Before the Court is an application by the plaintiff, Michael El-Semarani, by his tutor, Hoda Samarani, to recover funds allegedly held on trust for him by the defendant, Dawoud El Samrani, or alternatively, equitable compensation for breach of trust.
The Court has been informed that the surnames El-Semarani, Samarani and El Samrani are interchangeable.
Without intending any disrespect, to avoid confusion, I will refer to the parties and other members of the family by their first names.
Michael is a minor and is a nephew of Hoda and Dawoud, who are sister and brother.
In essence, the source of the funds that are alleged to be held on trust for Michael by Dawoud is the proceeds of a life insurance policy that was held by Yaacoub El-Samarani. Yaacoub was the father of Michael and his sister Nany, usually called Martha (collectively the children). Yaacoub died on 6 July 2010 whilst working in Nigeria. Yaacoub was a brother of Hoda and Dawoud. It may be inferred that Yaacoub was domiciled in Lebanon at the date of his death.
After negotiations between Dawoud and Yaacoub's insurer, on 2 February 2011, the insurer sent by telegraphic transfer the amount of $199,223.03 to the credit of a bank account established by Dawoud in Australia. The name of the account included reference to the funds being held in trust for Michael and Martha.
The evidence does not include the terms of Yaacoub's life insurance policy. It is not known whether the insurer was obliged to pay the proceeds to Yaacoub's estate, or whether any parties were nominated beneficiaries. The only evidence is of email communications between Dawoud and the insurer that dealt with the basis upon which the insurer might pay the proceeds to Dawoud for the benefit of Michael and Martha, and in broad terms how Dawoud could use the money for the benefit of the children. That evidence was only made available to the Court by Dawoud after the conclusion of the hearing.
The issues are complicated by the fact that the insurance proceeds were paid to Dawoud without apparently any steps being taken to implement a formal process for dealing with Yaacoub's estate, such as would involve the grant of letters of administration in this State, which most likely was required to be done in accordance with the law of Lebanon.
There was an issue, which I consider to have remained unresolved, as to whether Michael was the natural child of Yaacoub, or only his stepson. There was no suggestion that this issue makes any difference to the resolution of Michael's claim.
Dawoud's evidence was that he was required to arrange for the funeral of Dawoud in Lebanon, and for this purpose he had to travel from Australia to Lebanon. While the insurer paid some of the expenses necessary to repatriate Yaacoub's body to Lebanon, the expenses met by the insurer were limited, and Dawood had to pay, on his evidence, considerable expenses concerning the funeral of Yaacoub from his own pocket.
As it is not clear whether or not the insurance proceeds were strictly payable to Yaacoub's estate, it is not known whether any testamentary expenses ought to have been paid out of the insurance proceeds before they were distributed to any beneficiaries entitled to them.
Matters are further complicated by evidence that the mother of Michael and Martha, Fadia, had relinquished her children and purported to divorce Yaacoub before his death. It is said that Fadia converted to the Muslim faith in order to achieve the divorce, as divorce would not have been permitted by Yaacoub's Maronite faith. This is significant because there is evidence that Dawoud was informed by the insurer that Yaacoub's wife and children would be entitled to the proceeds of his insurance policy. If Fadia remained as Yaacoub's widow, she may have been entitled to some portion of the insurance proceeds.
Consequently, according to Dawoud, he took steps in Lebanon to cause the divorce to be recognised under Lebanese law. Dawoud claims that he had to pay a substantial amount out of his own funds to achieve that result. It appears that Dawoud claims an entitlement to recoup these payments out of the insurance proceeds, presumably on the ground that a party who incurs costs to create or preserve a fund is entitled to a charge against the fund to recover the costs.
After the hearing, in circumstances that will be explained below, Dawood provided further documentary evidence to the Court. That included a formal acknowledgement by Fadia dated 22 July 2010 that Fadia had relinquished the care of the children to Dawoud. The acknowledgement recorded that Fadia and Dawoud had divorced according to a divorce certificate dated 15 March 2010, which was before Yaacoub's death on 6 July 2010. That information may cast doubt on Dawoud's ability to establish that it was necessary for him to incur expenses to secure the formal recognition of the divorce after Yaacoub's death. It is also to be noticed that Fadia stated in respect of Yaacoub that "I had two children from him", referring to Michael and Martha, which is inconsistent with Michael being Yaacoub's stepson.
As Fadia had relinquished her children, it was necessary for them to live with other sisters of Yaacoub in Lebanon both before and after Yaacoub's death. Dawoud claims to have compensated the sisters for their costs of caring for Michael and Martha out of the proceeds of the insurance policy. He claims to be entitled to an allowance for these payments out of the fund held for the children.
As Dawoud and his sisters considered that the arrangements for Michael and Martha being cared for in Lebanon were unsatisfactory, it was decided that arrangement should be made for the children to emigrate to Australia to be cared for, first, by Dawoud, and later by Hoda. Dawoud says that he incurred the costs involved in obtaining custody of Michael and Martha from the Maronite Church, of obtaining official permission from the Lebanese government for them to immigrate to Australia, flying himself and the children to this country, and then establishing their lives here. Dawoud was given custody of the children by a decision of the Bishop of the Maronite Archbishopric of Tripoli dated 28 July 2010. Dawoud also claims that, from time to time, he has expended funds sourced from the proceeds of the insurance policy on the maintenance and education of the children. That includes by giving Hoda access to funds while the children were in her care. Dawoud claims an entitlement to an allowance for all of these payments in response to Michael's claim against him in these proceedings.
The issues have been further complicated by the fact that Dawoud did not simply retain the insurance policy proceeds in the bank account to which they had been paid by the insurer, and he did not pay or repay expenditures thought to be for the benefit of the children out of that account, and keep proper records of the payments.
Soon after the account was established, Dawoud decided, he says after consultation with his sisters, to apply a substantial proportion of the money in the account towards the purchase price of a residential property in Tasmania. Tasmania was the state in which Dawoud then lived, and where the children initially stayed after their arrival in Australia. Dawoud says that he applied $120,000 towards the purchase price of the Tasmanian property, and then paid a further $25,000 out of the account for the renovation of the property. According to Dawoud, the total amount so applied was therefore $145,000. Apparently, the remaining $55,000 was in part expended towards the various payments that have been described above.
As the purchase price of the Tasmanian property was $230,000, it was necessary for Dawoud to borrow an amount from a bank to cover the balance and costs secured by a mortgage over the property. It appears that the amount of the loan was about $115,000.
Dawoud acknowledged that at the time of this transaction he did not have substantial funds of his own to contribute to the purchase. However, he claimed that he was able to obtain the loan from the bank because one of his daughters guaranteed the loan. There was no evidence of this guarantee.
After a time, it appears that the rental income from the Tasmanian property may not have been sufficient to service the mortgage. In any event, Dawoud decided to borrow a substantial additional amount from the bank in order to redevelop the Tasmanian property by constructing a further two residences on the property and subdividing it into three lots. Four drawdowns were made against the loan in order to fund the development, and eventually the amount of the loan increased to about $500,000.
Dawoud claims that he and members of his family contributed substantial sums of money to fund the development, and that Dawoud himself, who was a cement renderer by occupation, personally did much of the necessary work, as well as managing the project. Dawoud claims that he is entitled to an allowance in respect of his own advances, the value of the work undertaken by him, and the amount that he was required to repay to others who advanced funds for the purpose of the project.
As will be seen, Dawoud's bank statements, starting from the account into which the proceeds of the insurance policy were initially paid, and the subsequent personal and loan accounts, contain evidence of a very substantial number of transactions, many of which are not explicable solely on the basis of the line items in the statements. I will delve into the bank statements more fully below.
Eventually, on dates in 2018 and 2019, the three lots in the redeveloped Tasmanian property were sold, and a total of $389,619 was deposited into Dawoud's personal bank account at the time.
The bank statements establish that, by frequent transactions after the receipt of each of the proceeds of sale of the lots, many of which are unexplained, and which include multiple frequent withdrawals of cash in round sums, the proceeds of sale that may be traced back to the receipt of the proceeds of Yaacoub's insurance policy, through the purchase of the Tasmanian property and the redevelopment that took place, were completely exhausted.
By these proceedings, Michael seeks to recover from Dawoud remedies for breach of trust in relation to the manner in which Dawoud applied Michael's share of the insurance proceeds.
Michael accepts that any liability of Dawoud for breach of trust is owed equally to him and Martha. Michael only seeks a remedy in relation to half of the trust funds. Martha has not joined in the application, and in fact swore an affidavit in Dawoud's defence.
Dawoud ultimately sought to respond to Michael's claim by asserting that the total amount of the legitimate payments made by Dawoud for the maintenance and education of the children, when added to the allowance to which Dawoud should be found entitled for his efforts in administering the fund, exceeded the amount that Dawoud would otherwise have been obliged to pay to Michael. Dawoud claimed that the purchase and redevelopment of the Tasmanian property had ended in a loss of the initially available funds, and that the loss did not involve a material breach of trust by Dawoud.
On 16 March 2018, the Children's Court of New South Wales made an order placing Michael under the guardianship of Hoda until he reaches the age of 18. That may be relevant, if Dawoud can establish that he paid money to Hoda for the maintenance of Michael as part of an agreement between himself and Hoda.
[3]
Interlocutory order of Pembroke J
On 10 December 2019, Pembroke J made an interlocutory order in the following terms:
1. Order that by 4 PM on 7 February 2020, the defendants swear and serve on the plaintiff and affidavit:
(a) setting out the facts, matters, and circumstances of his receipt of any assets from or on behalf of the estate of [Yaacoub], including an explanation of the basis upon which they are held by the plaintiff, and any disposal or expenditure of those assets;
(b) exhibiting copies of all business records verifying expenditure made from the assets of the Trusts including any receipts, checks, invoices, real property transfers or certificates of title;
(c) exhibiting copies of all bank statements for the ANZ Bank Account [number] in the name of "Dawoud El Samrani intrust for Michael and Nany Martha" from 24 February 2011 until the date of this order;
(d) setting out the real and personal property of the defendant (including property or amounts held for the benefit of the plaintiff) giving their value, location and details including any mortgages, charges or other encumbrances to which they asked subject, and the extent of the defendant's interest in such property;
(e) setting out any income earned by the defendant from any of the assets referred to in (d) above that are held for the benefit of the plaintiff, including income owing to the defendant which has not yet been collected; and
(f) the names, account and BSB numbers of any bank accounts operated by the defendant (including accounts operated for the benefit of the plaintiff) between February 2011 and the date of this order.
Orders of this nature are commonly made in the Duty List on an interlocutory basis where a prima facie case is established that a trustee may have committed a breach of trust in relation to the retention and application of the trust fund. One objective of the order is to facilitate the plaintiff beneficiary being able to prepare his or her case for hearing with the benefit of evidence concerning the affairs of the trust that would otherwise be within the sole knowledge of the trustee.
Dawoud purported to comply with this order by affidavit made on 9 March 2020. As will be seen, although that affidavit contained a considerable amount of information falling within the requirements of the order made by Pembroke J, Dawoud's dealings with the relevant fund were so complex, and the records kept by Dawoud were so inadequate, that the affidavit is opaque and does not satisfy the objectives of the order.
[4]
Preliminary procedural issue
It is necessary for the Court to explain aspects of the procedural history of this matter, in order to provide a background for the conclusions that the Court has reached.
These proceedings were commenced by way of summons filed on 6 December 2019, in the Equity Duty List of this Court.
Even though this matter will require the determination of complex factual issues concerning an alleged breach of trust by Dawoud over a period of almost 9 years, involving the real estate development in Tasmania, and the possible application of part of the alleged trust funds for the benefit of Michael, the Court was not asked by the parties to order that the matter proceed on pleadings. Consequently, the matter has been prepared and the hearing conducted without the issues being defined, other than to the extent that they may be inferred from the parties' affidavits and the documentary evidence that was eventually tendered.
That is of particular significance in this case, as Dawoud has represented himself.
Dawoud's first language is Arabic, and he required an Arabic interpreter in order to conduct his case and to give his evidence at the hearing. Dawoud had some competence in English, and wished to conduct as much of his case as possible in English; only resorting to the interpreter where that became necessary. However, I did not accept that Dawoud's English was sufficient to enable him to do justice to his case. I required that the hearing be conducted through the interpreter.
The statement that Dawoud represented himself must be qualified by noting that Dawoud's 9 March 2020 affidavit is expressed in clear English, and was witnessed by a person who stated "solicitor" as his capacity as a witness. Dawoud accepted that he was assisted in preparing his affidavit by a lawyer who was proficient in the Arabic language. The affidavit and the exhibits were prepared in an apparently professional manner. However, no legal representative for Dawoud was stated on the front page of the affidavit, and Dawoud gave his own details for the purpose of contact. Dawoud conducted his own case at the hearing, which took place on 18 September 2020. Relevant communications were addressed by Michael's solicitor to Dawoud at his personal email address.
At the beginning of his cross-examination by counsel for Michael, Dawoud was asked whether he was able to read English. He answered in the negative. I consider it to be likely that Dawoud has a reasonable level of proficiency in spoken English for day-to-day purposes. It is also probable that he is able to read English to some extent. I do not think he can read technical English writing with any proficiency. His competence in understanding and reading English where technical subjects were dealt with was not explored.
This issue is significant because of the circumstances in which Michael applied for and was given leave to file an amended summons in Court at the commencement of the hearing, noting the relief that was initially sought in the summons and was finally sought at the end of the hearing during Michael's submissions.
[5]
Relief sought in Michael's summons
It will be necessary to compare the relief sought by Michael in the summons and in the amended summons.
The summons sought the following final relief:
Final relief
1. A declaration that all funds received by the defendant from, or on behalf of, the estate of Yaacoub El-Samarani (also known as Yaacoub El-Samrani, the "Deceased") are held by the defendant on trust (the Trust) for the benefit of the plaintiff and Nany Martha El-Samarani (together, the Beneficiaries) in equal shares.
2. Alternatively, an order that the defendant render accounts of the Trust to the Court and to the plaintiff and that the proceedings be referred to a Registrar of the Supreme Court for the taking of an account, including on a wilful default basis.
3. An order that the defendant pay to the plaintiff such amount as it is certified on the taking of an account as being due to the plaintiff by the defendant after just allowances are made.
4. An order that the defendant pay interest on any such amount certified.
5. An order restraining the defendant whether by his servants or agents from disposing of, or encumbering, the assets of the Trust (including any asset acquired with the Trust funds) until further order of the Court.
6. An order that the defendant pay the costs of the proceedings personally without having recourse to an indemnity from the assets of the Trust.
7. Such further or other order as the Court thinks fit…
Prayer 1 proceeded upon the basis that Dawoud had received funds from or on behalf of Yaacoub's estate, and sought a declaration that the funds that still exist are held by Dawoud on trust for Michael and Martha in equal shares. That prayer clearly raised the issue of whether the proceeds of the insurance policy that were paid to Dawoud were held on trust by him.
Prayers 2 to 4 sought an order that Dawoud render accounts of the trust to the Court, and for that purpose that the proceedings be referred to a registrar for the taking of an account. In the conventional way, orders were sought that Dawoud pay to Michael the amounts found on the accounting as being due to Michael, plus interest.
Relevantly, the procedural effect of these prayers would have been that the Court would have been required to determine whether Dawoud had received funds on trust for Michael and Martha, and, if it so found, the proceedings would have been referred to a registrar for the purposes of an accounting. Dawoud would not have been required to prove what he had done with the trust fund, whether his dealings with the trust fund were legitimate, or whether he was entitled to reimbursement or allowances for any personal expenditure by himself, or for work done in the administration of the trust. Those would be matters that would be the subject of the accounting process.
Dawoud's initial response to the summons may be encapsulated in the following paragraphs of his 9 March 2020 affidavit, where he said:
13. I have applied the Funds faithfully to the best of my ability to further Martha and Michael's interests in the Funds.
14. It is, and always has been, my intention to pay the Funds to both Michael and Martha when they attained the age of 18 years.
By this part of his affidavit, as I interpret it, Dawoud accepted that he received the proceeds of the insurance policy on trust for Michael and Martha, and that he still intended to pay the amount due to them when they reach the age of 18.
When the whole of the affidavit is taken into account, including in particular the schedule described as "Fund Expenses from 2011 until 2020" at the beginning of the exhibit to the affidavit, it appears clearly enough that Dawoud wished to claim that some of the payments he had made were legitimate payments out of the fund within the purposes for which he had accepted the trust, and otherwise he was entitled to claim allowances for expenditures that he had incurred and benefits that he had conferred on the fund.
Dawoud exhibited to his affidavit what he claimed to be all of the relevant bank statements that were then available to him. In the body of his affidavit he set out a relatively brief and general explanation of how he had made expenditures and worked for the benefit of the fund. He did not attempt to explain in any detailed way how the line items in the bank statements related to his claims. In particular, Dawoud did not present any evidence that resembled a strict accounting for his application and use of the fund.
That approach may be explicable on the basis that Dawoud had not denied that he received the proceeds of the insurance policy in the capacity of a trustee (so that he did not resist the declaration sought in prayer 1 of the summons), and he would not be required to detail and prove any allowances that he claimed until the rendering of the accounts of the trust that was sought by prayers 2 to 4.
[6]
Michael's amended summons
Dawoud did not receive formal notice of Michael's intention to apply at the hearing for leave to amend his summons until he was so informed, together with being given a draft amended summons, by means of Michael's solicitor's letter dated 3 September 2020.
Dawoud was therefore given only about two weeks' notice of the application in order to determine his position and prepare any additional evidence necessary to respond to the additional relief claimed by Michael.
Michael's draft amended summons added the following prayers for relief:
1A A declaration that the defendant breached his duties as trustee by:
(a) investing funds in real property situate (sic) at and known as [the Tasmanian Property];
(b) obtaining a profit by reason of his use of the funds under Trust in the purchase and development of the Tasmanian Property, and in conflict with the duties he owed the plaintiff;
(c) mixing the funds held under the Trust with his own funds.
1B An order that the defendant give an account of profits.
1D An order declaring a constructive trust over property that can be identified as the traceable proceeds of the funds held under Trust, or acquired as a result of breach of the defendant's fiduciary duties.
1C An order that the defendant pay equitable compensation in an amount of:
(a) $99,611.50 (being an amount equal to 50% of the funds received by the defendant on 2 February 2011 and held on Trust), plus compound interest from 2 February 2011; or
(b) such greater amount as may ultimately be found by the Court.
By this amendment, Michael would introduce into the proceedings a positive claim that Dawoud had breached the trust in the three ways set out in prayer 1A. Ordinarily, a claim of that nature would be required to be pleaded with proper particulars.
Prayer 1B sought an account of profits. This is a different remedy to the one originally sought in prayer 2. Instead of the remedy being an order for reference to a registrar for the purpose of a trust accounting to be conducted, prayer 1B proceeded upon the assumption that Dawoud had made a profit from his breach of trust, and sought an order that he account for that profit to the beneficiaries. That is a form of claim that ordinarily cannot efficiently be conducted without a proper pleading and detailed particulars of the alleged profit.
Prayer 1D, pleaded out of order, sought a declaration of trust over property that could be identified as the traceable proceeds of the funds held on trust. It may be noted that no such traceable proceeds were identified in the draft amended summons, or subsequently in the evidence.
Finally, prayer 1C introduced a specific claim for equitable compensation. As is stated in sub-par (a), Michael's first claim was for half of the proceeds of the insurance policy plus compound interest from 2 February 2011, which was the date when Dawoud received the funds. For reasons that will become apparent, it is significant that sub-par (b) claimed in the alternative whatever greater amount of equitable compensation may ultimately be found by the Court to be payable. This alternative claim was open-ended, in the sense that nothing in the draft amended summons identified what alternative greater amount might be sought to be proved by Michael.
By a further amendment to the original prayer 2, the word "alternatively" was added at the beginning of that prayer. Thus, the claim for relief that the Court order that a trust accounting take place became an alternative claim.
When counsel for Michael made his application for leave to file the draft amended summons, he relied upon correspondence sent by Michael's solicitor to Dawoud on 3 July 2020 and 3 September 2020.
Before counsel developed his submissions, I asked Dawoud whether he opposed the application for leave to amend, after I gave Dawoud a relatively full explanation of the relief sought, expressed in lay terms as far as possible. Dawoud answered: "No, I am happy to answer everything now".
Consequently, I gave leave to Michael to amend his summons, in the form of the draft amended summons, without giving further consideration to the terms of the correspondence sent to Dawoud.
The primary significance of Michael's solicitor's 3 July 2020 letter to Dawoud was the chronology that was enclosed, which the solicitors advised they had prepared using the documents provided by Dawoud and documents produced on subpoena. The letter stated that Michael intended to rely upon the chronology at the hearing on 18 September 2020. The letter summarised the circumstances (that have been outlined above) whereby Dawoud purchased and redeveloped the Tasmanian property and led to Dawoud receiving a total amount of $389,619, after the sale of the subdivided lots and the repayment of the relevant mortgage. The letter claimed that Dawoud was obliged to account to Michael and Martha for the $389,619.
As noted, Michael's solicitor's 3 September 2020 letter enclosed the draft amended summons, and it advised that the amendment would change Michael's case to make more claims against Dawoud. The letter recommended that Dawoud obtain legal advice. After repeating assertions in the earlier letter concerning the purchase and sale of the Tasmanian property, the letter stated:
13. For that reason, the plaintiff will allege that the trust is entitled either to:
(a) all of the profits made from developing the Tasmanian property; or
(b) at the very least, to 125/235th share (or 52%) of any profits you have made based on the proportion of the purchase price you admit was contributed to by the funds under Trust.
14. Given that Michael is only entitled to one half share of the Trust fund, he will seek half the profits found to be made.
15. You may be entitled to raise defences for example by reference to work you undertook or time and skill you spent in improving the property to achieve any profit. Our client does not accept such defences but urges you to seek legal advice in respect of the claim.
16. If the Court cannot determine that you made a profit from the Tasmanian property, our client will see that the original Trust fund owing to Michael (50% of the life insurance proceeds) be paid to our client, along with compound interest.
17. If the Court does not make either of those orders, our client will see that the proceedings be referred for a formal "accounting", including on a "wilful default basis" because it will be alleged that you have breached your obligations to Michael, that you have not provided adequate evidence of what has happened to the funds, and that your explanations are incomplete and appear to be deliberately hiding the full truth from the Court in a manner that is dishonest.
The letters were both carefully drafted, having regard to the fact that they were necessarily sent to an unrepresented litigant. However, it may be observed that the 3 July 2020 letter, while stating that Dawoud had not accounted for the receipt of the $389,619, did not specifically assert that it was Michael's case that the whole amount represented a profit on the Tasmanian property transaction. Paragraph 13 of the 3 September 2020 letter advised Dawoud that Michael would claim all of, or 52% of, the profit made from developing the Tasmanian property, without specifically identifying the amount of the profit that Michael would assert.
In Michael's written submissions dated 17 September 2020, the day before the hearing, it is made reasonably clear, in pars 60 to 65, that Michael's principal claim was that the whole of the $389,619 represented profit from the Tasmanian property development, and that Michael was entitled to receive $194,809.50. That is further made clear by the statement of the appropriate relief in pars 71 and 72.
Michael's solicitors were correct in their observation, in par 15, that Dawoud may be entitled to raise defences by reference to work that he undertook or time and skill that he spent in improving the Tasmanian property to achieve any profit. There are other matters that Dawoud may have been entitled to raise in diminution of any amount of compensation that Dawoud may be ordered to pay to Michael. However, as the proceedings were constituted by the summons in its original form, they were not matters that would finally be dealt with at the hearing on 18 September 2020, and Dawoud was not required to serve detailed evidence on those matters prior to that hearing. They are matters that would be dealt with during the accounting process. The effect of Michael's solicitors' 3 September 2020 letter was to give Dawoud about two weeks' notice of an application to amend that would make those matters relevant issues at the hearing.
[7]
Michael's final position at the hearing
During closing submissions, Michael's counsel focused his submissions on the fact that the evidence demonstrated that the amount received by Dawoud from the sale of the three lots that comprised the Tasmanian property development was approximately $390,000, after repayment of the mortgage. He submitted, at T 77.46, that "the most expedient course for the Court to adopt is to treat that as profit made by the defendant personally which has…not been adequately explained. The principles are clear that a trustee must provide a beneficiary with information to verify the accounts and that where they fail to do so, those doubtful questions should simply be resolved against the trustee". On that basis, Michael's claim became one for the payment to him of 50% of the $390,000 plus interest. He asked the Court to treat the whole of the net receipt by Dawoud as profit to which the trust was entitled, because Dawoud had not provided an adequate explanation or justification at the hearing as to why he should be entitled to any allowance out of the net receipts.
Counsel for Michael submitted that, if the Court did not accept Michael's principal submission, it should find that he was entitled to equitable compensation in the amount of 50% of the $199,223.03 originally paid by the insurer to Dawoud on 2 February 2011, plus compound interest from that time.
Finally, counsel for Michael advised the Court that the relief sought in par 2 of the amended summons would not be pressed. Michael's position therefore became that he would not seek a reference to a registrar for a trust accounting. That is the primary relief that Michael had sought up to 3 September 2020, when he foreshadowed to Dawoud the application for leave to amend his summons. That had a significant forensic effect on the proceedings. Dawoud's liability would depend upon the evidence led at the hearing, and not on the outcome of the trust accounting process. Dawoud lost the opportunity to refine his case by the presentation of further evidence that would have become possible had the trust accounting occurred.
[8]
Provision of additional documents and submissions
On 20 September 2020, my Associate received an email written by Dawoud's ex-wife, Nadia, requesting on behalf of Dawoud that he be given leave to provide additional submissions to the Court. The request was made on the basis that Dawoud had not had sufficient time, after his cross-examination, to present his oral submissions adequately. I gave Dawoud leave to make additional submissions by 6 October 2020. Michael was given leave to reply within a further seven days.
Dawoud served additional written submissions by email written by Nadia on 4 October 2020. Those submissions dealt in further detail with expenses that Dawoud claimed to have made for the benefit of Michael and Martha before he received the proceeds of the insurance policy, payments claimed to have been made for the benefit of Michael and Martha before they arrived in Australia out of the "trust fund", money paid to Hoda, money paid to Martha and the financial results of the Tasmanian property development. Dawoud attached documents referred to in the further submissions. Those documents included email communications between Dawoud and a representative of Yaacoub's insurer.
Nadia served a further written submission on behalf of Dawoud on 6 October 2020. The brief submission concerned payments allegedly made by Dawoud to Hoda for the benefit of the children. Additional bank statements were attached, together with a written statement from Mical Hader, Dawoud's daughter, and by Alexandra Kanj, another sister of Dawoud. The latter statement purported to give evidence of costs of more than $14,000 incurred by Dawoud in Lebanon after the death of Yaacoub to have Yaacoub's divorce confirmed before the registration of his death.
On 9 October 2020, Michael's solicitors responded to these communications by requesting that they be given by Dawoud all of the email correspondence between Dawoud and Yaacoub's insurer.
On 11 October 2020, Nadia on behalf of Dawoud sent an email to my Associate and Michael's solicitor, which attached a further submission concerning the significance of the email correspondence, and also purported to attach the whole of that correspondence.
Michael served his submissions in reply to the material served on behalf of Dawoud on 16 October 2020. Those submissions included a submission to the effect that it would be procedurally unfair to Michael for the Court to receive the additional material served on behalf of Dawoud, because Michael had not been given an opportunity to respond to that material at the hearing, or to cross-examine Dawoud on it. The submissions attached additional documents referred to in the submissions.
Nadia, on behalf of Dawoud, then served even further submissions on 18 October 2020. On 19 October 2020, Michael's solicitor objected to the Court receiving and acting upon the further submissions, as they were not served by leave, and Michael had not consented to any further reply.
Later, on 19 October 2020, Nadia circulated a final email in which she asked the Court on behalf of Dawoud to receive the submissions on the ground that he does not speak or read English well and was representing himself.
The course of the additional submissions went further than I had contemplated when I gave Dawoud leave to supplement his oral submissions. In particular, I did not give leave to Dawoud to supplement the evidence that was tendered at the hearing.
However, a consideration of the additional submissions has caused me concern as to whether the hearing on 18 September 2020 was conducted in a manner that was consistent with the procedure that the Court is required to follow to ensure procedural fairness in the case of self-represented litigants.
That is particularly so in respect of the grant of leave to Michael to file his amended summons, on the basis that the hearing would immediately proceed, without Dawoud being given a proper opportunity to serve evidence in response to the new prayers for relief. In addition, to accommodate the fact that, at the end of the hearing, Michael, without real notice, abandoned the prayer that would have given Dawoud an opportunity to deal with all of the matters that would arise in the accounting process in respect of the trust.
I bear in mind that, at the very end of his cross-examination, Dawoud said, in respect of the issue of where the money went (T 74.26):
Well, when it is my turn to explain to the Court then I will explain in detail where all the money was spent.
[9]
The Court's duty to unrepresented litigants
The principles that govern the Court's duty to an unrepresented litigant, such as Dawoud, are as authoritatively stated by Gleeson JA (with whom Macfarlan and Emmett JJA agreed) in Pollock v Hicks [2015] NSWCA 122, as follows:
[91] Ms Pollock's complaint raises the issue of the role of the court in ensuring a fair hearing. The court's duty to unrepresented litigants was examined by this court in Hamod v New South Wales [2011] NSWCA 375 at [309]-[316] by Beazley JA (as her Honour then was) where the authorities are collected. In Bauskis v Liew [2013] NSWCA 297 at [67]-[70] (Gleeson JA; Beazley P and Barrett JA agreeing), the following propositions which emerge from those authorities were identified.
First, the Court's obligation in the case of a self-represented litigant is to give sufficient information as to the practice and procedure of the Court to ensure that there is a fair trial to both parties. The application of this principle will vary depending upon the circumstances of the case: see Jae Kyung Lee v Bob Chae-Sang Cha [2008] NSWCA 13 per Basten JA at [48]; Abram v Bank of New Zealand (1996) ATPR 41-507, 43,341, 43,347; Microsoft Corporation v Ezy Loans Pty Ltd [2004] FCA 1135; (2004) 63 IPR 54; Pezos v Police [2005] SASC 500; (2005) 94 SASR 154.
Secondly, the Court's duty is not solely to the unrepresented litigant. The obligation is to ensure a fair trial for all parties. This is why the duty is usually stated in terms that require that the impartial function of the judge is preserved, whilst also requiring the judge to intervene where necessary to ensure the trial is fair and just: see Tomasevic v Travaglini [2007] VSC 337 ; (2007) 17 VR 100 at [95]; Barghouthi v Transfield Pty Ltd [2002] FCA 666 ; (2002) 122 FCR 19 at 23; NAGA v Minister for Immigration & Multicultural & Indigenous Affairs [2002] FCA 944 at [11]; Nagy v Ryan [2003] SASC 37 at [52]-[53].
Thirdly, the duty of a trial judge to assist an unrepresented litigant does not extend to advising the litigant as to how his or her rights should be exercised. That is, it is not the function of the court to give judicial advice to, or conduct the case on behalf of, the unrepresented litigant: see Bhagwanani v Martin [1999] SASC 406; (1999) 2004 LSJS 449; Clark v New South Wales (No 2) [2006] NSWSC 914.
Fourthly, the trial judge must remain at all times the impartial adjudicator of the matter, measured against the touchstone of fairness. In this regard, an unrepresented party is as much subject to the rules as any other litigant: Rajski v Scitec Corporation Pty Ltd (Court of Appeal, 16 June 1986, unreported) per Samuels JA at 14.
[92] In the present case, Ms Pollock was unrepresented, she had not personally received the amended pleading until the first day of the hearing, she had not filed a defence, and she was unaware of the new case which Mr Hicks sought to advance based on the statutory claims. In my view, fairness required that the primary judge ascertain if Ms Pollock was asking for an adjournment by her responses including that she was unaware of what was required of her by way of asserting her defence. As explained by Allsop P (Macfarlan JA agreeing) in Jeray v Blue Mountains City Council (No 2) [2010] NSWCA 367 (Jeray) at [6]:
At the root of procedural fairness is the provision of a fair hearing to a litigant and the basal notion that the litigant has understood the proceedings before him or her and has had an adequate opportunity given to him or her, considering his or her attributes, qualities and deficiencies which render the litigant more or less able to vindicate his or her rights in court.
[93] It may be accepted, as Allsop P observed in Jeray (at [10]), that the balance of fairness, procedural rigor and wise and practical indulgence in managing litigation by a judge is no simple task. Here the primary judge was dealing with the present proceeding as just one of a list of matters fixed for hearing during the Albury sittings of the District Court. It should also be accepted that the balance can be a fine one involving an evaluative assessment about which minds can differ: Jeray at [11].
Notwithstanding that Dawoud consented to the filing of the amended summons at the beginning of the hearing, and appeared to do so readily, I am now satisfied that, in a number of respects, the Court would proceed unfairly to Dawoud if it gave final judgment against him, solely upon the basis of the relief as finally sought by Michael at the hearing on 18 September 2020.
I will return to a consideration of the significance of this conclusion below.
[10]
Terms upon which Dawoud held the policy proceeds
It is necessary to consider the evidence that is available concerning the terms upon which Dawoud received and held the proceeds of Yaacoub's insurance policy. There is no real doubt that Dawoud received the funds as a trustee for Michael and Martha. As mentioned, Dawoud did not really challenge that conclusion. There is a question concerning the nature of the trust and the terms upon which Dawoud was entitled to apply the funds. There may also be a question about the extent to which Dawoud's application of the funds was constrained by formal trust principles concerning the investments that were authorised, the mixing of the funds with Dawoud's own assets, and the requirement for Dawoud to keep formal, contemporaneous accounts of his application of the funds.
Dawoud did not give evidence in his affidavit about the circumstances in which he received the proceeds of Yaacoub's insurance policy. Nor did he exhibit the exchange of emails between himself and Yaacoub's employer and insurer that he provided to the Court with the submissions delivered after the end of the hearing.
Dawoud did give the following evidence in cross-examination (T 32.7): "In order to get this money the insurance asked me to open an account in my name in trust for Michael and Martha and I am allowed to only use that money for the children's benefit only, not to retain the money".
The only specific evidence of the terms upon which Dawoud received the proceeds of Yaacoub's insurance policy is the email correspondence between Dawoud and the insurer, and the manner in which Dawoud named the bank account into which the funds were transferred.
Those emails were received by the Court after the conclusion of the hearing as attachments to Nadia's emails dated 4 October 2020 and 11 October 2020. The evidentiary status of these documents remains unresolved. I extract relevant parts of the emails here only to record the evidence that may have been available to Dawoud for the purpose of supporting his claims, if the matter had been referred to a registrar to conduct a trust accounting in the manner originally sought by Michael.
At the time of his death, Yaacoub had a life insurance policy with Generali Worldwide Insurance Company Limited (Generali). As noted, there is no evidence of the terms of the policy, and in particular, whether the proceeds were payable to Yaacoub's estate or to any particular named beneficiaries.
It appears that initially Dawoud communicated with Yaacoub's employer, Global Petroprojects Services AG. In an email dated 4 August 2010, Dawoud asked: "who would the beneficiary be for my brother, is it who we nominate or would that be on his insurance policy? please clarify".
A representative of the employer replied: "With regards to the beneficiaries this is according to procedure of the insurance policy. The paid out amount would go to his wife and his children".
The insurance company was unable to comply with a request by Dawoud that he be given a copy of the insurance policy.
The bundle of emails provided by Dawoud is not entirely satisfactory, as parts of some emails have either been redacted or imperfectly photocopied. There is an incomplete email apparently sent to Dawoud from Yaacoub's employer, which may be dated in August 2010, which included the statement: "Further to email below, if I remember right he was just divorced. In this case the beneficiaries would be his children (or the custodian if they are not of age yet)".
Later, Dawoud communicated with Ms Annapoorani Karthikeyan, an insurance and pension fund administration officer at Generali.
On 12 January 2011 at 1:51am, Dawoud relevantly emailed Ms Karthikeyan the following:
I need to know what the next step is? also if the funds are to be locked away in the account we just opened for the kids as beneficiaries, how are the kids expected to live and cover their living and schooling expenses from now till 18 years of age?
In response to Dawoud, on 12 January 2011 at 11:12am, Ms Karthikeyan said:
I understand the situation and since you are the legal guardian, I hope you can get the money and use it for raising up the children. So we agree to transfer the money to your account. We will not follow up with you once we transfer the money, but just for our own sake, can you please confirm that once the children are 18 years old, you will transfer the money to their account. For example, the daughter of Mr. El Samarani Yaacoub will be 18 years old first. Can you confirm that you will transfer half of the amount you have at that time to her account?
Later on 12 January 2011 at 12:45pm, Dawoud relevantly responded to Ms Karthikeyan in the following terms:
[I] require access to the money to spend on them and bring them up and cater for their needs and schooling and bringing up needs, no more no less. I confirm that once [Martha] is 18 years of age she will be receiving 50% of the remainder of the amount to use towards her future and same with Michael, once he is 18 he will take the lead in taking charge of his affairs. However until they get to that age, there are physical expenses that they need to incur to receive the proper level of education and be brought up with dignity after the death of their father. I have been taking full care of the kids since their fathers death but I cannot keep doing that until they are 18 and I require access to the funds to bring up the kids until they are able to take charge financial of their life. However in saying that the kids will always be treated like mine even after 18 as they require my attention and loving as their father after the death of my brother...
Then on 12 January 2011 at 12:50pm, Ms Karthikeyan emailed Dawoud saying:
We are really glad to know that children are under your care and we have no doubts that you will take the best care of them and will give them the same love and care as their father…
On 2 February 2011, $199,223.03 was paid to Dawoud in settlement of Yaacoub's life insurance policy.
The conduct of Generali reflected in the brief email communications extracted above is consistent with the insurance policy containing a term nominating Yaacoub's wife and children as the beneficiaries of the policy in the event of his death. However, it is uncertain whether, given Yaacoub's divorce from Fadia, the children became personally beneficially entitled to the insurance proceeds, or whether Generali had some contractual discretion, such as to pay the insurance proceeds to the custodian of minor children. If Generali did not have any discretion, it may not have had power to influence the terms of any trust upon which Dawoud received the funds. On the other hand, if, consistently with the statements made in its emails, Generali had some entitlement to satisfy itself as to the terms upon which it paid the proceeds of the policy to a custodian for minor beneficiaries, the terms of any trust upon which Dawoud held the funds might be governed by the terms of his agreement with Generali. Although the evidence is scant, it is most consistent with this latter alternative being the applicable one.
It is reasonably clear that Dawoud believed that he was entitled to apply the proceeds of Yaacoub's insurance policy for what in another context would be described as their maintenance, education and advancement in life. However, even if Dawoud had that right, it would not automatically follow that he was entitled to reimburse himself or his sisters for past expenditure incurred before the receipt of the insurance proceeds, or that he was entitled to invest the funds in some investment project in which he had a personal interest. It would also not necessarily exclude the application of general trust principles of the applicable law as to how Dawoud was required to administer the trust.
In Michael's submissions in response to Dawoud's further submissions delivered after the hearing, he said: "the provision of the new evidentiary material gives rise to procedural unfairness if it is being used to draw inferences in favour of the defendant". Michael nonetheless made submissions concerning the objective effect of Dawoud's email communications with Generali. According to Michael, the agreement between Dawoud and Generali was that Dawoud would hold the whole of the fund on trust for the children until they each reached the age of 18. Michael rejected that it was any part of the agreement that Dawoud could spend some part of the fund for the benefit of the children during their minority.
[11]
Dawoud's claims for reimbursement and allowances
As mentioned above, Dawoud gave particulars of his claim for reimbursement and allowances in the schedule at the beginning of the exhibit to his affidavit called "Fund Expenses from 2011 until 2020". I have summarised the information in the schedule to provide the total amount claimed by Dawoud for particular categories of claim, as set out below:
Care for the children in Lebanon $27,400
Costs of guardianship and preparation to leave Lebanon $38,000
Costs of travel to Australia and Visa applications $17,800
Repairs to Tasmanian property and subdivision application $31,797
Payments to Hoda for care of children $68,000
Payments to Hoda for travel expenses of Hoda and Michael $38,000
Total $220,997
[12]
With respect to the proceeds of the insurance policy of about $200,000, Dawoud said that he applied a total of $145,000 to the purchase and repair of the Tasmanian property. After the redevelopment of the property, which involved a substantial number of deposits and withdrawals in respect of the relevant bank accounts, approximately $390,000 was paid into Dawoud's personal bank accounts. In addition, Dawoud must account for the approximately $55,000 that was not used in the purchase of the Tasmanian property. The total amount theoretically available for distribution between the children and Dawoud was therefore $445,000. If Dawoud's claim for reimbursement and allowances was limited to $221,000, there would be $224,000 in principle available to be shared between Michael and Martha, assuming that Dawoud could justify his claims.
In his submissions provided on 4 October 2020, Dawoud restated his claim for reimbursement and allowances. He embedded this restatement in further submissions as to the relevant facts, which Dawoud apparently assumed could be acted upon by the Court as if the statement of facts had been given in an admissible evidentiary form by sworn evidence. The Court cannot in the circumstances act upon the additional factual assertions made by Dawoud. The information provided by Dawoud has only been used for the purpose of these reasons as an indication of the amount of the claim for reimbursement and allowances that Dawoud might make during the course of a trust accounting.
Dawoud's submission is not entirely clear, but I understand that it may be summarised as follows:
Expense occurred while in Lebanon $37,900
Expense incurred after returning to Australia $47,500
Payments for children out of fund before their arrival $31,400
Payments for children out of fund after their arrival $12,600
Payments to Hoda for maintenance and travel expenses $45,400
Payments to Martha $65,000
Subtotal $201,900
Labour and loss of income on Tasmanian property $129,900
Excess of expenses over rent for Tasmanian property $56,348.45
Extra expenses with evidence provided $15,821.25
Extra expenses with no evidence $14,800
Subtotal $216,000
Loan from son to fund Tasmanian property $50,000
Loan from daughter to fund Tasmanian property $15,000
Total payments by Dawoud $462,348
[13]
I have inserted the information in Dawoud's submission as best as I can understand it, even though the information was not given in tabular form, but was embedded in the submission. There may be double counting, and I have used Dawoud's figures even though in some cases I do not think his arithmetic is correct.
Dawoud's final position was that he is not liable to Michael because his entitlement to reimbursement and allowances exceeds the total possible amount of the trust fund.
[14]
Evidentiary contest concerning Dawoud's claims
Dawoud gave limited evidence in his only affidavit to support his then claim for reimbursement and allowances. As stated above, he attached his schedule and then a substantial, but incomplete, bundle of relevant bank statements. Those statements do not on their face prove Dawoud's claims.
Dawoud provided more detailed information in the submissions that he served after the hearing but, as I have explained, the Court cannot act on those submissions as if they contained evidence. Although Dawoud's explanation was more detailed, it was not sufficient to explain his claim in a manner that could lead to its acceptance. Moreover, many aspects of Dawoud's claim consisted of assertions that Dawoud had expended and approximate sums of money in cash. Dawoud does not apparently have any receipts.
Dawoud also stated in cross-examination that, after the sale of the three lots in the Tasmanian property development, he destroyed all of the vouchers relevant to the development. Dawoud only apparently retains a limited number of vouchers such as tax invoices.
Nonetheless, the Court has received into evidence certain statements of fact by Dawoud as to the various expenditures upon which he bases his claim for reimbursement and allowances.
It is of great significance to these reasons that Hoda's evidence is also relatively perfunctory in relation to the detail of Hoda's response to Dawoud's assertions as to the expenses that he incurred in relation to the children, and the payments that he made to Hoda to reimburse her for the costs that she incurred in maintaining the children and in accompanying them on overseas trips to Lebanon or the United States.
Hoda gave limited evidence in her 5 December 2019 affidavit concerning amounts of $5,000 and $9,700 that she said Dawoud gave her for a trip with Michael to Lebanon in 2018, and a further $1,000 that she said Dawoud gave her at some unstated date for the purpose of being transferred to Hoda's sister in Lebanon. Hoda stated in par 43 of her affidavit that these were the only times that David had transferred funds to Hoda.
In her 11 September 2020 affidavit in reply, Hoda gave evidence of making loans of $20,000 in 2009 and $30,000 in 2012 to Dawoud. She said that in 2018 Dawoud repaid her by giving her a key card and the account pin number for an account with St George Bank. Hoda said, in effect, that she was unaware that Dawoud had repaid her from a bank account into which the proceeds of Yaacoub's insurance policy could be traced.
Hoda's evidence did not engage in any comprehensive way with all of the evidence given by Dawoud, even in the circumstances where Hoda could have been expected to give some evidence in response to Dawoud's evidence.
More significantly, Dawoud's claims were not dealt with in any real way at the hearing that took place on 18 September 2020.
Dawoud was briefly cross-examined about Hoda's claim that the $50,000 that he paid to her was a repayment of a loan in that amount, and it was put to him that he had exaggerated his claim that in 2011 he had expended $38,000 in respect of the children's emigration from Lebanon. None of the balance of Dawoud's claims in relation to payments for the benefit of the children was explored.
There can be no surprise that Dawoud's claims for reimbursement and allowances were not thoroughly dealt with at the hearing. One day may have been adequate if the issues had only been whether Dawoud had received the proceeds of Yaacoub's insurance policy on trust for the children and, if so, whether the Court should order a reference to a registrar for the taking of accounts of the trust.
The amount of time allowed at the hearing was entirely inadequate to deal with all of the issues that have been raised in these proceedings, even on the assumption that Dawoud had been given proper notice that he would be required to present his whole case on 18 September 2020.
The result is, at a practical level as much as may be required by procedural fairness, the Court could not properly make findings concerning Dawoud's entitlement to reimbursement and allowances on the basis of the rudimentary evidence and the absence of a proper forensic contest and provision of adequate submissions to the Court.
[15]
Significance of the bank statements that were in evidence
The evidence included statements for various bank accounts opened by Dawoud and Nadia that are relevant to tracing how Yaacoub's life insurance proceeds were expended and what may remain of them. Parts of some of these bank statements were annexed to Dawoud's affidavit. The affidavit only made broad assertions concerning the transactions that took place. Generally, the assertions do not match specific entries in the bank statements.
Michael obtained additional and more complete bank statements and included them in the court book. There was limited time for cross-examination concerning the significance of the entries in the bank statements at the hearing.
There has been no professional analysis of the significance of the bank statements. That would be a complicated exercise because, as will be seen below, both Dawoud and Nadia regularly transferred funds from their mortgage accounts to their personal accounts and vice versa. The bank statements are therefore intertwined. Although many of the line items in the bank statements contain explanations that make them meaningful, a substantial number do not. Many line items are simply described as deposits, withdrawals and transfers. In a substantial majority of those cases, there is no record of who specifically undertook the transaction. A significant number of line items record cash transactions in round figures.
The most significant transactions are likely to be those that constitute unexplained withdrawals, which occurred frequently over the period in which the accounts were operated. By the end of the period, the funds in the accounts maintained by Dawoud were exhausted.
It is therefore only possible for the Court to draw some limited and general conclusions about the significance of the bank statements.
I have recorded the results of my analysis of the bank statements in more detail than may be necessary for the purposes of these reasons. I have done so because it may be necessary for the Court to revisit the significance of the bank statements at some time in the future. Consequently, I have recorded the most significant results of the analysis in order to reduce the likelihood that I or some other judge will be required to repeat the exercise.
[16]
Dawoud's ANZ bank statements
I will deal first with the personal bank accounts opened by Dawoud with the Australia and New Zealand Banking Group Ltd (the ANZ), which were given account names that signified that they were held on trust for Michael and Martha. There were two such accounts.
It will be convenient to deal first with the less significant of the two accounts, as it appears that it had a subsidiary purpose to the primary account, although the nature of that purpose is not disclosed. I will generally identify the various bank accounts by the last digits in the account numbers.
Dawoud opened an ANZ Online Saver account No 41176 with the name "DAWOUD MIKHAEL EL SAMRANI IN TRUST FOR MICHAEL AND NANY MARTHA".
The bank statement in evidence covers the period 5 January 2011 to 20 April 2011. Nearly all of the transactions consist of transfers from and to the principal trust account. Between 7 February 2011 and 9 February 2011 transfers of $50, $50, $11,000, $20,000, $25,000 and $100,000 occurred from the principal account into this account. Then, between 11 February 2011 and 24 March 2011, there were transfers back to the principal trust account of $6,000, $10,000, $10,000, $110,000, $19,500, $400, $25, and $221.
Therefore, apart from the name of this account being evidence that Dawoud considered that he was holding the funds on trust for Michael and Martha, this account does not have any significance.
The principal personal trust account is an ANZ Access Advantage Cheque account No 4168 (the trust account). It is named "DAWOUD EL SAMRANI INTRUST FOR MICHAEL AND NANY MARTHA".
The transactions in the bank statements in evidence cover the period 2 February 2011 to 2 July 2015.
The account was opened by a payment on 2 February 2011 of $199,223.03 described as "offshore telegraphic transfer received". This is clearly Yaacoub's life insurance proceeds.
When the account was apparently closed on 2 July 2015 the balance was $129.55.
The first line items in the bank statements are a withdrawal of $20,000 on 3 February 2011 and card entry withdrawals on 4 February 2011 of $3,500 and $7,000.
Also, on 7 February 2011, there are unexplained withdrawals of $1,000 and $3,000 that appear to have been transacted at Canberra.
Between 7 February 2011 and 24 February 2011, there are the counter-entries for the transactions between this account and the other trust account that I have described above.
In the period up to 28 February 2011, there are a number of other unexplained withdrawals of $3,000, $6,500, $8,200, $7,200, $2,400, $300 and $1,100. In addition, there are a number of smaller withdrawals for which there is a limited but unexplained description of the transaction.
Then, on 28 February 2011, there is a withdrawal of $98,485.57. That must have been connected with the purchase of the Tasmanian property. The balance left in the account was $13,410.40.
As already noted, Dawoud said in his affidavit at par 16 that he purchased the Tasmanian property for a price of $235,000 and that he applied $120,000 from the trust account towards the purchase. He also said in par 17 that the property was in a state of relative disrepair, and he renovated the property at a cost of $25,000. Consequently, Dawoud's evidence was that he applied $145,000 from the trust account towards the purchase and repair of the Tasmanian property. Having regard to the amount of the mortgage borrowing from the ANZ, Michael accepted in his opening submissions that Dawoud's explanation of the funds in the trust account used to purchase the Tasmanian property was "roughly accurate".
It is not, however, possible to relate specific entries in the bank statements to the purchase and renovation of the Tasmanian property, although it can be seen that there is a substantial number of transactions, in relatively small amounts, which appear to have been in related to the renovation: for example, by referring to "Bunnings".
If Dawoud applied about $145,000 to the purchase and renovation of the Tasmanian property, he must have spent close to $55,000 for other purposes not connected with the property.
In the period between 24 March 2011 and 26 February 2013, when the first loan drawdown occurred for the purpose of developing the property into three residential lots, the bank statements record the following significant entries.
From 21 March 2011 there are regular payments of $186.43 described as payments to Dawoud. They were repayments of the mortgage taken out to pay for the Tasmanian property.
From 5 July 2011, there are payments of $320 or $640 that I infer were payments of rent into the account weekly or fortnightly.
There are numerous transfers into the trust account that constitute drawdowns from the loan account. This appears to be the beginning of a regular practice whereby Dawoud kept a positive balance in the trust account to enable loan repayments to be made by re-drawing on the loan account.
There are also a substantial number of unexplained deposits made through card entries.
There are many credits of $320 described as "pay/salary from Davies Bros". There are also many credits of $320 that are simply described as "from Paul Jennsen" that may also be wages payments, or possibly rent. These entries would appear to corroborate Dawoud's claim in evidence that he supplemented the trust account with his own wages.
There are also numerous Centrelink Newstart payments into the account, which are otherwise unexplained.
It appears that there was a delay in Dawoud being able to rent the Tasmanian property, and then, after it was rented, the amount of the rent may not have been sufficient to cover the mortgage and other payments.
On 10 April 2012, there is a $500 debit recorded for Sydney airport and a $600 debit for the ANZ York and Market branch ATMs.
Drawdowns from the increased ANZ mortgage to fund the redevelopment of the Tasmanian property were paid into the trust account as follows: $70,500 on 26 February 2013, $75,500 on 26 March 2013, $85,000 3 May 2013 and $75,462.77 on 5 June 2013.
There are many withdrawals that are not explained, but were probably related to the redevelopment. There is no issue that the redevelopment took place, and it must have required the funds borrowed from the ANZ. Dawoud gave evidence that he paid the various suppliers and contractors.
Dawoud's wages continued to be paid into the trust account.
From 21 June 2013, regular debits of $1,131.32 described as payments to Dawoud are recorded. These were mortgage repayments.
By 15 August 2013, a drawdown from the mortgage account of $9,000 was needed to top up the trust account to be able to continue to make mortgage repayments.
Between 12 and 23 September 2013, Dawoud's son Timothaos made four payments of $2,000 into the trust account. Timothaos made additional payments of $5,000 on 12 and 22 November 2013. Timothaos paid $2,000 into the trust account on 16 December 2013 and 20 February 2014.
Dawoud's daughter, Mical Hader paid $5,000 into the trust account on 1 November 2013.
These entries in the bank statements for the trust account appear to confirm that Dawoud's children advanced money for the purpose of carrying out the redevelopment of the Tasmanian property. They are also significant because they show that, at least in many cases, whoever was responsible for the deposits recorded the source of the funds. That fact should be relevant to the determination of the real amounts of some of the contributions to the trust account, for the purpose of working out entitlements to reimbursement and allowances. While the circumstances of some of the deposits and withdrawals are entirely opaque, that is not the case for all of them.
The mortgage repayment appears to have increased to $1,288.50 on 25 October 2013.
It appears that Dawoud was able to rent one or more of the dwellings from about 28 February 2014, as there are deposits into the trust account from "Bluedge Property" from that date.
In addition to the receipt of rent, Dawoud's wages continued to be paid into the trust account until 8 April 2014. That appears to be about the time that Dawoud moved from Tasmania to live in Sydney.
From that time, the most numerous transactions in the bank statements are credits from Bluedge Property and debits to Dawoud that represent mortgage repayments. There are a small number of unexplained credits and a large number of unexplained debits.
The ANZ mortgage account opened by Dawoud in connection with the purchase of the Tasmanian property was called Simplicity Plus Home Loan No 20676. The bank statements only run from 31 August 2012 when the balance was a debit of $117,774.40.
The bank statements primarily record the debit of interest, the credit of repayments, the transfers to and from the trust account, and the drawdowns of the increased loan to fund the Tasmanian property development.
It appears that the ANZ mortgage was closed on 24 August 2015 with a transfer from Westpac of $491,071.95.
[17]
Dawoud's Westpac bank statements
Dawoud opened a new personal bank account with Westpac on 14 August 2015. The account was a Westpac Choice account No 5676.
This account was opened at about the same time as Dawoud opened the loan account with Westpac by which he paid out the ANZ loan. The loan account was called Flexi First Option Investment Loan account No 3599.
The amount of the loan was $604,000. As noted above, the amount paid to ANZ to pay out that bank's loan was only $491,071.95.
On 20 August 2015, there is an unexplained credit of $111,155.19 described as "deposit of settlement proceeds from". I am not aware of any transaction that occurred on 20 August 2015 that could have generated a receipt of that amount by Dawoud. The credit to the account allowed the balance to be reduced to $492,844.81.
As Dawoud and Nadia moved from Tasmania to Sydney in this general period, it is possible that this credit represents the value of some property in Tasmania that was sold, although there is no evidence on the subject.
Immediately, on 24 August 2015, Dawoud transferred $90,000 to his Westpac Choice account. That had the effect of giving Dawoud a balance of $90,050 in his personal Westpac Choice account.
These transactions, in my view, suggest that the Westpac Choice account was, in practical terms, a continuation of the trust account that Dawoud had previously operated with the ANZ. That is because the initial substantial credit in the Westpac Choice account was financed from the Westpac replacement loan that was secured on the Tasmanian property.
By 1 September 2015, the Westpac Choice account balance had been reduced to $2,797.82. That was primarily because of debits between 24 August 2015 and 1 September 2015 described only as "Withdrawal [transaction number] Wentworthville NSW" or "Withdrawal [transaction number] Merrylands NSW" of $40,000, $6,000, $1,000, $50,000 and $5,000. The total amount withdrawn was $102,000.
There is a credit of $15,000 on 1 September 2015 described as "Transfer Deposit at Merrylands NSW", but this appears from the bank statements for the Flexi First account also to have been a withdrawal from the loan account.
The purpose for which the $102,000 was withdrawn from the Westpac Choice account has not been explained.
The withdrawals had the effect of reducing the balance in that account to an amount that subsequently made it difficult for the repayments on the Flexi First account to be made out of income payable into the Westpac Choice account.
Rent from Bluedge started to be paid into the Westpac Choice account from 3 September 2015.
From 3 September 2015, fortnightly repayments to the Flexi First account of $1,552 are debited against the Westpac Choice account.
On 29 April 2016, for the first time, the debit of $1,552 was dishonoured because the Westpac Choice account had fallen into deficit.
As well as the subsequent rent payments, $1,300 was deposited from the Flexi First account on 13 May 2016
Nadia deposited $2,000 into the Westpac Choice account on 15 July and 28 July 2016. These payments were made to put the account in credit.
On 15 August 2017, the rent payments commence to be paid into the Westpac Choice account by "J&S Huizing Real".
From then until the first of the three Tasmanian dwellings was sold on 19 February 2018, the rent received generally covered the payments required under the Flexi First account.
On the sale of the first of the Tasmanian lots, $142,315.34 was paid into the Westpac Choice account, giving it a balance of $141,972.02.
On the same date, $187,080.56 was credited to the Flexi First account, which reduced the outstanding debt to $392,295.36.
Following the deposit into the Westpac Choice account of part of the proceeds of sale of the first Tasmanian lot, $61,000 was paid into the Flexi First account on 22 February 2018.
Between 22 and 26 February 2018, $20,000 in cash was withdrawn and a bank cheque was obtained for $50,000 from the Westpac Choice account.
The evidence suggests that the $50,000 was used by Dawoud to pay $50,000 to Hoda by means of the establishment of the St George Bank account for which Hoda was given the key card and the pin number.
Payments to Nadia of $2,300, $600 and $2,000 were also made. There were other unexplained withdrawals.
The Westpac Choice account was kept in credit by a number of transfers from the Flexi First account, as well as by some payments of rent.
It may be observed that a number of debits from the Westpac Choice account appear to relate to some marine purpose. $1,000 was paid to "Whitworths NTCL WORL0001" on 13 March 2018, and $2,000 was paid to "Road Tech Marine" on 28 March 2018.
The settlement of the sale of the second Tasmanian lot appears to have occurred on 10 April 2018. On that date, $172,324.39 was paid into the Westpac Choice account, giving a balance of $173,692.86.
By 13 April 2018, the balance in the Westpac Choice account had been reduced to $2,140.86. That was primarily by reason of transfers into the Flexi First account of three amounts, being $100,000, $50,000 and $15,000, all on 13 April 2018.
On 10 April 2018, $148,743.14 was paid into the Flexi First account from the settlement of the sale of the second Tasmanian lot. After the transfer of the three amounts from the Westpac Choice account, the debit balance in the Flexi First account was reduced to $47,403.63.
However, for reasons that are unexplained, this position was reversed by transfers from the Flexi First account between 17 and 30 April 2018 of amounts of $6,000, $6,000, $5,000 and $140,000, a total of $157,000.
On 14 May 2018, $5,000 was paid out of the Flexi First account to Martha. A further $2,100 was paid out of the Westpac Choice account to Martha on 30 May 2018. This suggests that it may be possible to identify the payments made to Martha from the bank statements.
The next significant transactions on the Westpac Choice account were cash withdrawals made in Gosford on 1 May, 3 May and 9 May 2018 of $50,000, $5,000 and $70,000.
Of these withdrawals, payments of $70,000 and $29,500 were made into the Flexi First account on 14 May 2018 and 13 June 2018.
Apart from these credits into the Flexi First account, and the regular deposits of $1,552, as well as the now-decreased debiting of interest, the primary transactions until the Flexi First loan was paid out on 7 June 2019 were transfers from the Flexi First account to the Westpac Choice account in the following amounts, starting from 14 May 2018: $5,500, $3,000, $5,000, $2,000, $3,000, $10,000, $5,000, $15,000, $12,000, $5,000, $10,000, $5,000, $5,000, $25,000, $10,000, $5,000, $3,850, and $1,500. The total amount so transferred was $130,850.
The Flexi First loan account was finally repaid on 7 June 2019, when $208,101.50 was paid on settlement of the sale of the third Tasmanian lot into the Flexi First account.
As I have mentioned above, from 14 May 2018, there were a significant number of transfers from the Flexi First account to the Westpac Choice account at relatively regular intervals. Those payments did not build up a substantial credit balance in the Westpac Choice account. The reason is that there were a significant number of debits against the Westpac Choice account that are unexplained.
By this time, as there was only one Tasmanian lot that remained unsold, the amount of rent that was being received and paid into the Westpac Choice account had substantially reduced. The only significant deposits into the Westpac Choice account were the transfers from the Flexi First account.
While there were a significant number of specific withdrawals for unknown purposes, a regular practice developed of cash withdrawals being made at ATMs and Handybanks. The following list may not be complete: 14 May 2018 ($2,000), 14 May 2018 ($2,000), 15 June 2018 ($2,000), 2 July 2018 ($2,000), 9 July 2018 ($2,500), 9 July 2018 ($4,800), 9 July 2018 ($2,000), 16 July 2018 ($2,000), 2 August 2018 ($2,000), 3 August 2018 ($2,000), 6 August 2018 ($2,000), 8 August 2018 ($2,000), 13 August 2018 ($2,000), 1 November 2018 ($1,000), 5 November 2018 ($500), 3 December 2018 ($16,500), 20 December 2018 ($7,000), 20 December 2018 ($200), 4 April 2019 ($250), 9 April 2019 ($2,000). The total of these withdrawals was $50,750.
Other significant debits included a payment of $1,000 on 2 July 2018 to "Rod?S Boat and Mar". A $1,020 payment was made on 28 August 2018 by debit card to "Mercedes-Benz Castle H Seven Hills".
Hoda was paid $200 on 7 September 2018 and $5,000 on 10 September 2018. She was paid a further $4,500 on 8 October 2018.
Between 20 September 2018 and 26 September 2018, a significant number of small payments (in the order of $400 to $500) were made out of the Westpac Choice account in respect of withdrawals made in Lebanon.
Dawoud received $200 on 3 September, $450 on 5 October, $1,000 on 10 October, $1,500 on 16 October, $1,300 on 2 November and $1,500 on 19 November 2018.
On 7 June 2019, the last payment from the sale of the third Tasmanian lot of $74,980.62 was made into the Westpac Choice account. That gave a balance of $71,893.78.
As the Flexi First Account was closed, and all three Tasmanian lots had been sold, there was no further scope for making deposits into the Westpac Choice account.
The Westpac Choice account was entirely depleted by 5 November 2019, when it was closed.
While there were other credit card transactions, most of the transactions took the form of cash withdrawals from ATMs or Handybanks as follows: 14 June 2019 ($2,000), 17 June 2019 ($2,000), 19 June 2019 ($2,000), 21 June 2019 ($9,000), 21 June 2019 ($2,000), 24 June 2019 ($2,000), 24 June 2019 ($2,000), 25 June 2019 ($2,000), 28 June 2019 ($2,000), 2 July 2019 ($10,000), 2 July 2019 ($2,000), 5 July 2019 ($5,000), 8 July 2019 ($2,000), 8 July 2019 ($2,000), 9 July 2018 ($2,000), 9 July 2019 ($2,000), 10 July 2019 ($2,000), 11 July 2019 ($2,000) 12 July 2019 ($2,000), 15 July 2019 ($2,000), 17 July 2019 ($500), 17 July 2019 ($1,000), 29 July 2019 ($2,000), 29 July 2019 ($2,000), 29 July 2019 ($1,000), 30 July 2019 ($1,400), 29 August 2019 ($500), 30 August 2019 ($500), 12 September 2019 ($100), 30 September 2019 ($500), 4 October 2019 ($1,200) and 28 October 2019 ($1,500). The total amount of these withdrawals is $93,200.
Dawoud did not offer in his affidavit any explanation for the two series of cash withdrawals that took place between 14 May 2018 and 28 October 2019 of an amount totalling $143,950. It is to be remembered that this is only the total of cash withdrawals in round amounts, and there were many additional unexplained withdrawals that apparently were for particular purposes.
However, the following evidence was given by Dawoud in cross-examination concerning the ultimate fate of some of the money that had been withdrawn from the Westpac Choice account at T 60.50 - T 64.12:
Q. But you have no records to show what you have done with that money?
A. INTERPRETER: Yes, I do; it's in the affidavit. It shows in the affidavit that this money was spent, and more than this money was spent.
Q. At paragraph 47 of your affidavit, court book page 110, you say the balance of the funds is $75,000, "It is held by a friend of mine in Lebanon in a Lebanese bank account. The money is held at fixed interest for two years". Do you see that?
A. WITNESS: Yes.
…
Q. But where are the documents to show the $75,000 is kept in a Lebanese bank account?
A. INTERPRETER: I don't have papers.
…
Q. So are you saying there are no documents to show the $75,000 is in a Lebanese bank account?
A. INTERPRETER: I'm not going to show you the $75,000 account
…
Q. Why will you not show the Court the documents for the $75,000 in a Lebanese bank account?
A. INTERPRETER: When I show you all the expenses, then you will see where the $75,000 went.
HIS HONOUR
…
Q. And the amount is $75,000 Australian dollars?
A. WITNESS: Yes.
Q. And that was money that you had at the end of the process
A. WITNESS: Yes.
Q. of investing in the property in Tasmania?
A. WITNESS: Yes.
…
Q. In paragraph 47, you say about the $75,000, "It is held by a friend of mine in Lebanon in a Lebanese bank account"?
A. WITNESS: Yes.
A. INTERPRETER: Yes, correct.
Q. You accept, do you, that that is clearly saying that the $75,000 still exists?
A. INTERPRETER: This money has its own people that it needs to be paid to. This is the money that was left from the house but this is this is not part of the money that was owing to the children. There's still money owing on the house, and this money needs to go to the people who own it.
Q. It seems that you're saying there is no money for the children?
A. INTERPRETER: I had already given all of their money.
A. WITNESS: 25 extra.
A. INTERPRETER: I gave all the children the money plus 25 extra on top.
Q. So you now say that this money is not held for you in Lebanon?
A. WITNESS: Yeah.
A. INTERPRETER: Yes, it is so.
Q. You mean it's not held for you?
A. INTERPRETER: Yes, they are holding it for me.
Q. And is it in a Lebanese bank account?
A. INTERPRETER: It's in an account in Lebanon in Lebanese pounds.
Q. That wasn't very wise, was it?
A. INTERPRETER: It's dead money.
Q. I beg your pardon?
A. INTERPRETER: It's dead money.
Q. Yes. If it had stayed here in Australian dollars
A. WITNESS: Mm.
Q. you'd go to the bank and get $75,000?
A. WITNESS: That's right.
A. INTERPRETER: I transferred it because my sister took me to court, I transferred it to Lebanon, and now the money died, and I did say that to the Court on the first day.
SANTUCCI: Could I ask a question then, your Honour?
HIS HONOUR: Yes.
SANTUCCI
Q. It was not in the best interests of Michael and Martha for you to transfer the money to Lebanon, was it?
A. INTERPRETER: They did, they took all of their money and their money on top of it as well.
Q. It was not in the best interests of Michael and Martha for you to pay the money to Lebanon, was it?
A. INTERPRETER: But they took their money. This is money for people who worked on the house, and it's rightfully theirs.
Q. Nobody in Lebanon worked on the house, did they?
A. INTERPRETER: I worked on the house for six months.
This evidence constitutes an admission by Dawoud that he took steps to transfer the equivalent of $75,000 that was sourced in the sale proceeds of the Tasmanian lots out of Australia to some recipient in Lebanon to hold for him, and that the funds were converted into Lebanese pounds. It is well-known that Lebanon has experienced desperate financial circumstances in relation to the solvency of its banks. Dawoud's view of the matter was that the money was now dead money.
However, Dawoud has presented no evidence to prove that the money was transferred to Lebanon or anything about the present circumstances of the money if it was in fact so transferred.
[18]
Nadia's bank statements
The evidence included statements for a number of bank accounts in the name of Nadia, and also records concerning the purchase of a house in Sydney in Nadia's name.
Although Dawoud was asked some questions about this evidence in cross-examination, I do not propose to analyse the evidence in detail or to make findings about it. At this stage, Nadia is not a party to the proceedings, and any findings that are made would not bind her. She has also not been given an opportunity to answer any claims concerning her involvement with the proceeds of Yaacoub's insurance policy.
On 7 June 2015, Nadia entered into a contract to purchase the Sydney residence for a price of $480,000, with a deposit of $48,000. $432,000 was payable on completion.
In order to purchase the property, Nadia granted a mortgage to Westpac dated 26 June 2015. Nadia's solicitor's letter to Westpac dated 16 July 2015 noted that the amount available on settlement was $383,671.50, of which $379,142.61 was required to be paid to the vendors.
The statements for Nadia's Flexi First Option Investment Loan account No 6245 shows an initial debit of $384,000 on 20 July 2015.
That means that Nadia was required to fund the deposit of $48,000 on about 7 June 2015, and the difference of $52,000 between the settlement balance and the amount provided by Westpac on 20 July 2015.
The evidence included statements for Nadia's Westpac bank accounts. Nadia's Basic Account No 2436 shows deposits of $74,980 and $35,000 on 3 and 8 December 2014, leading to an online transfer to another Westpac account of $95,320 on 11 December 2014. The statements refer to these deposits being transfers from overseas. There is then a gap in the bank statements until the opening of Nadia's Westpac Choice account No 2360 on 26 June 2015. From this evidence it is possible that Nadia paid the deposit and the shortfall in the settlement account from funds in a bank account for which the statements are not included in the evidence.
The bank statements for these accounts of Nadia's appear to show that between 8 March 2016 and 2 February 2018, Dawoud paid a net amount of $4,490 into these accounts.
More significantly, the evidence also included statements from Nadia's Commonwealth Bank of Australia (CBA) Smart Access account No 1314, which show that between 9 April 2018 and 18 August 2020 Dawoud paid amounts totalling $83,492 into this account. The first of these payments is described as for "child-support", but the payments are not in regular amounts. The bank statements for Master J El Samrani, who I understand is a child of Dawoud and Nadia, for CBA Smart Access account No 1240 show that Dawoud paid a further $11,350 into that account between 20 January 2019 and 31 August 2020.
However, in respect of these payments to Nadia and Dawoud's son, the bank statements for Dawoud's CBA account are included in the exhibit to his affidavit. A comparison between Dawoud's CBA bank statements and the equivalent statements for Nadia and the son show that Dawoud transferred the payments into their accounts, and the apparent source of the funds to do so were substantial deposits into Dawoud's account described as "NEWBUILD DEVELOP Adala" with a reference to the name of a street. Absent evidence to the contrary, the evidence that is available would suggest that these payments were made to Dawoud in the course of his occupation as a cement renderer.
A substantial number of transfers were made from Nadia's CBA account into her Westpac Choice account to enable repayments to be made in respect of the debt in Nadia's Flexi First account.
It may be recorded that on 18 May 2016 a deposit of $71,972.14 was made into Nadia's Westpac Choice account. The entry is described as: "DEPOSIT OF SETTLEMENT PROCEEDS 0000000 From El-Samrani". The evidence does not explain the source of this deposit.
A substantial number of transfers are recorded as having taken place back and forth between Nadia's Flexi First and Westpac Choice accounts, in much the same way as between the equivalent accounts in the name of Dawoud. However, at the beginning of the operation of the Flexi First account, between 28 July 2015 and 18 November 2015, there were a number of significant deposits directly into this loan account that are not explained as being transfers from other accounts of Nadia: 28 July 2015 ($200), 28 July 2015 ($5,000), 31 July 2018 ($2,200), 6 August 2015 ($3,500), 12 August 2015 ($43,500), 15 September 2015 ($10,000), 16 September 2015 ($8,000), 28 September 2015 ($1,000), 22 October 2015 ($1,000), 2 November 2015 ($1,500) and 18 November 2015 ($500). The total of these payments is $76,400.
Although the source of these payments is not known, it may be noted that the $43,500 deposit occurred at about the same time as Dawoud's Flexi First account received the credit of $111,155.19 described as "deposit of settlement proceeds" on 20 August 2015.
[19]
Approach to be adopted
As events have happened, the manner in which these proceedings have been conducted has prevented the Court being able to determine all of the issues that exist between the parties in this judgment.
As explained above, the issues were not defined by the pleadings. That may not have mattered if the issue at the hearing had been limited to whether Dawoud received the proceeds of Yaacoub's insurance policy on trust for the children, and whether an order should be made referring the matter to a registrar for the purpose of conducting a trust accounting. However, as soon as Michael sought relief based upon a finding of breach of trust by Dawoud, the absence of pleadings became problematic.
Furthermore, notwithstanding Dawoud's expressed consent at the hearing to deal with Michael's amended summons, the reasons that I have set out above satisfied me that the Court would deny procedural fairness to a self-represented Arabic-speaking party if it decided all of the issues raised by Michael at the hearing. Not only was a period of notice of two weeks insufficient for Dawoud to present his defence to the prayers introduced by the amended summons, but the abandonment by Michael of the request for a trust accounting, in the context of the hearing being fixed for a single day, had the practical effect of denying Dawoud the opportunity to support and present the claims for reimbursement and allowances that he had clearly made in his affidavit.
That said, given the apparent financial circumstances of Michael and Hoda on the one hand, and Dawoud on the other, it would not be desirable for the Court to decline to give judgment at this stage and to effectively adjourn the hearing in the manner necessary to accord procedural fairness to Dawoud. It is desirable that the Court decide that which can fairly be decided, and make case management orders that should facilitate the outstanding issues being determined as quickly and in the most cost effective manner as is possible.
That approach is in part justified by the fact that Dawoud did consent to the filing of the amended summons and for the claim as so amended to be dealt with at the hearing. That consent should not be ignored entirely, even though I have belatedly realised that Dawoud was not in a position to give properly informed and considered consent.
It is also of practical significance that Dawoud made clear in his cross-examination that he did not keep formal accounts of his expenditures for the benefit of the children, or in respect of his purchase and development of the Tasmanian property. It is accordingly not realistic to think that anything will be achieved in a cost-effective manner by referring the matter to a registrar for the purpose of a trust accounting to be conducted. It may be that the absence of formal accounts and vouchers will impair Dawoud's capacity to prove any entitlement that he may have in principle to reimbursement or allowances. His difficulties in proof would not, however, justify denying Dawoud the opportunity to attempt to establish his claims in the Court.
I propose to approach the present resolution of the issues in this matter by deciding the issues that I consider were fairly before the Court on 18 September 2020, and can be determined without undue procedural unfairness to either party, given that Michael also has legitimately claimed that procedural unfairness to him would flow from the Court's acting upon the evidentiary material provided by Dawoud after the hearing.
I will therefore make a determination as to any remedy that I am clearly satisfied Michael is entitled to against Dawoud for breach of trust. I will do that on the basis that my finding is without prejudice to Michael's entitlement to pursue a claim for a larger remedy against Dawoud if he so decides. It will be without prejudice to Dawoud's entitlement to prosecute a claim in a judicial hearing that he was entitled by the terms of the trust to expend specific monies for the benefit of the children, and that he is entitled to particular reimbursement and allowances.
I acknowledge that that is a somewhat novel approach to the resolution of a dispute such as the present. I consider it to be preferable to a course that yields no resolution of the dispute at all at this time. The evidence justifies doubt as to Dawoud's capacity to meet any judgment against him, and there is no obvious remaining trust fund out of which the Court could order the amount of Michael's entitlement be paid to him. It may be of advantage to Michael if the orders made by this judgment give him the relief that he can fairly be given at this time.
[20]
Consideration
The starting point is that it is clear that Dawoud received the proceeds of Yaacoub's insurance policy into what I have called the trust account on trust for the children.
That follows from the names adopted by Dawoud for the trust account and the subsidiary account with the same name. It follows from the evidence in Dawoud's affidavit that has been extracted above, and also Dawoud's concession in cross-examination that the insurer asked him to open an account in his name in trust for the children. In any event, that is the conclusion that would be drawn from the evidence of the agreement between Dawoud and Generali encompassed in the email correspondence between them.
The better view is that the trust was an express trust that was declared by Dawoud when he opened the trust account, and that the trust became effective when Generali transferred the insurance proceeds into the account. If that is wrong, Dawoud clearly received the funds on a constructive trust.
What is not clear are the terms of the trust. As noted, Dawoud claims that he was entitled to expend funds for the benefit of the children during their minority, and to give them the remaining balance when they each achieved the age of 18 years. Michael submitted that Dawoud was required to retain the whole fund as an investment until he became 18.
I consider that the better view is that, given the absence of evidence as to the terms of the insurance policy, and the consequent doubt as to what circumstances would give Generali a good discharge of its obligation to pay the proceeds of the policy, the Court should take into account the basis upon which Generali agreed to pay the proceeds to Dawoud as reflected in the email correspondence. The essence of the doubt is that it is not clear whether Generali was obliged to pay the proceeds to the children, or whether it was entitled to pay the proceeds to their custodian for the children's benefit.
The objective meaning of the email correspondence is not entirely clear, as there are inconsistent statements with respect to the manner in which Dawoud was to apply the funds. Generali's 12 January 2011 email (at 11:12 AM) seems to require the fund to be retained until the children reached the age of 18, but the other emails contain clear statements by Dawoud that he would need "to cover their living and schooling expenses" (12 January 2011 at 1:51 AM), and "cater for their needs and schooling and bringing up needs" and their "proper level of education" (12 January 2011 at 12:45 PM). Generali simply responded by stating in its 12 January 2011 email (at 12:50 PM) that it was "really glad to know that children are under your care and we have no doubts that you will take the best care of them".
The emails are therefore equivocal. I doubt that it would be proper to construe the emails as if Generali intended to permit Dawoud to simply expend all of the funds on the day to day living expenses of the children. It is more likely that, having regard to the obligation on a party with legal custody of a child to meet the child's needs from the custodian's own funds, together with the possibility that the state would make available funds to assist in the maintenance of children who were for practical purposes orphans, that the intention was that Dawoud could, from time to time, draw upon the funds to meet the special needs of the children for their maintenance and education, having regard to what was prudent and the quantum of the fund. That would be a nebulous criterion to be applied to the determination of what expenditures from the fund were permissible, but it is not a criterion that is unknown to trusts for the benefit of minors, where the trustee is given the discretion to make prudent applications of the fund for the maintenance and education of the beneficiary.
However, the Court is not in a position to make a positive determination of the terms of the trust, insofar as they may have authorised Dawoud to expend the fund for the benefit of the children. That would be unfair to Michael, as he has not had the opportunity to investigate the adequacy of the evidence of the email communications provided to the Court after the hearing, or to cross-examine Dawoud on the subject, or make comprehensive submissions to the Court.
I consider that it is proper for the Court to make a determination as to what the terms of the trust do not authorise. Dawoud, as trustee, was not authorised to make payments for the benefit of the children that did not involve their maintenance and education. That is, while it remains possible for Dawoud to succeed in an argument that he would get a good discharge of his obligations as trustee if he made particular expenditures for the maintenance and education of the children, he would not immediately be discharged by making any other type of expenditure.
It will be recalled that I have found that Dawoud should be bound by his own admission that he used $120,000 of the fund to buy the Tasmanian property, and that he spent a further $25,000 repairing the property. Those facts cannot neatly be related to the bank statements. Consequently, it remains open for Michael in the future to seek to prove that Dawoud spent more of the fund on the purchase and repair of the Tasmanian property than he has acknowledged.
As to the remaining $55,000, it is possible that Dawoud spent that money in fact on the maintenance of the children, their emigration from Lebanon to Australia, and the establishment of their lives in this country. It is therefore possible that Dawoud will be able to establish that the terms of the trust authorised him to expend that money for that purpose, or that he is otherwise entitled to some reimbursement for the expenditure. It is also possible that Michael will be able to establish that the terms of the trust did not permit Dawoud to spend money for those purposes, or that, if expenditures were permitted, the particular expenses were not.
That means that $145,000 of the funds in the trust account can be traced into the Tasmanian property.
It is then necessary to identify the proper law of the trust in order to determine what trustee obligations were imposed upon Dawoud, other than those that may have arisen out of the basis upon which the trust was declared or accepted.
Although Michael made submissions concerning the application of the Hague Convention on the Law Applicable to Trusts and on their Recognition of 1984, I do not think that the Convention is relevant, because it applies only to trusts which are created voluntarily and evidenced in writing: see M Davies, A S Bell and P L G Brereton, Nygh's Conflict of Laws in Australia (9th ed, 2013, LexisNexis Butterworths) at [34.3]. While there is some evidence of the existence and possibly also the terms of the trust, it was not evidenced in writing.
I accept Michael's submission that the better view is that the law of Tasmania governed the trust. There is nothing in the email correspondence between Dawoud and Generali that suggests that Generali had any interest in the matter. I infer that Generali would have appreciated that the insurance policy proceeds were transferred to a bank in Australia, and that it followed from Dawoud's information that he had custody of the children and would look after them that the trust would be governed by an appropriate Australian law. As Dawoud and the children initially resided in Tasmania, the law of that state is the appropriate law to select to govern the trust. It follows that the Trustee Act 1898 (Tas) (the Trustee Act) applies.
The general principles of trust law that apply in the present case are so well established that it will be sufficient for them to be stated without elaborate explanation.
The following statement of principle may be relevant to the question whether Dawoud was authorised to apply any part of the fund for the benefit of the children. The learned editors of Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) (Jacobs) at [20-68] said, regarding application of a trust fund for maintenance or benefit of beneficiaries in Tasmania:
There is no implied statutory power in Tasmania that allows a trustee to apply income of trust funds to the maintenance, education, advancement or benefit of any beneficiary in any circumstances. A trustee's powers in this regard are still, therefore, regulated by the general law. There is, however, the usual implied statutory power to apply capital to a beneficiary's advance or benefit: it is contained in s 29 of the Trustee Act 1898.
In relation to the power of a trustee to apply the capital of the fund for the benefit of the beneficiary, s 29 of the Trustee Act provides:
(1) Trustees may at any time pay or apply any capital money subject to a trust, for the advancement or benefit, in such manner as they may, in their absolute discretion think fit, of any person entitled to the capital of the trust property or of any share thereof, whether absolutely or contingently on his attaining any specified age or on the occurrence of any other event …Provided that -
(a) the money so paid or applied for the advancement or benefit of any person shall not exceed altogether in amount one-half of the presumptive or vested share or interest of that person in the trust property;
(b) if that person is or becomes absolutely and indefeasibly entitled to a share in the trust property the money so paid or applied shall be brought into account as part of such share;
…
(2) This section applies only where the trust property consists of money or securities or of property held upon trust for sale, calling in, and conversion, and such money or securities, or the proceeds of such sale, calling in, and conversion are not by statute or in equity considered as land, or applicable as capital for the purposes of the Settled Land Act 1884.
…
Section 6 of the Trustee Act provides:
A trustee, unless expressly forbidden by the instrument creating the trust, may -
(a) invest trust funds in any form of investment…
Under s 7(1) of the Trustee Act:
(1) Subject to any provision to the contrary in an instrument creating a trust, a trustee, in exercising a power of investment -
(a) if the trustee's profession, business or employment is or includes acting as a trustee or investing money on behalf of other persons, must exercise the care, diligence and skill that a prudent person engaged in that profession, business or employment would exercise in managing the affairs of another person; or
(b) if the trustee is not engaged in such a profession, business or employment, must exercise the care, diligence and skill that a prudent person of business would exercise in managing the affairs of another person.
The matters that a trustee may take into account when exercising a power of investment include the following, as listed in s 8(1) of the Trustee Act:
(1) Without limiting the matters that a trustee may take into account when exercising a power of investment, a trustee, so far as is appropriate to the provisions of the trust, may have regard to any one or more of the following:
(a) the purposes of the trust and the needs and circumstances of the beneficiaries;
…
(d) the need to maintain the real value of the capital or income of the trust;
(e) the risk of capital loss or depreciation;
(f) the potential for capital appreciation;
(g) the likely income and the timing of the income return;
…
Section 9 of the Trustee Act provides:
(1) Any rule or principle of law or equity that imposes a duty on a trustee exercising a power of investment including, without limiting the generality of those duties, rules and principles that impose -
(a) a duty to exercise the powers of a trustee in the best interests of all present and future beneficiaries of the trust; or
…
(d) a duty to invest trust funds in investments that are not speculative or hazardous -
continues to apply except so far as it is inconsistent with this or any other Act, or the instrument creating the trust…
At general law, the making of an investment involves the application of "money in the purchase of some property from which profit or interest is expected and which property is purchased in order to be held for the sake of the income which it will yield": Re Wragg [1919] 2 Ch 58 at 65; cited in Jacobs at [18-04]. The same case held that real estate could be purchased as an investment.
There may be an issue as to whether it was a breach of trust by Dawoud to purchase the Tasmanian property in 2011, insofar as Dawoud was required to borrow the balance of the purchase price from the ANZ on the security of a mortgage granted over the property. However, Michael did not seek to make a specific case to that effect, and in any event, there is no evidence that any loss was suffered to the trust fund by reason of the initial purchase of the Tasmanian property. It may be that a close analysis of the relevant bank statements, with the necessary explanation of the individual line items, would demonstrate that the Tasmanian property was a loss-making investment. That outcome has not yet been demonstrated.
However, as stated in Jacobs at [18-06]: "A discretion to invest, however wide, will not permit speculation by a trustee. Even if the investment is authorised, the trustee must still act prudently and must be satisfied that the particular security is one which will protect the trust assets".
Further, in Jacobs at [18-14]: "Under the general law, trustees had a duty to seek advice on matters which they did not understand, such as making some types of investment. They were not entitled to reject that advice merely because they sincerely disagreed with it, but they were not bound to accept and act on it".
In addition, in Jacobs at [17-13]: "It is the duty of trustees to keep proper accounts… Hence it is the duty of trustees to be ready to render accounts when called upon to do so. Trustees should gain no advantage by the failure to keep and produce proper accounts, and the Court will resolve doubts against trustees guilty of this failure".
It is a cardinal principle of Equity that: "A trustee must not abuse his or her position by making it a means of profit or benefit personally or to any third party": Jacobs at [17-42]. As the learned editors say in that paragraph (footnote omitted):
In Chan v Zacharia, Deane J expressed the obligation as one to account as constructive trustee for any benefit or gain which:
(1) has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between fiduciary duty and personal interest in the pursued or possible receipt of such a benefit or gain; or
(2) has been obtained or received by use or by reason of fiduciary position or of opportunity or knowledge resulting from it.
While, on the present state of the evidence and the submissions, I have not found that it was a breach of trust for Dawoud to have invested $145,000 from the trust fund in the purchase of the Tasmanian property, I do accept that it was a breach of trust for Dawoud to have turned the investment from an investment in a single residential property, subject to a mortgage in common form, into a residential redevelopment project that required development approval, subdivision of the property into three lots, and the construction of two additional dwellings.
The capital of the trust invested in the purchase price was $120,000, and the mortgage was initially in the order of $115,000. That was a relatively straightforward real estate transaction, with a risk to the capital that was likely to be manageable.
By the time of the fourth drawdown on the increased loan from the ANZ, the amount secured by mortgage on the Tasmanian property was $423,995. The increased risk to the trust fund's investment in the Tasmanian property arose in practical terms at the time of the first drawdown on 26 February 2013.
The following matters are, in my view incontrovertible on the evidence presented by Dawoud himself, and there is no real possibility that any different conclusions would be justified by the presentation of any further evidence.
First, Dawoud, as a cement renderer by occupation, did not have expertise in the planning and management of residential property developments and subdivisions.
Secondly, Dawoud did not obtain professional financial advice concerning the prudence of risking the trust's investment in the existing ownership of the Tasmanian property in the redevelopment project that took place.
Thirdly, Dawoud did not carry out the development project with the benefit of a competent, experienced building contractor, but supervised and performed much of the work himself.
Fourthly, Dawoud embarked upon the development project without access to additional capital to provide a buffer against unexpected costs and on his own case was required to borrow substantial funds from related parties because the amount borrowed from the ANZ was not sufficient to complete the project.
Fifthly, Dawoud did not have any objective reason for confidence that the rents that could be generated by the three residential lots would be sufficient to service and repay all borrowings made for the purpose of the project, so that there would be no risk that the lots had to be sold to repay all borrowings.
Sixthly, it must be inferred from Dawoud's subsequent conduct in remunerated in himself for his labours in implementing the development project that Dawoud entered into the project in his own interests for the purpose of earning income, thereby creating a conflict between his own interests and those of the trust.
Seventhly, Dawoud exposed the trust's investment in the Tasmanian property to a real risk of total loss, without putting in place any financial mechanism to preserve the capital of the trust.
Dawoud's position at the hearing was that the Tasmanian property development made a loss, so that there was no profit that the Court could order be paid to or shared with Michael. That attitude on Dawoud's part was entirely misguided, and it demonstrated a total ignorance of the fact that it was his duty as trustee to preserve the capital of the trust and to ensure that he took no imprudent risk that would jeopardise it.
That the risks taken by Dawoud were imprudent and reckless is obvious from a consideration of the proposal at the time Dawoud committed the trust's investment in the Tasmanian property to the development project, and the events that followed have simply borne out that conclusion.
It is clear that, at some point, Dawoud saw the opportunity to change the nature of the trust's benefit in a way that would benefit himself by allowing him to remunerate himself for the work that he undertook. Dawoud may have started off with the best motives, but it is clear from his justification for stripping the money out of the Westpac Choice account not only that at some point he decided to make a profit from the investment, but furthermore he decided that he would prefer his claim to the fruits of the investment over the claims of the beneficiaries - to the extent that he left them nothing. In short, Dawoud incontrovertibly preferred his own interests by claiming that whatever funds in fact remained after payment of the costs of the development project should be paid to him, and nothing should be retained to be paid to or shared with the beneficiaries of the trust.
That conclusion is manifest in the evidence of how the Westpac Choice was stripped of funds by withdrawals of cash at ATMs on a scale that approached industrial and the spiriting out of Australia, according to Dawoud, of some $75,000, for the avowed purpose of putting those funds beyond the reach of Hoda on behalf of Michael. That Dawoud, if he is to be accepted, converted that money into Lebanese pounds is on any view an astonishingly reckless and imprudent act for a trustee to perform.
Dawoud, as a subsidiary matter, breached his duty to keep proper accounts of his dealings with the trust fund and vouchers to support those dealings. A telling consequence of Dawoud's failure to keep proper accounts in the present case is that neither he nor the Court could determine in a satisfactory way, if at all, what the true fate of the trust's investment in the Tasmanian property development was.
I therefore conclude that the Court is justified, at this stage, in making an order that Dawoud pay Michael, as equitable compensation, the sum of $72,500, which is half the amount of $145,000, of which, on Dawoud's own account, he invested in the purchase of the Tasmanian property.
That finding is without prejudice to Michael's entitlement to pursue a claim that the amount of equitable compensation that Dawoud is ordered to pay should be greater than $72,500.
The finding is also without prejudice to Dawoud's entitlement to pursue a claim that some of his payments out of the trust fund were authorised, or that for some reason he is entitled to reimbursement or allowances out of the fund.
It is theoretically possible that the result of any claims pursued by Dawoud will have the net effect that the amount of equitable compensation that he is finally found liable to pay to Michael is less than $72,500. I would not stay execution on the order that will now be made that Dawoud pay equitable compensation to Michael unless Dawoud first paid the total amount of the equitable compensation into court.
I now turn to the question whether Dawoud should be ordered to pay compound or simple interest as a part of the equitable compensation.
Michael relied upon the following statement of Kyrou J (as his Honour then was) in Talacko v Talacko [2009] VSC 579 at [15]:
In some circumstances, it will be appropriate for the Court to award compound interest. As stated by Boehm AM in Southern Cross Commodities Pty Ltd (in liq) v Ewing, the principle is that a defaulting fiduciary 'may, and normally will, be charged with compound interest with yearly rests not only where has used the money for his own commercial purposes, but also where he has been guilty of fraud or serious misconduct.' Compound interest is awarded in order to ensure that no profit remains in the hands of the defaulting fiduciary.
In Jaeger v Bowden (No 2) [2016] NSWSC 897, I said at [714] to [716]:
714 Kim has cited a number of authorities to the court, including the relatively recent judgments of Pembroke J in Thomas v SMP (International) Pty Ltd (No 6) [2010] NSWSC 1311, and of Slattery J in Linjing Fang v Xiaodan Sun (No 2) [2014] NSWSC 1194. Both of their Honours cite the following statement of principle by Boehm AM in Southern Cross Commodities Pty Ltd (I liq) v Ewing (1987) 11 ACLR 818 at [843]:
… A trustee may, and normally will, be charged with compound interest with yearly rests not only where he has used the money for his own commercial purposes but also where he has been guilty of fraud or serious misconduct.
715 Kim submitted that the court has a discretion as to whether or not to order that interest be calculated on a compound basis. In Thomas, Pembroke J expressed a preference for the view that, in modern times, the court should always order that interest be calculated on a compound basis, but it was not necessary for him to decide that question. Kim did not submit that compound interest should necessarily be awarded, and this is not an appropriate occasion for me to consider that issue.
716 Southern Cross Commodities suggests that it will be appropriate for the court to award interest on a compound basis in two circumstances, only one of which involves fraud or serious misconduct by the defendant. That is where there is such fraud or serious misconduct, that the court should order that compound interest be paid. However, even where there is no fraud or misconduct, if the defendant has used the money for his or her own commercial purposes, then it may be appropriate to order compound interest.
In Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; (2003) 56 NSWLR 298 at [303]-[304], Heydon JA (as his Honour then was) said with respect to when a defaulting fiduciary may pay a higher rate of interest:
[303] The award of the higher rate of interest in cases of gross misapplication of trust funds thus rests not on ideas of punishment or penalty, but on two other bases. The first was articulated by the Full Federal Court (Burchett, Gummow and O'Loughlin JJ) in Bailey v Namol Pty Ltd (1994) 53 FCR 102 at 112: the award of the higher rate of interest in cases of gross misapplication of trust funds rests "on the footing not that a penalty is imposed but that the defendant is estopped from denying that he received interest at such a rate which he ought to have received". The second is that the award ensures that the fiduciary retains no profit. Thus in Southern Cross Commodities Pty Ltd (in liq) v Ewing (1987) 11 ACLR 818 at 848, Acting Master Boehm, sitting in the Supreme Court of South Australia, in awarding compound interest at the higher rate, said: "It is not a punishment. It is not compensation. It is equity's way of ensuring, as far as possible, that no profit should remain in the hands of the trustee from so gross a breach of trust." An appeal was dismissed by the South Australian Full Court: Southern Cross Commodities Pty Ltd (in liq) v Ewing (1988) 91 FLR 271. That approach was approved by Kearney J in Hagen v Waterhouse (1991) 34 NSWLR 308 at 393, a case which was itself approved by this Court (Gleeson CJ, Handley and Sheller JJA) in Alemite Lubrequip Pty Ltd v Adams (1996) 41 NSWLR 45 at 47. In Wallersteiner v Moir (No 2) [1975] QB 373 at 388 Lord Denning MR combined the two bases when he said, after citing Jones v Foxall, Attorney-General v Alford, Burdick v Garrick and Vyse v Foster:
Those judgments show that in equity, interest is never awarded by way of punishment. Equity awards it whenever money is misused by an executor or a trustee or anyone else in a fiduciary position - who has misapplied the money and made use of it himself for his own benefit. The Court:
presumes that the party against whom relief is sought has made that amount of profit which persons ordinarily do make in trade, and in these cases the court directs rests to be made,' ie, compound interest: see Burdick v Garrick, 5 Ch App 233, 242, per Lord Hatherley LC.
The reason is because a person in a fiduciary position is not allowed to make a profit out of his trust: and, if he does, he is liable to account for that profit or interest in lieu thereof.
In addition, in equity interest is awarded whenever a wrongdoer deprives a company of money which it needs for use in its business. It is plain that the company should be compensated for the loss thereby occasioned to it. Mere replacement of the money - years later - is by no means adequate compensation, especially in days of inflation. The company should be compensated by the award of interest. That was done by Sir William Page Wood V-C (afterwards Lord Hatherley) in one of the leading cases on the subject, Atwool v Merryweather (1867) LR 5 Eq 464n, 468-469. But the question arises: should it be simple interest or compound interest? On general principles I think it should be presumed that the company (had it not been deprived of the money) would have made the most beneficial use open to it: cf Armory v Delamirie (1723) 1 Stra 505. It may be that the company would have used it in its own trading operations; or that it would have used it to help its subsidiaries. Alternatively, it should be presumed that the wrongdoer made the most beneficial use of it. But, whichever it is, in order to give adequate compensation, the money should be replaced at interest with yearly rests, ie compound interest.
At 397 Buckley LJ followed the line of cases under discussion and said:
The justification for charging compound interest normally lies in the fact that profits earned in trade would be likely to be used as working capital for earning further profits. Precisely similar equitable principles apply to an agent who has retained moneys of his principal in his hands and used them for his own purposes...
At 398 Buckley LJ said:
In cases of this kind interest is not... given to compensate for loss of profit but in order to ensure as far as possible that the defendant retains no profit for which he ought to account.
At 406 Scarman LJ said, after referring to Burdick v Garrick:
Dr Wallersteiner was at all material times engaged in the business of finance. Through a complex structure of companies he conducted financial operations with a view to profit. The quarter million pounds assistance which he obtained from the two companies in order to finance the acquisition of the shares meant that he was in a position to employ the money or its capital equivalent in those operations. Though the truth is unlikely ever to be fully known, shrouded as it is by the elaborate corporate structure within which Dr Wallersteiner chose to operate, one may safely presume that the use of the money (or the capital it enabled him to acquire) was worth to him the equivalent of compound interest at commercial rates with yearly rests, if not more. I, therefore, agree that he should be ordered to pay compound interest at the rates, and with the rests, proposed by Lord Denning MR and Buckley LJ.
The citation by Lord Denning MR of Jones v Foxall followed by his statement that it was among the judgments which show that in equity "interest is never awarded by way of punishment" negates the reliance by the plaintiff on that case.
[304] All these cases were approved and applied by this Court (Meagher, Sheller and Beazley JJA) in Cureton v Blackshaw Services Pty Ltd [2002] NSWCA 187. In particular, the Court said that compound interest awarded against fiduciaries "is not awarded as a punishment": at [104].
In the light of these authorities, I am satisfied that Dawoud should be ordered to pay interest at the Court's rates on the amount of $72,500 compounded on yearly rests commencing from 26 February 2013. I make that determination partly on the basis that Dawoud's decision to embark upon the project for the development of the Tasmanian property ultimately deprived the children of their shares in the capital appreciation of the property that should have been expected, and partly on the basis that Dawoud has acted in a manner that was calculated to make a profit for Dawoud out of the project, and in a manner that has wholly deprived Michael of the benefit of his interest in the trust fund.
In principle, Michael is entitled to an order that Dawoud pay his costs of the proceedings to date, at least insofar as they relate to the litigious effort necessary to secure the order for equitable compensation that I will make. However, it may be that some of the costs incurred to date will be referable to matters that have not yet been resolved. I will hear the parties at the directions hearing that will be appointed concerning the costs order that should now be made, including as to the basis upon which those costs should be paid by Dawoud.
I will invite Michael to provide draft short minutes of order to my Associate that include a calculation of the interest that is to be included in the amount of equitable compensation payable by Dawoud at this stage. The draft should be provided to Dawoud on the basis that he should send any comments to my Associate by email within three days of receipt of the draft.
It will be necessary for the Court to fix a time for a directions hearing at which the parties can inform the Court as to how they wish to proceed, so that the Court can make appropriate case management orders. My Associate will communicate with the parties for the purpose of fixing an appropriate time for the directions hearing.
Given my familiarity with this matter, I will be prepared to case manage this matter as long as I consider that arrangement to be appropriate.
I propose to ensure that any case management orders that are made lead to the remaining issues being addressed rationally by the parties and in the most cost efficient manner possible.
[21]
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Decision last updated: 02 December 2020