could get a lawyer and an interpreter later, but she needed to sign the document immediately. This was in her home. The defendant saw her son (Benely) there and told him that as he was 18 he had to come and sign also. He witnessed the plaintiff's signature on a Guarantor's Acceptance and Acknowledgement.
130 Benely asked what he was signing and the defendant said it was just a bank document.
131 When the plaintiff signed the document, the defendant's signature was not on it.
132 In relation to this and generally in relation to any documents signed by the plaintiff at the instance of the defendant, she maintained that he always pressured her to sign them before she could have anyone else explain them to her even though she told him on a number of occasions that she would need a lawyer and an interpreter. She maintains that the defendant always said she would not need an interpreter and should trust him. He told her she should sign the documents and they could be translated later. She said if she had any doubts and continued to query him he would get angry at her. On a number of occasions she asked him to have Robert Lim look at the documents but the defendant never gave her time to allow that. He would tell her to let him do everything for her and not to ask Lim because he was an accountant not a businessman and would have no idea about this sort of business.
133 The next major step in this transaction was the Residential Loan Agreement and Mortgage.
134 It is the plaintiff's evidence that the next document she signed was a Residential Loan Agreement Offer with St George Bank. The offer is dated 5 January 2000 and the date against her signature is 10 January 2000.
135 She says the defendant brought that document to her home, telling her it was a bank document and that she should sign it. The only page presented to her was the page on which she was required to sign. She did so without reading the document and the defendant did not explain it to her.
136 Before she signed she asked the defendant whether she could speak to Lim about it but the defendant told her there was no time to waste because the Bank needed the document back quickly otherwise it might not loan the money.
137 The plaintiff also signed mortgage and guarantee documents on the same date. They were under a covering letter from Gadens Lawyers dated 7 January 2000. They related to a loan agreement dated 5 January 2000 with St George Bank for a facility of $1,625,000, the plaintiff being the sole borrower and the security property being her property at 116 Forrest Street, South Perth. In each instance her signature was witnessed by the defendant.
138 Again the plaintiff says that she was never told by the defendant that his house was not "in the bank" like hers, nor that he was not liable to the Bank in the same way as she was. Had she known that, she would never have signed any documents nor been involved in the transaction at all.
139 The defendant's evidence about the course of events to that point was as follows.
140 The defendant and his family had moved to live at Simpson Street, Applecross in 1998. That house was fully mortgaged, a fact which he had explained to the plaintiff as part of disclosing to her almost every detail of his life as he had done throughout their relationship. He did not tell either the plaintiff nor Johnson Lee that any property owned by him was to be made available as security for the loan to acquire the Subiaco property.
141 The initial funding sought was for an amount sufficient to purchase the property, with the Subiaco property itself to be the security and with the plaintiff and defendant providing directors' guarantees. He refers to a letter dated 7 October 1999 from Mr Wayne R Martin, Business Banking Manager, BankWest, addressed to the Directors of Ark Securities at 20 Kearns Crescent, Applecross (the defendant's business address) indicating that the Bank would be interested in considering the funding request. The indicative terms and conditions for the proposed credit facility included that the buyer would be Ark Securities and the loan would be a fixed interest loan of $650,000 for a 12-month term to assist in the purchase of the Subiaco property. The proposed security would be a registered mortgage over the Subiaco property and one of the Emerald Hotel units, together with a registered debenture over assets and undertakings of the company and a guarantee and indemnity from the directors. The sixth page of that document, in a block for the signature of "individual giving his/her consent", bears a signature which appears to be that of the plaintiff and is dated 7 October 1999. There is no other signature on the credit facility document.
142 There is also a letter dated 8 October 1999 from St George Bank Ltd, addressed to the directors of Ark, again at the defendant's business address, indicating the terms and conditions upon which St George Bank would be prepared to give further consideration to a finance proposal to Ark Securities. The indicative terms proposed a total line of $730,000 to be secured by a registered first mortgage over the Subiaco property, a registered charge over all property leasing contracts, chattels and fixtures relating to the property and unlimited joint and several guarantees and indemnities from the plaintiff, the defendant, Courtza and Keywest International.
143 The defendant says he forwarded a copy of each of those letters to Johnson Lee by facsimile on 11 October 1999. There is in evidence a copy of a facsimile header with printed details showing the fax was sent at 1331 hours on 11 October 1999.
144 The fax header was addressed to Johnson Lee. It said the terms and conditions of finance approval for the purchase of the Subiaco property were attached and that after he had studied the documents the defendant would call him to discuss them. The defendant wrote that they would have to act as it had been over four weeks "and the contract will run out". He wrote that he had also attached the statement of account and requested Johnson Lee send $20,000 by telegraphic transfer to Keywest International St George account that day if possible.
145 The defendant says that both the plaintiff and Johnson Lee told him to proceed with St George Bank.
146 There is a St George Bank receipt to Ark Securities for $53,000 dated 13 October 1999.
147 According to the defendant, St George Bank wrote to the directors of Ark Securities on 5 November 1999, forwarding guarantee documents, which he and the plaintiff signed as directors of Keywest International and Courtza respectively.
148 On 1 November 1999 the defendant faxed to Mr Michael Dunleavy of St George Bank on Keywest International letterhead, a memorandum forwarding a copy of a letter addressed to Mr Dunleavy from Lombardo & Co, the defendant's accountants, regarding confirmation of his income for 1997, 1998 and 1999. He said he hoped that satisfied the final requirement for finance approval for the purchase of the Subiaco property. The memorandum was signed:
149 The Lombardo & Co letter forwarded with the faxed memorandum, confirmed "that in accordance with documentation provided by our client as well as our inspection of certain banking records and audited sales trust accounts we can provide you with the following information ..." The letter then listed commissions and consultation fees earned by the defendant trading as Keywest Realty, to a total of $236,078. The letter added that furthermore the accountants had inspected offer and acceptances and documents relating to unconditional dealings pending settlement which would net the defendant some $260,000 in the next three months as well as conditional dealings amounting to an additional $65,000. They wrote that they were presently preparing his taxation papers for filing on the basis of documentation provided. The letter was signed by Mr Carl Lombardo.
150 On 23 November 1999, BankWest wrote to the directors of Ark Securities at the defendant's Applecross business address, advising that the request for a loan of $830,000 could not be approved in its current format, but BankWest would consider a loan facility of $616,220 based upon certain terms and conditions. They included that security be taken over the Subiaco property and two of the Emerald Hotel units.
"The other alternative for you to consider, is that a residential property be placed as security for your loan request, eg 116 Forrest Street, South Perth, and then the Bank would be able to consider the full loan request of $830,000. In using this property as security, the Bank would not require security over the property known as 23-241 Hay Street, Subiaco or Lot 43 and Lot 48 of the 'Emerald Hotel'.
The Bank can then offer you a cheaper rate loan being a residential secured business loan which has a current variable rate of 6.8% PA compared to the current fixed interest loan rate of 8.01% PA."
152 On 1 December 1999 Mr Anthony Hare of St George Bank sent a facsimile letter to the directors of Ark Securities for the attention of the defendant in which he advised that following their conversation that morning, the proposed security property had been valued. The Subiaco property was valued at $750,000 and the two Emerald Hotel units at $190,000 combined. However, Mr Hare noted that the valuer had advised the Bank the Emerald Hotel units were considered to be poor mortgage security propositions. He said that subject to the issues being addressed to the Bank's satisfaction, the facility limit would be a maximum of $657,500.
153 The defendant replied by facsimile letter a short time later the same day. He wrote that the valuers had downgraded the value of the properties both for Subiaco and the Emerald Hotel and that the West Australian Newspaper business section attested to both the good value of Subiaco as well as the changing Emerald Hotel. He wrote that despite all that, the Bank had the personal guarantees of Mrs Lee as well as the defendant and all respective companies. He said they were very anxious to proceed immediately and asked the Bank to forward its unconditional letter of approval. The letter was signed by the defendant for Keywest International over the printed designation "Michael Mavaddat, BSc ADCREM, Managing Director".
154 Mr Martin of BankWest wrote to the directors of Ark Securities again on 3 December 1999. The letter was addressed to the defendant's business address at Applecross. Mr Martin referred to a telephone conversation between him and the defendant that morning regarding finance options for the purchase of the Subiaco property. He wrote that if the plaintiff were to contribute her half of the security, BankWest would be prepared to consider the total funding on the basis of a residential secured business loan "currently at 6.80% PA variable rate". The other option would be to take out a three year fixed interest loan, the then current rate of which was 8.7 per cent per annum.
155 Also on 3 December 1999 Mr Hare of St George Bank sent a facsimile to the directors of Ark Securities. He confirmed that further to his conversation with the defendant that morning, and in view of the valuer's advice to the Bank in respect of the Emerald Hotel security property, St George would consider the application on either one of two bases. They were that first, additional acceptable unencumbered security be contributed, namely a registered first mortgage over Mrs Lee's South Perth residence which had an estimated value of $3 million or secondly the facility be solely secured against the Subiaco property to a maximum loan valuation ratio of 70 per cent - so that the facility limit would be $525,000.
156 The defendant's evidence was that he reported to Johnson Lee by facsimile dated 6 December 1999, forwarding a copy of the St George's Bank letter dated 3 December. It will be necessary to return to this later. The text of the message was:
"LEE SON
I HAVE TRIED TO PHONE YOU MANY TIMES IN LAST FEW DAYS. I LIKE TO REPORT TO YOU:
I HAVE RECEIVED STAMP DUTY FUNDS THANK YOU. I HAD NO T/T ADVISE [sic] AND THEREFORE DID NOT KNOW THAT THE FUNDS HAD COME.
WE HAD SIGNED EVERYTHING SO TO GO TO SETTLEMENT SUBJECT TO VALUATION OF HOTEL SUITES.
I HAVE BEEN TRYING THREE DIFFERENT BANKS OVER THE LAST THREE MONTHS AND SPENT LOTS OF TIME AND ENERGY AND MONEY TO GET THE FINANCE.
THE BANKS WILL NOT FINANCE THE HOTEL SUITES. I HAVE ENCLOSED THE LAST LETTER FROM ST GEORGE BANK.
I GUARANTEED YOUR EXTRA BORROWING OF $83,000.00 TO PAY OUT COMMONWELATH [sic] BANK AND GAVE SECURITY OF MY OTHER PROPERTIES INCLUDING MY FAMILY HOME, HOWEVER THE VALUATION REPORT FOR EMERALD WAS NOT ACCEPTABLE TO THE BANK.
I HAVE PAID $20,000 NON REFUNDABLE DEPOSIT TO EXTEND THE PURCHASE CONTRACT TO END OF THIS MONTH. I HAVE ALSO ALREADY SPENT OVER $10,000 IN VALUATION REPORT AND OTHER FEES. SO FAR SPENT $30,000.00, BECAUSE WE WILL MAKE PROFIT IF WE SELL TODAY OF $250,000.AUD.
YOUR MONEY IS THERE FOR YOU AT ANY TIME, HOWEVER, I HAVE LOST A LOT OF FACE WITH BANKS, AND OWNERS AND FRIENDS THAT KNOW THAT WE HAVE FINISHED THE SUBIACO DEAL.
MRS LEE IS VERY ANXIOUS TO START HER BUSINESS. I HAVE MANY COMMITMENTS, AND HAVE ALREADY LOCKED AWAY $160,000 FOR THE PAST FEW MONTHS IN THIS DEAL...
SUBIACO PROPERTIES ARE HOT AND THE VALUES HAVE GONE UP, AND THE PROPERTY IS WORTH A LOT MORE THAN THREE MONTHS AGO. FROM THE PROJECT AT HAY STREET WE ARE TO GAIN SOME $850,000 FROM DEVELOPMENT AND WE HAVE ALREADY BEEN OFFERED $250,000 MORE.
WE CAN NOT AFFORD TO LOSE THIS OPPRTUNITY [sic]. PLEASE ASSIST IN GETTING THIS DEAL FINISHED, HONESTLY I DO NOT HAVE ANY ADDITIONAL FUNDS TO GIVE UNTIL MARCH WHEN I CAN GIVE $450,000 FROM SALE OF OTHER PROPERTIES. I HAVE ALSO PLACED $50,000 WORKING CAPITAL INTO OUR COMPANY ARK SECURITIES.
WHEN THE DEAL IS COMPLETED THEN WE CAN INVITE OTHER INVESTORS IN THIS WAY WE DO NOT LOSE PROFIT THAT WE HAVE GAINED.
THERE ARE TWO OPTIONS AT THE MOMENT:
A) THAT YOU PAY THE EMERALD WHICH YOU OWE $83,000 OFF AND ALSO HELP WITH ADDITIONAL $50,000 TO FINISH THE DEAL, SO HAVE ENOUGH MONEY TO CARRY ON THE PROJECT, AND MAKE PROFIT.
B) OR YOU OFFER YOUR PROPERTY AT 116 FORREST AS SECURITY IN EXCHANGE OF SUBIACO AT MUCH LOWER INTEREST RATE OF 6.88% RATHER THAN 8.7%. THE DEAL CAN BE DONE IN THE NEXT TWO WEEKS AND WE WILL THEN PAY BACK FORREST STREET IN THE FIRST TWELVE MONTHS.
I HAVE ATTACHED BANK LETTERS AS WELL AS NEWS PAPER [sic] REPORTS ON SUBIACO.
LEE SON PLEASE HELP SO I CAN PROVE TO YOU HOW WE CAN MAKE MONEY AS WELL AS NOT LOOSING [sic] FACE.
I CAN NOT AT THIS STAGE ASK FROM BINGELLI OR MY OTHER FRIENDS TO PUT MONEY. I WILL LOOSE [sic] A LOT OF FACE. BUT AFTER THE DEAL IS SETTLED WE CAN ASK THEM TO BUT [sic] FUNDS TO CARRY ON PROJECT.
REGARDS MICHAEL" (Bolding emphasis added)
157 On 8 December 1999, BankWest wrote to the directors of Ark Securities at the Applecross address, referring to the conversation between Mr Martin and the defendant that morning, and advising that now that the plaintiff had agreed to use her home as security for the facility the Bank could offer the option of the residential secured business loan or the fixed interest commercial loan facility. Mr Martin wrote that it would be an easier task to seek approval for the whole purchase and development up front as costs involved in the dealing would be considerably reduced and the directors would not have to come back to the Bank to seek approval for another loan to complete the development of the project.
158 The defendant faxed a copy of that letter to Johnson Lee the same day. He pointed out that the Bank had suggested they stamp the loan for an amount of $1.7 million for the whole project but use only $830,000 to pay for the dealing now, including repaying the Commonwealth Bank $83,000. He said the reason for that was they would save money at the much cheaper rate of 6.8 per cent rather than 8.7 per cent and they would not have to go back to the Bank to pay more fees for construction. The facility of $870,000 would be available for future development and they would be able to charge the investors more later. They would not be charged interest on unused moneys and there would be no extra charge to repay earlier - he added, "You then have clear title to Subiaco and the two Emerald Hotel suites".
159 According to the defendant these communications were the first time he had any discussions with the plaintiff, her husband, or anyone at a bank regarding a loan in the order of $1.7 million or the loan being secured over the plaintiff's house in South Perth, rather than over the Subiaco property itself.
160 The defendant says he subsequently spoke to the plaintiff and her husband separately, both of whom told him they wished to proceed by way of a loan of $1.7 million to be secured by way of mortgage over the Forrest Street property.
161 He says he was subsequently told by the plaintiff, that having discussed the matter with her husband and Robert Lim, they wished to proceed with the St George Bank, rather than BankWest because it did not require a charge over Ark Securities' assets and because BankWest would not allow all of the funds to be drawn down at settlement.
162 The defendant denies the plaintiff's claims that he pressured her into the transaction or into executing the Bank documents. He says she executed each of the Bank documents at her house in his presence, reviewing the documents in front of him before signing. He says further, that he asked her whether she wanted to consult Robert Lim and she said she did not because they had been talking about it for weeks and she was anxious to get started.
163 On 9 December 1999 the defendant wrote on Ark Securities' letterhead to Mr Lombardo of Absica confirming that Ark Securities had instructed its settlement agency to proceed with the settlement of the Subiaco property subject to the terms and conditions as per the contract of 31 August 1999.
164 One of Absica's directors, Mr Gino Terriaca, sent a facsimile message to Mr Lombardo on 13 December 1999, advising that further to the meeting of the members of the Absica syndicate to discuss the sale of the Subiaco property, he confirmed that he was not in favour of the sale of the property, unless some form of compensation was offered by the prospective purchaser for the considerable time delay. He wrote that as vendors they had incurred the opportunity cost of not having had the settlement proceeds, as well as, and perhaps more significantly, not having benefited from the capital gain that the property had enjoyed in recent months in line with the extensive Subiaco redevelopment, record sales and other development in the area. He said it was clear that Subiaco was becoming a popular area for investors and would continue to enjoy significant capital growth and he reiterated that for those reasons he was not in favour of the sale unless additional compensation was offered.
165 Lombardo professed to have a poor recollection of the details of this, but he did confirm that he had communicated that to the defendant, as a result of which the defendant gave him $7000 in cash as compensation to Absica for the delay. He could not recall when that money was paid, but it could have been before settlement (which was in January 2000).
166 A finance application document for completion and execution was faxed to the defendant by St George Bank on 17 December 1999.
167 On 20 December 1999 the Bank faxed to the defendant a letter addressed to the plaintiff at 116 Forrest Street, headed "Provisional Housing Loan Approval" and indicating finance approval for a loan of $1,850,000 to the plaintiff with security over her property at 116 Forrest Street.
168 The documents in evidence show that on 20 December 1999 the defendant wrote to the St George Bank referring to earlier discussions and enclosing copies of the signed finance approval/credit reference by the plaintiff, a copy of her driver's licence and passport, a copy of family composition regarding the maiden name Lim/Lee and the birth registration of children showing maiden name.
169 Mention should be made at this point of the Persian carpets.
170 It was the defendant's evidence that about 25 November 1999 he delivered two Persian carpets which were part of his family's heirlooms, to the plaintiff at Forrest Street. He says he also gave the plaintiff a catalogue of carpets which she told him she was going to use to show "her many affluent clients and friends" and it was agreed that if she was successful in selling them she could receive a share of the profits. He says that to that end she selected some of the most expensive ones for display in and, decoration of, her home. His next mention of the carpets was that about 18 February 2000 he sent a letter to the plaintiff concerning what he described as the consignment of the Persian carpets to her Forrest Street property. He says she had confirmed with him during a previous conversation that she was happy to purchase them, offsetting them against the moneys that she had lent Keywest International. She also told him she did not want Johnson Lee to find out she had lent this money. The defendant's evidence was that he told her he was happy to extend their arrangement until 29 February 2000, but that if she should wish to keep the carpets beyond that date, no further interest would be payable on the $150,000 loan and the debt would be extinguished. If she decided to return the carpets, he would continue to pay the interest on her loan and the terms of it could be extended. He says he did offer to pay her back the full amount with interest, subject to her returning the carpets in the form they were originally delivered to her.
171 The plaintiff's evidence about this was that a few months after she loaned him the $150,000, the defendant brought two Persian carpets to her home to display them, saying her friends might wish to buy them. She says this happened sometime after he got back from his holiday and was about mid-1999. According to the plaintiff she told the defendant that she did not want the carpets because she liked the timber floors and whenever she saw him she asked him to take them away but he did not.
172 She says he later told her that she had to sign a document about the carpets for insurance purposes. She told him she did not want to sign it but he said it was only for insurance and it did not matter. It was just in case the carpets were lost or damage so he could claim on insurance.
173 She says that later he asked her if she had paid her insurance for the carpets, but she told him she was not going to do so because they were not her carpets and she told him he should pay any insurance for them. She says he laughed and said "Okay, I'll pay for it".
174 The plaintiff went on to say that her husband came to Perth in early 2000 and she told the defendant in front of him that she did not want the carpets to be in the house, but the defendant would not listen to her and would not remove them. Her husband was angry and told the defendant to remove the carpets. The defendant did remove them but when Johnson Lee returned to Hong Kong, he brought the carpets back, despite the plaintiff telling him that she did not want them. He ignored her.
175 The subject of the Persian carpets recurred several times during the course of the trial. There is no pleaded issue in respect of the carpets nor the $150,000 loan and I take it that evidence was led as going to the relationship between the parties and bearing in that way upon the issues which are pleaded.
176 On 4 January 2000, St George Bank sent a facsimile letter to Mrs Lee at the defendant's office, confirming her decision to proceed with the reviewed loan facilities detailed in the enclosed conditional approval letter. The anticipated settlement date was 7 January 2000. The residential loan agreement offer dated 5 January is signed by the plaintiff, her acceptance being dated 10 January 2000.
177 There is also an application under the Transfer of Land Act 1893 by the plaintiff to have her name and address on the Forrest Street title changed from her maiden name of Lim to her married name of Lee, dated 7 January 2000 and witnessed by the defendant. That is accompanied by a statutory declaration signed by the plaintiff on the same date and also witnessed by the defendant.
178 In his evidence-in-chief the defendant said that on or about 7 January 2000 the plaintiff applied to the Department of Land Administration to change from her maiden name of "Lim" to her married name of "Lee". To do that she needed to provide a statutory declaration which he witnessed for her.
179 What the plaintiff said about this in her evidence was that the defendant came to her home and told her the Bank wanted proof that the person named on the title was her. She says she had not realised, and he explained, that the title was in her maiden name of Lim. He told her the Bank wanted documents to prove her identity for the loan, namely her passport, driver's licence and marriage certificate and he also wanted Courtza's common seal. She says he kept all of those items except her driver's licence for about 8 months even though she kept asking him for the originals to be returned. He told her he had just moved office and could not locate them.
180 A matter which assumed considerable importance in the course of the proceedings was a meeting which the defendant said occurred between the plaintiff and himself over lunch at Coco's Restaurant in South Perth in late 1999 after she had decided to take out the loan for $1.7 million but before settlement.
181 It was the defendant's evidence that he and the plaintiff regularly dined at Coco's. He said that at this lunch in late 1999 the plaintiff told him that she wanted to give him money to demonstrate her love and affection for him and to "reignite the old passionate fire" that they had shared for so many years. He says she told him that she hated her husband and wanted to leave him. For his part, the defendant says he did not want to leave his wife and children and marry the plaintiff and when, throughout their relationship, she asked him to do so, he told her that.
182 It was his evidence that at the Coco's lunch the plaintiff told him that she did not want her husband or Robert Lim to know the full extent of her business interests and dealings and therefore did not want to have her agreement with the defendant recorded in writing and nor was he to disclose to anyone the $150,000 she had given him at the end of 1998. The defendant said he agreed to this.
183 He said they further agreed that he should continue to devote his time, operate the accounts and attend to the running of all the ongoing business affairs of Ark Securities and draw from Ark Securities a minimum of $20,000 a month as project management fees backdated to the time the company was formed in September, but in the presence of Johnson Lee or Robert Lim he was to refer to these payments as "drawings".
184 Further matters which the defendant says were agreed between them on that occasion were that he could, if necessary, draw against those fees in advance; he could draw against the $133,000 which Ark Securities owed him as a separate item from his project management fees; the plaintiff would be entitled to take moneys from Ark Securities as she required; he would establish a professional office, in which she too would have an office, as a base for all their future activities; she would establish, with funding from Ark Securities, the beauty business they had previously discussed and once it was established, Ark Securities would then pay her a monthly minimum fee; they would try to expand the real estate and development business of Ark Securities; at a later time the plaintiff wished to become the defendant's partner in all of his business ventures, including Keywest Realty and Keywest International and any and all net profits would be distributed to their family trusts after all expenses and adjustments for drawing on a 50/50 basis.
185 Again, the plaintiff's evidence about this stands in stark contrast.
186 She testified she had been to Coco's with the defendant only once; it was not lunch, it was coffee and it was in late 1999. She had called him about paying her interest on the $150,000 loan because he was not paying regularly. He suggested they meet, have a coffee and talk about it. While they were having coffee he told her he would pay her the interest in one sum at the end of the loan. She said she did not want that and wished to be paid every month. She says there was no discussion about the $1.7 million loan and the discussion he refers to simply did not occur.
187 In cross-examination she repeatedly denied that she had ever had any kind of sexual relationship with the defendant or that she was making her claims against him because she was angry about his relationship with Helen Guo and also because she was trying to save face with her husband. At one point in her cross-examination, in response to questions of that kind, she said that the defendant had asked her many times to go away on holiday with him, had told her he wanted to go to Queensland with her and even when she went to Korea he asked to go with her, but she refused all of these. She also said he asked her to marry him.
188 I turn for the moment to the defendant's share trading activities.
189 There is in evidence a share trading application to Macquarie Porter Weston stockbrokers, bearing a facsimile print-out date of 13 January 2000 ('the share trading agreement"). The document is signed by the plaintiff and defendant and bears Ark Securities' common seal.
190 The plaintiff's explanation of this is as follows.
191 In January 2000 the defendant spoke to her and suggested that they buy some shares. She told him that she never bought shares because her husband said it was like gambling. He had a document with him which he asked her to sign, and told her that it would be good to make money. She said she had no idea about buying and selling shares but he told her the document was only an application form and if shares were good then he would let her know. He told her to sign the document just in case she changed her mind, saying that he would not buy shares then but if something came up he could buy shares at that time if she had a change of heart. He showed her where to sign and she did, although she did not read the document. When she signed it she relied upon what the defendant had told her and expected that he would not buy shares unless she changed her mind. He never did subsequently ask her whether or not he could buy any shares and the first time she became aware that he had done so was about April or May 2000 when he gave her a share file with copies of contract notes and statements of account issued by a stockbroker. On that occasion she asked how he could buy shares. She said it was dangerous and was like gambling. She says his response was to tell her that it was not dangerous and he could make her a millionaire.
192 The defendant's evidence in this regard was that the share trading account with Macquarie was opened in early 2000 because the plaintiff told him she wished to invest money Ark Securities was not using, in the share market. He says she told him in substance that she wanted to trade in shares as her friends were making considerable money on the share market. He says that in deciding what to trade on behalf of Ark Securities he took advice from Macquarie and in addition from time to time the plaintiff told him what shares she wished to purchase, indicating that she had obtained the information from friends and Robert Lim.
193 He says at no time did the plaintiff or her husband complain to him about the share trading he was undertaking on behalf of Ark Securities and he denies there were conversations as described by the plaintiff.
194 The defendant further says that he kept full records in the form of a separate share trading file of contract notes and statements of account which he kept in his office. He says he had told the plaintiff she could come to his office whenever she wanted to and access Ark Securities' documents, which she did, and that in addition, each month he gave her a listing of all share trading that he had undertaken.
195 He says that the plaintiff once asked him to meet with her and Robert Lim in relation to the purchase of approximately $100,000 worth of shares in a company Robert Lim started, involving the manufacture of engines, and on about 8 February 2000 he went to Lim's office to discuss this. He told the plaintiff that he considered the investment was too risky and they did not proceed with it.
196 Settlement of the Subiaco property occurred through LJW Settlements around 21 January 2000.
197 At settlement, from the funds Ark Securities had borrowed from St George, $635,791.02 was paid to Absica, $81,541.49 was paid to Courtza to discharge the Commonwealth Bank mortgage over the Emerald Hotel unit and $37,927.55 was paid to LJW Settlements for stamp duty.
198 On 14 January 2000 the defendant signed a cheque on the Ark Securities' account payable to the plaintiff in the sum of $75,200. That included repayment of the $53,000 loaned by her brother.
199 There were three tenants of the Subiaco property as at the date of settlement.
200 The defendant's evidence was that he received instructions from the plaintiff to see if they could vacate the existing tenants as quickly as possible to enable them to prepare the premises for her beauty therapy business. Accordingly, at their direction, two of the tenants vacated the Subiaco property soon after Ark Securities acquired it. The third tenant, a hairdressing business, remained at the plaintiff's request because she considered it could coexist with her beauty salon.
201 The defendant says that he and the plaintiff briefed Calvin Koh an architect, to discuss how they could potentially develop the Subiaco property.
202 The plaintiff says this is false. She says that what she wanted to do was to keep the tenants there so the property was rented out or to get the redevelopment going quickly. She says she never gave any instruction to prepare the property for her beauty salon business and was in no position to give the defendant "instructions". She says she never gave any directions about the existing tenants.
203 She says she was very concerned that bank interest on the St George Bank loan was escalating and she wanted the redevelopment done as quickly as possible so they could sell the property within 12 months.
204 She gave no thought to opening a beauty therapy business at Subiaco because she had no connection with Subiaco and did not know the area, it was too far from her home and she did not know the type of people who lived or worked there. Since arriving in Western Australia in 1988 she had always lived in South Perth which was where her children had gone to school. She did not feel comfortable in Subiaco.
205 She says she does not know who Calvin Koh is and has never met him nor had any dealings with him and has never seen any report or correspondence from him.
206 In April or May 2000 the defendant purchased 817 Canning Highway, Applecross and moved Keywest's office to those premises.
207 The defendant's evidence was that about May 2000 the plaintiff told him that Burswood Resort was establishing a day spa/beauty/massage centre ("the centre") which was then under construction. She told him that she wanted to run it. Accordingly, about 23 May 2000, he wrote to Burswood Resort at her request, confirming Ark Securities' interest in running the centre and "... assuring you of the expertise of my partner Mrs Lee in running a business second to none to complement your establishment".
208 In late May or early June 2000, St George Bank sent a loan statement to the plaintiff at her home address. It was addressed only to her and the defendant's name was not on it anywhere. The loan statement recorded that the plaintiff owed the Bank $1,536,796.34.
209 The plaintiff says she rang the defendant and asked him why he had not taken out the loan as well. She says he replied that he had taken the loan out under his name also and that he had "put his [property] in the bank as well".
210 The plaintiff says that after that she kept asking the defendant to send her statements but he would always tell her that he would get the Bank to send them but they did not arrive. She says each time he would get angry with her and talk very fast and she would get confused and afraid. She says she did not ring the Bank because she did not know what to do and just worried about it.
211 She says that around August 2000 during discussions about the Burswood Resort proposal, she again asked him whether he had put his house into the Bank and told him that she was worried that he had not done so. She says he again told her that he had.
212 At the end of June 2000 the defendant went to China. In his evidence he says that was for the purpose of trying to find investors in certain SMS technology used for on-line monitoring of structural integrity and fatigue in metal and concrete. He says he told Johnson Lee about this on one of the occasions Lee was in Perth. He says he explained to Lee that British Aerospace had contracted the technology for testing on their F-18 [sic] planes, that testing was underway, that funds were being sought by the owners to either further develop the technology or sell it outright and that he held an agency from the owners in that regard.
213 The defendant testified that Johnson Lee told him he had contacts in China who might be interested in such a venture and he was interested in progressing it on the basis he would receive half the defendant's commission if successful.
214 According to the defendant, he travelled to Beijing about 30 June 2000 with a view to finding a purchaser for the SMS technology. Helen Guo, his secretary, was already in Beijing visiting her family. He says she assisted him during several meetings with Chinese officials by providing translating [sic: interpreting] services.
215 The defendant sent two facsimile letters to Johnson Lee dated 13 July 2000. The first was apparently sent on 17 and the second on 18 July 2000. In the first he wrote that he would be arriving in Hong Kong on his way back to Perth the following Tuesday, if there were no more government meetings arranged for him. He wrote that he would be in Hong Kong for four days and asked whether Johnson Lee could arrange meetings with potential buyers. Finally, he asked if Lee could advise the best rate he could get for a superior room at the Excelsior Hotel.
216 In the second letter the defendant wrote (in part):
"I will be arriving in Hong Kong from Beijing this coming Thursday 20th July, I have had to change my flights few times already because I have had many official Chinese government meetings regarding SMS Technologies. They show that they are interested so far.
As discussed with you, could you please arrange some meetings for me to show SMS Technologies to your influential contacts? ...
I have been in contact with Burswood management from Beijing regarding the business but they have yet to write or advise of their decision. ..."
217 It was the defendant's evidence that he arrived in Hong Kong on 20 July 2000 and met with Johnson Lee and that topics of discussion included the Subiaco property, Dizzy Lamb Park and SMS Technology (Dizzy Lamb Park was a large property at Carabooda, north of Perth, known by that name).
218 He also says in evidence that prior to his China trip he drew $60,000 from Ark Securities, $30,000 of which he spent on the trip and the balance of which he "debited to his loan account".
219 Johnson Lee's evidence about this was that he picked the defendant up at the airport and the defendant stayed at Lee's house in Hong Kong for a few days before going to China for about a month. Johnson Lee himself was there only for the first day.
220 Johnson Lee's English is not good. My understanding of what he says is that the defendant did mention the SMS technology to him, but they did not discuss it because he is in the food business, knows nothing about technology and so told the defendant he was not interested. He says there was no discussion about the Subiaco property or the use of Ark Securities' funds but the defendant did want to talk about Dizzy Lamb Park and would not let the subject drop. He drew a map and showed Lee how big it was. He said it was a good opportunity and would be a good investment; they could divide the land into small pieces, build themselves and make good money. The defendant told Lee he could buy the property for $2,950,000 and with appropriate development sell it for a large profit. He said he would buy and develop the property jointly with Lee. He would put in $950,000 in cash and Lee could transfer the remaining Emerald Hotel units.
221 Johnson Lee says he told the defendant he was not interested, they already had a big farm property there and that when he had money to buy property he would tell the defendant.
222 He could not remember if he booked the defendant a room at the Excelsior Hotel after his visit to China, but they did have a drink there.
223 Johnson Lee said he heard nothing more about Dizzy Lamb Park from the defendant until September 2000, when he was in Perth.
224 On 12 August 2000 the defendant sent an email to Mr Mark C Clayton, Hotel Manager of the Burswood Resort, noting that they had still not heard any news nor received a reply to their "many requests" to bid to lease the centre. He advised that Ark Securities had purchased the Subiaco property "in order to establish the same business at [those] premises". He indicated that the site had been vacated so they could proceed with the development and enquired as to the status of their possible future dealing with Burswood Resort.
225 Mr Clayton replied by email on 14 August, advising that he hoped to be able to provide details of the facility within the next couple of days.
226 By letter to the defendant dated 18 August 2000, Mr Clayton invited the submission of a detailed proposal for the management of the centre and enclosed a package giving details of the proposed facility and an outline of terms and conditions.
227 According to the defendant, he and the plaintiff subsequently prepared a proposal in conjunction with Hammond Worthington Prevost, solicitors, which was submitted to Burswood Resort. The proposal included information about the plaintiff and several references in relation to her from some of her friends and associates in the beauty therapy industry, together with the references of various beauty therapists. The documents included a Certificate of Competency for Beautician issued to Angela Lee by the International School of Beauty Therapy dated December 1999, an Australian Beauty Association Certificate certifying that Angela Lee became an Associate Member affiliated with the beauty industry on 7 August 2000 and a reference from Yasmin Bartlett on the letterhead of Rose-Berry Farm (undated).
"Dear Mr Clayton
I have had the privilege of knowing Angela Lee for the past four years. Angela is a person of integrity and high standing in the community.
In the last 15 years Angela has traveled [sic] the world and experienced all facets of Beauty in many countries. Her understanding of the industry from both a client perspective and as an employer is invaluable.
Angela has been involved with various International Hotel Groups in Hong Kong, Korea and Japan [sic: and] her knowledge and experience in the area of management is second to none.
Angela is an intelligent woman who is blessed with a kind and caring nature. These attributes make her a suitable employer and contribute to her outstanding business achievements. Her immaculate, [sic] presentation and professionalism would make her an asset to the Burswood International Hotel.
I have complete confidence in Angela's ability to successfully develop a health and beauty day spa of International standard."
230 Again, the plaintiff says she had very little knowledge of this. On her evidence, the defendant advised her to apply to Burswood Resort to run the centre. The proposal was prepared by him, his girlfriend Helen and with assistance from Yasmin Bartlett and Jenny Jones, who the plaintiff knew from the beauty course she had undertaken. She says she had never heard of, and had no dealings with Hammond Worthington Prevost and the letter that was sent to Burswood Resort was prepared by the defendant. She says she did not know until after it all happened, what he had said in the letter and specifically what had been said about her. She says it was the defendant who arranged for the preparation of a reference about her and when he told her what was in it, she said it was not true, because there were things that were incorrect. She says the defendant told her the reference was necessary in those terms to "sound more professional" and that if they did not say those things, they would not be able to get the proposal accepted by Burswood Resort.
231 Yasmin Bartlett is a beauty therapist who has worked in the beauty therapy industry for 10 years. She has various qualifications in beauty therapy and has taught beauty therapy courses.
232 The plaintiff was one of her students. In 1999 between June and December the plaintiff took a 6-month beautician course with her at a beauty therapy school in Claremont where she was teaching. After an examination she qualified as what Bartlett described as a "beautician". That apparently is a qualification which allowed her to do facials. Beauty therapy is a higher qualification, which includes more advanced techniques, including massage.
233 Ms Bartlett's evidence was that around mid-August 2000 the plaintiff telephoned her and said she was seeking her assistance in preparing a business proposal to Burswood Resort for her and her business partner, the defendant, to establish a beauty therapy centre at Burswood. Ms Bartlett's evidence was that the plaintiff does not speak English very well and she did not understand quite a lot of the things the plaintiff was saying to her about the details of the proposal. She did understand that the submission had to be finalised very quickly and the plaintiff wanted her help in preparing it and giving advice on the sort of equipment that would be required in the business. She suggested the plaintiff get assistance from Jenny Jones, a colleague who also worked in the industry.
234 A few days later Ms Bartlett received a call from the defendant. She did not previously know him. He explained he was the plaintiff's business partner and was ringing in relation to the Burswood Resort proposal that the plaintiff had mentioned to her. According to Ms Bartlett, the defendant said that as the plaintiff did not speak English very well, he was helping her with the proposal. Ms Bartlett agreed to assist and over the next few days made some enquiries in relation to information relevant to the proposal.
235 In the telephone conversation with the defendant, he asked Ms Bartlett to come to Perth to assist in finalising the proposal. On Wednesday 30 August 2000 she met the plaintiff and the defendant at an office in Canning Highway around 2 pm. They had discussions about various aspects of the proposals and had dinner together at a restaurant in South Perth (possibly Cocos) that night.
236 Ms Bartlett returned to the office over the next couple of days, during which the proposal was prepared.
237 The proposal was typed by the defendant's secretary. Ms Bartlett saw her typing up parts of the document by copying other documents that the defendant gave to her. She also observed and heard the defendant giving instructions to his secretary on various changes to the document. Ms Bartlett made some comments to him about some aspects of the proposal and heard him tell his secretary to make alterations or additions based on those comments.
238 Ms Bartlett was present at the office with the defendant during the whole process of the creation of the proposal document. The plaintiff was not there all the time and at no stage did Ms Bartlett see the plaintiff give any documents to the defendant or his secretary for inclusion in the proposal document. Whilst the plaintiff had discussions with the defendant and Ms Bartlett about the project, Ms Bartlett did not hear her give any instructions to the secretary concerning the contents of, or changes to the documents.
239 All of the comments in the reference signed by Ms Bartlett concerning the plaintiff's business experience were included because the defendant told her about those matters and asked her to include them. In her discussions with Ms Bartlett since the two had first met, the plaintiff did not tell Ms Bartlett of any business experience she had.
240 Ms Bartlett said that not having any reason to disbelieve what the defendant told her about the plaintiff's business experience, she was happy for those details to be included in the reference.
241 On 29 June 2000 Keywest International entered into a Deed of Option with Brajkovich Holdings Pty Ltd, the registered proprietor of Dizzy Lamb Park. The option was for Keywest International "or nominee" to purchase Dizzy Lamb Park for $2,950,000 and was for a period to expire on 30 January 2001.
242 The defendant's testimony was that he subsequently prepared a contract for sale of land by offer and acceptance with Keywest International (as to two undivided third shares) and Courtza "and or nominee" (as to one undivided third share) to purchase Dizzy Lamb Park for $2,950,000.
243 Special condition 10 was that the agreement was subject to the directors of Courtza agreeing to provide units 43 and 48 of the Emerald Hotel as part payment (with an attributed value of $400,000).
244 By cl 12 the date of the contract was to be deemed to be the date of service by the purchaser on the vendor of written notice of exercise of the option to purchase.
245 The defendant's evidence was that after he had several discussions with the plaintiff and Johnson Lee, both separately and together, and with Robert Lim, the plaintiff and her husband attended with Lim at the defendant's Applecross office about 14 September 2000. He says they discussed the terms of the contract and he outlined what was necessary to restore the condition of Dizzy Lamb Park so that it could open in January 2001. He says he explained that a great deal of time and energy and some funding would be necessary and he suggested that he coordinate that activity. He says the plaintiff and her husband agreed that he should do so and that he should spend such funds as were necessary to achieve the refurbishment.
246 The defendant's evidence was that after lengthy discussion regarding what would be required in order to bring the park to a condition where there could be a grand opening in January 2001, the common seal of Courtza was affixed to the contract and the plaintiff and Johnson Lee signed it.
247 The contract does bear the Keywest International common seal with the signature of the defendant and apparently witnessed on 29 June 2000. There is no date in relation to the Courtza common seal nor to the signatures of the plaintiff and her husband.
248 The defendant testified that he and Johnson Lee agreed that the two of them would attend Dizzy Lamb Park the following day and they in fact did so.
249 He says that about 17 September 2000 the plaintiff, the defendant and his wife and children, together with some close friends of the plaintiffs, the Bingleys, went to Dizzy Lamb Park to "celebrate the signing of the contract". Johnson Lee had by then left Perth.
250 Johnson Lee says this was the first time the defendant had spoken to him about Dizzy Lamb Park since the latter's trip to China. He says the defendant called around to the Lee's house in Perth "going on" about it. He took Johnson Lee to see it. Johnson Lee says he did not know the area and did not know whether it was good or bad value. He told the defendant it was "too big" for him and $2.9 million was too much money. He said no. The defendant urged him to just put in the two hotel units, no cash and no other money, and he could be a shareholder.
251 It was Johnson Lee's evidence that the defendant showed him a document and told him it was "an option contract" and not one he would be held to. The defendant assured him that if he did decide to go through with it Johnson Lee would only have to put in the two hotel units, but he would not have to go through with it if he did not want to. It had not "come to a deal", he had not handed over titles or anything, and the defendant told him just to sign. He signed the document at the defendant's office in the presence of the plaintiff and Robert Lim, but told the defendant he "did not want any responsibility" for his signature if he did not want to go ahead the next day. He says the defendant assured him he could "get out of it". Although the document is dated 29 June 2000, that is not the date Johnson Lee signed the document - he says that date must have been put there some other time.
252 Finally, Johnson Lee says, the defendant never asked him to pay any money in relation to Dizzy Lamb Park nor told him he was spending Ark Securities' money on it and Lee never agreed for any money to be spent on it.
253 The defendant next says that on 18 September 2000 he wrote to the plaintiff and her husband concerning the contract to purchase Dizzy Lamb Park. He wrote that he was enclosing a letter of confirmation to Brajkovich Holdings and that it was now necessary for them to transfer the two Emerald Hotel units on or before 30 January 2001 at which time the contract to purchase Dizzy Lamb Park would become unconditional with final settlement to be on or before 30 January 2002.
254 He says that about 6 November 2000 he met at Dizzy Lamb Park with George Kowalik and Jim Duncan-Cooper, both of whom the plaintiff told him were with Porter Mathews, a real estate firm. He said the plaintiff had told him that she had met Kowalik at the Burswood Resort gym and she asked him to provide Kowalik with information on the park. He also says that the plaintiff had previously told him in substance that Kowalik had links to royalty in Brunei who would be in Perth shortly and might be interested in purchasing Dizzy Lamb Park. He says he and the plaintiff had a discussion to the effect that they would agree to authorise Kowalik to sell the park for $5.5 million and to agree to Kowalik's request that he receive a commission of 8 per cent.
255 The defendant wrote to Kowalik on 6 November 2000 confirming this arrangement, but says that Kowalik's involvement produced no offers to purchase the park.
256 About 20 or 21 February 2000, Ark Securities had paid $40,000 to Linpark Holdings Pty Ltd for an option to purchase Lots 1, 2, 3 and 4 Bailey Road, Carabooda ("the Carabooda land") which was next to Dizzy Lamb Park. The defendant says that he told the plaintiff they should consider the possibility of purchasing the Carabooda land and they both discussed that possibility with Robert Lim. He says the plaintiff inspected the Carabooda land with him and on 15 September 2000, Johnson Lee also inspected that land as well as Dizzy Lamb Park.
257 The defendant says he prepared the option agreement and after executing it on behalf of Ark Securities, but before delivering it to Linpark, he went to see the plaintiff at Forrest Street and showed her the agreement. Robert Lim was also there on that occasion. According to the defendant, Lim told the plaintiff in substance, that the option was advantageous to Ark Securities and that, at the end of the day, if the worst came to the worst, Ark Securities would make $5000 out of the transaction if they decided not to proceed under the option to acquire the land. He says the plaintiff told him she was in agreement with the proposal and he left a copy of the option agreement with her. He went to the offices of Linpark Holdings where he delivered the signed option agreement and an Ark Securities cheque for $40,000. Linpark Holdings executed the option agreement and gave the defendant a cheque for $45,000 made payable to Ark Securities to be held in escrow, to be banked only in the event that either party terminated the option agreement in accordance with its terms.
258 Finally, the defendant says that about 15 October 2000, he and the plaintiff, in the company of his wife and children, attended on site to observe the auctioning of the other lots at Carabooda.
259 As against all of this, the plaintiff's evidence was that it was only after her dispute with the defendant arose that she became aware of the payment of $40,000 to Linpark Holdings on 21 February 2000. She says the defendant never told her about the option and she does not know what it is for. She says she does not know who Linpark Holdings is.
260 As far as Dizzy Lamb Park is concerned, the plaintiff denies that it was at any time part of the business of the partnership. She maintains that she never authorised, nor agreed to any expenditure of company money on Dizzy Lamb Park.
261 It was her evidence that towards the end of 2000 the defendant told her that Dizzy Lamb Park was a good buy, that the owner was very old, that he had a chicken farm and that he was very rich. The defendant's proposal was that they should buy the property because it would be a good holiday resort. She says he told her the price was about $2.9 million. She says she told him it seemed to be too much and that it was too big a project. Nonetheless the defendant kept pressing her to look at Dizzy Lamb Park until one occasion when he came to her house and told her the owner was at the Park and they should drive up and have a look, she reluctantly accompanied him there. She says that when she saw it she did not like it because it was too big and too messy. The defendant said it was ideal for a holiday resort and beauty salons but she said she was not interested. She says the defendant asked whether any of her friends might be interested in buying it and that he would be prepared to pay a large commission. She says she remembered that Kowalik had told her that he was a real estate agent and so she spoke to him. She gave the defendant Kowalik's business card and told him he could contact Kowalik. She agrees that the defendant had conversations with Johnson Lee and that she signed the contract as a director of Courtza with her husband, but she did not have any part to play in negotiations.
262 The plaintiff agrees they did visit the property with the Bingleys in September 2000 but it was not to "celebrate the signing of the contract". She says the defendant had visited their house when the Bingleys had been there and suggested they all go to the property as a day out. She had not introduced the Bingleys as her close friends; Mr Bingley is a business associate of Johnson Lee.
263 The plaintiff maintains that the defendant did not talk to her about purchasing the Carabooda land and that she would not know whether she saw Carabooda land or Dizzy Lamb Park when they went there. She says if she did see it, the defendant never told her she was looking at "Carabooda land". She agrees she went to the auction with the defendant, but that was because he requested her to go with him. She did not know, and he did not tell her, the auction had anything to do with their partnership business.
264 In his evidence, the defendant admits that between 14 October 1999 and 5 January 2001, he or Keywest International received some 17 individual payments from Ark Securities to a total of $487,350.
265 The plaintiff says she knew nothing about these payments; the defendant says she knew about all of them and they were made pursuant to the authority given by her, which he says was confirmed at the Coco's lunch in December 1999.
266 In her evidence the plaintiff was adamant that she never attended directors' meetings of Ark Securities until 25 January 2001 and prior to March 2001, never saw any other of the company's bank statements.
267 She recounts an incident when Johnson Lee came to Australia about June 2000 to see the Bank. The plaintiff told the defendant that her husband was going to see the Bank about letting her sign cheques and sending her statements. She says the defendant began to get angry and queried why Johnson would want to go to the Bank, saying that was his [the defendant's] private business. She explains that her husband did not in fact go to the Bank, but he, Robert Lim and she met with the defendant at the defendant's office on Canning Highway. At that meeting, Johnson Lee told the defendant that both the plaintiff and defendant had to sign cheques, that the plaintiff should have bank statements sent to her home and she should also have a cheque book. The plaintiff and defendant then signed some bank forms in the defendant's office. However, even after that meeting she did not receive any bank statements for the company's account. When she later asked the defendant why they had not arrived, he said he did not know. She kept asking him about the bank statements and he kept telling her that he would phone the Bank up about them.
268 She says that in about September 2000 he gave her copies of cheque butts from the company's cheque book and copies of the company's account. She told him that she wanted the original bank statements but he said words to the effect that that was not necessary and that cheque butts and accounts were enough. She says she kept asking him for bank statements, a cheque book and to be made a signatory on the company's bank account but he just ignored her and would then talk about other things. When bank statements had still not arrived by January 2001 she was very worried about the state of the company and she told Kowalik about her concerns. Kowalik was someone she had met at the Burswood gymnasium. She knew he was a real estate agent. He went to the Bank with her and helped her speak to the people there. They told her that the Bank had not received the forms which she and the defendant had signed.
269 While she was at the Bank she made an unsuccessful attempt to transfer the remaining money in the Ark Securities' account to her own account. She then went to the defendant's office with Kowalik and spoke to the defendant. She says he became very angry and refused to allow her to transfer the money. He complained about her going to the Bank and "checking about this" and warned her that if she went to the Bank she would destroy everything because he would not be able to borrow money any more. With the defendant's agreement she subsequently transferred about $23,000 to her personal Commonwealth Bank account and after that, bank statements were sent to her home.
270 It remained the defendant's position in evidence, that the plaintiff had full access to all Ark Securities' documents and that her assertion that she never saw any Bank statements with St George Bank prior to March 2001 was false. He also denies there having been any meeting in June 2000 as described by the plaintiff and any discussions as described by the plaintiff about her wanting to see, or being denied, original bank statements.
271 On her evidence the plaintiff's relationship with the defendant deteriorated from late May or early June 2000 when she received a loan statement from the Bank. As a result of that she became very uncomfortable as to the manner in which the defendant was running the company. However, whenever she asked questions or complained about the way in which the company's money had been spent or refused to do what he said, the defendant became angry. One such instance, she says, was when she telephoned the defendant in September 2000 and complained that he had spent all her money. She says they started to argue. She was very upset and he said he was very angry and hung up on her. She says that later that day he came to her home still angry, shouting at her and then he pushed her and said words similar to "Fuck you! You are really a bitch, I cannot give you all your money".
272 The plaintiff gives a further example in late December 2000 after the defendant had returned from China. The plaintiff went to the office on Canning Highway. When she saw all the renovations, new furniture and computers she complained that was all her money the defendant had been spending on renovation and his trip to China with his girlfriend. She says the defendant was very angry, grabbed both her arms and squeezed them against her sides very hard. He then hit her across the face and pushed her shoulder hard so she fell down on the floor.
273 The defendant's evidence was simply that these incidents never occurred, that at no time did the plaintiff raise with him any questions or make any statements about the way in which the company's money had been, or was being spent and nor did he ever assault her.
274 The defendant describes a different incident between the two of them which he says occurred around December 2000. He says he and the plaintiff went to dinner, after which they went for a drive in Nedlands by the river foreshore to a regular spot at which they used to stop. He says the plaintiff started to become intimate with him, but he felt very uneasy because he had developed strong feelings for his secretary, Ms Helen Guo, and their relationship had just ended. He told the plaintiff of his feelings for Ms Guo and he says she was outraged by that.
275 It was the defendant's evidence that sometime later the plaintiff called him and said she wanted to look at renting property in South Perth so she could set up a beauty therapy business. The defendant said he responded by saying that the Subiaco property was being prepared for her to use for that purpose and the tenants had already vacated. He says the plaintiff became angry with him, telling him that if he did not help her to start up a beauty therapy business in South Perth she would get Kowalik to do it. He says that in an attempt "to maintain the peace", about late December 2000, he contacted Paul Whitehead of P J Whitehead & Co, a real estate firm who had premises for lease in South Perth, and introduced the plaintiff to him.
276 The plaintiff denies that she ever went to dinner with the defendant, or that she ever took a drive with him to the Nedlands foreshore.
277 She says she did want to start a beauty salon in South Perth and at that time was looking for something to rent there near her home and within walking distance. She drove around looking at the locality and found a place to rent in the South Terrace Medical Centre. She called the defendant who said that he would contact the agent and help her rent it. She denies that the defendant complained to her about not putting the beauty centre in the Subiaco property and says on the contrary he told her he would help her with the South Terrace beauty centre. She says he did tell her she could put the beauty salon in the Subiaco property, but she told him she did not want to do that because the Subiaco property was not suitable and she preferred to be in the South Terrace property which was next door to a medical centre and a much more appropriate location and size. She says she had no experience in business and was not competent to do anything other than operate a small centre. She says the defendant told her that he knew Paul Whitehead very well and the two of them had a meeting at Whitehead's office in South Perth. The defendant helped get the lease. She met Whitehead again and signed the lease at his office. She employed Kowalik to help her set up the business.
278 Kowalik helped her with all the documentation, such as placing advertisements in newspapers, applying for telephone lines, applying and paying for insurance and finding suppliers of equipment. He also attended suppliers' showrooms with her and would talk to suppliers' staff for her. She also took advice from Sarah Roberts, the principal of the Beauty Therapy School in Claremont and from Yasmin Bartlett.
279 The plaintiff says she employed a number of beauty therapists on rotation. They did all the work and she had a receptionist to answer the telephone. She did not answer the business telephone herself, but was simply there to greet clients. The business was open 9 am to 5 pm. She attended for an hour or two each day.
280 In his evidence the defendant said that about 12 January 2001, Johnson Lee telephoned him at home and spoke to him about the $150,000 loan from the plaintiff. He says Johnson Lee told him he would "clean up under" the defendant and put him in gaol, and then hung up. The defendant says Johnson Lee then called back and told him to "Give my wife her money or else you are a dead man. You have 7 days to pay her back. You are a bad sausage."
281 The defendant says that about 17 January 2001 he sent a facsimile report to Johnson Lee, updating him on the Subiaco property, in the following terms:
"Dear Johnson
I would like to report to you the following:
1) Subiaco Property is now being refurbished, after months of wasting time and waiting for Angela to get answer from Burswood. We have effectively lost 7 months of rental and time. I have to wait for the Hairdresser to leave before being able to complete the reconstruction.
2) I have possible new tenant waiting to take up the lease once the place is reconstructed. I estimate the cost of refurbishment to be approximately $55,000 to $60,000. I have been asking $200 per square per annum.
3) I have placed the Park on the market to sell. I am taking purchasers there again tomorrow. The asking price is set at $3.5 million. The road extension in front of the Park is complete. In accordance with the contract signed by us you need to release the titles of the two Hotel units to the owners of the Park prior to 30 January 2001. From this date we have another 12 months to settle on the balance or if we have not sold the Park by then give them Subiaco as balance of payment, get the mortgage on the Park and release your portion of investment and loan to Ark Securities Pty Ltd.
4) From the beginning the arrangement was that after purchasing Subiaco we give the property to the Bank and mortgage the same and give funds back to your 116 Forrest Street, but to this date Angela is holding the title to Subiaco and has not agreed to borrow against Subiaco and you take the monies from the loan and pay back 116 Forrest.
5) If you do not honor [sic] the agreement signed by you in my office for the Park we stand to loose [sic] all the monies, time and effort that has been invested in the Park, and the opportunity of selling it for a profit... Please see if you can find us a joint venture partner to this project...what happened to your friend wanting to sell Strome Road, Applecross...
6) The stock market is making a come back and I am glad that we did not sell, some of the stocks are still pretty low and have to wait further... I am doing everything possible to show you the profit that we can make out of these dealings...
7) Please advise me asap regarding the titles to Emerald Hotel units, and your decision... This can not wait for your return to Perth sometime in February...
Johnson all the years that you have known me I have always looked after your interest as my friend and most important client... please have faith in what I have done and please accept that such projects take time and effort to show good returns... I would also appreciate if you would reply to me..."
282 It was also about this time, the defendant says, that the he learned the plaintiff had approached St George Bank as a result of a cheque to her being dishonoured. He says he contacted the Bank in that regard and was told that the plaintiff, Kowalik and a solicitor from A C Thorpe & Co had earlier been to the Bank and arranged for the Ark Securities' account to be frozen. He says the plaintiff had not told him that had occurred.
283 He says that soon afterwards, the plaintiff told him she wanted to become a signatory to the cheque account and that for all cheques signed in the future to require both of their signatures. He says he accordingly arranged for the necessary forms to be completed by the two of them and posted them to the Bank. However, he says, the plaintiff contacted him approximately one week later and told him that she had tried to transfer money to her account but was unable to do so as the Bank had advised her that she was still not a signatory.
284 The defendant says that he accompanied the plaintiff to St George Bank and arranged for the transfer of $23,000 from the Ark Securities' account to the plaintiff's personal account. The Bank staff advised that the Bank had not received the forms he had posted, so he and the plaintiff completed new ones while they were there.
285 Shortly afterwards, Kowalik attended at the Applecross property to discuss the plaintiff's and defendant's affairs, telling the defendant that he would now be managing the plaintiff's affairs and wanted the defendant to repay the plaintiff the $150,000,
286 The defendant says that as he had not heard from Johnson Lee, he sent a facsimile to him on 22 January 2001. In that, he referred to a meeting with the Marketing Manager of Landcorp who had told him that the "Alkimos Project" which was across the road from Dizzy Lamb Park would be developed by 2003, which would make the land of the park very valuable. His facsimile then continued:
"I DO REQUIRE TO SPEAK TO YOU REGARDING THESE AND OTHER MATTERS AND YOUR NOT ANSWERING MY CALLS WILL NOT HELP.
...
I WIDSH [sic] TO SOLVE WHAT YOU THINK IS THE PROBLEMS OF GETTING YOUR MONEY BACK TO YOU AND THE ONLY REASONABLE WAY AND ORDERLY WAY THAT OIT [sic] CAN BE DONE IS TO SELL THE PARK AND THEN SUBIACO... BY GETTING LEGALLY INVOLVED EVERY ONE WILL LOOSE [sic]...SO PLEASE HELP IN SOLVING THESE ISSUES AS LONG STANDING FRIENDS AND NOT MAKING THEM BIGGER THAN THEY ARE IN PEACEFUL ORDERLY MANNER..."
287 The defendant says that the plaintiff and he arranged to have a meeting on 25 January 2001.
288 Since late 1989, Ms Josephine Orya had worked for the defendant on a casual unpaid basis from time to time. Ms Orya had been a senior public servant for some 22 years, working in positions which included secretary to various government Ministers. During long service leave in 1989 she wanted to work in a real estate office out of interest and responded to a newspaper advertisement by The Professionals advertising for real estate sales representatives. When she telephoned she spoke to the defendant and later attended his office. She asked if she could come each day to the office without pay to learn about the business and attend a real estate course. The defendant agreed and so she commenced unpaid employment with The Professionals at the Applecross office, attending each day during her long service leave. She became very friendly with the defendant and his wife.
289 On the night of 24 January 2001 the defendant telephoned Ms Orya at home and asked her to take a day's leave to attend his office the following day because he wanted her to take notes for a formal meeting to be held between the directors of Ark Securities. Ms Orya agreed to that and attended his office the following morning.
290 When the plaintiff arrived for the meeting she also brought Robert Lim and Kowalik with her. The defendant said that Kowalik was not allowed to attend the meeting as he had nothing to do with the directors of Ark Securities, but the plaintiff insisted that if he could not attend, they would leave the premises immediately because he was her personal adviser.
291 According to Ms Orya the meeting was lengthy and at times became heated when the plaintiff and defendant "had words" over the Persian carpet being held by the plaintiff at her residence.
292 Throughout the meeting Ms Orya made notes in shorthand of what was being said, which she subsequently typed up. Although initially described as a "verbatim" record, it became clear in evidence that it was in fact a summary of what was said. It will be necessary to return to this in due course.
293 The defendant's position following the meeting was, inter alia, that there had been agreement that the Subiaco property would be refurbished to a condition such that it could be leased. He says he and the plaintiff separately obtained quotations for the refurbishment and they were similar.
294 The defendant's evidence was that he sent a facsimile message to Robert Lim on 8 February 2001, having been unsuccessful in his attempts to contact him earlier. He advised that accounts and tax returns were being prepared and audited and that he had been under extreme pressure in refurbishing the Subiaco property after the final departure of the barber only the previous Monday. Major reconstruction had taken place and he had hopes of finalising a lease agreement with prospective tenants at an asking price of $200 per square metre. He also referred to prospective purchasers for Dizzy Lamb Park and said he was still continuing the maintenance and upkeep of the park.
295 The defendant says that about 20 February 2001 he sent letters to the plaintiff and Johnson Lee dealing with, amongst other things, the Subiaco property and the loan of $150,000.
296 In his first letter dated 20 February 2001 the defendant said he had been reporting to Vincent Tjeuw, Robert Lim's associate, and said as he had mentioned repeatedly since they had "upset the Bank" it had been hard for him to get money any faster. He had to give new papers to new banks to raise the package "... for all moneys to settle my account with you in total". He repeated that he needed time to raise money and said he had been spending money on the properties. He said he had advertised the park for $5.5 million and had a buyer coming to see it for a resort. He said Subiaco was taking shape and he had been spending all of his "last bit of money" on getting it ready for new tenants. He concluded by saying that if he had any extra moneys they certainly could have it, but at the moment he was waiting for an answer from the Bank. He added "Your actions with screaming at our friends at the Bank have delayed everything, and I now ask you to be patient and allow time to settle all matters peacefully ..."
297 The text of the second letter was somewhat unusual. It is set out below:
"STRICTLY PERSONAL AND CONFIDENTIAL
ONLY INDENTED [sic] FOR:
Mr Johnson Lee and Mrs Angela Lee
116 Forrest Street
SOUTH PERTH WA 6151
PLEASE LET JOHNSON READ
Dear Johnson and Angela
JOHNSON WELCOME....I Have Always SAID YOUR MONEY AND ANGELA'S IS SAFE.. YOU AND ANGELA SHOULD HAVE NO CONCERN AND WORRIES... OTHER PEOPLE WANT TO TAKE ADVANTAGE OF THIS UNFRIENDLY SITUATION...WE ARE THE OLDEST FAMILY FRIENDS, since you came to Perth.. FOR NOW 13 YEARS .. WE NEVER DO ANY WRONG TO YOU AND YOUR FAMILY ... YUOU [sic] HAVE TRUSTED ME FOR THAT REASON .... WE LOOK AT YOU AS OUR OWN BLOOD AND WE ALWAYS PRAY AND WISH YOU WELL....
YOU will have your interest ...and I will give you a dated cheque that you can bank for your $150,000.00 plus $10,000 for back interest as well $10,000 for the extension of payment for negotiated period. In this way my depth [sic] to you for $150,000 is paid. Upon the return of The Master Carpets in original condition.
The other monies that we have invested in Company and spent on Real Estate projects will be sold in time and with maximum profit, and NOT IN FIRE SALE...We borrow on Subiaco after it is leased for good return and pay AS MUCH AS POSSIBLE of your house loan, do not let the profits to be reduced when the interest rate is doing [sic] down and property Specially Subiaco and THE Park will make us good profit.
Wait and see. DO NOT FORGET THAT MY INTEREST IS YOUR INTEREST, AND OUR FORTUNES ARE SHARED SO PLEASE BE PATIENT... AND NICE ... WE ALL LOVE YOU NO MATTER WHAT... LIKE ALWAYS we will MAKE A PROFIT ... Please just show love and all things will be good again...THIS FOR LOVE OF CHRIST...
Please come and see Subiaco with me and have Lunch at Linda Meads Fish House and we can enjoy the old times and good times...without being angry at each other for no reason when everything can be solved and solution found...
You never ever have to worry about money ... Everything I have is for ever from your past Love and Trust...
We Love you ALL, LOTS OF MONEY WILL COME YOUR WAY BE PATIENT...REMEMBER ....I AM NO SUASAGE [sic]....
Michael
Since 1988"
298 About 7 March 2001 the defendant says he wrote to Vincent Tjeuw enclosing some invoices that needed to be paid from the Ark Securities' account and requesting the plaintiff to sign them so that payment could be made.
299 He says that about 14 March 2001 he received a writ of summons from the District Court by the plaintiff relating to the $150,000.
300 He says that around this time he had received various offers to lease the Subiaco property, including one from a Michael and Richard Warner. He approached the plaintiff on several occasions, seeking her authority to lease the Subiaco property in the financial interest of Ark Securities but she would not agree.
301 The defendant further says that despite further attempts to obtain the plaintiff's signature on cheques and despite not having received any advice from her concerning the refurbishment of the Subiaco property, he continued renovating it himself in an effort to get the project completed. He describes one occasion on which after tradesmen and the defendant worked one night completing the sanding of the floorboards reading for sealing, he returned the following morning to find that somebody had vandalised the property by pouring paint on the floor and walls.
302 In May 2001 the plaintiff applied to the Perth Court of Petty Sessions for a misconduct restraining order against the defendant under the Restraining Orders Act 1997 (WA). The grounds stated were that:
"I have a civil action against him & he is harrasing [sic] me to settle out of court. He has come to my house and screamed at me in a threatening manner. He rings me in an angry tone badgering me to settle. He drives past my house, business, threatens that if I don't sign a release we will both lose."
303 The defendant consulted Curt Hofmann & Co, solicitors, to appear on 31 May 2001, the first return date, to object to the application and have it listed for trial.
304 The defendant also applied to the Court of Petty Sessions for Violence Restraining Orders against the plaintiff and Johnson Lee and it appears those interim orders were made ex parte.
305 An interim Violence Restraining Order was also made ex parte in favour of the plaintiff against the defendant on 18 June 2001. In cross-examination at trial the plaintiff agreed she had been represented on that day by a solicitor and that she had given evidence in which she claimed the defendant had raped her. Although no mention of that allegation had been made in the pleadings or statements for these proceedings, she insisted she had told her solicitors about it. It was pointed out that at par 3 of her statement dated 4 November 2004, she denies she had an intimate and physical relationship with the defendant in the way that he alleges and states that she has "given some evidence in a different forum" as to what took place sexually between them.
306 The plaintiff agreed she had not reported the alleged rape to the police but said that was because she was alone in Perth at the time, she was scared of what the defendant would do and after that he was friendly to her family and she did not know what to do.
307 The transcript of the hearing before two Justices of the Peace on 18 June 2001 shows that the plaintiff then testified that at "the first business talk" in July 2000 the defendant asked her to visit his office after hours to discuss business. When she did so he locked the door and tried to rape her. He pushed her over. She told him she would tell his wife. He said it did not matter. She tried to get away but he was too strong and she could not. She testified that she screamed and screamed, but there was no-one there.
308 Asked whether there had been an incident in September 2000, her evidence was that she had telephoned the defendant because she wanted her house title back. He hung up and then came to her home. He pushed her, telling her she was a "F... bitch" and that if she continued to demand her money back he would not give it to her.
309 Asked about the end of 2000, she described an incident in which the defendant had taken her to Kings Park saying he had something to tell her. She said she was reluctant to go because she was nervous. When they got there he smoked marijuana and asked her to. She says he tried to rape her in the car. She tried to avoid him, but he kissed her.
310 She described what was apparently another incident, in January 2001. He told her he had something to tell her one night at Mill Point Road, but "he kissed me suddenly and he rape [sic] me on the road, in [sic] the riverside".
311 The defendant denies any of these events happened. He says the plaintiff has invented them.
312 About 15 June 2001 the plaintiff took steps to place Ark Securities into liquidation. After the company was placed into liquidation, the Subiaco property was eventually sold for approximately $630,000.
313 Lengthy though it is, the foregoing is nonetheless an abbreviated narrative of most of the developments between the parties, relevant to the present proceedings.
Plaintiff's ability in the English language
314 The plaintiff expressly pleads that she is a Korean citizen and has a poor understanding of spoken and written English. The defendant denies this. He maintains she has a good understanding and her assertion otherwise is an untruthful subterfuge.
315 At trial, the plaintiff gave evidence through a Korean interpreter, Mrs Wo Nam Perrett.
316 The plaintiff was born and educated in South Korea. Her only work experience was as a secretary in South Korea and as an airline hostess on a domestic South Korean airline. She remained in South Korea until she was married and moved to Hong Kong and did not come to Australia until about 1988. There is nothing in that background to lead to a conclusion that the plaintiff would have anything other than a poor understanding of spoken and written English.
317 I agree with the submission by Mr Gilmour QC that it is helpful to consider the reverse position, namely that of an Australian woman, born in Perth in 1952, educated in Australia, learning a little Korean at school, married in 1978 to a Hong Kong businessman whose first language is Cantonese, who moved to Korea about 1988 and was then confronted in 1999 with discussions about business transactions and business documents written in Korean. There might be little likelihood that the Australian woman would have the capacity to read and understand the meaning and effect of such discussions and documents.
318 A number of witnesses gave evidence about the plaintiff's ability to converse in, or understand, English.
319 Ms Orya says that although the plaintiff had quite a heavy accent, her English was easy to understand and when she became angry and agitated, it became quite clear. This is surprising; one would expect the contrary. Ms Orya says she did not have any difficulty taking down the minutes of the meeting on 25 January 2001 when the plaintiff was speaking. She says the plaintiff never told her she had difficulty in understanding Ms Orya nor anyone else, and according to Ms Orya, although the plaintiff spoke with an accent, she communicated as fluently as anyone else in conversation.
320 It will be necessary for me to return to the substance of the minutes of the meeting of 25 January 2001, but for present purposes what is noteworthy about them is that they are not by any means a verbatim record (they do not purport to record in direct speech what was said) and, as became apparent in Ms Orya's cross-examination, almost the entirety of what there appears was said by the defendant. So, for example, par 4 begins with the words "A lengthy discussion was held in respect of the carpets now located at Mrs Lee's home ...", whereas the only thing the plaintiff is there recorded as saying is that she did not want the carpets. Everything else about that was said by the defendant. Indeed, the only matters specifically attributed to the plaintiff throughout those minutes were:
• "Mr Kowalik entered with Mr Lim and Mrs Lee and stated that he was Mrs Lee's personal adviser, and then "they" stated that if Mr Kowalik leaves, they will commence legal action immediately against Michael Mavaddat".
• After the minutes note some discussion between Robert Lim and the defendant about an audit of Ark Securities' accounts, they note "Mrs Lee became agitated as she was concerned she would lose her home due to the mortgage on it ..."
• "Mrs Lee asked as to the expenses since the $129,000 balance of the account which had been acknowledged previously ..."
• "Mrs Lee said she was very angry and wanted her money so she went to the bank ..."
• "Mrs Lee asked about the release of the mortgage on her home which was encumbered $1,625,000 ..."
• "The end of the meeting Mr Robert Lim and Mrs A Lee agreed that they would write confirming the agreements and giving details of their requirements ..."
321 Throughout the minutes there appear such phrases as "there was lengthy discussion", "it was agreed" and "it was acknowledged and accepted ...", none of which say anything about the plaintiff's capacity to speak or understand English. It is apparent from the minutes and Ms Orya's testimony that almost everything said at that meeting was said by the defendant. One is left with the firm impression that what was recorded as agreement on the plaintiff's part was probably no more than failure to expressly refute or contradict what the defendant was putting.
322 One of the defendant's witnesses was Ms Alenka Wallace, a licensed investigator and proprietor of Gateway Agencies, a promotional and marketing business. She first met the defendant about October 2000 to discuss marketing and promotion of Dizzy Lamb Park. He invited her to attend the auction of the Carabooda land about 15 October 2000 and to inspect Dizzy Lamb Park afterwards.
323 The defendant introduced her to the plaintiff as they were entering the auction tent. Afterwards, the defendant drove his wife and daughter and the plaintiff to Dizzy Lamb Park and Ms Wallace followed in her own car. Once there, at one point, the plaintiff commented that "the view is very good from here". Later they all sat at some outdoor tables and chairs. Ms Wallace says she asked the plaintiff what she did for a living and the plaintiff gave her a business card and told her she was a beautician living in South Perth and working from home. When they went back to the cars the plaintiff made a comment to the effect it was nice in the car with the air-conditioning on. Ms Wallace says that at all times during the day, when the plaintiff spoke, it was in clear English and although she had an Asian accent, it was not heavy. She has not met the plaintiff since that day.
324 Mr Paul Whitehead is a real estate agent. He arranged for the plaintiff to lease property at South Perth for a beauty salon. He says he dealt with her and Kowalik. He says he had no difficulty communicating with the plaintiff. He attended the property in December 2000 and presented the lease agreement to her. He does not recall her reading it, nor whether she asked any questions about it. He says he does remember attending the property a couple of times and having conversations with the plaintiff and that she appeared to understand what he was saying. When she spoke to him, she had a strong Korean accent and he had to concentrate to understand - not because of her sentence construction, but because of her accent.
325 Mr Gavin Hegney is Chairman of Hegney Property Group and a licensed valuer. He was called by the defendant. His firm had been instructed by St George Bank about December 1999 to conduct a valuation of 115 Forrest Street, South Perth. In early January 2000 he and an employee, Damian Schifferli, by prior arrangement with the defendant, met him at the front of the property. He took them to the door where he introduced them to the plaintiff. The three men removed their shoes and commenced an inspection. The defendant accompanied Hegney and Schifferli throughout the inspection, joined at intervals by the plaintiff. At the end of that the four of them had a consultation about the property. In his evidence-in-chief Mr Hegney says that while he cannot recall what was said, he was able to clearly understand the plaintiff and she appeared to understand what he was telling her.
326 In cross-examination Hegney said the defendant had told them the plaintiff was his business partner and he took care of her financial affairs.
327 The only conversation he could recall with the plaintiff was about the New Year and holidays, with him asking questions such as whether she saw her family at that time of year. Even so, he had that conversation with her with the assistance of the defendant interpreting for her. That was necessary about 50 per cent of the time. He agreed she spoke in quite "broken" English and he had to really concentrate to pick up what the plaintiff was saying.
328 In the second half of 1999 Mr Wayne Martin was the Business Banking Manager at the Applecross branch of BankWest, when he was approached by the defendant, who said he was a real estate agent and wanted to arrange a loan for the purchase of the Subiaco property. The defendant wanted the loan interview to take place at the plaintiff's home and so arrangements were made to meet there within the next couple of days.
329 When Martin arrived the defendant was not there, so he went to the front door and knocked. The plaintiff answered the door. Martin introduced himself and said he was there to meet the defendant, but the plaintiff appeared not to understand what he was talking about nor why he was there. She seemed to recognise the defendant's name and indicated to Martin that he should wait. She went back inside and shut the door and he waited on the porch for about 5 minutes. The defendant then arrived. He asked Martin to remove his shoes to respect the owner's culture. They each did so and the defendant then knocked on the door. The plaintiff opened the door and they went inside to a table. Martin and the defendant sat down and the plaintiff went away. Martin's evidence then continued (t 543):
"Did you speak to Mr Mavaddat about Mrs Lee?---I asked if that person was attending the meeting.
What did Mr Mavaddat say?---'No.'
Did he say anything else?---He just said because I asked, you know, 'Is she part of the loan, if she's going to be part of this meeting,' and he said, 'No, Mrs Lee does not speak English. I handle her matters.'
Do you recall if there was any discussion about Mr Lee?---Yes. When we were taking the applications and that, I asked if Mr Lee would be a party to the loan at all and he indicated that Mr Lee was a wealthy businessman in Hong Kong and does not have anything to do with Mrs Lee's affairs here in Australia.
Was the application form completed?---It would have been done at that point in time. We would have taken all the information we required.
Was further information provided to the bank by Mr Mavaddat after that day?---Yes, it was; yes, because I left him with a list of information, of stuff that we required.
How long would you say the meeting where you sat down with Mr Mavaddat and filled out the loan application form lasted for?---They only take about an hour.
During that hour did you speak to Mrs Lee?---No.
After the conclusion of that, did you leave?---Yes, I did.
Between finishing the meeting and leaving, did you speak to Mrs Lee?---No.
Did you ever see Mrs Lee after that occasion?---Never again."
330 The defendant called Mr Rocco Alvaro. He has been a business associate and friend of the defendant for some 12 years. He says he met the plaintiff only once. That was an occasion in the late 1990s when the defendant invited him to the Langley Plaza Hotel bar where he met the plaintiff and her two nieces. They remained there for about three or four hours. He says he recalls the plaintiff telling him the defendant was helping her to put together a real estate portfolio (although that was something the defendant had already told him). The rest of the conversation was small talk. He says that throughout his conversation with the plaintiff she spoke English quite well, he was able to clearly understand her and she showed no signs she could not understand him. He says she spoke good English. In cross-examination he described the situation as being that one niece was playing the piano, he was sitting on a sofa conversing with the other niece and the plaintiff and defendant were sitting "in the far corner" of the arrangement of chairs around the piano.
331 I have already mentioned something of the evidence of Yasmin Bartlett. Mr McKerracher QC relies very much on the fact that the plaintiff completed a 6 month course of study and passed an examination for qualification as a beautician. He submits the evidence shows the course included basic business studies, communication with clients and some study of the anatomy of the head and face and that all of this is a clear indication that the plaintiff has much greater understanding of written and spoken English than she pretends.
332 Ms Bartlett's evidence, properly understood, not only does not go that far; it actually tends to show the contrary.
333 According to Ms Bartlett, the extent of knowledge required at the beautician level is very basic. The students must be able to demonstrate that they can do a "facial sequence". She then added (t 665) that with the plaintiff:
"Because of her very poor understanding of English, she was given a multiple choice question instead of a long answer question".
334 The students ordinarily were required to sit a 1½ hour theory paper of "long answer" questions, but because of the plaintiff's poor understanding of English, a couple of weeks before the exam she was given a set of 400 questions (and as I take it, answers) to study, and then on the exam she was set a number of multiple choice questions from that list. She passed.
335 On the evidence as a whole I am satisfied the plaintiff does not have a sufficiently good understanding of written or spoken English to be able to fully comprehend matters outside routine or daily experience, without the benefit of an interpreter. I am satisfied her language capacity is better now than it was between 1988 and 2001 and that during that period it was quite poor.
336 I accept the submission of plaintiff's counsel that there is a very great difference in being able to understand or make oneself understood in a foreign language about basic everyday or routine matters, and being able to read, write and understand more complex matters. Any person who has lived or travelled in a foreign country knows the difference.
337 Having lived in Australia since 1988 it is to be expected the plaintiff would be able to maintain a reasonable conversation concerning matters she would frequently be asked about, such as her home, family, her business, the weather and so on. That she is able to conduct an apparently clear and responsive conversation of that kind, really says nothing about her fluency in written or spoken English generally. Those were the kinds of conversations described by Ms Wallace and Mr Alvaro.
338 The plaintiff herself made the point in cross-examination. When it was put to her that she had asked Mr Whitehead to include two conditions on the lease agreement, she said "through George Kowalik". Asked whether she had any difficulty communicating in English with Kowalik, she said those were brief, simple conversations. She agreed Mr Whitehead had visited her at the property and they conversed in English, but she said the conversations were not about business and were short and not difficult. Likewise, with Ms Wallace at Dizzy Lamb Park - they were brief, practical conversations and there was no problem.
339 Ms Orya gave no specific evidence of conversations with the plaintiff which would suggest a good level of competence in the English language and nor did Mr Whitehead. The evidence of Mr Hegney, Mr Martin and Ms Bartlett all strongly lead to the conclusion the plaintiff had a very poor understanding of, and capacity in English. I am satisfied that was, and remains, the case.
340 The issue of credibility rates very highly in these proceedings. This is not a case of mere mistake, misunderstanding, failure of consideration or some legal defect. Both the plaintiff and defendant are adamant the other has deliberately lied in evidence. Much of what is pleaded by the one turns on alleged lies and deceit of the other.
341 The plaintiff's credibility essentially falls to be assessed against her demeanour in the witness box, the consistency of her testimony with documentation, other objective evidence and her own previous statements out of court or in other proceedings and with the evidence of other witnesses which is accepted. The defendant's credibility is to be assessed against the same criteria, but in his case there is a quite extraordinary amount of evidence of lies, deceit and dishonesty on his part, going even to matters relating to the proceedings. On several occasions he was compelled to answer questions on the basis that I would grant a certificate under s 11 of the Evidence Act 1906 (WA) preventing his answers from being used against him in criminal proceedings.
342 Earlier in these reasons I referred to the defendant's practice of claiming on his business letterhead signature block to have a BSc degree from the United States of America. He expressly held himself out in his business correspondence over many years as having such a degree. When pressed in cross-examination he admitted that was untrue. He had never held that degree. Even when pressed, however, the defendant continued to equivocate and seek to evade the lie, by explaining that he had almost completed the degree. At first he said he only had one unit to complete. Later still he acknowledged he was "short of a few units". Then he said that the President of the university had told him that if he could produce evidence of having passed appropriate tertiary units elsewhere, he could be given the degree. That, of course, was no answer at all to his use of the qualification (which he eventually accepted was "a serious lie"). All this tended only to exacerbate the impact of it on his honesty and credibility.
343 I have earlier referred to the defendant's evidence-in-chief that he ultimately reported to Johnson Lee about developments in relation to the Subiaco property by facsimile dated 6 December 1999. The text of that fax is set out at [156] above. In cross-examination the defendant admitted much (if not most) of what was in it were lies. Even so, he continually attempted to evade, to obfuscate, to dissemble and to attribute blame to the plaintiff. The following exchange (at t 950) was typical:
"Now, it was not true for you to tell Mr Lee that you had given security over your family home, was it?---There was a frenzied discussion regarding this property and Angela and her husband and particular parts of this are manipulated by her insofar as she was telling me that she had lost a lot of face in front of friends because she had advertised to everyone that we already own the property and she wanted me to write to him and present it in such a way that he will have to participate or help in this regard and when I phoned him many times during that period and following this he himself turned around and told me, 'Is this the things that my wife has been telling you because we have had discussions? Tell her that I am not going to be funding or giving any more money from Hong Kong,' and that she has to do whatever she has to do herself.
ROBERTS-SMITH J: The question, Mr Mavaddat, was whether or not the statement in there which says 'including my family home' was correct or not?---It's not correct."
344 He agreed the statement that he had given securities over his other properties was a lie, because he had no other properties, but he claimed he only wrote that because the plaintiff told him to.
345 He agreed the statement that he had paid $20,000 non-refundable deposit to extend the purchase contract to the end of the month was "not correct" and described it as "an exaggeration". Pressed to admit it was a lie, he said the plaintiff wanted him to show they had spent a lot of money, but that "in the context of that" it was not correct, and then "it's not true" and finally "it was a lie she induced me to say, yes".
346 The defendant agreed it was not true to say he had already spent over $10,000 on a valuation report and other fees.
347 He said the statement that they would make a profit of $250,000 if they sold the property "today" was "not really a lie, in that sense", because they could have made that sort of profit sometime in the future if they were able to obtain development approval and constructed six units. He agreed that was not the situation as at the date of the letter, but added "No, like I said, I was being really coerced [by the plaintiff]".
348 About the statement that as at 6 December 1999 he had received an offer some $250,000 more than the $843,000 they had paid (that is some $1.1 million), he again said first that was "an exaggeration" because he "... was really manipulated to do this" but conceded there was "no offer and no written offer".
349 As to his statement that he had many commitments and had already locked away $160,000 in the past few months in this deal, he said that he was referring to his $133,000 commission plus another $30,000 "that was supposed to be put in". He then added (t 953):
"... Your Honour, I admit the fact that this thing was wholly untrue but there is backdrop behind it and I accept the fact that at that time, you know, I was being manipulated by a very manipulative mind to do things because for three months we couldn't get the finances. This has already come to December. She couldn't get Jonson [sic] to put any further funds into this at all and in this, if you go further and you read, it also mentions about the $50,000 that she had already put into it as well."
350 Asked about the statement that he did not have any additional funds to give until March when he would have $450,000 from the sale of other properties, he protested that he had been prevented from producing a lot of documents because of several thefts from his office in which his business files as well as papers in relation to his dealings with the plaintiff (including notes of the Coco's lunch meeting) had been taken. He said his memory was that he had some very large dealings about that time, including the sale of the Queen Street car park, which was a $9.5 million deal. Confronted with the fact (which I find it to be) that his bank statements for 2000 showed no payment of commission or income of anything remotely like that amount being received, the defendant said he was referring to "the potential". When it was put to him it was a lie he said he was "not quite certain".
351 The defendant admitted that the statement he had also placed $50,000 working capital into Ark Securities was a lie, but that was what the plaintiff wanted him to say because she had placed the money there and did not want Johnson Lee to know about it.
352 I note in passing it was never suggested to the plaintiff in cross-examination that she had manipulated the defendant into sending a facsimile containing lies such as this to her husband. The defendant's evidence about this strikingly suggests desperate fabrication "on the run" in cross-examination.
353 In October 1999 the defendant instructed Mr Lombardo as his accountant to write to St George Bank giving details of the defendant's income for the two financial years ending 1998 and 1999. This was to satisfy a requirement of the Bank for details of the income of the directors of Ark Securities, for financial approval for the funds for the purchase of the Subiaco property. The defendant sent Lombardo several drafts of the letter to go to the Bank, together with what was described as some supporting documentation. The letter which was sent by Lombardo dated 28 October 1988 [sic: 1999] was in virtually identical terms to that drafted by the defendant.
354 The total income shown for the year ending 1998 was $121,225. The amount for the year ending 1999 was $236,078. Included in the latter were two amounts said to have been banked on 17 December 1998, being one amount of $60,000 and one of $90,000. The first was described as "Kung Hee consultation"; the second as "Lee consultation". It was put to the defendant that it was false to show these amounts (totalling $150,000) as income. This was an area in which the defendant declined to answer on the ground of self-incrimination. I directed him to do so in accordance with the provisions of s 11 of the Evidence Act. The defendant then admitted that the two amounts were in fact the $150,000 loaned to Keywest International by the plaintiff and the description of the two "consultations" was made by splitting her name. There is a handwritten facsimile from the defendant to Lombardo dated 28 April 2000 confirming that the "consultation fees" received from K Lee were banked on 14 December 1998, of which $20,000 was placed on a term deposit with St George Bank for Keywest Realty General Account, $10,000 was used to pay the balance of the Town & Country Account, and $120,000 was paid into Keywest International Account.
355 In cross-examination the defendant conceded it would be true that the $150,000 was not paid for any consultation because it was money borrowed by Keywest from the plaintiff.
356 In response to the proposition that it was false to claim those payments as income in his hands, the defendant equivocated at length. He said he was uncertain about whether he could show the amount as income if he paid tax on it and asked Lombardo whether there would be any difficulty if he did so. He says Lombardo told him he could exaggerate his income if he paid tax on it, but he could not understate his income. The defendant persisted in his evidence that it was his view it was proper to do that if he paid the tax. There was no evidence that he did pay the tax on the $150,000 and every indication he did not. But that is not the point here. The point is, the purpose of this letter was to confirm to the Bank that he had received income of $236,078 for the year ending 1999 and on the defendant's own evidence, he knew perfectly well the $150,000 was not income. It was therefore a deliberate false statement, intended by him to be made to the Bank and to be relied upon by the Bank for the purpose of approving a substantial loan. I do not accept the defendant's evidence as to his understanding of this and in my view his purported explanation (in which he persisted) was simply prevarication on oath.
357 Cross-examined, the defendant's explanation about a "banked amount" of income for the 1997/98 year in the sum of $17,250 described as "Marble Beach consultation" was likewise falsely shown as income because it was in fact a loan to the defendant from Umberto Tinelli which the defendant later had to repay.
358 Taken then to the claim there was some $240,000 in unconditional settlements due in the next three months, the defendant acknowledged that was principally a reference to an exclusive authority to Keywest from Brajkovich Holdings to sell Dizzy Lamb Park for an agreed commission of $200,000. There was a conditional contract between Brajkovich Holdings and Teatree Holdings with 12 conditions. The defendant had provided Lombardo with a copy of the agency agreement, but not the conditional contract. He conceded that at the time he gave the information to Lombardo to incorporate in his letter to the Bank, there was no unconditional contract and he knew that was misleading when he wrote it. He said he could not recall what the other $40,000 was.
359 The defendant said he was unable to recall whether all the items listed were false because the records of his past dealings had been stolen from his office.
360 In April 2000 the defendant instructed Lombardo to prepare a draft income tax return for submission to St George Bank for the purpose of obtaining a loan for the purchase of 817 Canning Highway, Applecross. Lombardo had sought confirmation from the defendant that the $150,000 referred to above was fee income. The defendant sent the fax dated 28 April 2000 confirming that it was. That was a lie. Lombardo wrote to the Bank that day, forwarding what he described as "a draft copy of the 1999 income tax return, profit and loss statement, balance sheet and accountant's disclaimer" for the defendant. The draft income tax return showed total business income from the year as $283,749, which included the $150,000 loaned from the plaintiff. The amount was also showed as fee income on the profit and loss statement. The defendant agreed in cross-examination that in order to obtain the necessary finance from St George Bank for the purpose of 817 Canning Highway, he was prepared to, and did, through the medium of his accountant Lombardo, create false documents to mislead the Bank. The defendant was granted a s 11 certificate in respect of this evidence.
361 The defendant's credibility came under further attack in relation to a credit application he made to Bunnings on behalf of Ark Securities, dated 30 October 2000. The defendant signed the covering letter as director of Ark Securities, describing himself as "BSc ADCREM". His signature was witnessed by Helen Guo. He acknowledged his understanding that the information in the application would be relied upon by Bunnings to determine whether or not Ark Securities should be afforded credit on a trading account.
362 On the form, the applicant was shown as Ark Securities. Under the heading "List all land owned by applicant" the defendant had set out the following handwritten list:
"Dizzy Lamb Park $3,000,000
116 Forrest Street South Perth $400,000
239-241 Hay Street Subiaco $1,250,000
28 Simpson Street Applecross $800,000
817 Canning Highway Applecross $550,000
Emerald Hotel $400,000"
363 In cross-examination the defendant agreed Dizzy Lamb Park was never owned by Ark Securities. He did say though that the company had an interest in the property by way of agreement with the plaintiff. Queried if he meant the plaintiff or Courtza, he said his relationship with the plaintiff was such that all these entities were intertwined. Pressed further, he was evasive and sought to justify the claim by saying Ark Securities had an option to purchase Dizzy Lamb Park.
364 The defendant agreed 116 Forrest Street was not owned by Ark Securities, again equivocating about that answer, although conceding it was an incorrect statement and making the revealing response "... it is only for $1000 worth of credit and it is not accurate". He suggested this credit application was "of no consequence" because of its nature.
365 The defendant resorted to further lengthy obfuscation about his valuation of the Hay Street property at $1,250,000, although conceding that was "exaggerated to an extent", and later, that in his view at that time he would have hoped it was worth $900,000. Asked why he exaggerated it, he said he had no explanation, "it was not a very important application ...".
366 Asked about the Simpson Street property the defendant said the value of $800,000 was "exaggerated" (as all of them were), but when pressed he attempted at length to avoid answering the questions, conceding only that the value of that property then was less than what he had put; he "guesstimated" the value as $650,000 to $675,000. He confirmed the property was his and not Ark Securities.
367 On the Bunnings' application form for Ark Securities the defendant had also written the following details:
" ASSETS : $
Work in progress (yet to be invoiced)
$_____________________________
Cash at Bank?On Hand $250,000 approx
Debtors (moneys owed to you) $150,000 "
Motor vehicles (1) $200,000 "
(2)
(3)
Real Estate Value $4,500,000 "
Tools & Equipment 50,000 "
Plant & Machinery 100,000 "
Stock 300,000 "
Fixed Deposit etc. NIL
Other Assets
Total "
368 In cross-examination he admitted Ark Securities was not owed $150,000 in October 2000, nor did it own any vehicles (much less vehicles worth $200,000), nor any plant or machinery, nor did it have any stock.
369 It was put to him that all of that was simply him telling a pack of lies in order to get a financial facility from Bunnings, to which he responded:
"I accept my folly in this regard. I am not trying to in any way lessen this untruthfulness, but it really was in this particular instance just humouring them because it was only for a thousand dollar account."
370 On a number of occasions he quite unpersuasively sought to suggest that some of the figures were explicable because they reflected what was owned by him and the plaintiff as directors of Ark Securities.
371 When it was pointed out to him that Ark Securities' account at that time showed a balance of $70,000, he agreed that his figures showing it had approximately $250,000 cash was a lie. He agreed he was prepared at that time to lie to obtain finance, but said "that was then", and he went on to say he would not lie to the Court "despite anything". There was then this exchange (t 868):
"So why were you prepared to lie in order to get the financial accommodation from Bunnings?---I will not be the first one. It is industry standard.
It's industry standards, is it?---People do it."
372 Further cross-examined he acknowledged that the Emerald Hotel was not owned by Ark Securities but in respect of that said he was referring to the asset holdings of the two directors rather than Ark Securities. When it was pointed out to him that the Emerald Hotel was owned by Courtza he said he accepted that.
373 Some indication of the defendant's attitude to what he says to this Court is to be found in an affidavit he swore in these proceedings on 17 August 2002 (ex P29) in opposition to an application by the plaintiff for asset preservation orders. At par 18, referring to the commission to be paid by Absica to Keywest in respect of the sale of the Subiaco property, he said "... the amount of the commission payable was an agreed commercial rate and like all other commissions paid or payable by directors of Absica". In his cross-examination at trial the defendant agreed it was "extreme".
374 At par 25 the defendant stated that his project management fees would be calculated on the basis that his time would be solely devoted to the interests of Ark Securities and the partnership and would represent the amount of money which would be foregone in relation to his other business interests such as Keywest. He deposed that the base figure eventually agreed on was $240,000 per annum, based on what he had earned in the previous financial year. He deposed that a true copy of his draft tax return for the financial year ended 30 June 1999 was annexed to the affidavit.
375 The draft tax return includes the $150,000 loan to the plaintiff as income and I am satisfied that was a deliberate lie by the defendant. Furthermore, it is apparent on the evidence that his income for 1998/99 was nowhere near $240,000 and I find he deliberately lied about that. The lie was purportedly supported by a document which had been prepared specifically on the defendant's instructions and which he knew to be false. I accept Mr Gilmore's submission that this demonstrates the defendant is prepared to lie on oath to advance his case and that he is prepared to present false documents to the court to bolster his lies.
376 There are other examples of the defendant creating or causing to be created, what I am satisfied were deliberately false documents. The reference from Yasmin Bartlett was one. That was a wholly spurious document framed by the defendant, as was the Lombardo letter to St George Bank dated 28 October 1988. These are in my view significant not only because they show the blatant and serious falsities which the defendant was prepared to advance to obtain financial or other benefit, but his ability and readiness to use and manipulate others to perpetrate his deceitful purpose.
377 The defendant provided copies of Ark Securities' accounts to the plaintiff, in September 2000. According to him, they were prepared under his supervision by Helen Guo with the involvement of a person called Debbie from Lombardo's office. The accounts contain a number of false entries. They included the following.
378 There is an item described as "Loan - KH Lee and M Mavaddat ($1,616,515.50)". There was no basis upon which that loan could have been described as a loan to Ark Securities made jointly by the plaintiff and defendant. The defendant's explanation that the entry was not an assertion that the money had been borrowed by both of them and on-lent to the company but was "basically saying the fact" that they were in partnership, does not bear even cursory scrutiny.
379 When bound to acknowledge the falsity of most or all of these items, the defendant attempted to explain them as errors by Ms Guo and/or the person Debbie. I do not accept that explanation. The source information for the entries could have come only from the defendant and in many instances the evidence shows it actually came in the form of notations by him on the bank statements. I am satisfied the defendant provided the source information for the accounts and directed how that information was to be shown in them.
380 There are other examples of fabrication of documents and dishonesty. These include entries in the Ark Securities' accounts given to the plaintiff in September 2000 for amounts of $50,000 on each of 20 January and 2 March and $25,000 on 7 April 2000, described as payments to Macquarie Porter Weston for shares. The evidence shows that in fact those payments were transfers made by the defendant to himself for his personal use. The defendant was responsible for the creation of these false entries.
381 On p 1/221 of the accounts $5000 is shown as "architectural expenses". In fact, that money was simply paid into the defendant's account. I do not accept the defendant's explanation that the money was in that way "put aside for architectural fees". That makes no sense. If architectural fees had to be paid, the payment could (and should) have been made directly out of Ark Securities' account. It is significant that when the money was paid into the defendant's account, that was then overdrawn by more than $44,000. I find this was a false entry deliberately created at the instigation of the defendant, to conceal the purpose for which he had transferred the money.
382 Entries (p 1/211) showing payments of $3750 on 28 October 1999, $50,000 on 13 January 2000 and $50,000 on 19 April 2000 as "drawings to Mrs Lee" are false and were caused to be made by the defendant, to mislead. They were in fact payments of interest on the $150,000 loan. A further payment of $2437.69, shown in the same way, was in fact for insurance on 116 Forrest Street. That had been required by the Bank and was arranged by the defendant. I am satisfied the reason for describing the interest payments to Mrs Lee in this way was to conceal from her the fact that they were coming from Ark Securities' account.
383 There are many other matters going to the defendant's credibility, some of which it will be necessary to consider later. In light of them and the matters set out above, I conclude the defendant is neither an honest nor a credible witness. I would not accept his testimony on any significant issue and without independent evidence I would not be prepared to accept the genuineness or truthfulness of any document generated by him or at his instigation. I further find that he has demonstrated himself to be deceitful and to manipulate others almost as a matter of course. One could have no confidence that what he told other people about anything, was true.
384 The attack on the plaintiff's credibility centred substantially on the defendant's claim that they had been in a sexual relationship since about 1988, that she wanted to leave her husband for him and that they should go into business together. According to the defendant, she knew he was in difficult financial circumstances and was anxious to give him money.
385 The precise nature of their relationship is far from clear. The way in which the defendant might have portrayed it from time to time (for example, to Josephine Orya or to Rocco Alvaro) cannot be relied upon as indicative of the fact, given his inveterate deceit and manipulation of others. He was adept at creating false impressions in the minds of others for his own purposes - even if it is not always possible to discern on the evidence in these proceedings what those purposes were.
386 I reject the defendant's claim of the sexual relationship. Even allowing for his assertion that it was a secret relationship, if it had been as the defendant asserted, he might be expected to have been able to provide details of dates and places and more specific evidence of it over the 12 years or so he says it continued. His own evidence about it was vague and general. The photographs of the defendant dining at the Campo di Fiori restaurant with the plaintiff and members of her family do not show more than (then) a friendly family relationship. The photograph of the two of them at the same restaurant on a separate occasion shows them sitting at the corner of a table. The defendant has moved to be next to the plaintiff, who has a table setting in front of her. It is not possible from the photograph to see whether or not there were other people at the table. However the photograph was taken by Mr Shahid Tirmazi. His evidence was that they were dining alone. He had been a photographer for 25 years. His business involved attending various restaurants around Perth and taking photographs for diners. One of his friends, Mr Umberto Tinelli, used to own Campo di Fiori. Tirmazi would frequently make that his last call and socialise with Tinelli when he finished work. On one of those occasions, in approximately 1994, Tinelli introduced him to the defendant, who was dining there with his wife. The restaurant was near the defendant's office and he would frequently go there with family, friends or clients.
387 After that first meeting, Tirmazi regularly saw the defendant dining with people at various restaurants. He gave evidence that he saw the plaintiff and defendant dining alone at Campo di Fiori on one occasion about 1998, at Hilite 33 restaurant about 1999 and later again at Campo di Fiori, that being the occasion on which he took the photograph of them.
388 Tirmazi testified further that about late 1999 when he was going into a restaurant in South Perth he saw the plaintiff and defendant coming out of Coco's, next door. They were walking down the stairs, holding hands. He greeted them and carried on with his business.
389 They were the only occasions he ever saw them alone together although he did see them dining with other people at Campo di Fiori on several other occasions.
390 In cross-examination he said he thought it was sometime in 2000 that he saw the plaintiff and defendant coming out of Coco's and he had the impression something was wrong between them.
391 I found Tirmazi to be a convincing witness. He impressed me as honest and doing his best to recount events as he recalled them. He was subjected to a testing cross-examination but remained firm about the incidents he had described. I accept his evidence, but it does not lead me to any satisfaction that the relationship between the plaintiff and defendant was as claimed by the defendant. Part of the defendant's cultivation of the Lees was to establish himself as their trusted friend. That is apparent from his own correspondence to Johnson Lee. It is not surprising he would try to socialise with them in that way - and the plaintiff in particular.
392 Counsel for the defendant submits that Tirmazi's evidence does show that the plaintiff was not telling the truth when she denied ever dining alone with the defendant. The cross-examination relied on was at t 304-5:
"You regularly rang him and met him and discussed, amongst other things, Ark business, didn't you?---It wasn't regularly. It is only time when I want to find out what's going on with Subiaco I phone and I met.
And you went out to lunch with him to various restaurants to discuss various matters, didn't you?---No.
You went to Campo De'Fiori next to Mr Mavaddat's office in Kearns Crescent with him and just with him on several occasions in this period?---He told me he is the 10 per cent owner of that restaurant.
Did I ask you about percentages?---I didn't visit that place.
Thank you. So you deny ever attending the Campo De'Fiori restaurant with Mr Mavaddat for meals in the period 1998 to 2000, do you?---I did not have a personal lunch with him.
ROBERTS-SMITH j: Did you go to lunch with him?---I didn't.
At that restaurant?--- No.
Ever?---When my husband was there, my nieces were there and his family is there, we all went there. He invited us and that's the time.
Did you ever go there with him just by himself?---No."
"You had lunch or evening meals with Mr Mavaddat at a number of restaurants in the period 1998 to 2000?---I don't remember having lunch because the dinner - I usually don't have dinner because I do diet.
Mrs Lee, I have to suggest to you that you were having private, intimate meals with Mr Mavaddat because you were having an affair with him during that period?
THE INTERPRETER: Did you say 'private, intimate relations'?
ROBERTS-SMITH J: Intimate meals, yes?---Not at all. I spent a lot of time at gym.
McKERRACHER, MR: At gym.
ROBERTS-SMITH J: Gym?
THE INTERPRETER: Gym, yes."
394 In light of Tirmazi's evidence I am satisfied the plaintiff did have dinner alone with the defendant twice at Campo di Fiori, once in 1998 and once in 1999. The occasion at Hilite 33 was not put to her. Given the structure of the questions, the language problem and the obvious possibility that what the plaintiff was seeking to respond to was the suggestion she was having intimate lunches or dinners (as distinct from business lunches or dinners) with the defendant, I am not prepared to conclude her answers here were lies, although in light of them I consider her evidence generally needs to be scrutinised with care before accepting it.
395 I think the plaintiff's relationship with the defendant was closer than she is now prepared to admit, but I do not accept it was an intimate sexual relationship.
396 Mr McKerracher cross-examined the plaintiff about allegations she had made in her application for a restraining order, that the defendant had raped her. This was later the foundation for a submission that the plaintiff could not be believed, in part because the defendant was not even in the country at the time.
397 The plaintiff had denied going to the Nedlands foreshore with the defendant after dinner in December 2000 and that there was a place there they used regularly to go. She had denied wanting an intimate relationship with the defendant. She had said she was aware of his relationship with Helen Guo, because he had told her, but it was none of her business.
398 It was then put to her that her whole reason for these proceedings was her anger at being betrayed by the defendant in his relationship with Helen Guo (t 352):
"---I swear [sic] my God as a Korean woman I live as a housewife, very clean, and I never, ever, I swear, did anything dirty like that.
And these claims that you are raising in court are your way of saving face with your husband?---My husband and my children are very well aware of my family, where we come from. We are not that type of family, we are not that sort of people."
399 When it was put to her again, she said (t 353):
"---He ask me so many times to go away holiday, he asked me to marry him and he wanted to go to Queensland with me and I never listened to him. Even when I went to Korea he asked to come with me, or he wanted to come with me, and I said no."
400 She was then asked whether she had a discussion with the defendant about his relationship with Helen Guo in December 2000. Told to answer yes or no, she said no. Senior counsel then referred her to an affidavit she had sworn in 2001, and there was then the following exchange (t 355):
"Well then you did have a discussion in December 2000 with Mr Mavaddat about his relationship with Helen?---It wasn't a discussion. He came to my house once and he had bags - document bag and when he was opening it there was a jewellery box fall down - fall off the - and then I say, 'What is it?' and there was a diamond ring and he told me about his relationship. I didn't even ask him.
You understand, Mrs Lee, that that was a discussion about his relationship with Helen, don't you?---Why would I discuss it? He was came back from holiday and he showed me those things, so I told him - I said, 'If your wife would find it out, what are you going to do?' So I told him so.
Is it true that in November 2000 Mrs Mavaddat told you that Mr Mavaddat was paying Helen's rent on an apartment in Como?---Yes.
You did have a discussion in December with Mr Mavaddat when he told you about his relationship with Helen, didn't you?---It's their affairs. Why would I get involved and discuss about it? There's no necessity to discuss about their matters. It is their matters.
He told you in December about the relationship, didn't he?---He told me when he was in China with her they have so many times sex and I said I don't want to hear those things and I told him, you know, 'Why you do that to your wife?'
It was because of what Mr Mavaddat told you in December that you then for the first time told your husband about the $150,000 loan, wasn't it?---When we put to the - when we started legal procedure all this matter, that matter, all the loan was already mentioned."
401 I do not believe the plaintiff was equivocating about whether or not this conversation had occurred. The interpreter queried the term "discussion". There may not be semantic equivalence. I was left with the impression there is a difference, linguistically, between a discussion in which both parties contribute and a situation in which one party is telling something to the other.
402 It was after the above evidence that the plaintiff was asked about evidence she gave in the Perth Court of Petty Sessions on 18 June 2001 that the defendant had raped her. She confirmed she had said that because it was true. There was then cross-examination about her not having made the same claims in her affidavits or evidence in these proceedings. However, as senior counsel for the plaintiff pointed out, there is no pleaded issue about those claims; I do not regard the plaintiff not referring to them earlier in these proceedings as reflecting adversely on her credibility. When it was pointed out to her that in her affidavit sworn 7 June 2001 in support of her application for the appointment of a provisional liquidator the plaintiff had mentioned physical and verbal violence by the defendant (t 428):
"But you said nothing about a rape?---At that time I didn't know the meaning of the rape at that time because these sorts of thing happen to me for the first time and I was so ashamed and I didn't have anyone to talk and I was really ashamed of myself.
When you were before the magistrate you spoke of attempted rapes as well, didn't you?---George - I didn't know the word and George told me this, this, this, and he gave me the words and I went to the dictionary and then I found it out."
403 Again it was put to the plaintiff that the allegations that the defendant had raped her were untrue. She repeated they were fact, and added (t 429):
"... The reason I was requesting the restraining order was not only the rape - not only that. He was approaching me all the time and asking me, pushing me to give him two hotel titles and he was driving around my salon all the time. That was the reason I apply that."
404 The effect of that cross-examination has to be gauged against the evidence given by the plaintiff on 18 June 2001, the transcript of which was tendered by senior counsel for the defendant as exhibit D 12. Much turns on what was actually said and it is best I set out the salient part:
"MS ROBERTSON: ... Mrs Lee, coming back now I need you to tell me the first time that Mrs Mavaddat did something to hurt you or to frighten you.
INTERPRETER: The first business talk he say - - he ask me to come and visit him at his office for business talk. And I went there and there was after office hour. He locked the office and he tried to rape me and I had to run around to escape from him.
MS ROBERTSON: Well can you remember when, what month?
INTERPRETER: Last year, July.
MS ROBERTSON: Okay, all right. And you say he ran around - -
INTERPRETER: Because the - - his office is quite small so I - - he cover me or he push me over like that. And I told him, 'I'll call your wife. I'll telephone your wife.' And he said, 'It doesn't matter.'
MS ROBERTSON: Okay. Did anything happen after that? Did you get away?
INTERPRETER: Because he was so strong and he pulled me like this and even though I tried to get away I couldn't. And I scream and I scream but that there were no-one in the office and I couldn't do anything.
MS ROBERTSON: Okay. Mrs Lee, did anything happen in September last year?
INTERPRETER: Yes. When I called him in his home regarding my business - - I wanted to have my house title back. And he hung the phone off and he came to see me in my home. And he told me I'm a fucking bitch and he pushed me and he said, 'If you continue to demand your money I will not give it to you.'
MS ROBERTSON: Okay, all right. Mrs Lee, did anything happen at the end of last year, towards the end of last year?
INTERPRETER: He took me to Kings Park, that he said he'd got something to tell me. I don't want to go because I feel very nervous. I told him, 'Why do I have to go there?' He asked me to smoke marijuana. He was smoking. And he tried to rape me in the car and I tried to avoid him and he kissed me in the car and ... (indistinct) ... and I came home and we had a lot of - - he was driving and he gave me a lot of frights. And also in Mill Point Road we - - he said he got some business to talk about it. And in the night time he said he got something to say, but he kissed me suddenly and he rape me on the road, in the riverside.
MS ROBERTSON: Mrs Lee, you said this happened at Mill Point. When?
INTERPRETER: January.
MS ROBERTSON: Okay.
MALE JP: Were the police notified? Was a report made to the police about any of these incidents?
INTERPRETER: Because I was invited with him in the business and I was living by myself. And if I say anything it was also - - I never happen - - it never - - this sorts of thing never happened to my life. And also I was by myself and business - - I didn't even consider - - I didn't even think about those things. I was just so frightened of him.
MS ROBERTSON: All right. Mrs Lee, what about later? Did anything happen in February or March this year?
INTERPRETER: And he often come and visit me in the summer [sic: salon] in the morning. I said, 'Please why do you come here? I don't want you to come here.' And he said, 'I got things to talk to you.' And I told him not to come.
MS ROBERTSON: When was that, Mrs Lee?
INTERPRETER: February, March and April.
MS ROBERTSON: Okay, did - - when you say February, March and April do you mean that he came - - kept coming back to the salon or you don't remember?
INTERPRETER: And he keep on asking me to sign the business deal. He force me to sign. And he keep on pushing me, ask me to sign and he revisited me all the time. And I told him, 'If you keep on, push me like this, I will take [sic] to my lawyer solicitor and I'll sue you.' And he said, 'If you do that I'll make you more - - I sue more and I'll teach you a lesson.' And I was so frightened of him.
MS ROBERTSON: Okay. Mrs Lee, is there anything else that has happened more recently after he was visiting the salon; anything else?
INTERPRETER: When I was leaving my salon I saw his car was there, and then suddenly drove off when he saw - - his car was suddenly drove off when I came out of my salon.
MS ROBERTSON: When did this happen?
INTERPRETER: In March.
MS ROBERTSON: In March, okay. Okay, Mrs Lee, is there anything else?
INTERPRETER: He keep on call me April and May, keep on ask me, push me, say, 'If you don't sign this business deal you will lose all your money.' And he said, 'If you sue me or if you go to the lawyer I will not - - I will not leave you alone.'"
405 In response to a question from the Bench, the plaintiff explained the documents the defendant was pressing her to sign:
"... I have to agree to the deal of buying the Dizzylamb [sic] Park with my hotel title deed. Otherwise there will be no money to take my home house title back from the business."
406 The allegations of rape and assault are not pleaded issues. They bear only upon the narrative of the relationship between the parties and upon the plaintiff's credibility. The evidence in respect of them is of a general nature and limited in the extreme. Depending upon the circumstances, the allegations may well be of serious criminal offences. I am in no position in these proceedings to make any specific findings about the alleged incidents themselves, and I do not do so. I confine my consideration to the aspects of relationship and credibility.
407 At no stage, either in the Court of Petty Sessions or these proceedings, was the plaintiff asked what she meant by the word "rape". By her own account she did not know until, as I understand it, some time before she gave evidence on 18 June 2001, when George Kowalik told her. I do not think she was using the word to describe sexual intercourse without consent; I think she was using it to describe sexual assault of a kind much less than that.
408 It is necessary to put all this in chronological sequence.
409 The plaintiff's evidence that her relationship with the defendant began to deteriorate from June 2000, when she received the loan documents, I consider reflects her view in hindsight. As she described it, she began to feel "uncomfortable". I am satisfied that it was not until late September 2000, and the incident at her house following her complaint that he had spent all her money, that the plaintiff realised the difficulty of her situation with the defendant. Previously the defendant had sought to portray himself as her friend. He no doubt flattered and charmed her. He certainly had a psychological ascendancy over her. Whether he had any real sexual interest in her, or whether his conduct towards her was no more than dominance, I cannot say. I certainly do not accept that he had any intention of having a permanent domestic or business relationship with her.
410 It is submitted for the defendant that the plaintiff cannot have been truthful when she told the Court of Petty Sessions that he tried to rape her in July 2000, because he was then in China. I note the evidence shows he returned to Perth at the end of July, but in any event, the plaintiff was unreliable as to dates. Although the plaintiff nominated certain events as occurring in certain months, my impression was that for the most part she was not able to do so with any confidence nor accuracy. I do not take that as reflecting upon her credibility; it does reflect on her reliability as to time. I accept that the defendant did force himself on her in the office in some sexual way perhaps at the end of July 2000 or sometime later. I further accept that she was frightened of him and of not complying with his demands, but socially isolated, confused, did not know what to do and felt trapped in the situation. As she became more and more concerned, the defendant's conduct towards her became more aggressive and intimidating. I accept the plaintiff's evidence of the incident at her house in September and of his assault upon her in late December 2000. I find that when she went with the defendant in his car to talk about the business in late 2000, he drove to Kings Park and he forced himself on her, kissing her. I find there was a similar incident at Mill Point Road about the same time. Whether it went beyond that I cannot and do not determine.
411 The defendant's case was presented on the basis that the true nature of the relationship between him and the plaintiff was central both to the pleaded issues and to the plaintiff's credibility.
412 The relationship between the parties is the key to understanding and resolving the pleaded issues, although not in quite the way suggested on behalf of the defendant. Consideration of the evidence as to the entirety of the course of dealings between them shows that, from the outset, the defendant saw the Lees as a financial opportunity. He carefully cultivated them. They came to trust him and to rely upon what they believed to be his commercial knowledge. Mrs Lee in particular, commercially naive, lacking more than a basic understanding of the English language and alone and socially isolated in Perth, was a ready victim.
413 By December 1998, the defendant had assisted the plaintiff and her husband with a number of property purchases and had been urging them to invest with him. That was the background against which the plaintiff told the defendant she had $150,000 which she was looking to invest. She loaned him that sum for 12 months at a guaranteed minimum rate of interest of 10 per cent per annum. He was to invest the money and if it made a profit of more than 10 per cent per annum, that profit would also be paid to her. On the face of it, this was a reasonable commercial transaction. The defendant did make some interest payments (although some came out of the Ark Securities account subsequently). However, the money was not used for investment at all. Instead, the defendant used it to fund an overseas holiday on which he took his wife and children in early 1999, to Europe, Canada and the USA, and to defray ordinary expenses of his business.
414 Following his return to Australia, the defendant was still in financial difficulty. That was when he prevailed upon the plaintiff (and subsequently her husband) to join in the acquisition and development of the Subiaco property.
415 I am satisfied the plaintiff did not tell her husband about the $150,000 loan to the defendant, but that was because that was her money and she wanted to surprise him when she made a profit on it in due course. That was the only aspect of her dealings with the defendant which she did not tell her husband about and it had nothing to do with her relationship with the defendant.
416 It is common ground that the parties agreed to carry on business together in partnership. The plaintiff pleaded that it was entered into in May 1999. In her evidence, she said it was in June that year, although she was not sure. The defendant says it was in or about August 1999. The evidence is that the defendant was overseas from 6 April to 20 July 1999. Ark Securities was registered on 9 September 1999. The telephone records indicate there were no telephone calls from the defendant to the plaintiff between 22 March and 7 August 1999 and that although the plaintiff telephoned the defendant between 14 May and 3 August, none of the calls lasted for more than about 30 seconds, which would indicate she did not speak to him. I am satisfied that the agreement was made in August 1999.
417 There is a dispute about the nature of the agreement. I find it was a partnership agreement to incorporate a company as a vehicle for the acquisition, development and sale of the Subiaco property, that the plaintiff and defendant would each hold 50 per cent of the issued shares in the company and be the directors of it and that they would jointly borrow and provide security for the funds necessary to acquire and develop the property. I am satisfied that the agreement reached in August 1999 did not include the establishment and operation of a health and beauty therapy business, nor that it contemplated the acquisition of other real property or shares.
418 I accept the plaintiff's evidence that for some time the defendant had been "on at her" to invest with him, and that he told her they would both "put their properties into the bank" to secure the loan necessary to finance the acquisition and development. That was an important reassurance for her.
419 Contrary to the pleading at par 3.2 of the statement of claim, I am not satisfied the sum first put to the defendant by the plaintiff for the acquisition and development of the Subiaco property was $1,650,000. Nor, indeed, was that the plaintiff's evidence. The documents show the initial amount sought to be borrowed (from BankWest) in early October 1999 was $650,000. About the same time, the amount of the indicative loan being proposed from St George Bank was $730,000. By late November, the defendant was seeking an amount of $830,000 from BankWest, but the bank was prepared to consider only $612,220, on conditions. It was in the BankWest letter dated 23 November 1999 that the suggestion was made that the bank would be able to consider the full loan request of $830,000 if the Forrest Street property was put up as security. According to Mr Martin, the defendant wanted as much as the bank would give, to buy and sell as he saw fit, but the bank would not entertain a situation where it would not be able to control the use of its funds. Mr Martin also testified it was the defendant who said both his properties were fully encumbered, but the plaintiff's was not. I am satisfied the suggestion of security exclusively over the Forrest Street property came from the defendant. On 1 December 1999, the defendant was protesting St George Bank notification that it would be prepared to loan only to a limit of $657,500. I consider it more likely than not that the idea of the St George Bank loan being secured by a mortgage over the Forrest Street property was suggested by the defendant in his discussion with Mr Hare on 3 December 1999. The situation was developing and the defendant was trying to find a way to meet the bank's requirements for satisfactory security.
420 The fact that the defendant put to Johnson Lee in his fax of 6 December 1999 the proposition that offering the Forrest Street property as security was then an option, would suggest that was the first time the proposition had been raised - at least with Johnson Lee - although, as I have found, virtually everything else in that faxed letter was untrue. I conclude it was not until this time that the defendant raised with the plaintiff's husband, the firm prospect of using the Forrest Street property to secure the loan - and it was after the BankWest letter of 8 December 1999 that the defendant proposed the loan amount be in the order of $1.7 million. I accept that the defendant initially told the plaintiff she would need a loan of $850,000, but that by December 1999 the amount was in the order of $1.7 million. I further accept the agreement between the plaintiff and defendant was that the parties would be joint borrowers and each give security for the loan over their own properties. But the defendant did not start his negotiations with the banks at that point. The bank correspondence shows they were both to provide unlimited guarantees and indemnities and that the loan would be secured by a mortgage over the Subiaco property. As explained above, that proved unsatisfactory to the banks. In his fax to Johnson Lee on 6 December 1999, the defendant (falsely) told Johnson Lee that he had guaranteed an extra borrowing of $83,000 to pay out the Commonwealth Bank in respect of the Emerald Hotel units, and that he had given security over his other properties, including his family home. In fact, he had no other properties and had not given security over his family home in respect of the Subiaco property, but his statement that he had is consistent with an awareness of the defendant that the plaintiff and her husband understood he was to do so.
421 What was agreed was that the defendant would, on behalf of himself and the plaintiff, take all necessary steps to give effect to the partnership purpose, including the incorporation of Ark Securities and the conduct of negotiations with the owner of the Subiaco property for the purchase of it. I accept the submission on behalf of the plaintiff that a term is to be implied that the plaintiff and defendant would do all that was reasonably required of them to obtain a bank loan to finance the project. Such a term gives business efficacy to the agreement (BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 347).
422 Whilst there were discussions between the plaintiff and defendant about the possibility of her conducting a beauty salon business out of the Subiaco property, I am satisfied that suggestion emanated from the defendant and, further, that the discussions were tentative only and never reached the stage of being part of the partnership agreement. I accept the plaintiff's evidence that she did not know Subiaco and never wanted to have a beauty salon business there.
423 From at least early 1999 the plaintiff had an interest in operating a beauty salon. The defendant was aware of that, as they had discussed it. He knew she had commenced the six month beauty therapy course about June or July 1999 and wished when she completed it to start a business of her own. When he returned from his holiday in late July 1999 he began pressing her to go into business with him. He knew Absica was trying to sell the Subiaco property and indeed about that time he advertised it for sale (without Absica's authority and without identifying it) for $820,000. In the course of persuading the plaintiff to join with him in purchasing the Subiaco property the defendant no doubt suggested part of the ground floor could be used for her beauty salon. He certainly made that suggestion to Johnson Lee (the defendant's submissions wrongly attribute that to the plaintiff). But while that was only a possibility, the defendant chose to present it as a definite common intention. This was typical of his manner of dealing with people.
424 Another illustration was his email to Clayton about the beauty centre in the Burswood Resort. He wrote the Subiaco property had been purchased "in order to establish the same business" at those premises. That was untrue. On any view, the Subiaco property was purchased as an investment, not for the purpose of obtaining premises for a beauty salon.
425 The gym which the plaintiff regularly attended was at the Burswood Resort. The possibility of operating a beauty salon at the Burswood Resort was something which came to the attention of the plaintiff about May 2000. She mentioned it to the defendant. He advised her to put in a proposal to run the centre. About 23 May 2000 he wrote expressing interest and subsequently assisted her to put a proposal to the Resort. In fact, he took that over entirely, and subsequently presented the proposal under Ark Securities' letterhead dated 1 September 2000. Amongst other things, that described Ark Securities as affording the backing of "... our solid financial position". At that stage the company's only real asset was the Subiaco property, on which the full amount of the St George loan was owed, together with the balance of that loan remaining in the account. The proposal contained various misrepresentations included by or at the defendant's instigation - most notably the contrived false reference by Yasmin Bartlett.
426 The fact that the defendant's email to Clayton of 14 August 2000 referred to an intention on the part of he and the plaintiff to establish a beauty salon at the Subiaco property does not show that was true. It suited the defendant's purposes in dealing with Burswood Resort to present what had been suggested (by him) as a possibility, as established fact. His reference to the Burswood proposal in his letter to Johnson Lee dated 13 July 2000 does not advance the matter one way or the other.
427 I accept the plaintiff's evidence that she gave no instructions to the defendant to have the tenants vacate the Subiaco property, nor to prepare it for her beauty salon business.
428 Presenting the Burswood proposal as an Ark Securities enterprise was in the defendant's interest, because if that had happened to have been successful he would have been in a position to derive benefit from that too. And that was something which in September 2000 the plaintiff was prepared to go along with. As I have said, no doubt with the benefit of hindsight, the plaintiff said in evidence that her relationship with the defendant first began to deteriorate in May 2000, when she received the St George Bank documents showing the loan only in her name. I accept that despite her misgivings she still trusted the defendant in early to mid-September 2000, and relied upon what she believed to be his business acumen. It made sense then to bring the Burswood beauty salon business under the Ark Securities' umbrella. This conclusion is supported in part by the evidence of Yasmin Bartlett that it was the plaintiff who first telephoned her in mid-August 2000 and asked for her assistance in preparing a business proposal to Burswood Resort for herself and the defendant, who she described as her "business partner". Given Bartlett said she had difficulty understanding what the plaintiff was trying to tell her, whether that was how the plaintiff actually described the defendant, or was Bartlett's own term based on what the defendant subsequently told her, might not be entirely clear, were it not for the fact that was what was in her statement, tendered as her evidence-in-chief, and was subsequently confirmed in cross-examination. It must be taken, I think, as indicting that the plaintiff regarded the defendant as her business partner in respect of the Burswood Resort proposal. That, however, arose only about May 2000 and does not lead me to conclude the establishment of a beauty salon was originally within the scope of the partnership agreement of August 1999.
429 The relationship between partners is an accepted category of fiduciary relationship; thus, by virtue of their partnership, the plaintiff and defendant were in a fiduciary relationship (Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 96 - 97). Fiduciary relationships are relationships of trust and confidence (Boardman v Phipps [1966] UKHL 2; [1967] 2 AC 46, 127).
430 The plaintiff has made out her plea that she reposed trust and confidence in the defendant in relation to her involvement in the partnership and project. I have already referred to the history of the Lees taking advice from the defendant in relation to property transactions. They believed the defendant had business experience and expertise. He had consistently sought to convince them of that. He told the plaintiff that Subiaco was a good place to buy property, that the Subiaco property itself was a bargain and would be a very profitable investment. The plaintiff knew nothing of property values in Subiaco; nor had she inspected the Subiaco property, nor received any other advice in relation to it. She relied upon the defendant's recommendation.
431 The defendant handled all the arrangements in relation to the purchase of and financing for the Subiaco property. It was he exclusively who dealt with the banks and all bank correspondence was sent to his office.
432 On the facts as I have found them, the defendant owed to the plaintiff fiduciary duties, including a duty to act in good faith towards her as a partner and in carrying out the project, to refrain from preferring his personal interests to hers or those of the partnership and to refrain from securing for himself any benefit to the exclusion of the plaintiff, in relation to the project. These pleas at par 6 of the statement of claim have been made out.
Purchase of the Subiaco property and the commission
433 I find the defendant took the contract to the plaintiff at her home. That document had the 40 per cent-60 per cent shares (in the defendant's favour) changed back to 50 per cent-50 per cent. I find the defendant pointed that out to her, then turned the document over and showed her where to sign. He did not explain the terms of the offer to her and did not give her an opportunity to read it. When she said she wanted to show it to Robert Lim, he told her there was no time and she had to sign immediately or they would lose the property. I accept the plaintiff's evidence that, when she signed the document, neither the Courtza nor the Keywest International common seal was on it.
434 A faxed copy of the $823,000 offer was signed by Johnson Lee and returned to the defendant on 23 August 1999. That bore the defendant's signature and the Keywest International seal, but not that of Courtza. What appears to be the original of that document bears the signature of the plaintiff against the date 24 August 1999 and the common seal of both companies. That document shows a 50 per cent-50 per cent shareholding. Typed cl 6 was the disclosure clause. On the balance of probabilities, I consider typed cl 4 to cl 7 inclusive were on the offer and acceptance form signed by the plaintiff on 30 August 1999. On that document, cl 7 was the disclosure clause. The plaintiff's evidence that the typed clauses were not on the document when she signed it cannot be accepted. But the situation was she did not read them and they were not explained to her. Nor did the defendant give her an opportunity to read, or explain to her, the disclosure statement itself, which he presented for her signature.
435 Contrary to his sworn evidence, the defendant was not the contracted agent for Absica for the sale of the Subiaco property. He had seen it advertised in the newspaper and knew about it from Lombardo. I am satisfied he saw an opportunity to capitalise on his relationship with the Lees to make a profit.
436 The Subiaco property was owned by Absica, of which Lombardo was a director and shareholder. Absica had purchased the property in 1997 from Bluefin Pty Ltd for $550,000. On 2 June 1998 Absica appointed Jones Lang Wootton to be its exclusive agent for sale of the property at an asking price of $725,000. On 16 September 1998 Absica executed an open agency agreement with a firm called "Growth Realty", for the same asking price. Neither firm was able to sell the property at that price. On 2 August 1999 Absica engaged another agent, Stanton Hillier Parker, but reduced the asking price to $690,000. On 25 August 1999 Absica accepted a conditional profit from Citifidelity Nominee Co Pty Ltd ("Citifidelity") to purchase the Subiaco property for that amount. The selling agent's fee was $15,000. For some reason not entirely clear on the evidence, that sale fell through. It was probably because one of the conditions which required development planning approval could not be met.
437 Lombardo by then had been the defendant's accountant for some time. According to Lombardo (who had refused to provide a statement for these proceedings and who was a reluctant witness) he and the defendant "would have" discussed the Subiaco property. He said he would have told the defendant that if he presented an offer on behalf of anyone it would be considered. I found Lombardo to be an unsatisfactory witness. He appeared to have a convenient inability to remember details of his dealings with the defendant generally and about the defendant's dealings with Absica in particular. He did state that Absica did not enter into any written agency agreement with the defendant or Keywest. I find there had been no discussions between the defendant and Lombardo about any such agency agreement. The defendant's assertion in cross-examination that the disclosure notice signed by the plaintiff was his authority to act as agent for Absica, is untenable. It is indicative of the defendant's opportunism that on becoming aware of Absica's attempts to sell the Subiaco property through other agents, and without any authority from Absica, he placed in the name of his own business a newspaper advertisement describing (but not identifying) the property as available for sale for $820,000.
438 Nonetheless, in August 1999 (probably on or around 24 August) the defendant presented Lombardo with an offer to purchase the Subiaco property for a price of $823,000, on behalf of Courtza or nominee and Keywest International. There were three typed clauses added. The first (cl 4) made the offer subject to Absica accepting the Emerald Hotel suites as part-payment at a value of $130,000. The second related to leases on the Subiaco property. The third (cl 6) stated that notice and disclosure statements had been given to all parties prior to the signing of the document that Keywest Realty was entitled to a commission payable by Absica. No disclosure statement accompanied the offer and there was no reference on it to the amount of the commission.
439 On any view, the amount of the commission was inordinate. The defendant himself conceded it was "not in the ordinary course to a significant degree". He later agreed with Lombardo's evidence that it was "extreme".
440 The purpose of the partnership agreement was to purchase and develop the Subiaco property and resell it at a profit. The parties were to contribute equally and share the profit equally. It is an affront to common sense and commercial reality to suggest that, in these circumstances, the plaintiff would have agreed that the partnership pay an extra $133,000 by way of commission to the defendant. I prefer the plaintiff's evidence that had she been told of the commission at that stage, she would not have agreed to it and would have wanted the purchase price reduced by that amount.
441 According to Lombardo, he first became aware of the commission the defendant was seeking when the defendant presented the initial offer. Lombardo asked about the amount and the defendant told him it was $133,000. It is not coincidental that deduction of a commission in that amount would have left the vendor with a price of $690,000, which was the amount Absica had accepted from Citifidelity.
443 According to Lombardo, the Absica directors decided to demand $843,000. They also asked for the disclosure notice. That was because of the size of the commission, which was "well above REIWA rates". Lombardo described it as "extreme". The defendant returned with such an offer. The signatures of the defendant and Ms Guo against the common seal of Keywest International are dated 28 August 1999. The plaintiff's signature and the common seal of Courtza appear against the date 30 August 1999. The common seal of Absica and the directors' signatures are dated 31 August 1999. The document was not stamped until 21 January 2000.
444 The contract for sale of land by offer and acceptance dated 31 August 1999 ("the contract") has the same three typed conditions added, plus a fourth, relating to electrical and plumbing matters. The defendant also produced the disclosure notice dated 30 August 1999 signed by the plaintiff.
445 According to the evidence of Mr Alan Maller, who has been a registered real estate salesman for 30 years, immediately prior to deregulation of the real estate industry in October 1998 the commission on a purchase price of $850,000 would have been $19,375. It has been his experience since deregulation that the majority of real estate agents operating in the Perth metropolitan area charge a commission of between 2 per cent and 4 per cent of the purchase price of a property, although a slightly higher rate may be charged if there are exceptional circumstances relating to the property in question. He is not aware of any real estate agent charging more than 5 per cent. Thus, after deregulation, he would have expected a commission of between $16,860 and $33,720 on a property priced at $843,000. I note a commission of $133,000 would be approximately 15.7 per cent of the purchase price of the Subiaco property.
446 It was put to the defendant in cross-examination that when he returned from his family holiday in mid-1999, his trading account with the St George Bank was well overdrawn. He agreed with that. He had received no income during the four months he had been away and he needed funds. When it was put to him that the $133,000 commission was a way of getting funds, the defendant said that "after long discussions" it was the plaintiff's way of giving him a share in the company. That answer cannot be accepted. It is nonsensical. The defendant already had a 50 per cent share in the company.
447 Even had the plaintiff read the disclosure statement before signing it (which I am satisfied she did not), that would not have been sufficient disclosure because there was no explanation of what the usual commission would be (nor therefore that the amount was well out of the ordinary) and nor was there any recommendation nor opportunity for the plaintiff to take independent advice on the nature and extent of the commission.
448 The plaintiff's case that the defendant's commission agreement with Absica was made without her fully informed consent and in breach of his fiduciary obligations to her has been made out.
449 There is no evidence that an amount of $133,000 was actually paid to the defendant. However, it is the same amount as the deposit required on the acceptance of the offer and which that document acknowledges was paid at the time. It appears the commission was treated as an amount paid to the defendant by Absica, but, in effect, loaned by him to Ark Securities and applied as payment of the deposit. However regarded, by that commission the defendant obtained a benefit from the transaction to the detriment of Ark Securities and the plaintiff, in that Absica would have been prepared to sell the Subiaco property to Ark for $710,000 had no commission been payable to Keywest International. This was also a breach of the defendant's fiduciary obligations to the plaintiff, as pleaded at par 6 of the statement of claim. The plaintiff's plea of unjust enrichment at par 32 of the statement of claim has also been made out in this respect, the unjust enrichment being the defendant's right to recover the loan of $133,000 from Ark.
450 As the amount to be borrowed from St George Bank would have been reduced by $133,000 had there been no commission, I accept the plaintiff's submission that the appropriate equitable compensation to her is that sum, plus interest at the rate and compounded in accordance with St George Bank borrowings for the period 14 January 2000 to date. The whole of the $133,000 rather than half of it is the appropriate amount, because (contrary to the partnership agreement) the plaintiff was the sole borrower of the full amount loaned by St George Bank.
451 I turn to the plaintiff's plea that the defendant was in breach of his duty to take reasonable care to ensure the price to be paid for the Subiaco property was no more than reasonable market value.
452 The starting-point of any consideration of this issue is that Absica acquired the Subiaco property on 2 July 1997 for $555,000. The defendant either failed to ascertain that fact by conducting a simple title search, or alternatively failed to have regard to it. In negotiating a price of $843,000, he was well aware the vendor wished to achieve $710,000 clear of any real estate agent's commission. It is also significant that the price he negotiated was higher than that of the $820,000 for which he was advertising it himself at the time (which presumably included his expected profit or commission).
453 It was submitted on behalf of the plaintiff that the defendant had no or insufficient regard to the fact that the St George Bank had obtained a valuation of the Subiaco property at $750,000. However, I am not satisfied that the defendant was aware of that at the time; the valuation was not done until later. It therefore cannot go to his state of knowledge, but is probably the best evidence of value at the time.
454 The evidence of the plaintiff's valuer, Mr Robert Richmond, was that the market value of the Subiaco property was $630,000 as at 30 August 1999. The evidence of the liquidator was that it was sold by him on behalf of Ark Securities on 31 July 2002 for $690,000.
455 I am satisfied that had the defendant acted in accordance with the implied term of the agreement that he act in good faith on behalf of the plaintiff and the partnership and in accordance with his fiduciary duty to her, he would have been able to obtain the Subiaco property at a price appreciably less than $843,000.
456 It is submitted on behalf of the plaintiff that the reasonable market value of the property should be taken as $630,000 and that her loss is the whole of the difference between that amount and the price actually paid, namely, $213,000. That is put on the basis that the plaintiff's loss arises from the fact that, contrary to the agreement, all of the funds were provided by her. That, however, is not the way the plaintiff's case is pleaded at par 35 of the statement of claim. There, the claim is for one-half of the amount paid for the Subiaco property in excess of reasonable market value, which, on the evidence, the plaintiff puts at $106,500. Given the necessarily uncertain nature of the evidence of value as at August 1999, it is not possible to make a definitive finding on what the actual loss was, but as I consider the best evidence of value as at August 1999 is the valuation of $750,000 obtained for the Bank, I would quantify the loss as the difference between that and the price paid, namely, $93,000. On the pleading, I would allow $46,500, being half that amount.
457 It is clear that at no time did the plaintiff speak to any bank officer about the loan for the acquisition and development of the Subiaco property ("the loan"). The defendant assumed the conduct of all dealings with the banks. He deliberately excluded her, telling her there was no need for her to go to the bank. He told bank officers he was handling her affairs. He caused all bank correspondence to be sent to his own address. It is beyond question that in his dealings with the banks, the defendant acted as agent for himself and the plaintiff and that he owed fiduciary duties to her in that regard.
458 The St George facility letter signed by the plaintiff on 5 November 1998 required as security a registered first mortgage over the Subiaco property and of the two Emerald Hotel units and unlimited joint and several guarantees and indemnities from the plaintiff and defendant, Courtza and Keywest International. One of the conditions precedent was that the Keywest Realty account was to be repaid in full or converted to a secured facility. This was consistent with the plaintiff's understanding that the obligations to the bank would be joint as between her and the defendant. The correspondence with the banks shows that until about mid-December 1999, the financial arrangements were to involve (at least) both parties providing guarantees and indemnities. That is not conclusive of anything, however, because what the defendant was telling the plaintiff was not necessarily what he was saying to the banks. I am satisfied that until it got to the point of executing loan documents, discussion between the plaintiff and defendant about the loan and security for it, was only in general terms and to the effect that they would have equal shares in the partnership, be equally liable for repayment of the loan and equally commit their assets (that is, their houses) as security, to the extent necessary. I find the defendant consistently represented to the plaintiff (and, indeed, to her husband) that he would bear equal liability for the loan and provide security for it. That was the basis upon which he was to have 50 per cent of the profits. I find further that he presented the residential loan agreement and mortgage to the plaintiff in such a way as to represent to her that it was giving effect to their agreement that the funds would be jointly borrowed and jointly secured and that it was in reliance upon that representation that she accepted the offer and the loan of $1.625 million and executed the mortgage over her Forrest Street property. Johnson Lee would never have allowed the plaintiff to enter a partnership agreement with the defendant - and she would never have done so - which gave the defendant a 50 per cent share, but where the plaintiff was sole borrower of a loan of $1.625 million wholly secured over her own property. The defendant well appreciated that and took care to ensure that the plaintiff believed the borrowing was a joint one, as was the security commitment.
459 Upon acceptance of the loan offer and execution of the mortgage, St George Bank credited $1.625 million to Ark Securities. It was credited in the manner shown in the Loan Proceeds Disbursement Authority signed by the plaintiff, namely, $132 in a cheque to the Registrar of Titles, a cheque for $6552.50 to the State Revenue Department and the balance of $1,616,515.50 to the account of Ark Securities.
460 The loan offer dated 5 January 2000 was to the plaintiff as sole borrower. The payment of the money to Ark Securities constituted a loan by her to the company for 12 months (that being the term of the residential loan agreement).
461 It is not in dispute that Ark Securities did not repay the loan by 4 January 2001, nor that on or about 29 January 2001 the plaintiff took out a further loan from St George Bank for the full amount then owing (namely, $1,745,000) repayable with interest on or about 29 January 2002 and otherwise on the same terms and conditions as the original loan. Since then, the loan has remained outstanding and the interest has been capitalised. As at October 2004, the amount outstanding was $2,124,679.94.
462 The plaintiff believed and proceeded on the assumption that the defendant was explaining the transaction to her husband and she was content with that. She had little comprehension of what was going on. The defendant did communicate from time to time with Johnson Lee, by faxed correspondence and telephone. But much, if not most, of what he told Johnson Lee was untrue, exaggerated or otherwise misleading. That includes the facsimile letters of 6 and 8 December 1999 (with the former of which he sent a copy of the BankWest letter dated 23 November and the St George Bank letter dated 3 December 1999, both of which referred to security for the loan being by way of mortgage over the Forrest Street property). I am satisfied Johnson Lee's facility with written and spoken English is not good and that he had little comprehension of the formal bank correspondence and documents presented to him. He tended to ignore them. As he said, he relied on what he was told. And what the defendant was telling him was all designed to persuade him to go along with the acquisition and development of the Subiaco property and the bank loan.
463 Johnson Lee was certainly aware that the banks wanted security over the Forrest Street property, but he did not appreciate - and the defendant did not explain to him - that the defendant would not be giving security over his property.
464 The defendant's representation to the plaintiff that the St George Bank loan was being made to him and to her jointly and secured equally by them both over their own properties, was false. I accept the plaintiff's submission that the representation constituted misleading or deceptive conduct and was a breach of s 97 of the Fair Trading Act 1987 (WA). I find that absent that representation, the plaintiff would not have accepted the loan offer, granted the mortgage, made the loan to Ark Securities nor subsequently renewed the loan from St George Bank. In short, the plaintiff would not have entered into the transaction at all. The situation was deliberately concealed from her by the defendant. He did not explain the true effect of the loan documents to her and he denied her the opportunity to read them or to obtain independent advice in respect of them.
465 There is an alternative plea of breach of fiduciary duty in relation to the bank loan. I would uphold the plaintiff's case in respect of this plea also. The defendant's conduct in causing the plaintiff to accept the loan, execute the mortgage and advance the funds to Ark Securities for the purpose of the partnership agreement, resulted in detriment to the plaintiff in that she became solely liable for the repayment of the loan and bore the whole of the risk in relation to it. She would have been liable to the bank for the whole amount of the loan had the transaction occurred as he had portrayed it anyway, because the bank would have insisted on joint and several liability, but she would have had the benefit of having the defendant as joint borrower and security over his property in favour of the bank. As between the two of them, the plaintiff's liability would have been limited to 50 per cent of the loan. Conversely, the defendant obtained a benefit for himself in that he arranged for sufficient funds to be advanced to Ark Securities for the partnership project at no cost nor liability to himself and was thereby able to participate as an equal partner without assuming any of the risk or liability that the plaintiff assumed. He obtained a further benefit in that he arranged for sufficient funds to be advanced to enable his commission to be paid or credited to him. In these respects, he preferred his own interests to those of the plaintiff and so breached his fiduciary duty to her. The plaintiff's pleas of undue influence, unconscionable conduct and breach of contract in relation to the bank loan (pars 22, 23 - 24, and 25 - 26 respectively of the statement of claim) have also been made out.
466 By letter dated 6 June 2001, the plaintiff's solicitors made demand of Ark Securities for payment of the full amount then owing to St George Bank on the loan. No payment was made. Ark Securities was placed in voluntary liquidation on 15 June 2001.
467 According to the liquidator, Mr Norman Ashton, as at the date he gave evidence (17 November 2004), the claim by the plaintiff had not yet been adjudicated. There were no other significant potential claims. The funds standing to the credit of the company's bank account (after sale of its assets) were $559,727.
468 There is a contest between the parties about the proper measure of damages. The plaintiff concedes that her remedy in contract is for one-half of the liability for damages, acknowledging that had the loan been obtained in accordance with the partnership agreement and the defendant's representation, the plaintiff would have been liable for half the funding to support the acquisition. The defendant submits that after adjustment for whatever funds are available from the liquidator, that is the remedy for the other pleaded causes of action as well, that is, under the Fair Trading Act and in equity. The defendant relies upon Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 CLR 413 for the proposition that in a situation such as the present the proper measure of damages with respect to the claim under the Fair Trading Act must be the same as for breach of contract. The defendant also submits that the plaintiff has chosen to plead that the false, misleading and deceptive representation was that the Bank documentation gave effect to the partnership agreement, rather than the initial representations that the defendant would be a joint borrower and "put his home into the Bank". It is submitted the plaintiff has not sought to set aside the agreement but to the contrary, accepts that it defines the obligations and entitlements of the parties. That being so, it is submitted, it is not open to her to be compensated on a "no transaction" basis; the pleadings can only give rise to an award on the basis she would not have entered into this transaction - she would, however, have entered into a transaction in which she would have been jointly and severally liable with the defendant and providing equal security. Thus it is contended the proper measure of damages must be one-half the extent of what the joint liability would have been under the agreement.
469 In relation to the pleas in equity, the defendant acknowledges that "generally speaking", equitable damages [sic: compensation] is determined by reference to what is most just in the circumstances, but submits that here that would be to put the plaintiff in the same position she would have been had the defendant performed what had been agreed. That, again, would have resulted in joint liability. The defendant finally submits that where damages arise at common law (eg breach of contract) and equity for the same conduct, the quantum of equitable damages will ordinarily follow the quantification of common law damages and there is no reason here to depart from that rule.
470 These submissions of the defendant as to the proper measure of damages under the Fair Trading Act and in equity were not pleaded by way of defence to the quantum of the plaintiff's claim nor otherwise put in issue during the trial. They were not raised in the defendant's written or oral final submissions. They were made in the defendant's oral final submissions in reply. However the legal propositions were canvassed by both parties in written submissions which I gave leave to file after judgment was reserved.
471 That being so, I reject the plaintiff's submission that the point should not be entertained. And I do not consider there to have been unfair disadvantage to the plaintiff in that she would have adopted a different evidentiary position had the matter been raised earlier.
472 I accept the plaintiff's submission that there is a factual barrier to the defendant's proposition. It is my finding that had it not been for the wrongful conduct of the defendant the transaction would not have proceeded at all. If the defendant had told the plaintiff the borrowing was to be solely in her name and that he was giving no security for it, she would not have signed the documents. Furthermore, the situation was one which it was impossible for the defendant to have rectified. His house was already fully mortgaged, his business account was overdrawn and he had no other property he could offer as security. Had the plaintiff known all that, she would not have proceeded with the transaction. For the same reason, the contention that had the plaintiff not entered into this transaction, she would have entered into one in which she and the defendant were jointly liable, must be rejected. He could not have done so.
473 The remedy suggested by the defendant (an indemnity for 50 per cent of the indebtedness to St George Bank) is not a proper remedy in this case in any event. That would not put the plaintiff in the position she would have been in had the representation been true. The import of the representation was that the defendant was able to provide - and was providing - valuable security. A right of contribution would not "make true" the representation because it would not be coupled with valuable security over real property.
474 The short answer to the defendant's submissions in respect of the Fair Trading Act is that the measure of damages is not confined by the circumstances giving rise to the duty (liability). Once it is established that the plaintiff has suffered loss by the conduct of the defendant, the amount of damages will be measured against the loss so caused. There is nothing in the legislation to suggest the quantum is to be limited by reference to the measure of damages for breach of contract or in tort (see Gaudron J in Kenny & Good v MGICA (supra), at [30]; and generally, "Millers Annotated Trade Practices Act", 24th Ed, (2003) at [1.82.60]).
475 Kenny & Good v MGICA (supra), does not support the defendant's contention. That was a case in which an incorrect valuation was relied on for mortgage insurance. Special considerations apply to valuation cases.
476 As Gaudron J pointed out at [19], although the "but for" test was rejected in March v E & M H Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506, 516, 523 as the exclusive test of causation, it remains the test of reliance when asking whether a representation was the decisive consideration (or one of them) for taking the course of action in question. That is the sense in which I have used it above.
477 More pertinently, the High Court held that the measure of damage was the full loss suffered by the insurer rather than the difference between the valuation and the true value of the property at the time of valuation, because had a correct valuation been made the transaction would not have proceeded at all. I have found the situation was the same here.
478 As to compensation in equity, for the reasons already given I do not consider that it would be a just result to put the plaintiff in the position in which she was jointly liable with the defendant, but without provision by him of security over real property.
479 As Spry points out ("Equitable Remedies", 4th Ed, Law Book Co, at 631-2) it is true that although the application of general equitable principles commonly gives rise to the result that the measure of damages in equity is the same as that at law, that is not because the court is obliged to apply legal criteria, but because the amount of compensation which is found to satisfy the loss or damage suffered and which the court considers equitable, is ordinarily found to be the same as the amount of legal damages that is appropriate. But if the most just course is to award compensation on a different basis to that for legal damages, the court will do so (Madden v Kevereski [1983] 1 NSWLR 305).
480 Moreover, in claims for equitable compensation, arguments directed to matters of causation are of little significance (Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211, 404 - 4-6; Gemstone Corp of Australia Ltd v Grasso [1993] SASC 4211; (1994) 62 SASR 239, 243, 252).
481 As Tadgell J explained in Hill v Rose [1990] VicRp 13; [1990] VR 129 at 144:
"... equity's approach to providing redress differs from that of the common law in that it depends upon treating the fiduciary's obligation as one of a personal character to make restitution to the beneficiary or to the trust estate. So much appears from the judgment of Street J in Re Dawson (deceased) [1966] 2 NSWR 211, at pp 213-16, cited with approval by Brightman LJ in Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515, at p 543. The obligation imposed by courts of equity upon defaulting trustees and other fiduciaries is of a more absolute nature than the common law obligation to pay damages for tort or breach of contract. It follows that the obligation is not limited or influenced by common law principles governing remoteness of damage, foreseeability or causation. The question for consideration is not whether the loss was caused by or flowed from the breach. Rather, as Street J put it in Dawson's Case, at p 215: '... the enquiry in each case would appear to be whether the loss would have happened if there had been no breach."
482 His Honour went on to say, with reference to the case before him, that:
"Applying this principle it appears to me that Mr and Mrs Rose are obliged in equity to compensate the plaintiff for his loss. Had he been told, as he should have been, that the company had no beneficial interest in its business, and that an acquisition by him of shares in the company would provide no beneficial interest in the business, it is inconceivable that the plaintiff would have advanced his money as he did."
483 I have made a similar finding in respect of the plaintiff: it is inconceivable that she would have entered into the loan transaction had she known she would be the sole borrower and the only provider of security.
484 The plaintiff's submission that her loss and the measure of her damages under the Fair Trading Act and in equity is the full amount of her current indebtedness to St George Bank must be accepted, and I so find.
485 By pars 36 - 39 inclusive of the statement of claim, the plaintiff pleads the defendant breached his fiduciary obligations to her, breached the terms of the partnership agreement or was unjustly enriched at her expense, by causing Ark to make certain payments to him variously described as "project management fees" or "further fees", totalling $487,000.
486 The defendant admits these payments were received, but says they were principally management fees agreed to by the plaintiff and, in any event, were all payments approved by her. The plaintiff says she at no stage agreed to nor authorised such payments and only became aware of them in late May 2001, when the defendant sent her a letter and a number of documents, including a "tax invoice" which showed he had paid himself some $372,000 out of the Ark Securities account between February 2000 and January 2001.
487 The defendant's response to this is contained in par 4 of his defence, which I have set out above. What he there described as the "relationship agreement" was referred to at trial as the "Coco's agreement".
488 The central explanation advanced by the defendant for setting a minimum management fee of $20,000 per month, was that if he devoted himself to the management of the partnership project(s), he would be unable to earn income from his real estate business, which in the previous year had been approximately $280,000. I have already referred to the evidence which shows that, although he made that representation to banks and other people, it was false. His income in 1998 had been substantially less than that. In addition, the defendant's evidence on this was inherently inconsistent and contradictory.
489 In his letter to the plaintiff dated 27 March 2001, in which he said it was appropriate they now "call a spade a spade" and clarify the arrangements between themselves, he wrote that the plaintiff had agreed to pay $20,000 per calendar month " ... being the economic cost of me to work full-time for Ark Securities Pty Ltd exclusively and cease my real estate business operations". He added that "I have a wife and family who I need to maintain and I could not compromise on that income flow. This was demonstrated to you at the time by the copy of my 1999 income tax return I supplied my bankers". In fact, there was never a 1999 income tax return prepared by or for the defendant at any time relevant to these proceedings. Although a draft return was prepared, it was false and, in any event, was not in existence prior to April 2000, and so could not have been shown to the plaintiff in December 1999, nor any earlier time.
490 Notwithstanding that the defendant professed to be calling "a spade a spade" in respect of the arrangements between him and the plaintiff, there is no mention in that letter of the Coco's agreement - even though in his evidence he said the monthly management fee was a major part of the discussion on that occasion.
491 Although initially the defendant conveyed the impression the relationship agreement was made at Coco's, as his evidence progressed he sought to explain it was the culmination (or reaffirmation) of agreements previously made with the plaintiff.
492 In an affidavit sworn 17 August 2002, the defendant did not mention the Coco's agreement at all in this connection, but asserted that the plaintiff authorised the payment of management fees to him when the partnership commenced in August 1999.
493 As a matter of commercial or business reality, there is considerable force in the submission made on behalf of the plaintiff that it is inconceivable she would have agreed to the arrangement asserted by the defendant. It would have led to almost certain financial ruin for her within 12 months. Of the $1,625,000, $843,000 was applied to the purchase of the Subiaco property, $40,000 was paid for stamp duty and related expenses, interest for the first 12 months would have been $125,000 and not less than $240,000 would have gone on "management fees" (although, in fact, the defendant took payments of $487,000). As a result, there would have been almost no money remaining after the first 12 months. There would have been no money to redevelopment the Subiaco property, no money to repay the principal, nor any further interest to St George Bank in any subsequent year. That would have inevitably meant foreclosure on the mortgage of the Forrest Street property unless the Lees were able to pay out the loan, plus interest, from other sources.
494 Apart from that unlikelihood, the partnership project simply did not warrant the defendant's full-time involvement. As I have found, the only business of the partnership was the acquisition, redevelopment and resale of the Subiaco property. The development proposed was to be the demolition of the existing building and construction of a new one. No rebuilding occurred. Development approval was not even sought. The only work that did occur was in early 2001, comprising some minor renovation work undertaken once the dispute arose. The defendant sent a separate invoice for $32,000 in relation to that work. There is simply no discernible justification for work by the defendant which would justify payment of $240,000, much less $487,000, in a 12-month period.
495 The defendant also said in cross-examination that he took notes of the Coco's agreement at the time, but was unable to produce them because they were amongst papers stolen from his office in May 2001. Despite the defendant having sworn a number of affidavits of discovery, he had not hitherto revealed the existence of these notes. I consider it extremely unlikely that at a lunch (or dinner) with the woman he claims was his mistress, who was pressing him to accept very large payments from her to demonstrate her love for him and to "reignite the old passionate fire" of their relationship, the defendant would take notes in the way he described at all - much less, having done so, not then subsequently setting them out at least in correspondence. Nor do I accept the defendant's evidence that such notes were stolen.
496 If the defendant's account of the Coco's lunch were true, it would be curious that despite wanting to give him large amounts of money because of his financial difficulties, the plaintiff was still insisting that he pay her the monthly interest of $1250 on her $150,000 - and that he did so (although not on time and usually not from his own money). I accept Mr Gilmour's submission that the plaintiff's continued insistence on that and the defendant's compliance, although patchy, are consistent with a business relationship as described by her, rather than the sort of personal relationship described by him.
497 Furthermore, the defendant's own conduct during 2000 is not consistent with an agreement as he claimed it. Although the defendant paid himself large sums from the Ark Securities account from time to time, there was no occasion when he withdrew precisely $20,000 (or $22,000 if allowance be made for GST). The defendant continued to have business interests through Keywest Realty and Keywest International, including travelling to China to attempt to sell Perth real estate and SMS technology. Such activity was inconsistent with the notion of him devoting himself full-time to the business of Ark Securities and being paid a minimum of $20,000 per month for doing so.
498 In the absence of fully informed consent on the part of the plaintiff, the taking of these moneys as "fees" by the defendant, constituted on each occasion a breach of his fiduciary duty owed to her and in respect of which she is entitled to equitable compensation. It is self-evident that other considerations aside, there would have been an additional $487,000 available to the liquidator do dispose to the plaintiff. The defendant has asserted there was fully informed consent, relying specifically on the Coco's agreement. Senior Counsel for the defendant made it clear that the pleading of the Coco's agreement was not to suggest that it was relied upon as an agreement having contractual force, but rather as going only to the issue of fully informed consent. I am satisfied there was no such agreement - either at Coco's or earlier.
499 It follows that the defendant's payment to himself of these amounts totalling $487,000 was in breach of the partnership agreement. There was no term in that agreement which permitted him to use Ark Securities' funds to pay himself project management nor any other fees. The plaintiff's plea that by making these payments to himself, the defendant was unjustly enriched at the plaintiff's expense has also been made out.
500 The first aspect of this is the defendant's use of Ark Securities' moneys to finance trading in company shares. I have outlined the evidence about this above.
501 The plaintiff said the defendant told her the share trading agreement was only an application form. That was correct. It was an application to open an account. However, the plaintiff said that the defendant assured her that he would not do any trading in shares without first discussing it with her and getting her approval. I accept the plaintiff's evidence about this. In particular, I find that once the account was opened, the defendant traded in shares using Ark Securities' funds without further reference to her, until he showed her a folder of contract notes and accounts in April or May 2000. When she protested, and said she did not want him using partnership money to trade in shares because her husband thought it was "like gambling", he told her it was not dangerous and he could make her a millionaire. She maintained that she did not like it and did not want him using partnership funds for that purpose.
502 In six separate transactions between 2 February and 10 March 2000, the defendant paid a total of $157,231.28 out of Ark Securities' account for share trading. It may have been more, but those amounts are confirmed from bank statements. For example, an Ark Securities' cheque stub in the defendant's handwriting shows a cheque drawn to Macquarie Porter Weston on 23 March 2000 for an amount of $10,000, but that payment is not reflected in the Macquarie Porter Weston accounts.
503 I accept the evidence of Johnson Lee that, at a meeting he and the plaintiff had with the defendant in the latter's office about June 2000, he asked to see Ark Securities' bank statements, and when he learned the defendant by then had paid out some $212,000, he demanded details. He became furious that the defendant had been using the account to trade in shares and pointed out the defendant had no authority to do so. I find that to be the case.
504 The next amount pleaded as an unauthorised payment by the defendant out of Ark Securities' account is the $40,000 paid to Lynpark Holdings on 21 February 2000. That was the option fee in respect of the Carabooda land. The defendant admits making the payment. The acquisition of the Carabooda land, or of any land other than the Subiaco property was not within the terms of the partnership agreement. Payment of the $40,000 by way of an option fee for the Carabooda land would necessarily be a breach of the agreement and of his duty to the plaintiff, by the defendant, unless he was otherwise authorised to make it. I accept the plaintiff's evidence that she was not told about this and learned of it only subsequently. I find the payment was unauthorised.
505 The defendant agreed that he had transferred $60,000 out of Ark Securities' account to the Keywest account and that he subsequently used the money to pay for his trip to China in mid-2000 and to defray his own personal or business expenses. On his own evidence, part of the money was used to pay for the airfare and other expenses of his secretary, Helen Guo, with whom he was having a sexual relationship at the time. Notwithstanding his admissions about the use of the money, the defendant attempted to justify the trip at least in part as being on Ark Securities' business. He said its purpose was to sell the Subiaco property and SMS technology (as well as unrelated properties, including Dizzy Lamb Park) to Chinese purchasers. That explanation simply does not bear scrutiny. While I accept he did raise the question of SMS technology with Johnson Lee, the latter was not interested in it. The conduct and correspondence of the defendant in relation to this was another example of him portraying the positions of others in a wholly false and misleading way. Neither Ark Securities nor the Lees had any interest in SMS technology. Whatever the purpose of the defendant's trip to China in mid-2000, it had nothing to do with any business of Ark Securities. In causing the company to pay him the $60,000, the defendant was in breach of the partnership agreement and of his fiduciary obligations to the plaintiff. I make a similar finding in respect of the payments of $3750 (28 October 1999), $2500 (17 December 1999) and $5000 (18 April 2000) made by the defendant to the plaintiff out of Ark Securities' account. Those were interest payments due to her by the defendant (or Keywest) on the $150,000 loan made in 1998. On no view were they legitimate expenses of Ark Securities. Interest on that loan was not an Ark Securities' liability. They were shown in the Ark Securities' accounts given to the plaintiff as her drawings under the partnership agreement. Those were false entries and I am satisfied they were made by or at the instigation of the defendant.
506 The defendant admits that he caused Ark Securities to advance $150,000 which was used by Keywest Realty as part of the consideration paid by it for the acquisition of his new business premises at 817 Canning Highway, Applecross, but he pleads that amount was an advance on funds payable to him from the company. In closing, it was contended on behalf of the defendant that the money was paid with the plaintiff's knowledge and consent and offset against the defendant's loan account which was in credit by $133,000 (that being the commission/deposit amount). I have already dealt with payment of the commission.
507 In his evidence-in-chief, the defendant said the initiative for the purchase of new office premises for Keywest came out of his discussion with the plaintiff at Coco's in December 1999, as a result of which he and the plaintiff looked at several properties, including some in Subiaco and Applecross. He says they ultimately agreed to acquire the Canning Highway property and he told her he would submit an offer in his own name, but keep open the option of acquiring it in the name of Ark Securities or Keywest. He said she agreed to that, and that the two of them even discussed the possibility of acquiring the adjoining property and amalgamating and developing both of them. He says he told the plaintiff he wished to draw $150,000 from the Ark Securities account, "much of which" would be by way of advance on his project management fees and she agreed. He accordingly made an offer on the property. Approximately $71,500 of the $150,000 was paid by way of deposit, some of the balance was used to refurbish the Canning Highway property and the remainder was spent by the defendant on his own business expenses. Finally, the defendant says that the plaintiff subsequently told him she did not want the Canning Highway property to be purchased by Ark Securities and he should conclude the purchase in his own name, which he did.
508 In her evidence, the plaintiff said the acquisition was never discussed with her and she never agreed the defendant could use partnership funds for it. According to her, the defendant told her in May 2000 that he had moved into an office at 817 Canning Highway, Applecross. He told her he had bought it a long time ago, but because his tenants had not been looking after it, he had decided to move back in. About July 2000, the defendant began renovating the refurbishing the Canning Highway premises. He bought new furniture and computers. The plaintiff began to suspect he was using partnership money for this when he pointed to one of the rooms and told her that was her office and her desk. She asked him why renovations were needed and whether he was using partnership money. He said the renovations would help the business. She told him he should not be spending partnership money on these things. According to the plaintiff's evidence, when she said that, the defendant just ignored her, kept talking, tried to change the subject and became angry. When describing this and similar incidents, the interpretation of what the plaintiff said is that she started "getting nervous". My impression is that much was lost in the translation or interpretation, and that what the plaintiff was seeking to convey was that she was frightened and intimidated by the defendant's verbally (and at times physically) aggressive response.
509 I accept the plaintiff's evidence in relation to the $150,000 and the acquisition and refurbishment of the Canning Highway property. That had nothing to do with Ark Securities nor the partnership agreement. The plaintiff did not otherwise agree to nor authorise the use of Ark Securities' funds in that way. The use of the $150,000 by the defendant was in breach of the partnership agreement and his fiduciary duty to the plaintiff.
510 At par 40.6 of the statement of claim, further breaches of the partnership agreement and the defendant's fiduciary duty are pleaded by payment of a commission of $4000 paid to Keywest on or about 24 November 1999 and $7000 to Absica on or about 24 January 2000. In Ark Securities' accounts provided to the plaintiff in April 2000, these two amounts are shown as commissions paid. In 2001, the plaintiff applied in these proceedings for an asset preservation order. In her supporting affidavit, she deposed that she knew nothing about, and had not authorised, payment of those commissions. In his responding affidavit sworn 25 October 2001, the defendant deposed that Helen Guo had made numerous errors in these accounts and that these particular entries had been wrongly shown as commissions instead of drawings. The defendant deposed the $4000 and $7000 amounts were, in fact, drawings by him and the plaintiff respectively. When it was put to him in cross-examination that he knew that to be a false assertion and that the $7000 was the money he had drawn and paid in cash to Lombardo, the defendant said "recent accounting" had shown there were two amounts of $7000 drawn about that time, one of which was the payment to Absica, and the other was $7000 paid in cash to the plaintiff.
511 I find that on the balance of probabilities the $7000 withdrawn on 24 January 2000 was the money that was paid to Absica as compensation for the delay in settlement. It falls to be treated as part of the purchase price for the Subiaco property.
512 In the final submission made on behalf of the defendant, it was contended the $4000 paid to Keywest about 24 November 1999 was ultimately paid for architectural drawings in respect of the Subiaco property. That submission mistakes the $4000 for the amount of $5000 transferred from Ark Securities into the Keywest account on 3 November 1999. There is no explanation for the $4000 payment other than that it was "drawings" by the defendant. He was not entitled to such drawings. This particular of the claim is made out.
513 The final unauthorised use of partnership funds pleaded by plaintiff is the application of such funds to the Dizzy Lamb Park project and for purposes other than the business of the partnership, as set out in schedule A annexed to the statement of claim. That schedule contains a list of seven enumerated payments made between 9 October 2000 and 12 January 2001 totalling $5758.84, plus an unquantified amount described as "other sums paid in cash". It is said for the plaintiff that, whilst it is known (or believed) that the defendant made payments out of Ark Securities' account for the purposes of or relating to Dizzy Lamb Park, they cannot presently be quantified and some sort of accounting would be required. The defendant admits paying the amounts listed as 1 - 7 inclusive on schedule A, and says they were expended on Dizzy Lamb Park. His evidence is that he caused extensive work to be done at the park which he paid for out of Ark Securities' funds. This work included rehabilitating the grounds and buildings, refurbishing a tourist railway, renovating and upgrading of residence and shops, general maintenance of the grounds and facilities, beautification of the grounds, clearing fire-breaks, repairing and rehabilitating an animal park, and various other activities. The defendant does not quantify these payments, nor is that possible on the evidence. For the moment, it is necessary to consider only whether the Dizzy Lamb Park project was or became part of the partnership business carried out through Ark Securities, or the payments out of Ark Securities' account were otherwise authorised by the plaintiff.
514 There can be no doubt the defendant was very anxious to acquire and develop Dizzy Lamb Park - but he did not have the financial resources to do that himself. He first raised it with Johnson Lee in July 2000, when he went to Hong Kong on his way to China. He urged Johnson Lee to invest in the project jointly with him. His offer to put in $950,000 of his own money was spurious. He did not have the money and would not have been able to borrow it. The defendant's approach here was reminiscent of that he had taken to the Subiaco property project, by trying to secure an interest in the property on his own account in the expectation that the funds to complete the purchase would be forthcoming from moneys put into a partnership vehicle by others.
515 So it was that on 29 June 2000, prior to his discussion with Johnson Lee, the defendant, through Keywest International, on payment of an option fee of $1000, had entered into a Deed of Option with Brajkovich Holdings to purchase Dizzy Lamb Park for $2.95 million. As I have said, there was at that time no prospect whatsoever that the defendant or his companies could have provided the funds to complete that purchase.
516 The defendant subsequently prepared a conditional Offer and Acceptance form to purchase Dizzy Lamb Park for $2.95 million. He nominated the purchasers as Keywest International (as to two undivided one-third shares) and Courtza "and/or nominee" (as to one undivided one-third share). On the face to it, Courtza was to put up $400,000 (being the attributed value of two of the Emerald Hotel units). Keywest International was to pay a deposit of $950,000 and a further $250,000 in the form of property at 331 Benara Road, Morley, Western Australia. Although the defendant's proposal was that the park would be open for business in January 2001, final settlement would not occur until January 2002. The evidence is that the defendant wanted to on-sell the park for $5.5 million. It is likely his intention was to achieve that in such a way as to use the funds from on-selling the park to pay for its acquisition and development. But in the meantime, he needed cash for the development and ongoing expenses of the park. He got it from Ark Securities.
517 I accept Johnson Lee's evidence that, when the defendant urged him in July 2000 to invest in Dizzy Lamb Park, he told the defendant it was too much money and he was not interested. I find that Johnson Lee rejected the defendant's proposal, but the defendant nonetheless proceeded with it. I further accept Johnson Lee's evidence of what transpired in mid-September 2000, when Lee was in Perth. There is no doubt the Dizzy Lamb Park contract was signed on that occasion (probably on 14 September 2000); so much is common ground. Johnson Lee is obviously correct when he says the document was not executed on the handwritten date which it bears.
518 I am satisfied the defendant, by dint of his unremitting importuning, finally prevailed upon Johnson Lee to execute the Dizzy Lamb Park contract on the basis that it would not have any legal effect unless and until the option to purchase was exercised, and a decision about that could be made later. In fact, neither Johnson Lee nor the plaintiff ever agreed to exercise the option to purchase Dizzy Lamb Park. But the defendant had a signed contract and on 18 September 2000 he wrote to Brajkovich Holdings forwarding a copy of that, and otherwise writing in terms which suggested or assumed the option had been exercised. On the same date, he wrote to Mr and Mrs Lee at their Forrest Street address enclosing a copy of his letter to Brajkovich Holdings " ... outlining your acceptance by signing and sealing the Offer and Acceptance contract to purchase 'Dizzy Lamp Park' (Emerald Valley Retreat)" on 14 September 2000. He wrote that additionally they had agreed to special conditions of the Offer and Acceptance, and its attached "Deed of Option" dated 29 June 2000 and that they now required to have the transfer of the two Emerald Hotel units to be effected on or before 30 January 2001, at which time the contract to purchase the park would become unconditional, with final settlement on or before 30 January 2002.
519 Johnson Lee subsequently instructed A C Thorpe, solicitors, in relation to the Dizzy Lamb Park transaction and on 31 January 2001 Thorpe wrote to the defendant referring to "the purported option" dated 29 June 2000 and the Dizzy Lamb Park contract, and advising that, to the extent it may be necessary, Courtza gave notice that the Emerald Hotel units would not be transferred to the vendor and Courtza would neither exercise any option it may hold nor did it authorise any other party to do so on its behalf. He wrote to Brajkovich Holdings in similar terms.
520 On 7 May 2001, Freehills wrote to Thorpe advising they had been instructed by the defendant and Keywest International. They asserted that written notice of the intention of Keywest International and Courtza to proceed to settlement was outlined (that is, the option was exercised) in the letter to the vendor dated 18 September 2000. They asserted further that, by not transferring the Emerald Hotel units, Courtza was in breach of contract and foreshadowed that proceedings would issue.
521 A writ did issue out of this Court in the name of Keywest International on 2 August 2001. A statement of claim was filed on 11 September 2001. Courtza filed a defence on 22 November 2001. So far as I am aware, those proceedings (CIV 2097 of 2001) are presently in abeyance.
522 Given those separate proceedings, it seems to me particularly necessary to confine these reasons to precisely the issue which has been pleaded, which is that the payments by the defendant made out of Ark Securities' funds in respect of Dizzy Lamb Park were not authorised and were made in breach of the defendant's fiduciary duty to the plaintiff. I am satisfied that is so. I accept the evidence of the plaintiff and her husband on this. The acquisition and development of Dizzy Lamb Park was never part of the partnership agreement. The expenditure of Ark Securities' funds for that purpose was therefore not a proper expenditure; nor was it authorised by the plaintiff or her husband.
523 In respect of the payments pleaded at pars 36 to 41 of the statement of claim, it is submitted on behalf of the defendant that because it is pleaded that "as a director of the company" the defendant caused the company to make them, and the money concerned was that of Ark Securities, any claim "qua director" is one which could only be made by the company for breach of duty owed by the defendant to it. The submission is that the claim is not one that can be maintained by the plaintiff in her own right.
524 I do not accept that submission. The claim is one for breach of fiduciary duty, arising out of the partnership relationship. The partnership purpose was the acquisition, development and re-sale of the Subiaco property, to be funded by a bank loan and achieved through the vehicle of Ark Securities. Equity is concerned with fairness according to the reality of the parties' relationship and dealings. Furthermore, no such issue was pleaded by the defendant.
525 The plaintiff's case against the defendant succeeds. There must be judgment for the plaintiff.
526 The defendant's plea as to the nature of the agreement between him and the plaintiff must fail, given my findings already made about that. Specifically, it was no part of their agreement that the partnership would establish and operate a health and beauty salon on the Subiaco property, although the plaintiff was certainly interested in operating such a business on her own account and she ultimately did so.
527 As I have found, the plaintiff did not instruct the defendant to remove two or any of the tenants from the Subiaco property so that she could establish a beauty salon. I accept her evidence that what she wanted was either to keep the tenants in place so as to receive the rental income or alternatively to get the redevelopment done quickly. She wanted the latter because she wanted to re-sell the property within the year. That is consistent with the loan period being 12 months.
528 The plea that the plaintiff was in breach of her fiduciary duties to the defendant by opening her own health and beauty salon in South Perth in January 2001 must fail in light of my findings already made. It is also significant that when the plaintiff mooted the possibility of operating the Burswood Resort salon, the defendant not only saw no problem with that from the point of view of any possible impact on the Subiaco property project, but he immediately sought to involve himself in and promote the prospect.
529 At par 17 of the counterclaim and following, the defendant pleads that in breach of her duties the plaintiff failed and refused to join with the defendant to cause Ark Securities to lease the Subiaco property. The particulars refer to a proposed lease by Michael and Richard Warner for three years and a proposed lease on a month to month basis for $700 per week.
530 It is further pleaded that "on sundry occasions" prior to and up to 1 June 2001, the plaintiff failed and refused to meet with the defendant for the purpose of considering, and if considered appropriate, actually making decisions with respect to the partnership, including in her capacity as a director of Ark Securities. The defendant pleads that as a consequence, the partnership became moribund, leaving him with no option but to appoint or agree to the appointment of a provisional liquidator.
531 It was the defendant's evidence that he received the writ relating to the plaintiff's loan of $150,000 about 14 March 2001 and that he later wrote to Robert Lim explaining that he disputed the claim. He says he had received various offers to lease the Subiaco property, including one from the Warners, and that he approached the plaintiff on several occasions seeking her authority to lease it, but she would not agree.
532 The defendant says that on 15 May 2001 he wrote a letter to Vincent Tjeuw of Fan & Associates (Robert Lim's firm, which was then acting for the plaintiff in the matter) enclosing several cheques to be signed by the plaintiff for the payment of accounts together with the Warner's offer to lease the Subiaco property and other documents. On the same date he sent a facsimile to Vincent Tjeuw confirming that he had received a quotation for the renovation of the Subiaco property and confirming he had still not heard anything from the plaintiff concerning the refurbishment of it.
533 The defendant says that as a result of not receiving any advice from the plaintiff concerning refurbishment of the property he continued renovating it himself in an effort to get the project completed.
534 It was common ground that one thing that was agreed at the meeting in the defendant's office on 25 January 2001 was that the Subiaco property would be improved and refurbished so that it could be let. The plaintiff acknowledged in cross-examination that in April 2001 the defendant told her that he had prospective tenants. However, when it was put to her that he told her it was the Warners and he wanted her approval to let the premises to them, she said he "just commented" that they wanted to come and that he would consider it. Her evidence was that she had no authority or power - the defendant did everything; he managed and did everything himself. Senior counsel put to her that she would not agree to lease the property, to which her response was:
"Not at all. I just wanted to rent it out as quickly as possible so we can pay the interest and my things."
535 The plaintiff's evidence about this is entirely consistent with the uncontradicted or other objective evidence demonstrating the defendant's manner of conducting the affairs of the partnership and his dealings with the plaintiff or on her behalf.
536 The situation has to be looked at in context. On 11 May 2001 Thorpe wrote to the defendant in respect of the two Persian carpets delivered to the plaintiff's home in November 1999, pointing out that on numerous occasions she had requested him to remove them and he had told her he would do so when he had time. Thorpe gave the defendant seven days to collect the carpets, failing which the plaintiff would arrange to have them stored at his expense.
537 The defendant's evidence was that he wrote to the plaintiff on 28 May 2001 advising her of where matters stood with the Subiaco project and generally, and enclosed copies of accounts and other documents previously sent to Vincent Tjeuw. It was also about that time that the parties sought restraining orders against each other, and in mid-June the plaintiff applied to put Ark Securities into liquidation.
538 In most cases it is possible to accept contemporary correspondence between parties as reflecting what was really happening at the time, but that cannot be so with the defendant's correspondence. One could have no confidence that the content of any correspondence from him reflected the real state of affairs. None of the correspondence over this period supports the defendant's plea that the plaintiff was refusing to perform any duty required of her as a director of Ark Securities.
539 What does appear from the defendant's correspondence over this period is that as late as 23 February 2001 he was still telling the plaintiff (through Robert Lim) that the accountants were still working on the Ark Securities share transactions and accounts. Clearly, in the absence of any such accounts the plaintiff would have no way of knowing what the financial position of Ark Securities was. It is also apparent from the defendant's correspondence that even despite the Thorpe letter of 31 January 2001 giving notice that Courtza would not exercise any option it might have to purchase Dizzy Lamb Park, the defendant was still claiming to have been acting as if the option had been exercised and the purchase was continuing. He reported considerable expenditure on works at the park and discussions with potential buyers.
540 The lease proposal from the Warners was not made until 5 May 2001. According to the defendant's own correspondence, it was not forwarded to Vincent Tjeuw until 15 May 2001 and to the plaintiff under cover of the defendant's letter dated 28 May. The other documents forwarded which were said to require the plaintiff's attention were an account from Bunnings for $768.71, an account from Lombardo & Co for the period to 30 January 2001 for $3733.40, an account from Boss & Co for electrical work on the Subiaco property, for $161.70, an overdue account from Western Power in an amount of $530, an Australian Tax Office notification of an overdue activity statement (which presumably could not have been lodged without the account information), an Alinta Gas notification of interim dividend payment of $315 with an attached cheque and similar notification from Telstra of an interim dividend of $496 (it is not apparent why the defendant could not simply have deposited those cheques into the Ark Securities' account).
541 I also note that one of the items the defendant had put to Vincent Tjeuw for the attention of the plaintiff was his letter of 27 March 2001 (which she denied ever having received) and the attached statement, asserting an agreement to pay him project management fees of $20,000 per month and claiming payment. Given my findings about this, there can be no complaint that the plaintiff did not do so.
542 Under the circumstances as they were in May 2001, I do not regard these matters as grounding the defendant's plea that the plaintiff refused to perform her obligations as a director. I am not satisfied she refused to approve a proposed lease to the Warners, nor any other lease, in early 2001. Nor am I satisfied that "on sundry occasions prior to and including 1 June 2001", as pleaded at par 19 of the counterclaim, the plaintiff failed and refused to meet with the defendant for the purpose of making decisions with respect to the partnership or as a director of Ark Securities, as a consequence of which the partnership became moribund "leaving the defendant with no option but to appoint or agree to the appointment of a provisional liquidator and ultimately the liquidation" of Ark Securities.
543 It was the plaintiff who took steps to place Ark Securities into liquidation. The defendant's evidence was that he did not oppose that because on advice from his solicitors he had already decided to apply for the appointment of a provisional liquidator, given the plaintiff's refusal to attend any directors' meetings he had called or to otherwise make any decisions as a director of the company. He was not specific about any particular directors' meetings the plaintiff had refused to attend. The correspondence in evidence for the period February to May 2001 was to Robert Lim or Vincent Tjeuw. Amongst other things, that canvassed the cost of refurbishing the Subiaco property for tenancy or re-sale, which was generally agreed to be some $50,000 to $55,000. It was in this period that the defendant wrote advising that he had advertised Dizzy Lamb Park for $5.5 million and that he wrote the "... I am no sausage" letter.
544 The correspondence from the defendant at this time was contrived to create an impression that the partnership had become unworkable because of the plaintiff's conduct. The opposite was in fact the case.
546 The plaintiff claims equitable compensation, orders for the payment to her of all monetary benefits received by the defendant from Ark Securities by which he was unjustly enriched at her expense, damages pursuant to s 79 of the Fair Trading Act, for breach of contract and for negligent misstatement, an order that the defendant account for all unauthorised expenditure of partnership funds and other orders.
547 A number of the plaintiff's claims are in the alternative and there is also considerable overlap between them. It is also necessary to ascertain and allow for whatever the plaintiff might recover from the liquidator.
548 I will hear from the parties further on the form of orders necessary to give effect to my reasons.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : LEE -v- MAVADDAT [2005] WASC 68 (S)
HEARD : 8-12, 15-19, 22-26, 29 NOVEMBER 2004, 17 JANUARY & 22 JUNE 2005
Practice - Orders - Defendant found liable to repay partnership funds - Whether judgment should be held pending distribution of dividend by the liquidator
Practice - Orders - Use of partnership funds to pay deposit on purchase of property by fiduciary - Partnership funds only part of purchase price - Whether there should be declaration fiduciary holds whole of property on constructive trust
Practice - Costs - Conduct of defendant - Whether circumstances justifying special costs order - Whether conduct went to way litigation conducted
Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163
Biltoft Holdings Pty Ltd v Casselan Pty Ltd (1991) 4 WAR 14
Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225
Cretazzo v Lombardi (1975) 13 SASR 4
Degmam Pty Ltd (In liq) v Wright (No 2) [1983] 2 NSWLR 354
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd & Ors [1988] FCA 202; (1988) 81 ALR 397
Harrison v Schipp [2001] NSWCA 13
Henderson v Amadio Pty Ltd, unreported; FCA; 22 March 1996
Hypec Electronics Pty Ltd (In liq) v Mead & Ors [2004] NSWSC 731; (2004) 61 NSWLR 169
Lee v Mavaddat [2005] WASC 68
SDS Corporation Ltd v Pasdonnay Ltd & Anor [2004] WASC 26 (S2)
1 ROBERTS-SMITH J: These are supplementary reasons for decision concerning certain costs and other orders following upon my judgment in the substantive action in these proceedings on 29 April 2005 (Lee v Mavaddat [2005] WASC 68). These reasons should be read with that.
2 Following my judgment on 29 April, I suggested the parties confer and attempt to reach agreement on the orders which should be made to give effect to it. The plaintiff's solicitors subsequently filed a minute of proposed orders dated 17 June 2005. Following further discussion, a further minute was handed up to me on the adjourned hearing on 22 June. The orders sought were:
"1. There be judgment for the plaintiff in the sum of $2,246,467.98.
2. If the plaintiff recovers any sum from the liquidator of Ark Securities Pty Ltd then the plaintiff is not to enforce the judgment to the extent of any such recovery.
2A. If the plaintiff recovers any further sum from the liquidator of Ark Securities Pty Ltd when the plaintiff has already recovered the full extent of the judgment sum, interest and costs, then such amount be held by the plaintiff on trust for the defendant and delivered to him.
3. Interest on the judgment is to accrue at the rate of 7.32% compounded daily.
4. The counterclaim be dismissed.
5. The defendant holds the property at 817 Canning Highway Applecross being the land in Certificate of Title Volume 1451 Folio 389 on trust for the partnership.
6. The defendant pay the plaintiffs costs of the action and of the counterclaim to be taxed.
7. In relation to costs:
(a) There be a certificate for two counsel.
(b) There be a certificate for transcript.
(c) The costs be taxed without regard to the limits imposed for the work described in items 16, 19(a), 19(b), 19(c), 19(d), 24 of the Scale.
(d) The taxing officer allow the cost of preparing the written outline of closing submissions.
(e) The taxing officer allow the costs of the interpreter as a disbursement.
8. All costs due from the defendant to the plaintiff be taxed on an indemnity basis such that the defendant pay all the costs incurred by the plaintiff except insofar as they are of an unreasonable amount or have been unreasonably incurred, so that subject to the above exceptions, the plaintiff be completely indemnified by the defendant for its costs.
9. There be liberty generally in relation to these orders."
3 There was agreement between the parties that the amount at (1) ("the principal sum") was the appropriate amount which should be ordered to be paid, were I to order payment rather than defer doing so until the liquidator of Ark Securities had paid out the dividend distribution on liquidation. It was likewise agreed there should be orders in the form of (2) and (2A) were I to give judgment immediately for the principal sum. Proposed orders (3), (4), (6) and (7) were agreed. Proposed orders (5) (declaration of trust), (8) (indemnity costs) and (9) (liberty to apply) were in dispute.
4 The first point of contention was whether I should make an order for payment of the principal sum forthwith, or delay that pending finalisation of the distribution by the liquidator of Ark Securities. Having heard counsel, I determined that I should make that order forthwith, as well as that at (5). I did so, and indicated I would give my reasons later. I reserved my decision on (8) and (9). I shall deal with those matters separately below.
5 It was common ground that the plaintiff will receive some moneys from the liquidator, but the amount is not presently ascertainable. It is expected to be some hundreds of thousands of dollars. The submission on behalf of the defendant was that there should be precision about the amount for which judgment is entered, otherwise there would be uncertainty and the likelihood of ongoing disputation between the parties. Mr McKerracher QC framed his submission in a way which anticipated the distribution would probably be made within a few weeks from that date. That was based on a facsimile message from Messrs Stables Scott, the plaintiff's solicitors, dated 13 June 2005, in which they advised:
"The cut-off date for objections to the adjudications to proofs of debt was 7 June 2005. Mr Woodhouse of PPB advised today that there had been no objections to the adjudications and therefore Mrs Lee and Western Power were the only two creditors who would receive distributions. The Liquidator's current position is that an interim distribution will be made because he will retain some funds pending the outcome of the litigation between our respective clients. The retention figure has not yet been determined. The interim distribution will not be made until next week. We are informed that we will receive correspondence next week from the Liquidator concerning the matter."
6 Of course, at the date of hearing, that was already more than a week earlier. Furthermore, there had been an expectation even at the end of April, that the distribution would not then be too far in the future. Given the proposed orders (2) and (2A), Mr McKerracher was unable to point to any prejudice his client would suffer were I to give judgment of the amount sought forthwith. If that were done and the plaintiff subsequently were to receive funds from the liquidator, the defendant's position would be safeguarded. Also, the situation was of the defendant's own making. On the other hand, it seemed to me the plaintiff ought not to be kept out of recovery on the judgment in her favour, for an uncertain period. These were the reasons I gave judgment on 22 June in the principal amount.
7 The rate of interest of proposed order (3) was that being charged to the plaintiff by St George Bank on the outstanding loan moneys which could not be repaid until she recovers from the defendant. Mr Davies suggested one reason the plaintiff wanted liberty to apply was to cover the possibility the Bank might change its interest rate, necessitating a variation of the order. I indicated that possibility could be accommodated by an appropriate amendment to the proposed order, adding words to the effect that the rate of interest would be 7.32 per cent or such higher rate that the Bank charges the plaintiff, and that I would make the order in those terms.
Declaration of trust - property at 817 Canning Highway
8 The defendant's opposition to an order in these terms was based on the notion that the property could not properly be said to be held by the defendant in trust for the partnership, because the partnership contribution was only as to some 46 per cent of the purchase price.
9 The case as pleaded was that $150,000 of Ark Securities' funds were applied as part of the consideration for the acquisition of the premises at 817 Canning Highway, Applecross. That claim was made out. The payment was unauthorised and constituted a breach of the defendant's fiduciary duty. The purchase price was $320,000. The evidence was (and I found) that the defendant used partnership funds to pay the deposit on the property and to undertake what were described as improvements to it.
10 In relation to this proposed order, it is submitted on behalf of the defendant that the highest the plaintiff's case could be put is that the partnership had a 46.875 per cent interest in the property (reflecting the $150,000), giving the plaintiff a 23.4 per cent interest. As Mr Davies for the plaintiff points out, this formulation would give the defendant a benefit to the extent of 50 per cent of the $150,000 (presumably by virtue of his interest in the partnership), which would be quite misconceived because the partnership did not authorise expenditure of those moneys for that purpose at all. That must be so. But the substance of the objection was that a declaration that the defendant holds the whole of the property by way of constructive trust on behalf of the partnership ought not to be made because the partnership funds amounted to only some proportion of the total expenditure on the property.
11 It is clear that where a fiduciary makes a profit out of his relationship, he will become a constructive trustee of that profit or all of the property so acquired by him (see "Jacobs Law of Trusts in Australia", 6th ed, [208]). A partnership is a recognised relationship giving rise to fiduciary duties. As pointed out in "Jacobs" (supra) at [1330]:
"(7) '[A] fiduciary is liable to account for a profit or benefit if it was obtained (1) in circumstances where there was a conflict or possible conflict of interest and duty or (2) by reason of the fiduciary position or by reason of the fiduciary taking advantage of opportunity or knowledge which he derived in consequence of his occupation of the fiduciary position' (Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41 at 107[1984] HCA 64; , 55 ALR 417 per Mason J).
(8) Any profit or benefit obtained by a fiduciary in either of these two situations is held by him as a constructive trustee (At 107, 417 per Mason J; see also the same case in the Court of Appeal [1983] 2 NSWLR 157 at 212).
(9) Contrary to the holding of McLelland J at first instance in United States Surgical Corp v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 813-14), both the Court of Appeal ([1983] 2 NSWLR 157 at 233-43) and Mason J on further appeal to the High Court [1984] HCA 64; (1984) 156 CLR 41 at 102-10) were at pains to point out that it was no objection to the imposition of a constructive trust that it was not the duty of the defendant to obtain for the plaintiff the profit or benefit in question; the only issue was whether the profit or benefit had accrued to him in breach of his duty, that duty having two limbs as described in (7) above."
Pertinently to the present case, the authors note (at [1331]):
"Where the gain is an asset to which the defendant has himself contributed, the court may by charge or severance distinguish the respective interests therein, but where the court is unable to make the distinction, the trust will extend to the whole asset lest the fiduciary take advantage of his own wrong and the plaintiff lose all (United States Surgical Corp v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 at 238-42; Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 at 499)."
12 As I have found, what occurred here, is that the defendant took advantage of the partnership assets and used them to purchase a property in his own name. The primary position therefore is that the property should be regarded as being held on trust by him for the benefit of the partnership. This is not a case in which the defendant ran a case to the effect that just allowances should be made to him in relation to this prayer for relief. The case was not pleaded in that way and no evidence was led with respect to it (as was the situation in Harrison v Schipp [2001] NSWCA 13 at 143 et seq). In these circumstances, I reached the conclusion that the proper order was for a declaration in the terms sought by the plaintiff.
13 The usual course is that costs are ordered to be paid on a party/party basis. It is accepted that indemnity costs can be ordered as and when the justice of the case so requires.
14 I considered the authorities in relation to indemnity costs in SDS Corporation Ltd v Pasdonnay Ltd & Anor [2004] WASC 26 (S2) (delivered 27 February 2004 at [46] - [106]). I adhere to what I said there and will not repeat it.
15 The submissions advanced against the orders sought are in substance that whilst the principle may be applied to defendants as well as plaintiffs, a court ought to be slower in being prepared to presume an ulterior motive in the absence of any evidence from which such emotive may fairly be inferred, eg Biltoft Holdings Pty Ltd v Casselan Pty Ltd (1991) 4 WAR 14 at 20. It is submitted that in this case there is no evidence upon which any "ulterior motive" may be established, and it ought not to be inferred; there were no "known" facts which made the defendant's case hopeless (see Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd & Ors [1988] FCA 202; (1988) 81 ALR 397 at 401); and had the defendant's evidence been accepted, it would have given the defendant a defence to the plaintiff's claims. It is further submitted that in these circumstances the plaintiff's argument is tantamount to a proposition that where a defendant gives evidence which, if accepted, sounds in a good defence, but that evidence is not accepted, he ought to have known that he had no defence and therefore an indemnity order as to costs ought be made - which proposition, it is said, cannot be and is not correct.
16 The plaintiff referred to the judgment of Holland J in Degmam Pty Ltd (In liq) v Wright (No 2) [1983] 2 NSWLR 354 at 358. There his Honour held a case had been made out for the making of a special costs order, it being:
"... sufficient to say that the allegations of fact she made as the basis of her defences and causes of action were in my opinion false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability to the plaintiff from herself to the second cross-defendant. As well as that, she so conducted herself in the proceedings, by multiplying allegation upon allegation, and by prevaricating in the witness box, as grossly to prolong the litigation, thereby to cause the other parties to incur liability for solicitor and client costs far beyond what they could reasonably have expected to incur in litigation of genuine issues."
17 In Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, Sheppard J presented a useful distillation of principles (at 232 - 234) from his survey of the authorities in this area. It is clear from those that the "settled practice" is for costs orders to be made on a party/party basis, and a different order usually ought not be made. It will be made only where justified by the circumstances. As Sheppard J pointed out, the tests have been variously put, but in essence all seem to come to the existence of some special or unusual feature of the particular case justifying such an order. Some examples of such circumstances given by his Honour include the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud; evidence of particular misconduct that causes loss of time to the court and to other parties; the fact that the proceedings were commenced or continued for some ulterior motive, or in wilful disregard of known facts or clearly established law; and the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions, amongst others.
18 Having instanced these and other examples, his Honour reiterated (at 234) that the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.
19 Senior counsel for the defendant argued in effect that comparisons with other cases may lead to differing results. He referred to Hypec Electronics Pty Ltd (In liq) v Mead & Ors [2004] NSWSC 731; (2004) 61 NSWLR 169. That was a case which involved the conduct of litigation by a liquidator, it being found that his conduct of it was improper in the sense of being not reasonable nor honest. On the issue of indemnity costs, Campbell J discussed Colgate and authorities in which the principles summarised by Sheppard J had been considered. Pertinently to the present point, the case is important because of its recognition of the principle it is the party's conduct of the proceedings as litigant which bears on the issue of indemnity costs.
20 Campbell J noted at the outset ([41]) that conduct of a party prior to the litigation commencing, and which is a direct cause of it, is not among the examples Sackville J gave in his collection of relevant principles in respect of indemnity costs orders in Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 at [7] - [8]. Campbell J referred to the decision of the Full Court of South Australia in Cretazzo v Lombardi (1975) 13 SASR 4 at 11, which affirmed that the general discretion to make an order for costs is absolute and unfettered, except that it must be exercised judicially, not arbitrarily or capriciously, and that it cannot be exercised on grounds unconnected with the litigation. His Honour observed that if that be true of the general discretion as to costs, it must also be true of the discretion to order indemnity costs. Then considering what sort of connection with the litigation is necessary, Campbell J quoted the following passage from the judgment of Heerey J in Henderson v Amadio Pty Ltd, unreported; FCA; 22 March 1996:
"... the authorities cited by Sheppard J in his summary in Colgate Palmolive Co v Cussons Pty Ltd ... at 233 suggest that the improper conduct of an unsuccessful party which will lead to an award of indemnity costs is usually related to the way the litigation is conducted, rather than the inherent badness of the conduct which gave rise to the litigation. This is not universally true; for example contempt of court usually attracts costs on an indemnity basis. Nevertheless, it seems to be rare that findings of serious misconduct such as fraud of itself gives rise to an order for costs on an indemnity basis."
21 His Honour then turned to Harrison v Schipp (supra). In that case the primary Judge had made an order for indemnity costs because the defendants had engaged in unconscionable conduct and breaches of fiduciary duty in a particularly deplorable way. The New South Wales Court of Appeal quashed the decision to award indemnity costs. I quote further from the judgment of Campbell J in Hypec:
"Giles JA [sic] (with whom Handley J and Fitzgerald JA agreed) said (at [136]-[139]):
'[136] The trial judge did not exercise his discretion by regard to the time taken by Mr Harrison in propounding false documents, or otherwise by regard to delinquency in the conduct of the proceedings. Hagan v Waterhouse (No 2) (1992) 34 NSWLR 400 provides no support for indemnity costs as a means of providing complete restitution, or otherwise for regard to the substantive unconscionable conduct or breach of fiduciary duty when exercising the discretion as to costs, and such regard would in my view not be correct. The unconscionable conduct or breach of fiduciary duty leads to compensatory or other relief and costs on the normal basis, and more must be established for a special order as to costs. In my opinion his Honour's exercise of his discretion was on a wrong principle.
[137] The discretion must be re-exercised. It is true that evidence of Messrs Cameron and Harrison was not accepted, indeed they were found to have given false evidence and propounded false documents. But I do not think there was delinquency approaching that considered to justify a special order as to costs in Degmam Pty Ltd (in liq) v Wright (No 2) (1983) 2 NSWLR 354, or that departure from the ordinary basis on which costs should be assessed between litigants was otherwise warranted.
[138] It was necessary that the circumstances in which Mrs Schipp came to put her money into the two properties and leave it with Messrs Cameron and Harrison be gone into, in particular with exploration of her understanding of what she was doing and the influences working upon her. I am not satisfied that this was a case in which the appellants, properly advised, should have known that they would be found liable (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397 at 401), or that the court's time and Mrs Schipp's money were wasted on 'totally frivolous and thoroughly unjustified defences' (Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 at 362), to use some of the expressions relevant in this area.
[139] Departure from the settled practice of costs on a party and party basis is discretionary, and beyond the need for a sufficient special or unusual feature in the case no fixed rule can be laid down. Some of the matters thought to justify it are collected by Sheppard J in Colgate-Palmolive Pty Ltd v Cussons [1993] FCA 536; (1993) 46 FCR 225 at 233-234. In the present case no other sufficient special or unusual feature is present. The trial judge's order as to costs should be set aside so far as it provided for costs on an indemnity basis.'
In NMFM Property Pty Ltd v Citibank Ltd (No 2) [2001] FCA 480; (2001) 109 FCR 77, Lindgren J said (at 92 [56]):
'The ordinary rule is that an award of costs is on the party and party basis, and that it is only in a special case that the discretion to depart from that rule will be properly exercised: Venture Industries at 153 per Black CJ, 158 per Cooper and Merkel JJ. In my opinion, there is no counterpart ordinary rule that in the absence of special circumstances indemnity costs will be ordered where the losing party was guilty of ethical or moral delinquency in the antecedent facts which have given rise to the litigation. Even in a proved case of fraud, for example, in my opinion the presumption is that a costs order against the fraudulent party will be on the party and party basis. The conduct of a party that is relevant to the issue of indemnity costs is the party's conduct as litigant. But, as noted below, the knowledge that a party has, including knowledge of his or her past conduct, may be relevant to an assessment of his or her conduct as litigant.'
See also, to similar effect, Sande v Medsara Pty Ltd (No 2) [2004] NSWSC 262 at [7], per Burchett AJ; White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 303 at [10]- [11], per McDougall J. A connection with litigation, which takes the form of being the facts which are themselves the subject matter of the litigation, is not a relevant type of connection for the purposes of making an indemnity costs order. Nor is it a relevant sort of connection that a person has, in the circumstances which are the subject of the litigation, breached duties which they owe to one of the litigants, where that breach of duty is not itself the subject of the litigation. ..."
22 I accept the foregoing to be an accurate statement of the relevant principles and in this case I am satisfied the following aspects of the defendant's conduct went to his conduct of the litigation and had such an impact upon it from the point of view of the plaintiff and the court itself, as to justify the unusual course of making an indemnity costs order.
23 As I have found, this is a case in which the evidence of the defendant and his whole defence to the claim was a deliberate concoction. His conduct prolonged the trial. That was so not only because of the many false issues raised by the defendant including "SMS Technologies" and "Dizzy Lamb Park" but by his lengthy and persistent obfuscation, dissembling and prevarication in cross-examination (see my reasons for judgment at [314] to [383]). The defendant propounded false documents to the Court in the course of this litigation (see reasons at [375] - [382]). The defendant must, or ought to, have known at all material times that he had no chance of success in his defence of the claim or in his counterclaim - this is not simply a case of the defendant's evidence not being accepted. In the circumstances his defence of the case and prosecution of the counterclaim must be presumed to have been continued for some ulterior motive or in wilful disregard of the known facts and the established law. That motive must have been a desire to keep the plaintiff out of her funds and to retain for himself the benefit of them for as long as possible. I am satisfied that by reason of his manner of conducting this litigation, the defendant has caused considerable unnecessary expense and cost to the plaintiff beyond that which could reasonably be expected to be incurred in litigation of genuine issues. The justice of the case requires an order for indemnity costs.
24 I am not disposed to give the parties liberty to apply. The judgment is final. I agree with senior counsel for the defendant, albeit expressed in the context of a different proposed order, that there should be finality. Mr Davies' main concern was the possible need to revise the rate of interest should St George Bank change that charged to the plaintiff. That possibility has now been accommodated. The other matters which may necessitate adjustment of the judgment amount have likewise been accommodated, as to reduction of the sum by reason of payment of a dividend by the liquidator either before payment by the defendant or afterwards. Relief sought by the plaintiff by way of an accounting has not been pursued. Any further matters relating to costs can be dealt with in the ordinary way.
25 In addition to the orders made on 22 June, I would order that the defendant pay the plaintiff's costs on an indemnity basis and I consider the form in which the proposed order is expressed, to be appropriate (see Degmam (supra).
# Lee
Mavaddat \[2005\] WASC 68
(1977) 180 CLR 266
(1982) 149 CLR 337
(1994) 62 SASR 239
(1984) 156 CLR 41
(1999) 199 CLR 413
(1991) 171 CLR 506
(1929) 42 CLR 384
(1956) 99 CLR 362
(1983) 151 CLR 447
(1997) 188 CLR 449
(1990) 19 NSWLR 677
(1997) 19 NSWLR 219
(1991) 4 WAR 14
(1993) 46 FCR 225
(1975) 13 SASR 4
(1988) 81 ALR 397
(2004) 61 NSWLR 169
(1992) 34 NSWLR 400
(1983) 2 NSWLR 354
(1992) 30 NSWLR 359
(2001) 109 FCR 77