Plaintiff v Defendants

Supreme Court of Victoria|2005-07-01|Before: Hollingworth, J

LANDLORD AND TENANT - whether landlord properly determined lease pursuant to Property Law Act 1958 ss. 146, 198 - application for relief against forfeiture - relevant discretionary principles - effluxion of lease - failure of tenant to purport to exercise option to renew - tenant's demonstrated incapacity to respond to serious breaches of municipal fire standards - grant of relief not appropriate in the circumstances.

CORPORATIONS - whether director of trustee company breached duty of care to beneficiaries - failure to seek relief against forfeiture - duties ceased upon appointment of new trustees - failure to ensure DHS certificate registered in company name - no breach of duty in the circumstances.

TRADE PRACTICES - vendor sold half-interest in business to purchaser - whether representations made by vendor were misleading and deceptive Trade Practices Act 1974 s.52 - purchaser's decision not made in reliance on vendor's misrepresentations.

EVIDENCE - whether Jones v Dunkel [1959] HCA 8; (1958) 101 CLR 298 inference available - applicable principles - effect of inference where witness in both camps - adverse inference not relevant to facts in issue - inference not appropriate where witness is party's solicitor and evidence would be subject of privilege .

For Beamer Pty Ltd, Kimis & Co Pty Ltd, George Moutidis & Louis Moutidis

For Zenn Nominees Pty Ltd, Western Lodge Supported Residential Services Pty Ltd, Manuel Jiminez

1 These two proceedings arise out of events which occurred mainly in 1998 in relation to a supported residential services business ("the business") conducted from 155-161 Gordon St, Footscray ("the premises").

2 Kimis & Co Pty Ltd ("Kimis"), a Moutidis family company, established the business in late 1997. By a contract dated 1 July 1998 ("the contract of sale"), Kimis sold the business to Star Lodge Supported Residential Services Pty Ltd ("Star Lodge"), the trustee of the Star Lodge Trading Trust ("the Star Lodge trust"). The beneficiaries of the Star Lodge trust were a Moutidis family company called Beamer Pty Ltd ("Beamer"), and a company connected with Bassam (or Sam) Najjar called Najjar Special Accommodation Services Pty Ltd ("Najjar SAS"). Kimis also assigned to Star Lodge its lease with the owner of the premises, Hidek International Pty Ltd ("Hidek").

3 Within a couple of months after the sale of business and assignment of lease, Hidek purported to terminate Star Lodge's lease for the non-payment of certain rates and taxes. Thereafter, Najjar entities took over the business on their own. Later that year, the business was taken over by Western Lodge Supported Residential Services Pty Ltd ("Western Lodge"), a company owned by Manuel Jiminez (or Jiminez-Navarro).

4 Proceeding No 6604 of 1999 ("the Najjar proceeding") involves a claim by companies associated with Sam Najjar, arising out of misrepresentations allegedly made in early 1998 by Kimis or members of the Moutidis family, which are said to have induced the Najjar entities to acquire an interest in the business.

5 Proceeding No 8145 of 1998 ("the Beamer proceeding") involves a claim by Beamer against the landlord, Hidek, and various Najjar and Jiminez entities. In very general terms, the Beamer proceeding challenges the purported termination of Star Lodge's lease and the subsequent acquisition of the business by Najjar and Jiminez entities.

6 On 29 October 2003, Master Kings ordered that the Beamer and Najjar proceedings be heard at the same time. I ordered that the evidence in each of the Beamer and Najjar proceedings stand as evidence in the other.

7 Kimis is the first defendant in the Najjar proceeding. Kimis owned and operated the business until July 1998. On 9 September 1996, Elias (known as Louis) Moutidis and Sophia (known as Sophie) Moutidis resigned as directors and their son, George Moutidis, was appointed a director and company secretary. Another of their sons, Kim Moutidis, was appointed a company secretary on 30 September 1997. Louis and Sophie Moutidis are the sole shareholders of Kimis. Kimis is not a party to the Beamer proceeding.

8 Beamer, the sole plaintiff in the Beamer proceeding, was the vehicle through which the Moutidis family held their interest in the business after July 1998. Since 19 May 1998, the sole directors and shareholders have been George and Kim Moutidis. Beamer owned half of the units in the Star Lodge trust, which became the beneficial owner of the business after its trustee, Star Lodge, purchased the business from Kimis. The parties proceeded on the agreed basis that Beamer had standing to sue on behalf of the Star Lodge trust and its beneficiaries, in circumstances where the current trustee has failed or refused to sue. Beamer is not a party to the Najjar proceeding.

9 George and Louis Moutidis are the second and third defendants, respectively, in the Najjar proceeding. They are not parties to the Beamer proceeding.

10 Star Lodge is the first defendant in the Beamer proceeding. It was the trustee of the Star Lodge trust from the inception of the trust until 9 October 1998. The Star Lodge trust bought the business from Kimis in July 1998 under the contract of sale.

11 Star Lodge was acquired as a shelf company in June 1998. Its sole current director is George Moutidis, who was appointed on 9 June 1998. Mr Najjar was also a director at all relevant times. George Moutidis and Sam Najjar each own one of the two issued shares in the company. Star Lodge is not a party to the Najjar proceeding and was not represented at trial.

12 Sam Najjar is the second defendant in the Beamer proceeding and the second plaintiff in the Najjar proceeding. His claim in the Najjar proceeding and the claim against him in the Beamer proceeding are both stayed, as he is an undischarged bankrupt. He gave evidence but was not represented at trial.

13 Najjar SAS is the third defendant in the Beamer proceeding and the first plaintiff in the Najjar proceeding. From 21 January 1998 until 27 October 2003, it was the trustee of the Najjar Family Trust ("the Najjar trust"). Najjar SAS owned the other half of the units in the Star Lodge trust. There was some confusion at various times during the trial as to whether or not Najjar SAS had been deregistered. That confusion was eventually resolved by the tender of a current ASIC search which shows that the company has never been deregistered. It was not represented at trial.

14 Zenn Nominees Pty Ltd ("Zenn") is the tenth defendant in the Beamer proceeding and the third plaintiff in the Najjar proceeding. On 27 October 2003, Sam Najjar, as appointor of the Najjar trust, removed Najjar SAS and appointed Zenn as the trustee of the Najjar trust.

15 Western Lodge, the fourth defendant in the Beamer proceeding, is a company owned and controlled by Manuel Jiminez, the sixth defendant in that proceeding. It is not a party to the Najjar proceeding. Since early December 1998, it has conducted an SRS business at the premises. Sam Najjar is employed by Western Lodge as the manager of that business.

16 Between 9 and 17 January 2002, Peter Vince was the interim receiver and manager of the assets and undertaking of Western Lodge, pursuant to an order of this Court made on the ex parte application of Beamer.

17 Other companies owned or controlled by Mr Jiminez were the eighth and ninth defendants in the Beamer proceeding. The claims against them were dismissed by consent during the course of the trial.

18 Zenn, Western Lodge and Mr Jiminez were represented at trial by the same counsel and solicitors. For the purpose of convenience, where appropriate they are referred to collectively in these reasons as "the Najjar defendants".

19 Hidek is the fifth defendant in the Beamer proceeding. It is not a party to the Najjar proceeding. Hidek is owned by Paul Dedek and his wife, Alena Dedek. They were the only directors at all relevant times.

20 Until October 2003, Hidek was the registered owner and lessor of the premises. At that time, it transferred its freehold interest in the premises to Paul and Alena Dedek for no consideration. That transfer was not discovered by Beamer or disclosed to the court until well into the trial; this issue will be discussed later.

21 Nicholas Mitsios is an accountant who has been employed by various Moutidis entities. On 9 October 1998, he and Jack Feldman were appointed as trustees of the Star Lodge trust in the place of Star Lodge. Mr Feldman resigned as a trustee in December 1998. Mr Mitsios is still a trustee.

22 On 9 August 2004, during the course of the trial, Beamer was granted leave to amend its pleadings in the Beamer proceeding to add Mr Mitsios as the eleventh defendant. This was done with the consent of Hidek and the Najjar defendants.

23 On 8 October 2004, on the application of Mr Mitsios, I ordered that he cease to be a defendant. He remains a party by reason of a notice of contribution served by the Najjar defendants during the course of the trial. The contribution proceedings were not heard at the same time as, and are being held in abeyance pending the outcome of, the trial of the main proceedings.

24 By its tenth amended statement of claim dated 9 September 2004 ("the Beamer claim"), Beamer makes a number of discrete claims for relief, all of which arise out of the events of mid to late 1998 which resulted in Beamer losing any interest in the business or the premises.

25 Beamer's principal claim arises out of the circumstances in which the Star Lodge lease was terminated. In terminating the lease, Hidek relied upon a notice of default dated 28 July 1998 ("the default notice") and a notice of re-entry dated 14 August 1998 ("the re-entry notice"). The Beamer claim pleads that the Star Lodge lease has not been validly terminated or, if it has, Beamer is entitled to relief against forfeiture.

26 Much of the trial was spent exploring Beamer's allegations of some sort of conspiracy between Hidek and the Najjar defendants, to wrongfully remove Beamer and the Moutidises from the business and the premises. Beamer disputes that the default and re-entry notices were prepared or served on or about the dates they bear. Beamer alleges that they were created at some later date or dates and dishonestly backdated ("the conspiracy claim").

27 Beamer also challenges the circumstances in which the Najjar defendants acquired their respective interests in the business after the termination of the Star Lodge lease. In considering this part of its claim, Beamer says that the assets and undertaking of the business are the goodwill, the leasehold interest and a certificate of registration issued to Kimis by the Department of Human Services ("DHS") in November 1997 ("Kimis' DHS certificate").[1] In essence, Beamer alleges that Najjar SAS and Western Lodge acquired or "received" the business with knowledge that Sam Najjar had breached his director's duties to Star Lodge, and Star Lodge had breached its trustee's duties to Beamer.

28 The Beamer claim also raises a number of claims which were expressly or impliedly abandoned. For example claims based on trespass[2] or disposition of property contrary to s. 172 of the Property Law Act 1958 ("PLA").[3]

29 In general terms, Hidek and the Najjar defendants deny the allegations against them. A number of specific defences will be considered later in these reasons.

30 The pleadings in the Beamer proceeding are not always easy to understand, and will be considered in greater detail below.

31 By the third amended statement of claim dated 6 September 2004 ("the Najjar claim"), Najjar SAS and Zenn ("the Najjar plaintiffs") seek damages from Kimis, George and Louis Moutidis ("the Moutidis defendants") in respect of alleged misrepresentations. The Najjar claim alleges that between February and June 1998 the Moutidis defendants made the following representations to Najjar SAS and Mr Najjar:

(d) That the chattels listed in the inventory referred to in schedule A to the contract of sale were owned by Kimis.

32 Najjar SAS paid $100,000 to acquire half of the issued units in the Star Lodge trust. Sam Najjar lent Najjar SAS that sum, which he raised by mortgaging his home. The Najjar plaintiffs say that these things were done in reliance on the representations.

33 Each of the representations is said to have been false and untrue and made in breach of a duty of care and of s. 52 of the Trade Practices Act 1974 ("TPA") and s. 11 of the Fair Trading Act 1985. George and Louis Moutidis are also alleged to have accessorial liability under s. 75B(1) of the TPA.

34 The Najjar plaintiffs allege that because Hidek re-entered the premises and terminated the lease for Star Lodge's breach, the business and the units in the Star Lodge Trust thereby became worthless. They claim the sum of $100,000 as their loss.

35 By their defence dated 12 May 2004 ("the Moutidis defence"), the Moutidis defendants deny the making and the falsity of the representations. They also deny that there was any reliance on any such representation and say that from April until 1 July 1998, Sam Najjar or Najjar SAS managed the business and made their own assessment as to profitability. In particular, they allege that Mr Najjar or Najjar SAS were responsible for receiving the takings and paying the expenses of the business, and were therefore in a position to make their own assessment as to the profitability and worth of the business. They also plead that Sam Najjar and Najjar SAS sought the advice of their financial advisors and solicitors in assessing the profitability of the business, incorporating Star Lodge, drawing the contract of sale and assigning the lease.

36 Although the Moutidis defence pleads that the Najjar plaintiffs are prevented by various estoppels from pursuing their claim, no submissions were made by any party in relation to those allegations and they were effectively abandoned.

37 The Najjar plaintiffs neither pleaded nor led any evidence that George Moutidis made any of the relevant representations. Given those matters, I do not understand why he was made or remained a defendant in the Najjar proceeding. The claim against George Moutidis must be dismissed.

38 Given the nature of Beamer's claims, particularly the conspiracy claim, and the absence of independent written records, many of the important issues in these proceedings turn on findings as to credit. The task of assessing the evidence was not assisted by the fact that the events under consideration occurred approximately 6 years before the witnesses gave evidence. Even honest witnesses can be mistaken, particularly in their detailed recollection, after such a time.

39 A total of 32 witnesses gave evidence during the trial. The following is a summary of the roles and backgrounds of the various witnesses, together with some general comments about credibility issues. More specific findings on credit are made elsewhere in these reasons.

40 George Moutidis was born in Australia. He was 26 years old at the time of giving evidence, making him only 20 years old in 1998. He completed schooling up to Year 12. Since then, he has worked with his father in the building industry. At the time of trial he was completing a plumbing apprenticeship. He gave no impression of ever wanting to be involved with the business in the first place. Although he and his brother Kim were officers of both Kimis and Beamer, they did not play an active role in either company and their parents made all relevant company decisions. George's involvement in and memory of key events was limited and reflects his role in the company. On some occasions, he appeared to engage in the reconstruction of events.

41 Sophie Moutidis was born in Greece and came to Australia when she was 11 years old. She had a total of five years of education in Greece and Australia and left school when she was 13 years old. Her only employment experience was five years as a sales assistant in a dress shop, and six months in a factory. She displayed a strong sense of grievance against Hidek and the Najjar defendants, and was prone to making sometimes emotional speeches against them. She often exaggerated or answered questions in a non-responsive manner. She was not an easy witness for counsel to pin down on specific details.

42 Louis Moutidis was also born in Greece. He was 16 years old when he came to Australia. Upon arrival, he worked in factories for almost two years. Later, he established his own painting business, and conducted that business until he obtained a licence as a registered builder. His English language skills were the least developed of any of the principal witnesses. He read English slowly and with obvious difficulty, a matter which is of some relevance in this case. His ability to recall specific details was at times quite limited. He also seriously exaggerated or understated in his evidence. The evidence of both Sophie and Louis Moutidis in some areas was implausible and patently self-serving.

43 Chris Moutidis is the younger brother of George and Kim Moutidis. He gave limited evidence in relation to a visit to the premises with his father to pick up a boat and birdcage. I do not doubt that he tried to answer questions truthfully. However, he was only 13 or 14 years old at the time of the visit some time in 1998.

44 Sam Najjar was born in Lebanon in 1970. He was therefore 28 years old at the time of the relevant events in these proceedings. Mr Najjar came to Australia when he was three years old. He attended a technical school until Year 10, then completed a certificate of electronics at Footscray TAFE. Towards the end of his TAFE course, in about 1989, Mr Najjar obtained employment with Toshiba. He was responsible for the repair of photocopiers, faxes, cash registers, computers and printers. After working with Toshiba for a number of years, Mr Najjar was employed by a company called Data Systems, where he was involved in hospitality systems. He left Data Systems at the end of 1997. From late 1997 until July 1998, Mr Najjar's only income (other than anything he may have earned from the business) was from casual work delivering pizzas. He clearly wanted to rise above being the pizza delivery man and office machinery repairer, to running his own business. He seems to have got in over his head with the business.

45 Sam Najjar was not an impressive witness, for a number of reasons. I do not mean this unkindly, but Mr Najjar was clearly a man of somewhat limited intelligence. The transcript of his evidence reads more fluently than the evidence was actually given. There were often very lengthy delays in answering questions or completing sentences. He calculated months and counted on his fingers, and had trouble even spelling his own cousins' surnames. On occasions his evidence about the dates and precise details of events was obviously incorrect, but I believe was proffered with honest intentions.

46 Most significantly, Sam Najjar was, as his own counsel conceded, a witness who reconstructed evidence on important topics. Instead of saying he could not remember an event, he would try to reconstruct what he thought might have happened. Specific examples of his reconstruction will be discussed later in these reasons. Whilst I do not believe that he reconstructed out of a desire to mislead the court, there were significant problems with his evidence that could not be explained away, even making allowance for the fact that his evidence was broken up over a number of days. I do not feel comfortable accepting his evidence on a number of contentious matters, without corroboration from some other source.

47 Manuel Jiminez was born in Spain and migrated to Australia with his parents in October 1965, when he was 14. Upon arriving in Australia, he attended primary school for one month, and did no further schooling. As at September 1998, he was a director of at least four companies, and had been involved in directorships of companies since 1978. Some of those companies own or have owned special accommodation homes. Mr Jiminez has held the position of treasurer or financial director of the Melbourne Opera and the Australian Opera. He also acts as a business advisor to clients of his business, Australian Land and Development Company ("ALDC").

48 Although his written English may not have been perfect, Mr Jiminez displayed no problems with spoken English. I have no doubt that he fully understood and exploited the nuances of the English language in his evidence.

49 Manuel Jiminez was a most unimpressive witness. He thought long and hard about questions, analysing their meaning and carefully choosing a response which he thought best suited his case. Unfortunately, the transcript does not convey the full flavour of his evidence. He often paused for a considerable period of time before answering questions, apparently thinking through where a particular answer might take him. Sometimes he would glance surreptitiously at documents before answering questions. When he was giving his most implausible evidence, he would turn towards me and fix me with a long, direct stare and often also a half-smile or smirk; at such times, he frequently adopted a particularly deferential tone of voice or address. His demeanour on these occasions was almost a caricature of somebody trying to appear sincere. I have no doubt that Mr Jiminez was utterly indifferent as to whether or not he was telling the truth.

50 Bobi Doslakoski was an administrative assistant to Mr Jiminez at his office in Elizabeth Street, Melbourne ("the Jiminez office") between 1997 and 1999. In that capacity Mr Doslakoski was directly involved in the preparation, annotation and sending of various relevant documents. I have no reason to doubt his honesty.

51 David Phillips is a solicitor running a sole legal practice in suburban Melbourne. In the early stages of the Beamer proceeding, Mr Phillips acted for both Western Lodge and Hidek. His evidence was limited to the question of whether an important document, exhibit N54, had been discovered prior to the trial. It is not necessary for me to determine this question for the purposes of liability, although it may be relevant to the question of costs.[4]

52 Joe Dicks is a partner of the chartered accounting firm PPB. Using documentation provided by the Najjar defendants, Mr Dicks provided his expert opinion on the profitability of the business during the period from 18 December 1997 to 30 April 1998.

53 Camille Nahas is the accountant who prepared the financial accounts for Western Lodge for the 1999, 2000 and 2001 financial years. He claimed privilege from self-incrimination whilst answering questions about the tax affairs of Mr Jiminez' company.

54 Paul Dedek was born in Prague in 1941 and worked in the television industry until he migrated to Australia in the early 1970s. He worked for ABC Television as a video tape technician. He later started his own businesses, involving the servicing of electronic equipment and a manufacturing business. His main business interest since 1997 has been the premises. His spoken English was good, although he was not confident about the quality of his written English and relied on his daughter, Simone Pardo, for assistance with the latter.

55 I have borne in mind when assessing his evidence that Paul Dedek was the only witness who had the benefit of sitting in court throughout the trial and hearing what other witnesses said. As a result, he displayed some familiarity with court processes and rules of evidence. He was cautious in answering questions in cross-examination, perhaps as a result of having seen how a skilled cross-examiner could exploit any inconsistencies in the evidence of a witness. I thought he was generally a truthful witness.

56 Alena Dedek is married to Paul Dedek. She was born in Prague in 1942 and was engaged in home duties during the period relevant to the proceedings. Although a director of Hidek at relevant times, it is clear that her husband was the person who ran the company. She only got involved in Hidek's business when her husband asked her to. It was therefore not surprising that she had little recollection of dates or some other details of events. Alena Dedek was a quietly-spoken women who appeared to be very nervous in the witness box. I formed the impression that she was an honest witness.

57 Simona (known as Simone) Pardo is the daughter of Paul and Alena Dedek. Her role in relevant events was limited to checking the default notice which her father prepared. She impressed me as a truthful witness.

58 Jack Bock is a partner of the law firm, Cohen Woolf & Weinberg. During the relevant period he was a solicitor employed by the Dedek interests. Initially, he was a principal of the firm called Chrapot Bock & Co in Malvern Road, South Yarra, which became Bock & Co in February 1998. In approximately October 1998, Bock & Co merged with Cohen Woolf & Weinberg, the firm who acted for the Najjar defendants at relevant times. Mr Dedek consulted Mr Bock in relation to the emergency order served on the business, the means by which the Star Lodge lease could be terminated and drafting the Najjar SAS lease of the premises.

59 Several witnesses were called from the Maribyrnong City Council ("the council").

60 Paul Gibcus is a registered qualified building surveyor. He worked for the council as its municipal building surveyor between late 1995 and the end of 1999. He gave evidence about inspections he carried out at the premises and various statutory notices which he issued. He impressed me as an honest witness who tried to be helpful and impartial.

61 Patricia (or Patsy) Bucci has been working in the council's rate office as an administration clerk for many years. She was called to identify the handwriting of one of her co-workers, Anne Prideaux, on several documents. She also gave evidence about her calculations of outstanding rates for the premises. Her evidence was not contentious.

62 Dale Siebuhr was employed by DHS as a nursing advisor responsible for monitoring the standards of care and accommodation in SRS facilities in the western region of Melbourne. He was still employed by DHS at the time of giving evidence. He gave evidence about a number of inspections of the premises which he carried out at relevant times. He was an honest witness, although displayed some understandable defensiveness about certain mistakes made by DHS in relation to the registration of the SRS.

63 Martin McNeill and Shane Gore were two fire-fighters employed by the Metropolitan Fire Brigade ("MFB"). They both gave evidence in relation to an inspection which they carried out at the premises on 26 May 1998. I have no doubt that they both gave their honest recollections of that inspection. In assessing their evidence, I have borne in mind the fact that together they perform hundreds of such inspections every year and that this particular inspection occurred some six years before they gave their evidence.

64 Graham Millard was the proprietor of GEM Fire Services ("GEM"), a company that designs, supplies, installs and tests fire sprinklers and fire alarms. He gave evidence that he was involved in inspecting the premises from 1994 onwards and detailed the fire-safety deficiencies present at the premises. Employees of GEM were engaged in conducting weekly tests at the premises.

65 Alan Watts was an employee of GEM responsible for the routine testing of fire sprinkler systems. He gave evidence about his visits to the premises to inspect the fire-fighting equipment.

66 Walter Russell is an electrician specialising in fire protection. He gave evidence of a visit to the premises in mid-1998 for the purpose of providing Louis Moutidis with a quote for fire protection work.

67 Dennis Koutsantonis was an old friend of the Moutidis family who had experience in the boarding house industry. He introduced Louis Moutidis to Walter Russell and gave evidence of their visit to the premises.

68 Mary-Ann McKenzie was a real estate agent in the aged care industry. She gave evidence in relation to how she would value an SRS business. Given my finding that no representation was made as to the market value of the business, her evidence was ultimately irrelevant.

69 Nicholas Kavadias was an accountant employed by some of the Moutidis interests. His firm prepared a summary of the receipt books kept by Kimis during the time it operated the business. His evidence was not controversial.

70 Denise Waugh was a nurse who had been employed at the premises by Woodbury Way Pty Ltd ("Woodbury Way"), a previous tenant. She later worked for Kimis for about three days in December 1997, until Paul Dedek demanded that she leave the premises. Mrs Waugh displayed an obvious and visible antipathy towards Paul Dedek, both whilst she was in the witness box and in her demeanour during the many weeks when she sat in court with Sophie Moutidis and other members of the Moutidis family, long after Mrs Waugh had completed her evidence. Her antipathy may be due, at least in part, to the circumstances of her departures from the premises under the Kimis lease or the Woodbury Way tenancy. Mr Dedek's behaviour on both occasions was undoubtedly heavy-handed. Mrs Waugh could not be regarded as an independent witness.

71 Michael Powell was one of the directors of Woodbury Way. His evidence dealt primarily with the issue of what chattels were left on the premises when Woodbury Way vacated them.

72 Gary Story is a forensic document examiner and principal of the firm Forensic Document Examination Australia. He was commissioned to prepare an expert report on certain contentious documents, including exhibit N54.

73 Much of this case turns on questions of credit. There are few documents or pieces of objective evidence on some of the most critical issues. It is therefore desirable to set out in some detail the background to the critical events of 1998, as it helps in understanding the possible motivations of the parties and the likelihood of certain disputed events having occurred. However, there were many "red herrings" in this case, and I do not propose to refer to or resolve every factual dispute that arose between the parties.

74 In 1975, Louis and Sophie Moutidis met and married. They acquired Kimis as a shelf company in November 1985, initially running it as a painting business. Louis ran the business, whilst Sophie looked after their sons. In 1989, Louis became a registered builder and turned his attention to residential and later commercial building work through another company, Harleymoore Pty Ltd ("Harleymoore").

75 In the early 1990s the Moutidis interests bought a boarding house business at 348 Beaconsfield Parade, St Kilda ("the St Kilda business") for $100,000. The St Kilda business contained approximately 65 rooms, accommodated 100 residents and had an occupancy rate of between 50% and 80%. Sophie Moutidis gave evidence that she "had never seen so much cash in her life", and after being run by the Moutidises for two years, the St Kilda business was sold for $200,000.

76 The Moutidises remained interested in the boarding house industry. Harleymoore soon purchased a property called "Staffa House" located at 148 Nicholson Street, Fitzroy. Although Staffa House was bigger and could accommodate more people, it was also purchased for $100,000. After operating Staffa House for two years, the Moutidises started a café at the front of the boarding house. They needed to buy a cash register. The operator of the milk bar next door had a cousin who sold cash registers. It was in this way that the Moutidises first met Sam Najjar. After selling a cash register to them, Mr Najjar started attending the Staffa House café and became friendly with the Moutidises. Mr Najjar often said that he and the Moutidises, especially Kim, became "very, very good friends", with whom he used to spend a lot of time. Louis and Sophie Moutidis were not as effusive in their description of the friendship or the frequency of contact with Sam Najjar.

77 Although Staffa House was apparently operating profitably, the construction side of Harleymoore's business had serious financial problems. Harleymoore's financial problems required the Moutidises to consider selling Staffa House. Mr Najjar and his cousin were identified as potential buyers. Harleymoore required the injection of $200,000 in order to avoid having to sell Staffa House. On that basis, Mr Najjar was offered a 50% interest for $200,000. However, Mr Najjar was only able to arrange finance for $100,000, which was insufficient. Soon thereafter, Staffa House was sold to another party for $345,000 and the proceeds employed to reimburse creditors. In September 1996, it went into liquidation and George and Kim replaced Sophie and Louis as directors of Kimis.

78 A few months after selling Staffa House, the Moutidises started looking for another boarding house business. In June or July 1997, a real estate-agent took Louis and Sophie Moutidis to view the premises.

79 The premises are comprised of a double-storey building of approximately 1940's design with a brick frontage and four wings. If entering from the front of the building, one would move through twin glass doors into an entrance foyer. There are kitchen facilities, bathrooms, some office space and approximately 100 bedrooms, of which the majority are twin-share and the remainder are single bedrooms. Towards the rear of the premises, three separate courtyards adjoin the building and there are two sets of gates opening onto a rear street.

80 From 1991 to October 2003, the premises were owned by Hidek. By a lease dated 21 January 1991, the premises were let to Thomas and Rita McKenna, who subsequently assigned their lease to Woodbury Way, the principals of which were Mr and Mrs Powell. In 1994, Woodbury Way registered the premises as an SRS pursuant to the Health Services Act 1988 (Vic) ("the HS Act").

81 The HS Act defines an SRS as "premises where accommodation and special or personal care are provided or offered for persons (other than members of the family of the proprietor of the premises) for fee or reward but does not include a residential care service or a State funded residential care service."[5] The registration of an SRS is the responsibility of the Secretary to the DHS. Prior to being registered as an SRS, premises are inspected by a building inspector appointed by the DHS as well as DHS's own nursing advisors. The proposed operators and any directors of the operating company are also interviewed to assess whether they are "fit and proper" persons and have the necessary financial capacity to operate such an establishment.

82 Although it should have vacated the premises around March 1997, Woodbury Way did not vacate until May 1997, in circumstances which were the subject of heated disagreement between various witnesses, but of no issue relevance.[6]

83 After inspecting the premises in mid-1997, Louis and Sophie Moutidis started negotiations with the Dedeks on behalf of Hidek. Initially it was proposed that Kimis would purchase the premises outright. During August 1997, Hidek's solicitors, Bock & Co, prepared various versions of a proposed contract of sale of the freehold of the premises.

84 However, apparently for financial reasons, the purchase did not go ahead. Instead, in September 1997, Kimis entered into an agreement to lease the premises from Hidek ("the Kimis lease"). The Kimis lease was for an initial term of two years commencing on 26 September 1997, with an option to renew for four further terms of five years each. Rent of $8,666.66 was payable monthly in advance. The tenant agreed to keep effective insurance over the premises, and to pay all municipal and water rates, land tax, and charges for electricity, telephone, garbage and trade waste disposal and fire equipment maintenance.

85 Hidek also granted Kimis an option to purchase the premises, which expired on 31 March 1998 ("the option agreement"). The option agreement provided that if Kimis did not purchase the premises and later sold the business operating from them, it would pay Hidek $20,000 for the furniture on the premises which was owned by Hidek.

86 After Kimis took possession in late September 1997, the Moutidises set about repairing the premises and furnishing the various rooms. There is a significant dispute as to the condition of the premises, and what furnishings and chattels were at the premises, when the Kimis lease commenced. As that dispute is relevant primarily to the Najjar proceeding, the evidence on these topics will be discussed in that part of these reasons.

87 By around late November 1997, the premises were ready to operate as an SRS. At that time there were approximately 14 SRS facilities in the western metropolitan region of Melbourne, of which the premises were the largest. DHS co-ordination of SRS facilities in the western metropolitan region was conducted by Ian Shaw and Dale Siebuhr.

88 The DHS interview process in 1997 and 1998 required each director or officer who might exercise control over an SRS to be interviewed separately on their knowledge of the HS Act and regulations, problem-solving abilities and understanding of broader care-related issues. If an applicant was unable to perform satisfactorily at interview, it was DHS policy to offer them a second interview at a later date.

89 On 19 November 1997, George and Kim Moutidis both performed satisfactorily in interviews with Mr Shaw and Mr Siebuhr and were approved as operators of an SRS. The premises were also inspected and it was noted that carpet-laying and installation of a communication system had to be completed before final approval would be granted. The Kimis DHS certificate was issued on 1 December 1997, with an expiry date of 31 December 2000. The Kimis DHS certificate confirmed the decision under the HS Act to register the premises as a health service establishment and authorised Kimis to conduct an SRS at the premises.

90 The business started accommodating residents by mid-December 1997. Some of the residents had family, financial or psychological problems, while the remainder were drawn to the cheap accommodation. Rates were either paid by the resident personally or by one of approximately 60 crisis housing referral agencies. Breakfast and dinner were offered at an additional cost.

91 After assisting with the renovation and refurbishment work, Louis Moutidis returned to his building work and only dropped into the premises occasionally. George Moutidis provided some assistance to his mother in running the business, but Sophie Moutidis had primary responsibility for the day to day running of the business. All commercial decisions were made by Sophie and Louis Moutidis. Kim Moutidis was not involved with the business.

92 In the early days of operation of the business, Kimis engaged Denise Waugh, a nurse who had worked at the premises when Woodbury Way was the tenant. A few days after Mrs Waugh started working for Kimis, Mr Dedek attended at the premises and recognised her. It is common ground that he demanded that she leave the premises and that the Moutidises complied with his demand. There is an evidentiary dispute as to how and to whom the demand was communicated, but it is not necessary for me to resolve that. Mr Dedek had no legal basis for trying to dictate who the tenant could employ, even if he believed the employee to be somebody who had tried to steal from him in the past.

93 Kimis was in significant financial difficulty almost as soon as the business commenced. The Moutidises say that this was because income from the business was being poured into their construction business and they had had to pay substantial amounts to repair and refurbish the premises. It was in this environment, a fledgling business owned by a company in financial difficulties, that Sam Najjar began frequenting the premises.

94 Based on their experience with Staffa House, the Moutidises were aware that Mr Najjar was interested in buying into a boarding house type of business and that he was able to pay around $100,000. In the early days of operation of the business, they invited Mr Najjar to visit the premises. The date of his first visit to the premises is unknown, but on 23 December 1997 Mr Najjar made his first record of a resident's attendance and wrote his first receipt.

95 Mr Najjar kept in touch with the Moutidises by calling them or dropping by the premises. Discussions about the possibility of Mr Najjar acquiring an interest in the business soon commenced.

96 Mr Najjar was offered an interest because of the parlous financial state of Kimis. Sophie Moutidis gave evidence that by September 1997, Kimis had accumulated approximately $200,000 in debt. This had arisen primarily from the construction business. Furthermore, establishing the business had required a significant capital outlay, and in early 1998 any spare revenue generated was being used to build the business.

97 A further reason for involving Mr Najjar appears to have been the option agreement. The Moutidises had planned to finance the purchase of the premises with a bank loan of $500,000 and by transferring to Mr Dedek two units they were building in Park Grove, Richmond ("the Richmond units"). However, in January 1998, the Richmond units were still not completed and were subject to a bank mortgage of $140,000; time was running out for Kimis to exercise its rights under the option agreement.

98 Sophie Moutidis was not enamoured with the idea of going into business with Mr Najjar. She initially proposed that Mr Najjar lend the Moutidis interests $100,000, in return for a repayment of $150,000. When that was rejected by Mr Najjar, the discussion turned to a sale of half of the business.

99 The $100,000 purchase price for a half interest was agreed upon without any debate. According to Louis Moutidis, agreement for Mr Najjar to purchase an interest was reached by February 1998. Mr Najjar initially disagreed, stating that his decision was made in March or April 1998. However, in cross-examination he agreed that his decision was made in January of that year.

100 As a 28 year old with very little commercial acumen, Mr Najjar sought the advice of his cousin, Ali Sleiman. Mr Sleiman had a friend, Manuel Jiminez, who had assisted him with a tenancy dispute and also had some experience as the owner of various properties on which SRS businesses were conducted. In early January 1998, Mr Sleiman introduced Mr Najjar to Manuel Jiminez at the Jiminez office.[7] With Mr Jiminez' assistance, Najjar SAS was incorporated on 21 January 1998 and the Najjar trust was established. For advice on the legalities of the purchase, Mr Jiminez recommended that Mr Najjar contact Peter Cohen of Cohen Woolf & Weinberg, solicitors, and on 21 April 1998 wrote a letter of introduction to Mr Cohen on behalf of Mr Najjar.

101 Mr Najjar began visiting the premises more regularly. Around April 1998 he began some sort of trial period. He started involving himself more fully in the affairs of the business. In particular, Mr Najjar collected and opened mail and handled much of the office administration.

102 During the first half of 1998, patronage of the business increased substantially. By May and June 1998, the business was experiencing occupancy levels around 90% and income of almost $40,000 per month. Mr Najjar was able to assess the income figures first-hand, and an analysis of the receipt book for May and June 1998 indicates that he signed over 60% of the rent receipts issued in that period.

103 Mr Najjar was adamant that he was not paid any salary prior to July 1998. In direct contrast, Louis and Sophie Moutidis both gave evidence that Mr Najjar was paid a cash salary of $600 per week during May and June. There are no documents which shed light on this issue. Although curious, in my view it is not necessary to resolve this dispute.

104 Mr Najjar was pushing to settle the transaction from April 1998 onwards. The Moutidis' preference was to settle on 1 July 1998.

105 In May or early June, Mrs Moutidis and Mr Najjar approached the Moutidis' accountant, Nicholas Mitsios, for advice on how to accommodate each party's 50% interest in a new business structure. Mr Mitsios advised them to form a unit trust to hold the business, to incorporate a new trustee and then allocate one unit in the new trust to each party's family trust.

106 On 5 June 1998, Louis Moutidis, Mr Najjar and Mr Mitsios attended a meeting at the offices of Cohen Woolf & Weinberg. The proposed structure of the new business was outlined to the parties, and it was resolved that Peter Cohen would draft the contract of sale of business from Kimis to the new entity.

107 On 9 June 1998, the Star Lodge trust and its trustee, Star Lodge, were set up. George Moutidis and Sam Najjar were appointed as directors of Star Lodge. The Moutidis interest in the Star Lodge trust was held by Beamer whilst the Najjar interest was held by Najjar SAS.

108 The contract of sale drafted by Peter Cohen reflected the sale of the business by Kimis to Star Lodge for consideration of $200,000. A transfer of the Kimis lease to Star Lodge was signed on 1 July 1998 ("the Star Lodge lease"). Two days later, three copies of the contract of sale were executed by Mr Najjar in Mr Mitsios' office. At that time, Mr Najjar handed Louis Moutidis a cheque for $100,000, which he had obtained by remortgaging his home. Beamer did not in fact pay Kimis any money for its half of the business.

109 Upon receipt of the Najjar money, Kimis immediately set about satisfying its many creditors. In fact, by 30 July 1998, only $4,163 of the Najjar money remained in the Kimis bank account.

110 Unfortunately, the original contracts of sale relied upon by Beamer and the Najjar defendants differ in one material respect. The document relied upon by the Najjar defendants contains an inventory of chattels at the end of the document, which the Moutidises say was not attached to the contract of sale when they signed it. This dispute is relevant to the Najjar proceeding and the evidence will be considered later.

111 As a result of the sale of business, it was necessary for Star Lodge to obtain DHS registration. An application for variation of registration ("the DHS transfer form") was prepared by Peter Cohen and given to the Moutidises to sign. Kimis was shown as the applicant transferor, and Kimis' name and the relevant details of the business were typed into the standard form. Kim and George Moutidis subsequently signed it in their capacity as directors of Kimis. The DHS transfer form is dated 26 June 1998.

112 After his sons had signed, Louis Moutidis gave the DHS transfer form to Mr Najjar to give back to Mr Cohen. Mr Cohen was not called and no evidence was led as to when the form was actually lodged with DHS. Sam Najjar met with and spoke to DHS staff on several occasions during July 1998. He said that one of the matters he discussed with them was how the transfer of registration was going.

113 In evidence-in-chief, Louis Moutidis said that the DHS transfer form had a blank space for the transferee's name to be inserted and that Mr Najjar had specifically asked him to leave the name of the transferee blank. That assertion was consistent with a statement which was attributed to Louis Moutidis in one of George Moutidis' affidavits and with previous correspondence sent on behalf of the Moutidises. I have no doubt that these statements were intended to convey the impression that Mr Najjar was acting suspiciously and plotting to be rid of the Moutidises even before the completion of the contract of sale. When it was pointed out to Louis Moutidis in cross-examination that there was no place for the transferee's name to be inserted on the DHS transfer form, Mr Moutidis tried in a rather unconvincing way to distance himself from all the earlier assertions and suggested that he had been talking about some other, unidentified document.

114 Although in the form prescribed by the HS Act, the DHS transfer form did not provide for the name or signature of the transferee to be inserted anywhere. This glaring omission meant that the DHS transfer form was able to be used later to effect a transfer of DHS registration from Kimis to Najjar SAS, without Kimis' consent.

115 The contract of sale was supplemented by a further agreement between Najjar SAS and Beamer outlining how the business would be conducted by Star Lodge and how profits and expenses would be allocated. At all times it was agreed that Mr Najjar was to be responsible for the day to day running of the business.

116 The pleadings and the evidence of both Beamer and the Najjar defendants in relation to this further agreement are unsatisfactory in many respects.

117 The Moutidises said that it was initially proposed that Beamer would receive $22,000 per month payable in arrears and would pay the rent, taxes, rates, maintenance and insurance for the business. Najjar SAS would retain any revenue above $22,000. Sam Najjar denied that any such agreement was entered into. However, he did allege that the Moutidises wanted a piece of paper to show to their bank, which demonstrated a monthly income of $22,000, even though no such agreement had been reached. Louis Moutidis denied that was the case.

118 At some stage in late July, the parties orally agreed that Beamer would receive a monthly payment of $13,335, not $22,000, and in return Najjar SAS would assume responsibility for paying rent.

119 Mrs Moutidis and Mr Najjar asked Mr Mitsios to draw up an agreement reflecting the general terms which had been agreed. Mr Mitsios drafted such a document and delivered it to Mr Najjar at the premises. Given that the document which he drafted expressly referred to a report, the ESR, which was not received before 21 July 1998, I find that Mr Mitsios cannot have drafted the written document prior to that time. Mr Najjar, Mr Mitsios and the Moutidises were all vague and somewhat inconsistent about the timing of the oral agreement and the preparation of the written agreement. It is possible that the written agreement was not prepared until early August.

120 Although Mr Mitsios wanted Mr Najjar to sign the agreement in his presence, Mr Najjar told Mr Mitsios that he did not have the Najjar SAS company seal with him. The written agreement was never signed.

121 The unsigned document stipulated that Najjar SAS would manage the business "for the term of the agreement" subject to certain conditions. In essence, Beamer was to receive $13,335 per month whilst retaining responsibility for the payment of insurance, water and council rates. Beamer was required to provide a guarantee that it would rectify all problems identified in the ESR. Najjar SAS guaranteed all other costs and was then entitled to any residual profits.

122 Although no written document was executed, I am satisfied that around late July or early August 1998, Najjar SAS and Beamer entered into an oral agreement which included the terms set out in the unsigned document ("the supplementary agreement").

123 It is apt to describe the beginning of Mr Najjar's term as a part-owner and operator of the business as a "baptism of fire". Mr Najjar was immediately faced with the problem of dealing with service providers who were owed money by Kimis. For example, Telstra cut off the telephone. People attended to turn off the gas, but Mr Najjar successfully pleaded for an extension of time for payment. Similar problems arose with respect to rubbish collection, linen suppliers and sanitary cleaning services.

124 In an endeavour to regain control over the situation, Mr Najjar contacted Mr Jiminez for advice. Whilst Mr Jiminez was initially reluctant to assist, because Mr Najjar had not paid a previously agreed fee, he eventually agreed to help.

125 Mr Jiminez met with Mr Najjar and Wayne Cuthbertson, one of the staff, one Saturday in the second half of July 1998. Mr Najjar explained that he had paid $100,000 to the Moutidises and that within days of taking charge of running the business the telephone lines were cut off, the linen supply stopped and problems with various other services arose. According to Mr Jiminez, Mr Najjar also explained that the Moutidises were asking for $13,500 which Mr Najjar had agreed to pay them on a monthly basis. Mr Jiminez said that he asked Mr Najjar how much money was in the account and Mr Najjar replied that there was not enough money to pay $13,500 at that stage. Mr Jiminez said he agreed to help out because "really, the whole thing was in a bit of a mess, and I told him that I would contact Peter Cohen to find out how this came about". Some days later, Mr Jiminez informed Mr Najjar that he would require $800 per month for the period in which Mr Jiminez would be involved in helping him out. Mr Najjar agreed to that.

126 After discussing the matter with his solicitor, Peter Cohen, Mr Jiminez agreed that he would contact suppliers on behalf of Mr Najjar, inform them of the change in management and ask them to continue to provide their services. Consequently, various letters were written to suppliers in the last week of July. The letters were dictated by Mr Jiminez and typed by one or other of his staff, Bobi Doslakoski or Mira Clarick. Mr Doslakoski apparently prepared one or more Star Lodge letterheads on the computer, which were used for these and other letters. Where necessary, an electronic copy of Mr Najjar's signature was inserted by Mr Jiminez' staff. Mr Najjar did not see all the letters that were sent out in his name.

127 Of particular importance in this case were various unpaid rates and taxes, the non-payment of which was later relied upon by Hidek in terminating the Star Lodge lease.

128 In late April 1998, Hidek received a land tax assessment notice dated 24 April, at the Dedek's home address ("the land tax notice"). Under the Kimis and Star Lodge leases, the land tax was payable by the tenant. Mr Dedek said it was his practice to make a copy of any such notice and give it to the tenant at the premises. Mr Dedek said he handed a copy of the land tax notice to Louis Moutidis in late April 1998 and Mr Moutidis said he would take care of it.

129 By June 1998, Mr Dedek was aware that Kimis had not complied with the land tax notice. On 16 June, he attended at the State Revenue Office and paid the outstanding amount of $222.24 himself. Mr Dedek said that he then took a copy of the receipt and gave it to Mr Moutidis on 23 or 24 June, with a request for re-imbursement, at the same time as he collected the rent cheque for June.

130 Although he initially denied that he knew the tenant had to pay land tax for the premises, Louis Moutidis ultimately conceded that he knew that Kimis was liable to pay land tax. However, he denied that Mr Dedek ever gave him a copy of the land tax notice or that he requested reimbursement. Mr Moutidis claimed that he would have paid the land tax notice had he been given it. Given that the Moutidises were regularly late in paying accounts, often bounced cheques, had no apparent system for making or recording payments, and displayed a careless attitude towards paperwork generally, I do not accept Mr Moutidis' bald assertion that he would have paid the amount in the land tax notice had he received it.

131 I find that Mr Dedek did give a copy of the land tax notice to Mr Moutidis in April and June 1998.

132 A problem also arose regarding unpaid water rates. Mr Dedek gave evidence that his practice with respect to City West Water, and other accounts for which the tenant was responsible, was to arrange for them to be delivered directly to the premises for the tenant to pay. This was because the Dedeks were often away for months at a time and did not want correspondence to lie unattended in their letterbox. That practice is borne out by the addresses on various accounts which were in evidence.

133 A copy of a City West account for $1,790.65, dated 16 April 1998, was discovered by the Moutidises. However, they were unable to explain how it came to be in their possession or their discovery. I infer that they received it in or around April 1998, but simply ignored it, as they did with other accounts. In any event, there is no evidence that at the time of delivery of the water notice in July 1998 Kimis had paid anything at all to City West Water in respect of its first nine months of occupation of the premises.

134 On or about 8 July 1998, Hidek was served by Davies Moloney, solicitors for City West Water, with a Magistrates' Court complaint, seeking recovery of $1,986.90 in respect of current and unpaid water rates for the premises for the period 1 October 1997 to 30 June 1998, and $362.20 in respect of legal costs relating to the complaint, being a total sum of $2,349.10 ("the water notice").

135 Mr Dedek said that this was first time he became aware that there were unpaid water rates in respect of the premises. He said that he telephoned Mr Moutidis shortly after receiving the water notice and received what he termed "the usual answer, 'Don't worry I'll fix it'".

136 Patricia Bucci of the council, gave evidence that council rates were due and payable on a quarterly basis, namely, 30 September, 30 November, 28 February and 31 May of each year. Ratepayers were made aware of their payment obligations by instalment notices sent approximately three weeks before the payment date. The instalment notices for 30 September 1997 and 28 February 1998 were tendered at trial. They were sent to Hidek, care of Paul Dedek at his private residence. The council rates to which the default notice refers would have become due and payable on 31 May. The relevant instalment notice was never produced. There is no evidence that Kimis or the Moutidis interests received the instalment notice for 31 May before the end of July.

137 Unfortunately, the problems with services also extended to the maintenance of adequate fire protection. Given the type of accommodation involved, the high number of residents and community sensitivity after the Kew Cottages disaster, it is not surprising that the premises were the subject of some scrutiny from local authorities.

138 On 31 March 1998, Paul Gibcus conducted an essential services inspection on behalf of the council. The inspection was prompted by notification from the MFB that there had been a small, contained fire at the premises and a subsequent request for an inspection from the Health Services Department. Upon inspection, Mr Gibcus formed the view that there were serious matters that required attention. However, he did not prepare a report on his inspection until 2 July 1998, and for reasons which were not adequately explained, he did not serve that report until late July.

139 On 26 May 1998, Martin McNeill and Shane Gore of the MFB attended the premises in response to a public complaint about the sprinkler system. They were met by Louis Moutidis and conducted an inspection of the building using a fire safety checklist. At the conclusion of the inspection, Louis was served with and signed a document called a "Maintenance Advisory Notice" ("the MFB notice") which documented various defects, including that the exit doors required immediate attention.

140 There is a dispute as to whether Sam Najjar was present when the MFB inspection occurred and when he first learned of the MFB notice. As the dispute is primarily relevant to the Najjar proceeding, the conflicting evidence will be considered later. It was not disputed that Mr Dedek was not aware of the MFB notice until after service of an emergency order in August 1998.

141 GEM conducted weekly inspections of the fire sprinkler system at the premises. Due to non-payment of outstanding fees, GEM attended at the premises on 17 June 1998 and suspended testing on that date. Mr Najjar was aware of this at the time. GEM only agreed to start re-testing on 3 August 1998 when Mr Najjar, on behalf of Star Lodge, and GEM entered into an agreement for the maintenance of the fire sprinkler system for a further 12 months, and made an advance payment of $800.

142 Mr Gibcus' report dated 2 July 1998 is described as an "Essential Services Report" ("ESR") and made 21 recommendations concerning, inter alia, ventilation systems, emergency lighting, removal of unapproved furniture, provision of appropriate extinguishers, fire hydrants, smoke alarms, sprinkler systems and communication systems. The ESR is addressed to Hidek. The ESR concluded with the following bold and underlined text:

"It is strongly recommended that all the items outlined above are urgent and pose the real threat to the lives of the people who inhabit this building, therefore it is our highest priority to advise you, being the owner of the above specified property to attend to these issues as outlined in this report Immediately."

143 The urgent language in the notice does not sit particularly well with the fact that it took the council more than three months to prepare the ESR. Like a number of the fire or building notices in this case, the ESR conveyed a sense of great urgency in its language. I agree with Mr Hevey that some of these notices give one the impression that the council or relevant authority was, quite understandably, concerned about protecting its position in case of a future disaster or litigation, and that not every item on the notices was in fact substantial or urgent.

144 The ESR bears a "received" stamp with the date of 21 July 1998, but it is not clear who applied that stamp. The ESR was sent to DHS, as well as to Mr Dedek; the latter did not receive it until 24 July, as he had been away earlier that month.

145 Mr Najjar's recollection was that he did not have any knowledge of outstanding fire orders prior to a meeting held at DHS and attended by the council on 23 July. However, it seems likely that Mr Najjar had learned of some of the fire problems a day or two earlier. The council's file records that a copy of the ESR was faxed to Mr Najjar "as requested by him" on 21 July. In any event, Danielle Chiron of the council gave him a copy at the premises on the 23rd.

146 The meeting on the 23rd was attended by Ms West from the council, Mr Siebuhr from DHS and Mr Najjar and Mr Cuthbertson from the business. The meeting was called by DHS because of concerns they had with the premises in regards to safety, in particular fire safety.

147 Mr Moutidis did not attend the meeting on the 23rd. Mr Moutidis said that he was not invited to the meeting.

148 Mr Dedek said that he was not aware of the March inspection by the council at the time it occurred, and that the first he knew of it was when the ESR was received by him on 24 July. After he received it, he dropped in at the premises where he met Mr Najjar and went through the document. Mr Najjar said that Mr Dedek was "a little bit upset" on this occasion and wanted to walk around the premises with Mr Najjar, so they could look at the particular points raised in the ESR.

149 Mr Dedek's visit to the premises also seems to have been a response to a phone call he received from Danielle Chiron of the council, who asked whether she could provide his telephone number to "the new owner". Mr Dedek was most surprised at hearing that there was a new owner, and he and Mrs Dedek drove to the premises to find out what was happening. However, the use of the term "new owner" probably misled Mr Dedek, as he was aware at the time the lease was transferred from Kimis to Star Lodge on 3 July 1998 that Mr Najjar was a financial contributor to the business, and was involved in its operations. He was aware that the Moutidises were "putting a new guy" into the business, or taking on a partner.

150 Upon attending at the premises, Mr Dedek said he met with Mr Najjar and asked him "Who is the new owner?" Mr Najjar replied "Oh you don't know, I purchased the business." Mr Dedek inquired as to whether there were any purchase contracts and Mr Najjar proceeded to show him legal documents which include the disputed inventory. At that point Mr Dedek informed Mr Najjar that the chattels on the disputed inventory were not his property, they were the property of Hidek.

151 Mr Najjar said he rang Louis Moutidis about the ESR. He said that Louis Moutidis became very aggressive and upset over the phone and "a little bit abusive" and said "It's not your problem, don't worry about it. Leave it for me and the landlord". On the other hand, Louis Moutidis said that Mr Najjar never called him during July and August 1998 and the only contact between them was when Louis called Mr Najjar in late July to ask about the payment allegedly owing under the supplementary agreement. It is not necessary for me to resolve this factual dispute.

152 The Moutidises first received a copy of the ESR on 5 August. Louis Moutidis proceeded to contact a friend by the name of Dennis Koutsantonis, who had purchased the St Kilda business from him, and had some sprinklers fitted. His subsequent visit to the premises with Mr Koutsantonis will be discussed later.

153 Mr Dedek agreed that upon reading the ESR, he thought there was nothing wrong that could not be fixed. He did not approach the council and ask why it had taken three months to send the ESR, nor did he ask Mr Najjar how long he had had the document. Mr Dedek said that upon receiving the ESR he started working on fixing things himself "straight away".

154 Mr Najjar agreed that Mr Dedek started coming to the premises on a regular, almost daily, basis after the receipt of the ESR. Mr Dedek attended to a lot of the items and would instruct Mr Najjar and staff on certain tasks, such as clearing underneath the stairways, clearing up rubbish or ensuring doors were accessible. Mr Dedek also attended to the emergency lighting, the back-up batteries and things like that.

155 Either before or after the meeting with Mr Najjar, Mr Dedek met with his solicitor, Mr Bock. He said that meeting occurred on Friday 24 July 1998. Mr Dedek's diary entry for that day records an entry for Mr Bock at around 4.45 pm on that day. When Mr Dedek attended Mr Bock's offices in Malvern that day, Mr Bock asked him to come back later.

156 Mr Bock had a clear recollection that the first relevant meeting he had with Mr Dedek was some time around July 1998. He remembered it being approximately one year since Mr Dedek's visit to his home when Mr Bock was convalescing from surgery. Mr Bock confirmed that the first meeting in July 1998 was very brief, because he was needed elsewhere, and he asked Mr Dedek to make an appointment to come back. At that first meeting Mr Dedek did ask Mr Bock whether he knew anything about a sale of the business. Mr Bock said he would be able to tell him more after his practice merged with Cohen Wolf & Weinberg in a few days, as they acted for the tenant or the purchaser.

157 Mr Bock met again with Mr Dedek around noon on Monday, 27 July 1998. Mr Dedek told Mr Bock that there was a problem with the current tenant, because it had fallen into arrears with rent and outgoings and Mr Dedek "wanted to throw him out". Mr Bock told Mr Dedek he would have to give a 14 day notice and Mr Dedek said he had all the notices, ones which Mr Bock had previously prepared. Mr Bock advised that if he was going to be asking for outstanding amounts it was important to serve a clear letter stating the amounts outstanding.

158 Mr Dedek had obtained a version of the relevant notices in the previous year, in the following circumstances. After returning from an overseas trip in early 1997, Mr Dedek was informed by his son that there were some problems with the premises and the tenant, Woodbury Way. On 6 May 1997, Mr Dedek visited the premises. It is common ground that there was some sort of confrontation between Mr Dedek and Mr Powell and others on that day, the precise details of which are not relevant. The police were ultimately called and the tenant left the premises. However, in connection with the proposed eviction of Woodbury Way, Mr Dedek had asked Mr Bock to prepare re-entry documents. Mr Bock prepared a notice of re-entry, and a notice to police and locksmiths regarding Woodbury Way, in May 1997. These were part of what Mr Bock described as a "three document process". Those documents were never used because of the negotiated settlement, but Paul Dedek kept them on his file.

159 Mr Bock said he was used to Mr Dedek scanning documents through his computer and "recycling" them for later use. Although Mr Hevey was critical of the fact that a solicitor allowed his client to modify his documents in this way and, in particular, to leave the solicitor's details on the police notice thereby conveying the impression that the solicitor had prepared the final document, I accept that this is what in fact happened.

160 The parties are in heated dispute over the creation and service of the default notice, which is dated 28 July 1998. In it, Hidek gave notice to Star Lodge that unless the amounts specified in it were paid within 14 days, Hidek would terminate the Star Lodge lease and re-enter the premises.

161 Beamer alleges that the default notice was not created on or about 28 July and, even if it was, it was not served on or about that date. Beamer alleges that it was not prepared until some later time. At the start of the trial, Beamer obtained leave to withdraw a positive allegation that the default notice was prepared on or about 1 September 1998.

162 Hidek says that the default notice was prepared on or about 27 or 28 July and served by Paul Dedek on Sam Najjar on 28 or 29 July and by Alena Dedek on George Moutidis at the Moutidis home on the following day.

163 The PLA outlines the requirements for notices served under the Act. Any notice required to be served shall be in writing[8] and shall be sufficiently served if it is left at the last known place of abode or business of the lessee or affixed to any house or building comprised in the lease.[9]

164 Sam Najjar agreed that Paul Dedek served the default notice on him at the premises on 28 or 29 July. Further Mr Najjar and Mr Jiminez say that they created a covering letter under which they themselves forwarded a copy of the default notice to the Moutidises ("the covering letter"). Mr Najjar says he delivered the covering letter and enclosed copy default notice to Sophie Moutidis on 29 July. She denies that.

165 George and Sophie Moutidis agreed that Mrs Dedek attended their home in late July, but said that she only collected cheques for water and council rates and rent, and did not give them any documents.

166 Two versions of the default notice were prepared. They were in identical terms save that one was addressed to Star Lodge and the other to "George Moutidis, Kimis & Co Pty Ltd" and they referred to the relevant tenant. The substance of the default notice was as follows:

"As the Land tax for the property 161 Gordon St Footscray, which you are leasing, has not been paid, I had no option but to pay the amount of $222.24 for the Land Tax due on 19/6/98. I have sent the receipt to you for reimbursement.

I am sending you the summons, which I received from Davies Moloney Solicitors acting for Melbourne Water demanding $2,349.10 for water rates and their legal costs. Also I am sending you the rates certificate from the Maribyrnong City Council of $8,037.86 for rates including the penalty for late payments.

All these costs are outlined in our lease agreement and are to be paid by the tenant [Star Lodge Pty Ltd] [Kimis & Co Pty Ltd].

I have experienced difficulty of payments and received a number of dishonoured cheques from you. In light of this I request immediate action or I have no other option than to terminate the lease in 14 days and re-enter the property."

167 Mr Dedek said that the default notice was addressed to both Star Lodge and George Moutidis because he was not sure whether Star Lodge or Kimis was responsible. He was sure that George Moutidis was one of the directors of Kimis.

168 Mr Dedek said he prepared the default notice on his computer, by scanning and then modifying the similar notice which Mr Bock had prepared for him in the previous year. The figures in the default notice were obtained from Mr Dedek's books and documents. He said the default notice was created on the afternoon or evening of 27 July, and printed out on the morning of the 28th.

169 Mr Dedek said that, as his written English was not perfect, he asked his daughter, Simone Pardo, to help him with the letter and that she came around to his house that evening to do so.

170 Although he met with his solicitor, Mr Bock, on 27 July, Mr Dedek did not ask Mr Bock to prepare the default notice or the notice of re-entry. As mentioned earlier, the proposed course of action of issuing a letter of demand and a re-entry notice was discussed at that meeting.

171 In late July 1998, Simone Pardo was working at Rinnai Corporation in Braeside. She gave evidence that her father called her at work and asked her to come over later that day. She recalled the telephone conversation because she was seven months pregnant at the time and was going to have a glucose test later that day. Ms Pardo's diary records an appointment at 4.30 pm on 27 July, with a related entry for 3.30 pm being "drink glucose". She could not recall whether Mr Dedek called her in the morning or in the afternoon. She said her father asked her if she would come over and correct a letter for him. Although she was reluctant to go, she believed that her father's request was urgent and that she had to go that night.

172 The earliest she would have left the Monash Medical Centre after her test that day would have been 5.30 pm. She was not sure whether she picked up the letter from her parents' house and took it away to correct it, or whether she corrected it there.

173 Ms Pardo confirmed that she regularly checked her father's English in letters and helped him with his grammar. She said that the default notice looked like a letter she had checked, but had no actual recollection of the document or the details of it.

174 At various stages in the trial, certain documents were produced which Mr Dedek said he produced from his home computer. These documents were various "properties reports" from the computer, which purported to show that the default notice and re-entry notice were prepared on or about the dates alleged by Hidek. Mr Dedek rejected any suggestion that he had falsely changed the dates on the properties reports in relation to the default and re-entry notices.

175 However, it was conceded by Hidek's counsel during the course of the trial that reports such as these could be altered in various ways, either before or after the date they purportedly bore. Given that concession, and in the absence of expert evidence as to their authenticity, I have not given them any weight as objective proof on the issue of whether or not the default notice was created and served on or about 28 July.

176 Mr Dedek and Mr Najjar's evidence about the service of the default notice at the premises is generally consistent.

177 Mr Dedek said he took the default notice and gave it to Mr Najjar at the premises, together with the water notice and the council rates notice. Mr Dedek was not sure if he showed him a copy of the land tax notice as well. Mr Dedek said that when he gave the default notice to Mr Najjar, Mr Najjar replied "You have to speak to George". Mr Dedek said that he only left Mr Najjar with the one page default notice.

178 Mr Dedek did not remember at what time of day he served the default notice on Mr Najjar. He also could not explain why, after delivering the default notice to the premises, he did not continue on to Richmond at the time to deliver the other letter to the Moutidises.

179 Mr Najjar said that the first time he saw the default notice was when Mr Dedek brought it over to the premises in late July 1998. Mr Najjar agreed that he was on his own when Mr Dedek delivered the notice. Mr Najjar thought he had been provided with an original of that letter and not a copy.

180 When Mr Najjar asked Mr Dedek why he was giving him the default notice, Mr Dedek said that there were outstanding rates, council rates, and land tax. Mr Najjar said that he told Mr Dedek that it was not his responsibility, because Star Lodge had only been there for 28 days or even less. Mr Najjar said he asked Mr Dedek why he did not sort this out with Louis Moutidis and Mr Dedek said "We are going to". Mr Najjar said that during this visit Mr Dedek only gave him the default notice.

181 Both Mr Najjar and Mr Dedek gave differing accounts as to whether the default notice was served on 28 or 29 July 1998. Both started by saying it was the 28th and then changed their evidence to the 29th. Mr Dedek said that he now believed he served the default notice on Mr Najjar on the 29th and offered several reasons for supporting that.

182 Firstly, on 14 September 1998, Mr Bock wrote a letter to Mr Dedek stating "we confirm that you have advised us that a notice of default was left at the premises on or about 29 July 1998".

183 However, the letter from Mr Bock of 14 September contradicts the Hidek defence dated 16 February 1999, paragraph 15A of which alleged that the default notice was dated and served upon Star Lodge on 28 July. When questioned on the discrepancy between the defence and the letter written by Mr Bock, Mr Dedek preferred to rely on the version in Mr Bock's letter (in other words that the letter had been served on the 29th and not the 28th).

184 Secondly, Mr Dedek said that on the same day that he delivered the default notice to the premises, he called in at the council offices and asked for a supplementary rate notice, in order to have his own copy of the document for his records. Such a notice, dated 29 July 1998, was tendered in evidence.

185 On 26 May 1999, Mr Jiminez swore an affidavit in the Beamer proceeding on behalf of Western Lodge and Hidek. In that affidavit he deposed that "Mr Dedek has informed me and I verily believe that Mr Dedek personally delivered this letter to Mr Najjar at the premises on 28 July 1998". Mr Dedek referred to Mr Jiminez' affidavit in his own affidavit of 30 June 1999, in which he deposed that Mr Jiminez' affidavit was true and correct in all respects.

186 Mr Dedek freely conceded that six years later, he had no independent recollection of whether service occurred on the 28th or the 29th.

187 It is hardly surprising that witnesses are unable to recall from their own memories, some six years after the events, whether the default notice was served on one or other of those days. It is easy to understand how they have looked for some external indication as to what the correct date was, and have then reconsidered the position when shown other documents. At the end of the day, it is not necessary for me to resolve this dispute, as long as I am satisfied that the default notice was in fact prepared and served by 29 July 1998. I am so satisfied.

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Judgment (758 paragraphs)

Cases Cited (9)