HIS HONOUR: The principal living protagonists in these proceedings, the second plaintiff Mr Moussa Moussa and the second defendant Mrs Arlette Takchi are, as it seems to me, the largely innocent victims of the manner in which the company at the heart of these proceedings, the first plaintiff Moustach Pty Ltd ("Moustach"), was managed in the period prior to his death by the deceased Eddie Takchi. During the relevant period there were, in the first plaintiff Moustach, four shareholders who, according to the ASIC record, remain the shareholders; namely, the second plaintiff Mr Moussa, his wife Mrs Moussa, the deceased Eddie Takchi, and his wife (the second defendant) Mrs Takchi. Mrs Takchi was named as executrix in the will of Mr Takchi and in that capacity has been joined as first defendant, though she has never obtained probate of his will. That creates difficulties to which I shall have to return. Mr and Mrs Moussa and Mr and Mrs Takchi were also during the relevant period the directors of Moustach. Notwithstanding his death on 11 August 2011, the ASIC records continue to show Mr Takchi as a director and shareholder. It seems that his share has not been transferred or otherwise dealt with since his death.
Mr Moussa and Mr Takchi were effectively life-long friends, having been children together in Lebanon and subsequently having resumed their friendship in Australia. Over many years, Mr Moussa advanced funds to Mr Takchi from time to time, at the latter's request, which Mr Takchi repaid. On one occasion, Mr Takchi, after a successful venture, offered to pay Mr Moussa a share of the profit, which the latter declined.
The current difficulties arise from circumstances which commenced in early to mid-2003, when Mr Takchi suggested that Mr Moussa and he embark on a joint venture in property development. It seems that they agreed that each would raise and contribute a sum of $600,000 to the joint venture. As the joint venture vehicle, Moustach was selected. It was a company already in the control of Mr Takchi under a different name, but changed its name on 31 July 2003 to Moustach Pty Ltd, more or less contemporaneously with the appointment of Mr and Mrs Moussa as directors and the allotment of a share to each of them (Mr and Mrs Takchi already being directors and shareholders).
By early August 2003, Mr Moussa had obtained loan approval from Perpetual Trustees Victoria Limited ("Perpetual") for a loan of $600,000 on the security of his home at Old Northern Road, intended to be his contribution to the joint venture. On 1 October 2003, a bank account was opened with the National Australia Bank in the name of Moustach with deposits of $500 each by Mr Moussa and Mr Takchi. Mr Takchi's $500 deposit was credited to his loan account, and it may be inferred that Mr Moussa's $500 was likewise credited to his loan account. On 15 October 2003, Mr Moussa withdrew $100,000 from the Perpetual account and deposited it initially into an account controlled by him in the name of Moussa Brothers, but the following day transferred it to the Moustach account.
By this time, Mr Takchi had been unable to raise or make his corresponding contribution of $600,000. He told Mr Moussa that he was having difficulties in raising finance, and indeed he never did raise that finance.
On 21 October 2003, $48,200 was paid out of the Moustach account as the deposit on the purchase by Moustach of its first property at Brosnan Place, Castle Hill for a price of $482,000. Stamp duty on that contract of $17,184 was paid by Moustach out of its account on 24 November 2003. On 27 November, Mr Moussa withdrew a further $496,078 from the Perpetual account, being the balance of the advance of $600,000 (after allowing for loan fees), and that also was deposited to his Moussa Brothers account.
On 1 December 2003, Moussa Brothers drew a cheque for $435,844. That cheque was debited to the Moussa Brothers account on the same day, 1 December 2003, being the same day as the date that appears on the cheque stub, and it should be inferred the same date that the cheque was written. The purchase of Brosnan Place was completed on 2 December 2003, and the transfer to Moustach was registered on 6 December 2003. The settlement statement indicated that the cheques required on settlement totalled $433,800. There is a strong inference (which I draw) that the cheque for $435,000 drawn on Moussa Brothers was used to provide the balance purchase money for Brosnan Place.
After completion of the purchase of Brosnan Place, about $30,000 remained in the Moustach account. While some of those moneys, roughly $5,000, were applied to proper expenses of Moustach, between 29 January 2004 and 15 March 2004 a total of $24,000 was paid out of the account to Glenacres Nurseries, a business operated by Mr Takchi. The evidence clearly establishes that Mr Takchi managed the affairs of Moustach, controlled the cheque book, wrote the cheques, and kept the accounts. As a result of those withdrawals by Mr Takchi, by March 2004 the Moustach account had been reduced to an insignificant balance. The payments to Glenacres were debited to Mr Takchi's loan account.
On 30 April 2004, Mr Takchi deposited $30,000 to the Moustach account, which was credited to his loan account. Significant doubt attends whether they were actually his moneys that were deposited, as that deposit was followed by a withdrawal of exactly the same amount a couple of weeks later by Mr Moussa from the Moussa Bros account. Mr Takchi also made a payment to Clarendon Homes, which had been engaged to build a house on Brosnan Place, of $24,000 (also credited to his loan account) and deposited $5,000 into the loan account to cover interest, there being insufficient funds to meet the interest payments to Perpetual at that stage.
On or about 6 May 2004, Perpetual agreed to increase the loan facility secured on Mr Moussa's property from $600,000 to $750,000. Consequent upon that approval, on 10 May 2004, Mr Moussa caused a further $142,466 to be drawn down from the Perpetual account and deposited to the Moustach account on the same day. That deposit resulted in the Moustach account having a credit balance of $143,000 approximately on 10 May. A significant portion of that amount was applied in payment to Clarendon for the building of the use on the Brosnan Place property; indeed, more than $100,000 was applied in that way. However, between 8 June and 27 July 2004, Mr Takchi drew down for the purposes of Glenacres Nurseries a total of $20,000 from the account. There was no corresponding payment to Mr Moussa. By 5 October 2004, the Moustach account had once again been reduced in that way to an insignificant balance.
On 1 November 2004, however, a further deposit was made to the Moustach account of $147,467. This represented the proceeds (after loan fees) of a loan of $150,000 obtained through a broker called Betway, again from Perpetual, but this time secured over the Clarendon home on the Brosnan Place property, practical completion having been reached on about 14 October 2004. When the $147,000-odd was deposited to the Moustach account, it was applied largely to costs associated with completion of the property. $9,000 appears to have been paid to Mr Moussa on 20 December 2004. However, between 8 November and 10 December 2004, a total of in excess of $23,000 was withdrawn by Mr Takchi and paid to the purposes of Glenacres Nurseries. As a result of that, and of interest payments to Perpetual on the two loans that were now involved (being the loan secured on Mr Moussa's property and loan secured on Brosnan Place), the balance in the Moustach account reduced once again to an insignificant amount by February 2005.
Between March 2005 and September 2005, amounts of approximately $5,000 or $6,000 were deposited by Mr Takchi each month to the Moussa account and credited to his loan account. Those deposits were plainly made for the purpose of covering the interest payments. Mr Moussa's evidence - which I see no reason to doubt in this respect, and which tends to be corroborated by Mrs Takchi's understanding of the situation - was that each month Mr Takchi would tell him the amount of interest due. Mr Moussa would give him half of it, and Mr Takchi would then attend to payment. As it seems, although half of the moneys deposited to the Moustach account to fund interest payments were sourced from Mr Moussa in that way, the whole of the amounts deposited was credited to Mr Takchi's loan account, and not equally to the two loan accounts as, prima facie, it ought to have been.
During 2005, Mr Takchi proposed and Mr Moussa agreed (if reluctantly) to purchase a second property, at Loftus Road. In order to fund this purchase, an application for finance was made, again through Betway. Ultimately, on 23 June 2005 or thereabouts, Mr and Mrs Moussa and Mr and Mrs Takchi signed two loan applications, one for $560,000 to be secured on Loftus Road, and the other for a total of $310,000, being the existing $150,000-odd plus a further advance of $160,000 to be secured on Brosnan Place. The purchase of Loftus Road was completed on 7 September 2005 for a price of $700,000. The balance due on settlement was $668,000 approximately, no doubt after allowing for the deposit. Upon settlement, total advances of $862,000 approximately were received by Moustach from Perpetual, representing an additional $710,000 over the $152,000 already secured on Brosnan Place. Those advances were applied to payment of the purchase price of Loftus Road, and to refinance the existing $150,000 on Brosnan Place, leaving $38,581 which, on 9 September 2005, was deposited to the Moustach account. As a result of that deposit on 9 September 2005, the Moustach account was in credit by about $30,000.
Between 14 September and 26 October 2005, Mr Takchi withdrew from the Moustach account (for the purpose of Glenacres Nurseries) a total of $42,500. The difference was covered by a receipt by way of refund from the Australian Taxation Office of $14,000 on 21 September. After those withdrawals, the account was once again returned to an insignificant balance, and between December 2005 and March 2007, deposits were made (in the way in which I have already described) of typically $5,000 or $6,000 each month to cover the interest obligation to Perpetual in respect of the three loans that Moustach was now servicing.
In March 2007, the $310,000 loan on the Brosnan Place property was refinanced by Moustach obtaining a loan of $460,000 from GYG, again on the security of Brosnan Place. Of that $460,000, it seems that approximately $385,000 was used to refinance the previous loan, leaving $73,795 which was deposited to the Moustach account on 16 March 2007. As a result of that deposit, the Moustach account was brought to a credit of a little under $75,000. Of that $75,000, some was paid to proper expenses of Moustach, including settlement adjustments, rates, water rates, and costs or fees associated with the litigation that had been undertaken in the Land and Environment Court. On 23 March 2007, $10,000 may have been paid to Mr Moussa, about which Mr Moussa is not entirely clear; but between 20 March 2007 and 28 March 2007, a total of $30,000 was withdrawn by Mr Takchi for the purposes of Glenacres Nurseries. After those withdrawals, by the end of March 2007 there remained about $1,000 in the account. By this stage, rent was being received from the two properties which also provided a small amount of income to the Moustach account. The interest obligations now totalled close to $9,000 a month, and after the April interest had been paid, by the end of April the account had been reduced to an insignificant balance.
In May and June 2007, interest was covered by deposits made in the way in which I have described by Mr Takchi.
The Brosnan Place property was sold for $800,000 by contract dated 27 June 2007 and completed on 20 July 2007. From the proceeds of sale, $467,000-odd was paid to discharge the GYG mortgage and a fraction under $290,000 balance proceeds was deposited to the Moustach account. In addition, four days later on 24 July, a further $19,670, being the balance of the deposit after deduction of commission, was also deposited to the Moustach account. In that way, a total of $310,000 became available to Moustach from the sale of Brosnan Place. On 24 July 2007, the Moustach account was in credit, after those transactions, to a fraction under $309,000. Between 27 July and 14 November 2007, Mr Takchi withdrew - for the purposes of Glenacres Nurseries - about $200,000 of that $300,000. Again, as with the earlier payments to which I have referred, they were debited to his loan account. By November 2007, the balance of the Moustach account had been reduced to a little under $50,000. The other $50,000 expended appears to have been on proper expenses associated with the company's property and potentially with the litigation, and also on the interest bill.
On 5 December 2007, Mr Takchi deposited, and there was credited to his loan account, a sum of $160,000. The source and origin of this is not revealed by the evidence - although it might be speculated that it was from the proceeds of sale of a property at Wallaroi that he had previously owned and was sold a couple of years before his death - but between 19 December 2007 and 23 April 2008, he withdrew a further $133,700, which was debited to his loan account, and applied for the purposes of Glenacres Nurseries. Thereafter, from May 2008, the account had an insignificant credit balance, and interest continued to be covered by deposits largely in the manner in which I have previously described until at least March 2009.
On 18 March 2009, the Loftus Road property was sold for $595,000. On completion, $566,000 was paid to Perpetual to discharge the loans secured on that property. A balance of $14,494 was deposited to Moustach on 20 March 2009. Between 24 March and 27 March, $6,500 of that was taken by Mr Takchi and paid for the purposes of Glenacres or Mr Takchi and debited to his loan account. Thereafter, once again, interest continued to be covered by deposits made roughly every month in an amount typically just sufficient to cover the interest, although there were often defaults in payment of interest to Perpetual - not only during this period, but from the outset.
According to Mr Moussa (whose evidence I see no reason to doubt in this respect), following the sale of Loftus Road, he had a conversation with Mr Takchi to the following effect:
MOUSSA: "Now that all the properties have sold, we need to sit down and work out the figures and see what we've got left."
TAKCHI: "I'm sorry, I've taken all the money."
MOUSSA: "What?"
TAKCHI: "Yes, I've taken all the money because I needed it."
Subsequently, Mr Moussa said he had a further conversation with Mr Takchi, which the latter said:
MOUSSA: "Don't worry. I will take over the loan and I will be responsible for all the interest. I will pay it all back when I sell the nursery or when I sell my home. If you want, I can give you security over my property."
Mr Moussa says, and I accept, that as a result of that conversation, he ceased to make contributions towards interest payments on the loan.
It is apparent from the Moustach account and from the Takchi loan account that Mr Takchi continued to contribute more or less on a monthly basis a sufficient amount to cover the monthly interest obligation until September 2011 when, as I have said, he died.
Meanwhile, however, on 3 December 2009, Mr and Mrs Takchi transferred to two companies associated with their family members, for a price of $1.75 million, their home at Arcadia, to which Mr Takchi is said to have referred in the above quoted conversation. After discharging a mortgage to the National Australia Bank of about $1.73 million, that left an amount of something in excess of $300,000.
According to Mr Moussa, he had a conversation with Mr Takchi shortly after 3 December 2009, to the following effect:
MOUSSA: "Eddie, here's another default in respect of the loan."
TAKCHI: "I'm trying to fix it. I have transferred the property at Halls Road to my brothers and their wives and they are holding it for me so that no one can get it. The tax man is after me for about $350,000 in back tax and if I leave the property in my name, they will be able to get it. This way I can make sure that you get paid."
MOUSSA: "Eddie, what are you doing? I just want this loan paid."
(After a heated argument) TAKCHI: "Don't worry, I will sort it all out. I will lose my home before I allow you to lose yours."
As I have said, Mr Takchi died on 11 August 2011. Mr Moussa raised the issue of the loans secured on his home with Mr Takchi's family after his death. On or about 22 November 2011, Mrs Takchi indirectly provided a cheque for $280,167.44, apparently ultimately sourced in the proceeds of their former home, which was used to reduce the Perpetual loan secured on Mr Moussa's home. Mrs Takchi said - and I see no reason to doubt - that this was in effect all that she had left.
On 25 January 2012, Mr Moussa refinanced the Perpetual loan with a loan from another source for $800,000, of which $573,848 was paid out to Perpetual. It can be inferred - by adding to that sum the amount of $280,167 - that before the contribution from Mrs Takchi, the total amount due to Perpetual and secured on Mr Moussa's home was $854,015. Of the principal of $750,000, all but perhaps about $60,000 - which was retained in the Moussa Brothers account when the $535,000 was supplied for the purpose of Brosnan Place - was attributable to Moustach, in the sense that it had been applied for the purposes of Moustach.
[3]
The Plaintiffs' Claims - Breach of Contract
The plaintiffs essentially put their case on two alternative bases. Their principal case was in contract and is pleaded in paragraphs 18-20 of the statement of claim. In summary, they assert that in March 2009, an oral agreement was made between Mr Takchi and Mr Moussa that Mr Takchi would service the Perpetual loan, cause the home at 20 Halls Road, Arcadia to be sold and the Perpetual loan to be discharged, and that the plaintiffs need not worry and that he would sort everything out. It is said that in breach of that agreement, Mr Takchi and his wife caused the home to be transferred to companies controlled by his sons on 3 December 2009.
I have already set out the evidence of the conversations said to establish this contract. Because this is a claim which depends on an oral conversation with a person since deceased who cannot be called to contradict it, careful scrutiny of the evidence relied on is required [Plunkett v Bull [1915] HCA 14; (1915) 19 CLR 544]. Although there is no absolute legal requirement for it, the Court ordinarily looks for some corroboration, [Ashton v Pratt (No 2) [2012] NSWSC 3, [18]; Bovaird v Frost [2009] NSWSC 337, [45]]. The Court will be interested to see whether there is documentary corroboration as documents provide a safer repository of reliable fact [see Evans v Braddock [2015] NSWSC 249, [67], [74] (Hallen J)]. Absent such corroboration, the Court approaches the evidence with considerable caution, and a plaintiff relying on such evidence has been said to undertake a substantial burden [Webb v Ryan [2012] VSC 377; Evans v Braddock at [69]].
In this case, there is no corroboration whatsoever for Mr Moussa's claim. Moreover, he made no complaint about it until after the death of Mr Takchi more than 2 years later, despite being aware of the transfer of the property, which would have been in breach of the alleged contract, prior to then. For Mr Moussa, it was said that corroboration was provided by the fact that he ceased contributing to interest from March 2009. However, there is no independent evidence that he did indeed cease to contribute to interest from that point, and Mrs Takchi's understanding, such as it was, was that both continued to contribute to interest.
It was also urged that the payment by Mrs Takchi of $280,000 after Mr Takchi's death was a form of corroboration in the nature of an admission of liability. However, Mrs Takchi explained that she made this payment (to use my words, not hers) out of a sense of moral obligation and in memory of her husband, rather than out of any legal obligation. I found Mrs Takchi a perfectly acceptable and honest witness, and I have seen not the slightest reason to doubt her evidence in this respect. Moreover, there were serious problems with Mr Moussa's recollection of other matters, as recorded in his affidavit. Some inconsistencies in his oral evidence - for example, whether his solicitor's secretary Gabrielle was a man or a woman - I think are entirely explicable by confusion or linguistic difficulties in the course of cross-examination and I give them no significance. But in paragraphs 33 and 37 of his affidavit, he gave evidence to the effect that the Brosnan Place and Loftus Street loans were secured on his home, when that is plainly incorrect and they were secured respectively on those properties. More significantly, at paragraph 24 of his affidavit he gave evidence surrounding the circumstances in which he had drawn and provided the $435,000 cheque to Mr Takchi at the time of the purchase of Brosnan Place in a manner which not only gave the impression that Mr Takchi had held onto that cheque without depositing it for a lengthy period of time, but expressly attributed to him the words "I'm holding the cheque". The amount of the cheque was wrongly described, it plainly having been taken from the Perpetual Bank Statement rather than from Moustach or the Moussa Bros records or anything that Mr Moustach actually recalled. It savours of reconstruction rather than the recollection that it professes to be, and is demonstrably wrong. There could have been no such conversation with Mr Takchi as is attributed to him about holding the cheque, which was deposited on the very same day it was drawn.
I do not think for a moment that Mr Moussa was not doing his best to tell the truth. He was giving evidence of transactions of which his commercial understanding, I suspect, is limited, and which took place now many years ago. But those matters must cause one to have grave reservations about the accuracy of his recollection, even on critical matters.
However, I do not doubt Mr Moussa's evidence about the conversation which took place upon the settlement of the Loftus Street property. One very good reason for that is that he attributed to Mr Takchi the statement, "I am sorry, I've taken all the money" and, as can be demonstrated by reference to the financial records in the way to which I have referred above, that is exactly what had happened. Mr Takchi had indeed taken all the money, presumably because he needed it. Those were matters not known to Mr Moussa or ascertainable from the documentation at the time when he swore his affidavit, and became apparent only when documents were subsequently obtained on subpoena. That provides a good basis for concluding that I am satisfied that that conversation took place.
As to the conversation about taking over the loan on which the alleged contract hinges, I have, for the reasons already given, closely scrutinised the evidence with a substantial degree of circumspection. This was more recent, by a number of years, than the conversations which were demonstrably incorrect. It was a matter of very great importance, that is likely to have impressed itself in Mr Moussa's mind. After that conversation - despite knowing, as I accept he did, that all the money had gone - he took no action about it, a course which is really explicable only if he was trusting or expecting Mr Takchi to put things right voluntarily. Importantly, Mr Moussa was not cross-examined about that conversation and, although a general assertion that he was making everything up was put to him, there was no distinct challenge to this particular conversation. Sometimes counsel say they have no instructions to put something on behalf of a dead person, but I do not accept that: if a witness is to be challenged, then regardless of whether the person is available to contradict it, it is open to counsel to put any reasonable version of the circumstances to the witness, and if counsel is going to ask that the witness be disbelieved on that matter, that should be done.
The response attributed to Mr Takchi is, in the circumstances, a very reasonable and likely one. It is the type of thing which, given the relationship between the parties in the past and given what had happened - namely, that Mr Takchi had taken all the money - one would have expected to be his response. The terms of it are relatively vague and imprecise, which heightens the impression that it is the type of thing that is likely to have been said in those circumstances. Ultimately, notwithstanding the considerable reservations and scrutiny to which Mr Moussa's evidence ought to be exposed in these circumstances, I accept his version of the conversation in paragraph 57 of the affidavit. It is plausible, it is not contradicted, it was not directly challenged, and it is consistent with the relationship and course of dealings of the parties. Despite his flawed recollection in some respects, I accept that there was a conversation to the general effect of that referred to in paragraph 57 of Mr Moussa's affidavit.
But that does not mean that there was a legally enforceable contract such as that pleaded in the statement of claim. It may be accepted, for present purposes, as was submitted on Mr Moussa's behalf, that there was offer and acceptance - although it might be questioned whether there was acceptance so far as the evidence goes - but offer and acceptance are only two of the essential elements of a contract. Two others are an intention to create binding legal relations, and consideration.
So far as consideration is concerned, the submission made was that the consideration was to be found in Mr Takchi's promise to take over the loan and be responsible for it; but this completely misconceives the concept of consideration. Consideration must move from the promisee, not from the promiser, and is the price given by the promisee for the benefit of the contract. On the face of the conversations to which I have referred, Mr Moussa agreed to do nothing in return for Mr Takchi's promise. He did not agree to give a release; nor did he agree even to forebear from taking action against Mr Takchi. It was submitted that in fact he took no action, but taking no action - when it was not part of the price given or part of the bargain that he would not do so - does not amount to consideration.
The matter can be tested by asking whether, if Mr Moussa had sued Mr Takchi, Mr Takchi could have pleaded that Mr Moussa was barred from bringing proceedings. Releases are strictly construed and require strict proof and, in my view, there is not the slightest prospect that it could be said that Mr Moussa had released his rights or had undertaken to forebear from taking action against Mr Takchi. In my view, it is very clear that there was no consideration, and that this was therefore a nudum pactum.
Moreover, the conversations, as I have set them out above, do not evince any intention to enter into a binding, legally enforceable contract. Those conclusions are fatal to the contract case which therefore fails.
[4]
The Plaintiffs' Claims - Breach of Directors' Duties
The plaintiff's alternative cause of action was for breach of directors' duties. It is pleaded in paragraphs 4, 13, 16 and 17 of the statement of claim. Paragraph 4 alleges that Mr Takchi was a director of Moustach and is admitted. Paragraph 13 alleges that he was required to discharge duties as a director in equity and at common law and pursuant to (CTH) Corporations Act 2001, ss 180, 181 and 182. Mr Stanton complained that there was no particularisation of the relevant duties, but so far as the evidence reveals, particulars were never sought. The case, as conducted, was within the scope of the pleading. In any event, the content of directors' duties in equity and under the relevant sections of the Corporations Act is well-known and could not have been misunderstood.
Paragraph 16 pleads that Mr Takchi:
wrongly and in breach of his duties took and misappropriated to himself for his own personal advantage a benefit and to the detriment of the plaintiff the sum of $244,342 from the bank account [that being a reference to the Moustach account] to the business operated by Eddie Takchi and known as Glenacres Nursery to pay other personal debts.
There are then particularised a total of 26 payments enumerated (a) - (z). I shall return to that paragraph shortly.
Paragraph 17 pleads that in or about March 2009, Mr Takchi orally admitted to Mr Moussa that he had misappropriated moneys in the amount of $467,000, particulars of which are said to be a loan procured by Moustach from GYG without authority secured over Brosnan Place and that the proceeds of the property at Castle Hill were used to discharge the GYG loan when they were to be paid to the Moussas to reduce the level of the debt. There is then particularised an amount of the total payments made by the plaintiffs to Perpetual. This paragraph is essentially unintelligible as a pleading but, as best sense can be made of it, seems to be a complaint about the application of the proceeds of sale of Brosnan Place. The payments made out of the proceeds of sale of Brosnan Place are all picked up, at least in part, in the list of payments particularised under paragraph 16 and it does not seem to me that they can be complained about twice. Accordingly, I do not think that paragraph 17 takes the plaintiffs' case any further.
That leaves the case under paragraph 16. The relevant duties of a director encompassed by the pleading include a duty to use reasonable skill, care and diligence, a duty to act bona fide in the interests of the company, and a duty not to use his corporate position and office to benefit himself or injure the company and, indeed, a duty not to prefer his own interests to those of the company as a whole. In the context of this case - in which the company was effectively an incorporated joint venture - those duties are overlaid with the duty of fidelity and indeed of utmost good faith that one joint venturer owes to another joint venturer.
One potential problem with this cause of action is that the proper plaintiff in respect of allegations of breach of duty of a director owed to the company is the company - namely, the first plaintiff Moustach. As I have said, Moustach has four shareholders and four directors, albeit that one of them is deceased. At first sight, one might wonder how these proceedings have been prosecuted in the name of Moustach, as it would seem likely that the defendants would be in a position to prevent any resolution to authorise the institution of proceedings on its behalf from being carried. However, with the death of one of the directors on the defendants' side, it may be that the plaintiffs have a sufficient majority on the board of directors to do that. In any event, there was no challenge to the retainer of those acting for Moustach as plaintiff, nor any defence pleaded about its standing or authority to bring proceedings, and, in those circumstances, I see no reason to take that matter any further. Moustach is a plaintiff and in the absence of any objection having been taken to that I should treat the proceedings as regularly constituted and authorised in that respect. (That said, ultimately someone will have to work out - if there is a judgment in favour of Moustach - how it is to be recovered and how they are ultimately distributed amongst creditors or shareholders). As it seems to me at the moment, Moustach is almost certainly insolvent, and there would have to be a liquidator, with additional costs and expense.
I return then to paragraph 16. Despite the evidence of Mr Zaiter, an accountant called on behalf of the defendant, inspection of Moustach's bank accounts and of Mr Takchi's loan account makes plain that, with two exceptions only, the 26 payments particularised in paragraph 16 were made. The exceptions are that item B was in fact for $7,000, not for $10,000 as particularised, and item I is apparently being a duplication of item H. In respect of the others, the particulars contain repeated errors so far as the dates of payments are concerned which, perhaps understandably, caused Mr Zaiter not to recognise them, although one would have expected an intelligent application of accounting expertise to be able to identify that there was a mere misstatement of the date.
The 26 payments particularised are only some of the withdrawals made by Mr Takchi for the purposes of Glenacres. Again on what basis these were selected is not apparent, but they are the only ones that are impugned in the pleading. No application was made to enlarge the particulars, and at this stage of the case the parties ought reasonably be held to their pleadings. Given the payments in question are plainly established to have been made, the only real question is whether they were in breach of Mr Takchi's duties as a director. The answer to that is informed by the purpose and context of Moustach Pty Limited. As I have said, this was an incorporated joint venture. Mr Moussa contributed initially $600,000 then a further $150,000 raised on the security of his own home. Mr Takchi failed to make his contribution of $600,000 at all, yet whenever surplus funds were available in the Moustach account, they were drawn by Mr Takchi for his separate purposes. He was, I think it can be inferred, in difficult financial circumstances at the time. It was for that reason he was unable to make his contribution. He credited to his loan account payments of interest made to Perpetual in respect of the company's borrowings and in respect of Mr Moussa's borrowing, including the 50 percent of those payments that he had received from Mr Moussa. The company was plainly in need of funds, and did not have surplus funds to distribute to its shareholders or to repay to those who had provided loan capital. That is evidenced by the persistent defaults in interest payments covered by monthly contributions in the way in which I have described.
It is just impossible to see how in those circumstances it was properly in the interests of the company as a whole to make payments for the benefit of Mr Takchi, even assuming that his loan account was in credit. The key to the answer is that, even assuming that Moustach was indebted to Mr Takchi on his loan account, in the context of a joint venture in which he had not made his contribution, it was indebted to Mr Moussa on his loan account for a very much greater amount - at least $750,000. The company was in need of funds, and Mr Moussa's contribution remained in the company. In those circumstances, it was just utterly inconsistent with Mr Takchi's obligations to act honestly in the interests of the company as a whole to withdraw from the company for his own benefit, even on loan account, the remaining available funds from time to time.
There is no evidence that he had Mr Moussa's authority or consent to do so. The mere fact that he was authorised as a signatory on the bank account to sign cheques alone does not mean that he was authorised to withdraw funds and apply them to his own purposes. Authority to sign a cheque is not authority to enter into the transactions or give effect to the transactions in respect of which the cheque is drawn. This is no suggestion that Mr Moussa knew that Mr Takchi was drawing funds in this way for his own purposes, or that he authorised or consented to Mr Takchi doing so. There were no similar payments to Mr Moussa, with the exception of the two $9,000 and $10,000 payments to which I have referred, in which case in any event it can be inferred that there was consent on Mr Takchi's part, because it was Mr Takchi who drew the cheques. And all this has to be seen, as I have said, in the context of Mr Takchi's supervening equitable obligations as a co-joint venturer with Mr Moussa. In my view, the payments were made not bona fide for the benefit of the company or in the interests of the company as a whole, and they were made in a course of preferring Mr Takchi's personal interests to those of the company and for his own benefit and to the detriment of the company.
In Mr Takchi's defence, it was argued that Mr Moussa's declining in the witness box to accept that Mr Takchi was a thief was inconsistent with finding that he had acted in breach of his director's duties in the way in which I have described. This submission is without substance. Mr Moussa, I think retaining some affection and respect for Mr Takchi despite these events, declines to call him a thief. Strictly speaking, he is probably right to do so because a thief is someone who takes with an intent permanently to deprive, and Mr Takchi may well have taken in these circumstances with an intent not permanently to deprive but ultimately to make good. In any event, the way in which Mr Moussa, as a layperson, characterises what took place is irrelevant to its proper legal characterisation.
Two other matters require comment in this context. Mr Zaiter's evidence, which very selectively addressed a number of specific questions, included evidence that Mr Takchi had made payments into Moustach that exceeded the disputed payments out. There are a number of difficulties with that proposition. First, that is so only if one includes the payments made to fund interest payments to Perpetual, and only if one includes the share of those payments that Mr Moussa actually funded in Mr Takchi's contribution, which is plainly not appropriate. Secondly, there were many other additional withdrawals from the Moustach account for Mr Takchi's purposes other than the impugned ones. Thirdly, even assuming that Mr Takchi's loan account was, on balance, in credit, that does not mean that, consistently with his equitable obligations, he was entitled to repay himself in priority to Mr Moussa, when Mr Takchi's capital contribution remained outstanding, while Mr Moussa's had been made. Fourthly, particularly in more recent years, Mr Takchi's contributions were essentially to fund interest payments which were incurred, at least in part, only because the company's funds had been depleted payments made for his benefit, rather than to reduce the Perpetual loan.
The second matter requiring comment is Mrs Takchi's payment of $280,000 at the end of 2011. Similarly, that does not affect the voidability of the impugned transactions, nor does it represent a repayment that should be set off against them. That payment was made, as it seems to me, in recognition that, in justice and equity between Mr Moussa and Mr Takchi, Mr Takchi was effectively responsible for half of Mr Moussa's debt to Perpetual. Once it was accepted that Mr Takchi was unable to make his corresponding contribution of $600,000, Mr Moussa's loan from Perpetual was treated, as between the two of them, as a liability of Moustach or of them jointly, rather than just of Mr Moussa. In essence, of the sum of $854,015 (which the Perpetual debt appears to have reached immediately prior to Mrs Takchi's payment), Mr Takchi was answerable notionally for half. The payment of $280,000 reflected a part payment on that account, albeit as much as Mrs Takchi was able to pay. It says nothing as to the propriety of the impugned payments.
Accordingly, in my view, the impugned payments should be set aside, and the amounts paid restored to the company. To the extent that those orders are satisfied, Mr Takchi's loan account should be re-credited with the principal restored, but not the interest payable thereof. Ultimately, it is probable that a liquidator will have to determine the true status of the loan accounts, to recover what can be recovered pursuant to the judgment that I will shortly give, and distribute the proceeds between the creditors. It seems very likely that Mr Moussa's loan account would exceed that of Mr Takchi.
A further difficulty, however, requires notice at this point. The liability to give restitution is a liability of Mr Takchi alone, and now of his estate. No allegation of breach of duty as a director or otherwise has been pleaded against Mrs Takchi. Her suggested personal liability arises only on the contract case - which, for reasons already given, fails, but there is nothing in the evidence that would have made her a party to the alleged contract in any event.
Accordingly, the only potential liability is a liability of Mr Takchi's estate, of which Mrs Takchi was the executor named in the Will. The first defendant, as I have said, is Mrs Takchi in her capacity as that alleged executor. But as I have also mentioned, probate of the Will was never sought let alone granted. An executor cannot ordinarily be sued until there has been a grant of probate to the executor. As R Brereton J said in Cash v The Nominal Defendant (1969) 90 WN (Pt 1) (NSW) 77 (at 79):
An executor named in the will may sue before grant ... but the position would appear to be that he cannot be sued until a grant has been made to him. The reason possibly is that as a general rule his liability is to pay out of the assets of his testator and although these vest in him from the death at the testator by virtue of the will they do not so vest until probate and until then he may renounce. If, however, the executor named or a stranger becomes by intermeddling an executor de son tort, he is liable to be sued before probate. In Nagel v Hough (1927) 27 SR (NSW) 418 at 422 Long Innes J said, 'It is well established that an executor who elects to act in the trusts of the will may be sued before probate and cannot afterwards renounce'. Reference to the authorities on which he relies indicates quite clearly that by the phrase "who elects to act" means "who intermeddles", and the law is stated in plain terms by the Privy Council in Mohamidu Mohideen Hadijar v Pitchey [1894] AC 437 at 442 as follows, "A creditor of a deceased debtor cannot sue a person named as executor in the will of the deceased unless he has either administered, that is, intermeddled with the estate or proved the will".
Although arguments were advanced that Mrs Takchi had intermeddled with the estate, there is no evidence that she has done so. Intermeddling involves, in effect, administering the assets of the estate, not just seeking advice as to her position. There is no evidence that she has transferred such shares as were still held by the deceased, nor dealt with the deceased's motor vehicle, nor otherwise dealt with any of the apparently few remaining assets of the deceased.
It was suggested that by dealing with the $280,000 that was paid to Perpetual, she must have intermeddled with proceeds of sale of the Halls Road home, but it seems to me that that fund probably was held in cash or equivalents, it being two years after the transfer of the property. Further, as the property was probably held as joint tenants, the cash was likely to be held as joint tenants, and as such she was probably entitled to it by survivorship without administering assets of the estate. In any event, there is no evidence to establish otherwise.
Accordingly, it seems to me that had she pleaded ne usque executor - that is to say, that she was not answerable as executor because she had never formally been appointed as such - she would have had an unanswerable defence on that basis. But there was no such plea. To the contrary, she formally admitted on the pleadings that she was the executor. In those circumstances, it seems to me that the plea of ne usque executor does not arise; she has admitted her representative capacity, and in that capacity, but only in that capacity, is liable to suffer judgment on the basis to which I have referred.
Accordingly, the proper outcome is that the Court should:
1. declare void and set aside the impugned payments referred to in paragraph 16 of the statement of claim (subject to the two errors to which I have referred);
2. give judgment for the amount of those payments together with interest at the usual rate from the dates on which they were paid, in favour of the first plaintiff against the first defendant, to effect restitution to the first plaintiff; and
3. declare that if and to the extent that the judgment is satisfied, then those repayments in respect of principal but not interest should be re-credited to the deceased's loan account in Moustach.
As to costs, prima facie the first defendant should pay the plaintiff's costs, and the plaintiff should pay the second defendant's costs.
I direct that the plaintiff bring in short minutes to give effect to this judgment at 9.45 am on Tuesday 25 August 2015.
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Decision last updated: 13 April 2016