This is an application to restrain the defendant, Katie Nelson, from selling, disposing of or further encumbering two properties she owns at Pymble in Sydney. The proceedings concern a property development venture involving a third property at Lindfield in Sydney. The property was purchased by Ms Nelson in mid-2015. It was sold, after renovations had been carried out, in early 2017.
The first plaintiff, Fouad Ahmad (known as "Fred") Moustapha, is a property developer. The second plaintiff, Overlook Tiles Pty Limited ("Overlook") is a company controlled by him which sells tiles and bathroom products. Mr Moustapha's case is that he agreed to help Ms Nelson with the development of the Lindfield property, effectively as a project manager, in return for a share of the profit from the venture.
Mr Moustapha also claims that approximately $740,000 of the costs of the project has not been paid. Of that, $160,000 is allegedly owed to Overlook for tiles and bathroom products supplied for the renovation. The balance represents costs allegedly incurred by Mr Moustapha on Ms Nelson's behalf for work done by contractors on the property. Most of those costs, according to Mr Moustapha, remain outstanding, but he claims to have paid some of them out of his own pocket.
The affidavit filed by Mr Moustapha in support of the plaintiffs' claims in the proceedings is in evidence before me on this application. In that affidavit, Mr Moustapha stated that, in January 2015, he began an affair with Ms Nelson. During the affair, he continued to live with his wife and seven children at the matrimonial home. The affair lasted until May 2016.
Mr Moustapha stated that Ms Nelson had been looking to get involved in a property development venture but had no relevant experience. She was then living at a property which she owned at Bandalong Road at West Pymble. Mr Moustapha stated that he advised Ms Nelson to establish a line of credit with Westpac Banking Corporation ("Westpac") and put her in touch with Westpac for this purpose. He also said that he found the Lindfield property for Ms Nelson and attended the auction with her. After she purchased the property, he put her in touch with an architect to do the development application and advised her on the general shape the development should take.
Mr Moustapha said that up until the approval of the development application in September 2015, he thought he was helping Ms Nelson as a friend and did not expect to be paid any money for his time, or his advice to her, or for negotiating prices with the architect, suppliers and other professionals involved in the development. He said that she had intended to rely on her father to help manage the building operations; but he said that, in October 2015, Ms Nelson telephoned him and they had a conversation to the following effect:
Ms Nelson: My dad is not going to be able to do it, its not going to work, he doesn't have the experience and he can't be on site at 7am every day. I need someone to help me. Can you manage the development for me? Please Fred, I will pay you at the end. Normally how much would it cost to manage the job?
Mr Moustapha: Normally a foreman would charge 10 - 15% of the costs of the building. I don't normally do this kind of work for someone else. I have Overlook and other projects to run. If I'm at this project every day it will take time out of Overlook and my other projects.
Ms Nelson: How much do you think I can make out of the development of the house?
Mr Moustapha: If I manage the job, around $1,000,000.00.
Ms Nelson: No way this house is not worth over $3.6 million.
Mr Moustapha: If I do this for you, you are going to get very close to $4.5 - $5 million depending on the timing of the sale but you'll make at least one million.
Ms Nelson: No way, if I make $300,000.00 I will be more than happy.
Mr Moustapha: I'm sure you will make over $1,000,000.00.
Ms Nelson: OK. Let's make a deal, you manage the job and if I make over $500,000 when I sell the property, we'll go half with the rest of the profits.
Mr Moustapha: I agree.
As I have mentioned, the affair between Mr Moustapha and Ms Nelson ended in about May 2016. The work on the Lindfield property was completed in about October. Shortly afterwards, the affair was revealed to Mr Moustapha's wife and contact between him and Ms Nelson ceased.
Ms Nelson purchased the property for $2.1 million in June 2015. In order to finance the purchase, she made use of a line of credit with Westpac which she established pursuant to Mr Moustapha's advice. She also borrowed money from the National Australia Bank ("NAB").
Ms Nelson sold the property in January 2017 for $4.575 million. According to Ms Nelson, after paying out NAB, the costs of the redevelopment and interest, she was left with approximately $1.58 million. She used some of the proceeds of sale to reduce her drawings on the line of credit or otherwise to pay off personal debts. She used a further $670,000 to buy a property at Telegraph Road at Pymble, which she apparently plans, or at least was planning, to redevelop. This property was also acquired with the assistance of a further loan from NAB. Out of the proceeds, Ms Nelson also bought for herself a BMW motor car for approximately $120,000.
According to her affidavit sworn for the purpose of this application on 12 November, Ms Nelson has approximately $190,000 left from the proceeds of the sale of the Lindfield property and about $360,000 undrawn on her line of credit.
These proceedings were commenced by Statement of Claim in March 2017. The Statement of Claim propounded a claim in restitution. It pleaded that Mr Moustapha and Overlook had done work and incurred liabilities to third parties or had supplied materials for the redevelopment at the request of Ms Nelson. The relief sought was the recovery of restitution in the form of "reasonable remuneration" or "compensation" for services and materials provided and for third party payments made. Subsequently, Ms Nelson filed a defence and cross-claim.
In November 2017, the Statement of Claim was amended. The amendments introduced an additional pleaded claim described as a "constructive trust based on joint endeavour". The amendments pleaded that the purchase and redevelopment of the Lindfield property had been a joint endeavour of Mr Moustapha and Ms Nelson and that it had been the intention of the parties at all material times that Mr Moustapha and Overlook would be compensated, reimbursed and remunerated for their contributions to that joint venture.
The Amended Statement of Claim went on to plead that Ms Nelson had failed to account to, or compensate the plaintiffs for, their contributions to the joint venture; that this was unconscionable; and that a constructive trust should be imposed over the proceeds of sale to the extent of the plaintiffs' entitlement. Although these amendments were based on equitable concepts such as failure to account and imposition of a constructive trust, the relief claimed in the Amended Statement of Claim remained a claim for restitution in the form in which it was originally pleaded in March 2017.
In August 2018 the plaintiffs amended the Statement of Claim again. These further amendments introduced a pleaded allegation in the following terms:
In early October 2015 the First Plaintiff [Mr Moustapha] and the Defendant [Ms Nelson] agreed that:
(i) The Defendant would act as a project manager with respect to the Development of the Property;
(ii) If the Defendant received more than $500,000 net profit upon the sale of the Property then the Defendant will split the net profit in excess of $500,000 equally with the Plaintiff.
The allegation was particularised as an express oral agreement made between Mr Moustapha and Ms Nelson in October 2015. Again, the relief claimed in the Amended Statement of Claim remained a claim for restitution in the same terms as had been pleaded in March 2017.
At around the same time as this amendment was made to the Statement of Claim, Mr Moustapha lodged caveats on the Bandalong Road property and the Telegraph Road property. The parts of the relevant caveat form which set out the interest claimed and the basis for the claim are not in evidence but it appears from correspondence that the caveats referred to an agreement dated 1 November 2016 (which is not otherwise explained in the evidence) and "a joint venture to develop the property."
In September 2017, having invited Mr Moustapha's solicitors to withdraw the caveats, Ms Nelson's solicitors issued lapsing notices. No steps were taken on behalf of Mr Moustapha to extend the caveats and they subsequently lapsed.
In January 2017, an invoice for $160,000 was sent from Overlook to Ms Nelson by email. The covering email stated:
Please find attached invoice overdue for payment. To avoid legal action, payment must be made in full within 7 days.
There is no evidence of any other demand for payment having been made before the institution of the proceedings in March 2017.
The present application was made by way of Notice of Motion filed on 25 October 2018. Counsel for Mr Moustapha put the application on two bases. First, counsel relied on the Court's power to make orders for the interim preservation of property under Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 25.3. That rule provides:
(1) In proceedings concerning property, or in which any question may arise as to property, the court may make orders for the detention, custody or preservation of the property.
(2) An order under subrule (1) may authorise any person to enter any land or to do any other thing for the purpose of giving effect to the order.
(3) In proceedings concerning the right of any party to a fund, the court may order that the fund be paid into court or otherwise secured.
Alternatively, counsel relied on UCPR, r 25.11 which provides:
(1) The court may make an order (a "freezing order"), upon or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the court's process by seeking to meet a danger that a judgment or prospective judgment of the court will be wholly or partly unsatisfied.
(2) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets.
The evidence in support of the application included a further proposed amended version of the plaintiffs' Statement of Claim. I subsequently granted leave to the plaintiffs to amend the Statement of Claim in this form and it represents the current version of the Statement of Claim for the purposes of this application.
[2]
Preservation of Property
The relief claimed in the most recent version of the Statement of Claim now includes a declaration that the proceeds of sale of the Lindfield property are held on constructive trust "for the Plaintiff [sic] in such proportion or amount as this Honourable Court deems fit." There are also claims for equitable compensation and an account of profits and further declarations that each of the Bandalong Road property and Telegraph Road property "stand charged in favour of the plaintiff to secure amounts owing to the plaintiff" pursuant to the joint venture as pleaded in the Statement of Claim. The plaintiffs also seek an account of any profits made by Ms Nelson on the development of the Telegraph Road property.
Counsel for Ms Nelson submitted that UCPR, r 25.3 did not apply to these proceedings. Counsel submitted that the reference in r 25.3 to proceedings "concerning property" did not include proceedings where the property in question represented a sum of money in a bank account. I do not accept that this is necessarily so. If the plaintiffs in this case are able to establish that the plaintiffs' claim, in substance, is a claim to a proprietary entitlement in the Lindfield property which the plaintiffs then seek to trace into the Bandalong Road and Telegraph Road properties, I do not see why the proceedings could not be said to be proceedings "concerning property" for the purposes of the rule.
In any event, I think an interlocutory injunction could be sought, based on ordinary principles, in aid of such a claim. The question for the Court is whether there are sufficient prospects of the plaintiffs' claims succeeding to justify the restraint on the defendant having regard, in particular, to the balance of convenience.
Counsel for Mr Moustapha supported his claim by reference to the principles discussed by the High Court in Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78 and Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59. Counsel sought to characterise the arrangement between Mr Moustapha and Ms Nelson as a joint endeavour which has failed in circumstances where it was not intended that Ms Nelson would retain the benefit of contributions made to that joint endeavour by Mr Moustapha. Counsel contended that in such circumstances, the appropriate order would be an order imposing a constructive trust on the proceeds of sale of the Lindfield property, which could then be traced into the Bandalong Road and Telegraph Road properties.
It is a cardinal principle that equity grants relief only where the plaintiff has no rights at common law or common law remedies are otherwise inadequate. On the face of it, the agreement alleged by Mr Moustapha is an ordinary contractual arrangement under which he was to provide services and receive in return a share of the profit from the development. It was not pleaded as involving any promise to confer on Mr Moustapha any proprietary interest in the Lindfield property, and the evidence in support of the claim does not allege any such promise.
The starting point, in my opinion, is that Mr Moustapha is seeking in these proceedings to enforce a contractual agreement. There is, however, a long-standing statutory requirement that building contracts (by which I mean contracts which involve the carrying out of building work, as defined) must be in writing to be enforceable: Home Building Act 1989 (NSW), ss 7 and 7AAA. Those statutory provisions have been pleaded on Ms Nelson's behalf in her defence, but that is not the end of the story.
The High Court in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5 held that, in such circumstances, it may be open to the person who performs building work to sue in restitution for reasonable remuneration even though no claim can be made directly under the oral building contract.
On the face of it, such a restitutionary claim would be open in the present case. If successful, at the very least it ought to be possible for the plaintiffs to recover the value of the materials they have supplied and expenses they have incurred as part of the building project, together with a reasonable allowance for the work done by Mr Moustapha, although that would not necessarily be measured by reference to a fifty per cent share of the profit above $500,000.
Such a restitutionary claim (which is the way the claim was originally pleaded when the proceedings were commenced) is a claim at law. It gives rise, if successful, to an unsecured liability to pay a sum of money. That is, of course, far less favourable than equitable proprietary relief, but the principle that equity intervenes only where there are no rights at law or legal remedies are inadequate applies just as much where the legal remedy is a restitutionary one as it does where legal remedy is available by way of contract or tort or under statute.
It is not easy to see what basis there would be for equity to intervene and provide the plaintiffs with some form of proprietary relief in such circumstances. A comparison with the relief ordered in Muschinski v Dodds is instructive. In that case, the joint endeavour encompassed the acquisition of the property. The contract was in joint names but the plaintiff paid the whole of the purchase price and the defendant's name was put on the title on the basis of an understanding that he would renovate the property and pay for a prefabricated house to be erected on it.
The basis for equitable intervention in that case was the unconscionability of the defendant in seeking to take advantage of the fifty per cent interest in the property which he held at law in circumstances where the contributions to the venture had been unequal and the venture had failed because the parties' relationship had broken down. The order foreshadowed was an order that the parties hold their respective legal interests upon trust, after payment of any joint debts incurred in improving the property, to repay to each of them their respective contributions and to divide the residue in equal shares.
This case is quite different. Mr Moustapha does not claim that the joint venture included the acquisition of the property. On his case, the equity only arose at a later stage, after the property had been acquired by Ms Nelson using her own money and in her own name. Mr Moustapha's case never included any share of the equity in the property as an ongoing investment but only a share of the profit once sold.
There is no allegation, nor could there be, that at the moment the property was acquired it would have been unconscionable in some way for Ms Nelson to insist upon her legal ownership of the property. If the development had not proceeded or Mr Moustapha had not been involved in it, he would have had no claim.
A proprietary claim could conceivably be formulated, based on the subsequent conduct of the parties, but that would be a claim in the nature of proprietary estoppel rather than the type of equity recognised in Muschinski v Dodds and Baumgartner v Baumgartner. No such claim is articulated and it would face its own difficulties because the arrangement as alleged by Mr Moustapha did not involve any promise that Mr Moustapha would receive a proprietary interest in the property. It is not necessary for me to consider this any further or to make any final decision on whether, on the facts alleged by Mr Moustapha, some sort of proprietary claim could be mounted. It is sufficient to say that, in my view, the case for proprietary relief as articulated is a weak one.
Turning to the balance of convenience, Ms Nelson stated in her affidavit that she is not working and has not been working since March 2015 when she gave up work, allegedly at the request of Mr Moustapha. Ms Nelson says that she has spent $75,000 on legal fees and will need to continue to have recourse to the remaining monies from the sale of the Lindfield property and money that is available to her under the line of credit to pay for future legal fees, her living expenses, and to continue the development of the Telegraph Road property. Although there was some objection to Ms Nelson's affidavit, I do not understand these basic elements of it to be in dispute and they were certainly not challenged in the argument.
I think that the balance of convenience in this case must be considered against the background of the delay by the plaintiffs in pursuing their claim. If the plaintiffs' claim is correct, then an equity would have arisen in Mr Moustapha from the point at which the relationship between the parties broke down. This would have been the end of the affair in about May 2016 or, at the latest, at the point at which contact between the parties ceased when the affair was revealed in October. Since then, Ms Nelson has sold the Lindfield property, applied the proceeds to paying off other debts, and bought the Telegraph Road property and embarked on a project of developing it.
A proprietary claim does not appear to have been articulated in the pleadings at least until August 2018. I think also that the failure by Mr Moustapha to defend the caveats which were lodged in support of the claim which he now makes is of great significance. If the proprietary claim was to be pursued, then it was incumbent upon Mr Moustapha to make an application for an extension of the caveats pending determination of these proceedings. In substance, he would have been required to make an application for interlocutory relief in September 2018.
In my opinion, the Court should not encourage a litigant who claims to have a proprietary interest in property but does not seek to support those interests by way of caveat, and then later pursues an application for interlocutory relief. Taking the plaintiffs' delay into account, I do not think that the proprietary claim has sufficient strength to warrant the grant of interlocutory proprietary relief.
[3]
Freezing Orders
To sustain a freezing order, it is not necessary for the plaintiff to have a proprietary claim. On the other hand, it is necessary for the plaintiff to demonstrate that there is a sufficient risk of the defendant dissipating his or her assets or otherwise acting in such a way so as to frustrate the processes of the Court. As has been said on many occasions, a freezing order is not granted by the Court simply to give the plaintiff a fund of money or other property against which to enforce an unsecured claim.
In these proceedings, the plaintiffs do have an arguable unsecured claim, at least to the extent of the expenses allegedly incurred in the redevelopment and the material supplied. But there is no evidence of any threat by Ms Nelson to dissipate her assets in the relevant sense. Most of the monies have apparently been put towards the acquisition of the Telegraph Road property or in paying off debts or otherwise reducing the amount drawn on the line of credit, thereby increasing the equity in the Bandalong Road property.
Counsel for Mr Moustapha pointed to the BMW car which Ms Nelson purchased out of the proceeds of the Lindfield property. Counsel submitted that the car was a more expensive one than Ms Nelson needs. I have no doubt this is true in the sense that Ms Nelson could use a less expensive car or, indeed, public transport to get around, but it illustrates what, in my judgment, is a misconception on counsel for Mr Moustapha's part about the nature of the jurisdiction exercised by the Court.
The Court makes orders restraining the use of specific property if there is a claim to that property or, in cases where there is a real risk of dissipation of assets, the Court acts by way of a freezing order so as to uphold its authority. An application of this sort is not the occasion for the Court to review the level of a defendant's expenditure and reduce it to the level which the plaintiff contends, or the Court considers, is the minimum necessary expenditure for the defendant to sustain himself or herself pending the outcome of the litigation.
In my judgment, an insufficient basis has been demonstrated to warrant the granting of interlocutory relief or a freezing order. Accordingly, the plaintiffs' Notice of Motion fails and must be dismissed.
I will order that the plaintiffs pay the costs thrown away by reason of the amendment of the Statement of Claim in terms of the second further Amended Statement of Claim.
[4]
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Decision last updated: 05 December 2018