Plaintiffs v Defendants [2015] VSC 287 | Case summary

Supreme Court of Victoria|2015-08-07|Before: McDONALD J

CONSIPRACY TO INJURE - defendants did not have sole or dominant purpose of harming the plaintiffs - defendants' primary motivation was self-interest to preserve ownership of properties which had been restituted to the first defendant within first defendant's immediate family

UNLAWFUL MEANS CONSPIRACY - transfer of assets from first defendant to second and third defendants constituted an equitable fraud - first to fourth defendants were parties to an agreement to injure the plaintiffs - any loss as a result of agreement to transfer properties from first defendant to second and third defendants contingent upon outcome of ongoing legal proceedings in Czech Republic.

INDUCING BREACH OF CONTRACT - second to fourth defendants provided advice and encouragement to the first defendant prior to his breach of terms of settlement - conduct not actionable as inducing breach of contract.

TRUSTS - Barnes v Addy ( 1874) 9 Ch App 244 - No express or implied trust created by terms of settlement.

Section 172 Property Law Act 1958 (Vic) - transfer of property from first to fourth defendant shortly after commencement of legal proceedings against first defendant - transfer not for valuable consideration - transfer voidable; transfer of property from fifth defendant to sixth defendant - none of plaintiffs' claims against fifth defendant successful - plaintiffs not persons prejudiced by transfer.

1 The plaintiffs' cause of action of conspiracy to injure is not made out. The plaintiffs have not established that the sole or dominant purpose of the alleged conspiracy was to harm the plaintiffs. Rather, the defendants' primary motivation was to advance their own interests by preserving the properties which had been restituted to the first defendant.

2 The May 2009 Donation Agreement pursuant to which the first defendant transferred assets to the second and third defendants, constituted an equitable fraud. Each of the first to fourth defendants was a party to an agreement to injure the plaintiffs by means of the first defendant divesting himself of the assets the subject of the agreement against which a judgment debt could attach. The fifth defendant was not party to this agreement. However, as at the date of this judgment, the plaintiffs have not suffered any pecuniary loss as a result of the conduct of the first to fourth defendants. Any pecuniary loss is contingent upon the outcome of the proceedings in the Czech Republic. The cause of action of unlawful means conspiracy is therefore not made out.

3 The plaintiffs' claims of knowing receipt of trust property and knowing assistance in breach of trust are not made out. Contrary to the plaintiffs' contention, the terms of settlement executed by the first defendant on 23 February 2001 did not create either an express or implied trust. The terms of settlement created contractual obligations which do not support the claims based on either limb of Barnes v Addy.[1]

4 The plaintiffs' claim that the second to fifth defendants induced the first defendant to breach the terms of settlement are not made out. The second to fourth defendants did provide advice and encouragement prior to his breach of the terms of settlement. However, this conduct falls short of that which is actionable. The claim against the fourth and fifth defendant based on the mortgage of 312 Glenferrie Road, Malvern is misconceived. It relies upon their conduct in the first half of 2000 which could not have induced a breach of the terms of settlement executed in February 2001.

(v) Section 172 Property Law Act: 312 Glenferrie Road, Malvern

5 The plaintiffs' claim that the October 1998 transfer of the first defendant's interest in 312 Glenferrie Road, Malvern to the fourth defendant is voidable pursuant to s 172 of the Property Law Act is made out.

(vi) Section 172 Property Law Act: 23 Ethel Street, Malvern

6 The plaintiffs' claim that the transfer of the fifth defendant's interest in a property at 23 Ethel Street, Malvern to the sixth defendant is voidable pursuant to s 172 Property Law Act is not made out. As all of the claims against the fifth defendant have failed, the plaintiffs are not persons who are prejudiced by the transfer.

7 Prior to World War II, the first defendant's parents owned five substantial properties in the centre of Prague: land in Kbely (a suburb of Prague); horticultural land in Repy (on the outskirts of Prague); a forest in the North East of what is now the Slovak Republic; and an apartment building and adjacent land in Dresden, Germany.

8 In the aftermath of World War II these properties were seized by communist regimes in Czechoslovakia and East Germany. About this time, the first defendant's parents, Alois and Anna Talacko, left Europe and settled in Australia.

9 Following the Velvet Revolution of November 1989, communist regimes were replaced by governments prepared to undertake restitution of private property which had been taken by the State. Alois and Anna Talacko had died prior to 1989. However, the first defendant, together with his brother Peter and sister Helena were interested in reclaiming their parents' property.

10 What agreement, if any, was reached between the siblings in respect of the restitution of the properties underpins the litigation in this court which was commenced by writ filed 2 October 1998 ('the 1998 Proceedings'). Peter and Helena contended that in March 1991 they concluded an agreement with the first defendant to pursue and share equally the restitution of their parents' properties. The plaintiffs in the 1998 Proceedings alleged that Helena, Peter and the first defendant exchanged powers of attorney, declarations and testamentary documentation to give effect to this agreement. In August 1991, the first defendant prepared documents setting out details of his parents' assets and gave these to Peter and Helena.

11 A claim for restitution could only be made by a person who was both a resident and a citizen of the Czech Republic. By September 1991, the first defendant satisfied these requirements and made an application for restitution of the Prague properties. Peter was subsequently granted residency rights but only after the cut-off date for making a restitution claim.

12 In March 1992, the properties in central Prague were restituted to the first defendant either wholly or in part. Thereafter, the other properties in Repy and Slovakia were either restituted to the first defendant or purchased by him.

13 Disputation quickly ensued as to whether Peter and Helena were each entitled to a one-third share of the properties which had been restituted. Peter Talacko died in November 1995. The 1998 Proceedings were commenced by Peter's widow, Margaret, as his executor, and his children: Alexander, Martin and Rowena. Helena sued by her litigation guardian, her son, also named Jan. The 1998 Proceedings claimed an equitable interest in the properties held by the first defendant and sought relief for alleged breaches of agreement, breach of trust and breach of fiduciary obligations. The trial commenced on 21 February 2001. The plaintiffs opened their case on that day and the opening continued on 22 February 2001. The proceedings were then adjourned to 26 February 2001 to allow the parties an opportunity to participate in a mediation on 23 February 2001.

14 On 23 February 2001, the proceedings were settled on the following terms ('terms of settlement'):

The defendant to transfer all the right, title and interest that he has or shall have, to such person or entity as shall be nominated by the plaintiffs, in respect of the following:

(a) Kiefernstrasse 19 and Kiefernstrasse 19b, Dresden, Germany;

(b) 17.4473 hectares of land in Repy, as defined in the particulars under paragraph 6 in the amended statement of claim herein;

(c) approximately 0.8 hectares of land in Kbely, as defined in the particulars under paragraph 6 in the amended statement of claim herein;

(d) approximately 364 hectares of land in Sucha, as defined in the particulars under paragraph 6 of the amended statement of claim hereto.

This clause does not apply to any interest in land purchased by the defendant as from this date.

To give effect to paragraph 1, the defendant will sign all necessary documents and give all necessary documents and attend at any place as required by law in respect of the signing of such documents.
If by reason of applicable law, or some other cause, paragraph 1, or any part thereof, cannot be given effect to within 12 months of the date of these terms in respect of a particular property or properties, the defendant shall at the direction of the plaintiffs and at their cost, take all reasonable steps to sell such property or properties at best market value and shall pay the net proceeds of such sale, after the deduction of all expenses, to the plaintiffs or at their direction.
The plaintiffs to be responsible for and pay in the first instance all transfer costs, expenses, taxes, duties, levies and charges in any way payable in respect of the transfer or sale of the properties.
The defendant to pay to the solicitor for the plaintiffs the sum of $150,000 in part payment of the plaintiffs' costs on or before 23 June 2001.
In the event that the defendant breaches any term, condition or warranty in this agreement, then the plaintiffs shall be entitled to enter judgment for an order that the defendant pay equitable compensation for breach of fiduciary duty in respect of each of the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by him, together with the costs of entering such judgment, and the production of these terms of settlement shall be conclusive evidence of the defendant's irrevocable consent to the entry of such judgment.

7. The parties shall forthwith consent to orders of the Court that the proceeding be struck out with no order as to costs, together with a right of reinstatement for the purpose of enforcing these terms.

8. The parties agree to release each other from all actions, suits, demands, liabilities and costs arising out of or in any way related to the subject matter of the proceeding.

9. The defendant warrants that:

(i) he has not reduced his right, title and interest in the properties the subject of these terms since the commencement of the proceeding;

(ii) the properties the subject of these terms, or any of them, are not encumbered;

(iii) that he shall not deal with the properties the subject of these terms otherwise than in accordance with these terms; and

(iv) that until transfer or sale he will pay costs, taxes and expenses associated with each property the subject of these terms.

The first defendant's breach of the 2001 terms of settlement

15 Subsequent to 23 February 2001, none of the properties referred to in cl 1 of the terms of settlement were transferred to the plaintiffs. In October 2003, German lawyers acting for the plaintiffs prepared transfer documentation with respect to the first defendant's interests in the Dresden properties referred to in cl 1(a) of the terms of settlement. The documents were forwarded to the first defendant under the cover of a letter dated 3 October 2003. By letter dated 29 November 2003, the first defendant advised the plaintiffs' lawyer that he would not execute the transfer document.[2]

16 In November 2005, the 1998 Proceedings were reinstated. The plaintiffs claimed for breach of an agreement constituted by the terms of settlement. In November 2007, the trial was heard by Osborn J (as his Honour then was) confined to issues of liability. His Honour delivered judgment on 24 April 2008.

17 Osborn J concluded that the first defendant's failure to execute the transfer in respect of the Dresden properties constituted a breach of cl 1 of the terms of settlement. This finding, together with the finding of breach of cl 9(iv) of the terms of settlement, enlivened cl 6 of the terms of settlement. This entitled the plaintiffs to enter judgment for an order that the first defendant pay the plaintiffs equitable compensation for breaches of the fiduciary duties alleged in the amended statement of claim in the 1998 Proceedings in respect of each of the properties referred to therein, which had been recovered by the first defendant. The class of properties covered by cl 6 of the terms of settlement was considerably broader than those referred to in cl 1. In particular, it included the properties in central Prague.

18 The proceedings in respect of the assessment of equitable compensation were heard by Kyrou J (as his Honour then was) in October 2009 with judgment being delivered on 24 November 2009.[3] His Honour concluded that the plaintiffs were entitled to equitable compensation in the sum of €10,073,818.[4]

19 The first defendant appealed the judgments of Osborn and Kyrou JJ. These appeals were heard on 23 November 2010. Judgment dismissing the appeals was delivered by the Court of Appeal on 18 March 2011.[5]

20 The first defendant did not pay the plaintiffs the amount of equitable compensation ordered by Kyrou J. On 7 November 2011, a sequestration order was made against the estate of the first defendant by the Federal Court of Australia on the application of the plaintiffs. Mr Brian Silvia of BRI Ferrier (NSW) was appointed trustee of the first defendant's estate. Mr Silvia lodged a notice of objection to discharge the first defendant's estate from bankruptcy with the Official Receiver of the Australian Financial Security Authority by letter dated 5 November 2014.[6]

21 On 12 May 2009, the first defendant and his Prague-based sons, David and Paul (second and third defendants in the current proceedings), executed a donation agreement[7] ('Donation Agreement') and applications for registration. This transferred from the first defendant to David and Paul by way of a gift, all of the first defendant's interests in the Czech properties and other properties which were in issue in the then pending equitable compensation proceedings before Kyrou J. In his subsequent judgment, Kyrou J concluded that the properties which were transferred had a value in October 2009 of at least €14 million.[8]

22 The plaintiffs learned of the Donation Agreement and applications for registration on 10 June 2009 when their Prague-based lawyer, Mr Hlavićka, made inquiries of the real estate registry (also known as the Cadastral Registry) in Prague.[9] On 11 June 2009, the plaintiffs sought and were granted Mareva orders restraining the first defendant from taking any further steps of selling, transferring or donating or otherwise dealing with the Czech properties until 4.15pm on 23 June 2009, or until further order. The first defendant was also ordered to immediately take all such steps available to withdraw any applications for transfer that had been lodged with the real estate registry.[10]

23 Shortly after obtaining the orders on 11 June 2009, the plaintiffs filed a proposed amended statement of claim in the 1998 Proceedings alleging new causes of action against Jan, David and Paul Talacko in relation to the Donation Agreement and the applications for registration of the property transfers.

24 On 23 June 2009, Kyrou J made further orders extending the orders which had been made on 11 June 2009 until 16 July 2009. On 13 July 2009, the plaintiffs filed a summons seeking orders that the first defendant be dealt with for contempt on the grounds of non-compliance with Kyrou J's orders of 11 June 2009 and 23 June 2009. Bongiorno J issued a warrant for the first defendant's arrest.[11]

25 At approximately 1.30pm on 13 July 2009, the first defendant was observed - by a private investigator acting for the plaintiffs - leaving the family home in Malvern. He travelled by taxi to Melbourne Airport where he was observed talking to staff at the Qantas International departures desk, and presenting what appeared to be travel documents. He subsequently left the airport by taxi.[12]

26 On the evening of 13 July 2009, the first defendant appeared before Bongiorno J. He was remanded in custody to appear before Byrne J the following day. Byrne J dismissed the summons for contempt because the order of 11 June 2009 did not contain an endorsement complying with r 66.10(3) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) ('the Rules'). However, Byrne J did grant an injunction preventing the first defendant from leaving Victoria, attending any point of international departure or applying for any other passport until the conclusion of the contempt proceedings. An application for discharge of this injunction was refused by Kyrou J.[13]

27 On 2 October 2009, Habersberger J made orders in the 1998 Proceedings restraining the defendant from leaving Victoria until 5pm on the day of the judgment unless the first defendant paid into court the sum of $2.3 million. As events transpired, the first defendant never left Australia between 15 July 2009 and his death on 3 November 2014.

28 At a directions hearing on 16 July 2009, discussion took place between Kyrou J and counsel for the plaintiffs regarding the plaintiffs' application to join David and Paul Talacko as defendants in the 1998 Proceedings. Kyrou J expressed concerns about whether the 1998 Proceeding would be ready to be heard by the scheduled date of 5 October 2009 if David and Paul Talacko were joined as defendants. His Honour raised the possibility of the new causes of action being pleaded in a new proceeding.

29 On 17 July 2009, the plaintiffs commenced the current proceedings. The five plaintiffs in the current proceedings correspond with the five plaintiffs in the 1998 Proceedings. At the time of the commencement of the current proceedings, there were four defendants: Jan Talacko, his sons David and Paul, and his wife Judith Talacko.

30 On 24 July 2009, Kyrou J made Mareva-type orders against David and Paul Talacko requiring them to take steps to undo the registration of the transfer of the Czech properties which had been the subject of the Donation Agreement.

31 On 10 August 2009, Kyrou J extended the Mareva-type orders against David and Paul Talacko. He also made an order for substituted service based upon his satisfaction that David and Paul Talacko had been avoiding service.[14] On 17 December 2009, Kyrou J issued arrest warrants for David and Paul Talacko pending contempt proceedings in respect of non-compliance with the Mareva-type orders which his Honour had previously made. His Honour also made orders that the evidence filed in the 1998 Proceeding would stand as evidence in the current proceeding.

32 Following the Court of Appeal's dismissal of the appeals from the judgments of Osborn and Kyrou JJ, the current proceeding progressed slowly. On 25 May 2013, the proceeding was listed for trial to commence on 8 October 2013. On 5 September 2013, a subpoena for production of documents was issued by the plaintiffs directed to Peter Talacko, the first defendant's third son. This subpoena was the catalyst for a raft of interlocutory proceedings which are summarised in a judgment of Zammit AsJ (as her Honour then was) delivered on 24 September 2014.[15]

33 On 24 September 2014, Zammit AsJ joined Peter Talacko and his wife Amanda Fisher as the fifth and sixth defendants to the current proceedings and granted the plaintiffs leave to file and serve a third further amended statement of claim pleading causes of action against the fifth and sixth defendants. These orders were the subject of an appeal pursuant to r 77.06 of the Rules. In the first instance, the hearing of the appeal was adjourned by reason of prejudice to the plaintiffs occasioned by the failure of the fifth and sixth defendants to have complied with the discovery orders made by Zammit AsJ. Ultimately, the fifth and sixth defendants did not press their appeal despite having been afforded an opportunity to do so within a timeframe which would have allowed for the determination of the appeal prior to the commencement of the trial before me on 2 March 2015.

34 The first defendant died intestate on 3 November 2014. By virtue of s 19 of the Administration and Probate Act 1958 (Vic), his estate vested in State Trustees Ltd. On 13 March 2015, I made an order pursuant to r 9.09(2) of the Rules joining State Trustees Ltd as the seventh defendant nunc pro tunc from 3 November 2014. State Trustees Ltd played no active role in the proceedings.[16]

35 In addition to the history of proceedings set out above, it is also necessary to refer to proceedings in the Czech Republic. Since 2008 until the present date, the plaintiffs have conducted two sets of proceedings in the Czech Republic. First, proceedings directed at over-turning the May 2009 disposition of the Czech properties from the first defendant to the second and third defendants. Second, proceedings seeking recognition and enforcement of Kyrou J's equitable compensation judgment in the Czech Republic. To date, the plaintiffs have not succeeded in either obtaining recognition of the equitable compensation judgment, or in setting aside the Donation Agreement. However, as at the date of this judgment, proceedings remain on foot which may result in the setting aside of the Donation Agreement and the recognition and enforcement of Kyrou J's equitable compensation judgment.

36 At the time of this judgment there are proceedings on foot in this court in which representatives of the first defendant have challenged the validity of the certificate issued by the Prothonotary of the Supreme Court of Victoria ('the certificate') pursuant to the Foreign Judgments Act 1991 (Cth) ('Foreign Judgments Act'). A valid certificate under the Foreign Judgments Act is an essential pre-condition to the recognition and enforcement of Kyrou J's judgment in the Czech Republic. I shall return to the significance of the plaintiffs' attempts to enforce the judgment of Kyrou J in the Czech Republic, and to the attempt to challenge the validity of the certificate under the Foreign Judgments Act later in this judgment. I will do so when considering the issue of whether the plaintiffs have established pecuniary loss for the purposes of their cause of action in conspiracy.

The failure of the second and third defendants to enter an appearance

37 The trial commenced on 2 March 2015. As at that date, neither the second nor third defendants had entered an appearance. On 26 March 2015, I granted the plaintiffs leave, pursuant to r 7.04 of the Rules, to proceed against the second and third defendants nunc pro tunc from the date of the commencement of the current proceedings. On the same date, I made an order pursuant to r 2.04(1) of the Rules that the requirement that the originating process contain an endorsement in accordance with r 7.02(1) of the Rules at the time of service out of Australia be dispensed with nunc pro tunc.

38 I am satisfied that the writ and the second amended statement of claim were served on the second and third defendants in compliance with the Hague Convention.[17] There is no doubt that since the Mareva orders were made against the second and third defendants by Kyrou J in June 2009, the second and third defendants have been fully aware of the existence of the current proceedings. Indeed, an email from Paul Talacko to his mother on 12 June 2009, in reference to the Mareva orders, stated:

I'd just like to say that we have to be very careful with this, as this seems like a trick to drag us into this case.

If Tato [the first defendant] says anything that indicates that we've said or done anything, then it could be taken to mean that we are aware of the Australian case and submit to its jurisdiction.

Anything must be sufficiently vague.[18]

39 I have no hesitation in concluding that the second and third defendants have at all material times been fully aware of the current proceedings. They have been placed squarely on notice of the claims against them and the material which the plaintiffs rely upon in support of the allegations against them. They have deliberately and consciously refrained from participating in the current proceedings. Given that they are subject to extant arrest warrants, this is not entirely surprising. On 6 March 2015, I made an order for substituted service of the fourth amended statement of claim, together with other pleadings and affidavits relied upon by the plaintiffs.

The failure of the fourth defendant to give evidence

40 Judith Talacko did not give evidence in the current proceedings. Mr Glick QC, who appeared with Mr Masters for Mrs Talacko, opened his case on the basis that the allegations made against Mrs Talacko did not give rise to any need for her to respond. He submitted:

Why should my client get in the witness box when the case was so weak? In a fraud case. You can't draw an inference against my client because my client's view is the case is particularly weak and there is nothing to answer.[19]

41 On the morning of 3 March 2015, the second day of hearing, Mr Howells, who appeared with Dr Sharpe for the second to fifth plaintiffs, advised the court that his clients intended to seek leave to amend the third amended statement of claim. He foreshadowed that most of these amendments would relate to particulars arising from emails which had only recently been provided to the plaintiffs. In response, Mr Glick submitted, quite reasonably, that in light of the foreshadowed amendment, the fourth defendant may be called to give evidence.[20] In response, I advised Mr Glick that if he intended to call Mrs Talacko my expectation was that she would attend court to give evidence on 10 March 2015.[21] I informed Mr Glick that if I permitted the amendment to the statement of claim he would have an opportunity, as a matter of procedural fairness, to consider the amendments and to confer with Mrs Talacko as he saw fit.[22]

42 At the conclusion of the second day of hearing, proceedings were adjourned to Thursday 5 March 2015 to allow for the foreshadowed amendment to the statement of claim to be completed and for the defendants to have an opportunity to consider it and take instructions prior to the resumption of proceedings. As events unfolded, the matter was relisted for a mention on the morning of 4 March 2015 to consider a foreshadowed application on behalf of the fourth defendant pursuant to s 42E of the Evidence (Miscellaneous Provisions) Act 1958 (Vic) ('Evidence Act') allowing the fourth defendant to give evidence via video link rather than in person.

43 At the mention on 4 March 2015, I was informed by Mr Glick that the basis of the fourth defendant's application to give evidence via video link was her apprehension that if she returned to Victoria she may be subject to orders restraining her from leaving the jurisdiction. The solicitors acting for Mrs Talacko had sought an undertaking from the plaintiffs' solicitors that if Mrs Talacko did return to Victoria, no application would be made seeking to restrain her from leaving the jurisdiction. This undertaking had not been forthcoming.

44 As to the fourth defendant's solicitor's request for an undertaking from the plaintiffs' solicitors, I stated as follows:

Mr Glick, I am deeply troubled by the correspondence which your instructing solicitor has sent to the plaintiffs' solicitors. I am deeply troubled that an officer of the court would seek an open-ended undertaking from another officer of the court not to commence proceedings, no matter what justification there may be for doing so, including whether that might involve a contempt of court.[23]

45 Ultimately, Mr Glick apologised to the court for the contents of the letter his instructing solicitors had sent to the plaintiffs' solicitors.[24]

46 Objectively viewed, the fourth defendant's concerns as to being prevented from leaving the jurisdiction if she returned to give evidence in the current proceedings provides no justification for her refusal to return from overseas to give evidence. Any order restraining the fourth defendant from leaving the jurisdiction could only be made by the court upon proper material and in the proper exercise of the court's power. Needless to say, any order restraining an individual's liberty of movement would not be made lightly.

47 At the commencement of the fifth day of proceedings, Mr Glick informed the court that he had instructions that his client 'was presently disposed to' give video evidence from Hong Kong. Mr Glick stated that he wished to press his application pursuant to s 42E of the Evidence Act [25] ('s 42E Application'). Mr Glick proposed bringing the application on 'separate material' than that which was before the court on 4 March 2015. He stated that he would not rely upon the letter from his instructing solicitor seeking an undertaking from the plaintiffs' solicitors to refrain from making any application to restrain the fourth defendant from leaving the jurisdiction. However, Mr Glick did confirm that the substantive basis for the application was the same: the fourth defendant's apprehension that if she returned to Australia she might be subject to an application to restrain her from leaving.[26]

48 I asked Mr Glick to file a fresh affidavit in support of the s 42E Application. I indicated that if Mr Howells made an application that the plaintiff's legal representatives be present in Hong Kong, I would be minded to grant that application given that Mr Glick had foreshadowed that his junior and his instructing solicitor would be present in Hong Kong at the time such evidence was given.[27]

49 Thereafter there followed discussions of timetabling issues in respect of the timing of the fourth defendant's evidence via video link.[28]

50 Mr Howells submitted that the second to fifth plaintiffs opposed the giving of evidence by the fourth defendant via video link but if the court was minded to make an order of its own motion that the fourth defendant's evidence were to be given via video link, the plaintiffs would co-operate. He also submitted that by 10 March 2015, the plaintiffs wished to provide the court with a list of perceived shortcomings in the first and fourth defendant's discovery.[29] He submitted that the plaintiffs would seek an assurance from the fourth defendant that no point would subsequently be taken by the fourth defendant regarding the effectiveness of the administration of the oath.[30] He also submitted that both he and his instructing solicitor would wish to be present in Hong Kong to conduct the cross-examination of the fourth defendant and that the cost of this should be borne by the fourth defendant.[31] He requested the court to defer ruling on the s 42E Application to allow the second to fifth plaintiffs to put further material before the court in relation to the issues that had been raised.[32]

51 Having heard Mr Howells' submissions, Mr Glick submitted that he was no longer making the s 42E Application for the fourth defendant to give evidence via video link.[33] Thereafter, the following exchange took place between myself and Mr Glick:

His Honour: But I simply make this observation to you, Mr Glick that you were to seek to advance the proposition that here is the explanation for my client not giving evidence, that is her apprehension about coming back into the jurisdiction.

Mr Glick: Yes, Your Honour.

His Honour: I have indicated to you that I am mindful to grant an application for evidence to be given by video link. And on the basis of that indication, you should assume that little or no weight would be given to any submission, if you were minded to advance it, that no Jones v Dunkel inference was available because of there being a valid explanation for the witness giving evidence.

Mr Glick: I accept that.[34]

52 Consistent with the position set out above, the fourth defendant did not give evidence in the proceedings. The inferences, if any, to be drawn from her failure to do so are dealt with subsequently in this judgment.

Are the defendants liable to the plaintiffs for lawful means conspiracy?

53 The second to fifth plaintiffs' fifth amended statement of claim alleges that the first to fifth defendants are liable for conspiracy. The plaintiffs allege both lawful means conspiracy and unlawful means conspiracy. As to the former, liability requires the existence of an agreement between two or more persons to commit a lawful act with the predominant purpose of injuring or damaging the plaintiff, and that the act is carried out, and the purpose is achieved.[35]

54 In order to establish a lawful means conspiracy, the plaintiffs must establish that the defendants' desire to harm the plaintiffs is 'the sole, the true ... the dominating or the main purpose of the conspiracy'.[36] It will be fatal to a claim for lawful means conspiracy if it can be shown that the defendants were acting for the advancement, protection or defence of their own interests.[37]

55 Mr Howells submitted that if damage to the plaintiffs is an inevitable consequence of action taken by the plaintiffs to protect their own interests, this will suffice for the purposes of establishing intent to injure for lawful means conspiracy. He relied upon the judgment of Lord Sumner in Sorrell v Smith:[38]

When the whole object of the defendants' actions is to capture the plaintiff's business, their gain must be his loss. How stands the matter then? The difference disappears. The defendants' success is the plaintiff's extinction, and they cannot seek the one without ensuing the other. I trust that what has been said on this occasion will not be taken as conclusive of these questions should they ever arise.[39]

56 It is plain from the final sentence of the passage set out that Lord Sumner was not stating a principle of general application. In any event, the passage is not reconcilable with the weight of Australian authority. As Harrison J stated in Hamod, in order to establish a lawful means conspiracy, the alleged conspirators must 'have acted in order that, not with the result that, the plaintiffs should have suffered damage'.[40]

57 Accepting for the sake of argument that an inevitable consequence of the Donation Agreement was damage to the plaintiffs, this is not sufficient to make good the cause of action in lawful means conspiracy. The plaintiffs must establish that the Donation Agreement was executed in order that, not with the result that, the plaintiffs should suffer damage.[41]

58 I have no hesitation in concluding that the predominant purpose of the first to third defendants in executing the Donation Agreement was to advance the defendants' own interests by preserving the relevant properties within the Talacko family. The timing of the transactions in May 2009 strongly support this conclusion. At that time the hearing before Kyrou J was only five months away. Osborn J had already made a finding that the first defendant had breached the terms of settlement, thereby enlivening the plaintiffs' entitlement to equitable compensation. Further, his Honour concluded that the reason for the failure of the first defendant to execute the transfer of the Dresden properties 'was simply that he did not accept the plaintiffs were entitled, as a matter of fairness, to a transfer of the properties the subject of the terms.'[42] The Donation Agreement was underpinned by the same motivation.

59 On 30 April 2008, within days of Osborn J delivering judgment, Paul Talacko emailed Martin Hrodek, a Prague-based lawyer, including the following:

We have come to the conclusion that my cousin, Jan Talacko (formerly Travnicek) will never cease to seek new and innovative ways to initiate court proceedings against us. In order to protect ourselves from these incessant suits, we are considering the possibility of transferring some or all of my father's properties into a company limited by shares (Vćeśtiné, Akclova Spolecnost). We are considering the A.S. rather than an S.R.O., because of the added flexibility. In order to give ourselves extra protection, we have also considered the idea of having another company, possibly an offshore company owning the shares of the A.S. The purpose of this would not primarily be to minimise taxation, but rather to hide who has ownership and control of the properties.[43]

60 This email articulates a purpose of the mooted transaction 'being to protect ourselves from these incessant suits'. As events transpired, the assets were not transferred to a holding company. Rather, they were transferred from the first defendant to the second and third defendants. In spite of this, the motivation was the same: to preserve the properties within the Talacko family.

61 For the reasons set out above, and without considering whether other elements of lawful means conspiracy claim are made out, the plaintiffs' claim that the defendants are liable for lawful means conspiracy must fail.

62 The plaintiffs allege that the first to fifth defendants are liable for unlawful means conspiracy. An unlawful means conspiracy is an agreement or combination between two or more persons to commit an unlawful act with an intention to injure the plaintiff, and the act is carried out, and the intention is achieved.[44] There is a difference between lawful means conspiracy and unlawful means conspiracy in relation to the degree of intention required to establish the tort. In relation to both types of conspiracy, intention to injure or damage is an essential requirement.[45] However, for unlawful means conspiracy to be actionable, it is not necessary for the plaintiffs to establish that the sole purpose of the conspiracy is to injure the plaintiffs. It is sufficient that one of the purposes of the conspiracy is to injure the plaintiffs.[46] This requirement will be satisfied if it can be shown that the conspiracy and unlawful means were directed at the plaintiffs.[47]

63 Mr Howells submitted that the 'overarching motivation' of the defendants was to deny the plaintiffs any access to property that would satisfy their claims, including claims reflected in a judgment of the Supreme Court of Victoria.[48] Mr Howells contended that the plaintiffs' claims in both lawful and unlawful means conspiracy were underpinned by the Donation Agreement: 'we were about to get an assessment of what our fair compensation was, what the damages ought to have been for the breach of those terms of settlement, and at the eleventh hour before we got that assessment there was a fraudulent divestment of property aimed to deny us.'[49] Mr Howells submitted that in order to understand the defendants' motivation for the Donation Agreement it was necessary for the court to have regard to events which occurred prior to the signing of the terms of settlement in February 2001.[50]

64 The Donation Agreement lies at the heart of the plaintiffs' claim for unlawful means conspiracy. In order for that Agreement to support a finding that the first to fifth defendants committed the tort of unlawful means conspiracy, I must find:

(i) an agreement or combination between the first defendant to the fifth defendant;

(iii) with an intention to injure the plaintiffs; and

(iv) resulting in pecuniary loss to the plaintiffs.

An agreement between the first to fifth defendants?

65 An allegation that an individual is a party to a conspiracy to injure another by unlawful means is a very serious matter. If the plaintiffs are to succeed they must establish their case on the balance of probabilities. In determining that, the court may take into account the gravity of the matters alleged.[51] Mr Howells submitted that the conduct of the defendants denied the plaintiffs the fruits of the Kyrou J judgment and constituted an equitable fraud.[52] It is well established that clear, cogent or strict proof is necessary where so serious a matter as fraud is to be found. A court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.[53] I have approached the task of making findings of fact in respect of the serious matters alleged, taking account of these principles.

66 The allegation against the first to fifth defendants is that each was a party to an agreement. For the reasons which follow, I have concluded that as at May 2009, the first to the fourth defendant were parties to an agreement to deny the plaintiffs access to property which the plaintiffs could seek to encumber to satisfy a judgment debt or costs arising out of litigation. Such property was comprised of the assets in the Czech Republic, Slovakia and Germany which had been restituted to the first defendant. In addition, the property included the matrimonial home at 312 Glenferrie Road, Malvern ('the Glenferrie Road property').

67 I have concluded that the fifth defendant was a party to an agreement with the first to fourth defendants to deny the plaintiffs access to the Glenferrie Road property in 2000. At this time, the fifth defendant acted as a guarantor on a mortgage taken out by his mother over that property. He was also a party to such an agreement in January 2009 when he recommended that his father take out a mortgage over that property. However, in May 2009, at the time of the Donation Agreement, the fifth defendant was not a party to any agreement to deny the plaintiffs access to the properties which were the subject of the Donation Agreement.

The agreement between the first, second and third defendants

68 The first to third defendants were parties to an agreement in May 2009 to deny the plaintiffs access to properties which had been restituted to the first defendant and which could satisfy a judgment debt costs orders arising out of litigation in the Supreme Court of Victoria. The evidence in support of this conclusion is overwhelming. First, there is the Donation Agreement itself. The entry into the agreement by the first, second and third defendants was an overt act which had the effect of transferring out of the hands of the first defendant, assets which could have satisfied a judgment debt arising out of the proceedings before Kyrou J. Second, the timing of the disposition of the assets - some five months prior to the commencement of the trial before Kyrou J - is significant. In April 2008, Osborn J concluded that the first defendant's breach of the 23 February 2001 terms of settlement enlivened an entitlement to equitable compensation. The primary focus of the proceedings before Kyrou J was the determination of the quantum of that compensation. Third, within two days of Osborn J's judgment, the third defendant sought advice from a Prague-based lawyer, Martin Hrodek, to which reference has already been made. Although the Donation Agreement did not involve the transfer of properties to a company, it plainly had the same purpose as the mooted disposition of the properties to a holding company: to take the assets out of the reach of the plaintiffs and to preserve the wealth embedded in those properties within the immediate family of the first defendant.

69 On 11 May 2009, Pavel Vrany, a lawyer with Baker & McKenzie in Prague, provided the following advice to the first defendant regarding the transfer of properties owned by him in Germany and Slovakia:

As regards to the potential exposure to criminal liability, we are not convinced that your comments would entirely eliminate the remaining risk. The existence of a pending law suit which may result in a judgment that could be enforced in Germany suffices within the meaning of sec. 288 of the German Criminal Code ('St GB'). From the prospective of the German Criminal Code, it is immaterial where the law suit is pending and whether the property in question is the subject-matter of the proceedings. As regards to the Slovak Criminal Code, the existence or non-existence of a pending litigation is not relevant as well - the question is whether your creditors had a claim vis-à-vis you and the satisfaction of their claim was threatened or frustrated. You may of course argue that you did not act with the intent of obstructing the satisfaction of your creditors but we would certainly recommend documenting the intentions and background of the transaction to minimise the risk of potential criminal liability.[54]

70 Notwithstanding this advice, the first defendant entered into the Donation Agreement the very next day. That Donation Agreement included the purported transfer of properties in Slovakia. The potential for criminal liability under the Slovak Criminal Code was a matter expressly canvassed in the legal advice.

71 Further, the Donation Agreement constituted a disposition of assets of the first defendant which was inconsistent with assurances given by the first defendant's counsel and by way of affidavit, that there was no risk that the first defendant would take any steps to dispose of the properties. The disposition of the properties and the receipt thereof by the second and third defendants was in brazen disregard of these assurances.

72 On 20 June 2008, Mr Berglund QC, appearing for the first defendant, submitted to Osborn J that the first defendant had 'no intention of disposing of the (Czech) assets'.[55]

73 On 13 June 2008 in the 1998 Proceedings, the first defendant filed an affidavit in which he stated:

I am also advised by my Czech lawyers and believe that if I did not appeal the injunction order - which was an order made ex parte and solely on material filed by the plaintiffs, then those injunctions would remain for the duration of the Czech proceedings which may be for a term of several years. Although I have absolutely no intention of selling or encumbering any of the properties, on the advice of my Czech lawyers and for reasons set out in the appeal document I gave instructions for the ex parte order to be appealed.[56]

74 On 9 September 2008 in the 1998 Proceedings, the first defendant filed an affidavit which included the following statement:

My sole intention with respect to the properties is to continue to rehabilitate and modernise them to a comparable state to which they were prior to them being forcibly taken from my parents. I have no intention of selling, disposing, encumbering or in any other way dealing with the properties other than in the normal course of letting some of them out on normal commercial terms where that is permitted.[57]

75 Dr Alexandra Bennett is the second plaintiff. She gave evidence that on 14 August 2008 the plaintiffs made an application in the 1998 Proceedings seeking a freezing order over the first defendant's assets, including the Czech properties, the Sucha land and the Dresden properties. Dr Bennett gave unchallenged evidence that she, along with the other plaintiffs, refrained from proceeding with their application for Mareva relief at the time because of the representations made by the first defendant to the court that he had no intention to sell or dispose of the Czech properties, the Sucha land or the Dresden properties.

76 Given is the weight of evidence, it is unnecessary for me to have recourse to the principle in Jones v Dunkel[58] to support the finding that I have made that the first, second and third defendants conspired to deny the plaintiffs access to the properties restituted to the first defendant, and they did so with an intention to injure the plaintiffs. Nevertheless, I have no hesitation in concluding that had the second and third defendants given evidence in the current proceedings, such evidence would not have assisted their defence of the allegations against them.

The agreement between the fourth defendant and the first to third defendants

77 The fourth defendant married the first defendant in 1963. In approximately 1968, they purchased the Glenferrie Road property as joint tenants. In or about September/October 1998, the first defendant transferred his interest in the Glenferrie Road property to the fourth defendant for love and affection. The plaintiffs seek to set aside this disposition pursuant to s 172 of the Property Law Act 1958 (Vic) ('Property Law Act'). I shall deal with that application subsequently in this judgment.

78 From the early 1990s until mid-2009, the first defendant spent significant periods of time residing in Prague. In the first instance this was for the purpose of satisfying the necessary residence and citizenship requirements for obtaining restitution of the properties which had been seized by the State.

79 Consistent with the extended periods of time they were separated, there are many emails between the first and fourth defendants and other members of the Talacko family. Many of these emails involve lengthy discourses on matters of no relevance to the issues which fall for determination by me. However, there are emails which are highly relevant to the question of whether the fourth defendant was a party to the alleged conspiracy with her husband and three sons.

80 Mr Glick opened his defence on behalf of the fourth defendant by submitting that the high point of the evidentiary case against her was that she had 'acquiesced' in an agreement between the first, second and third defendants to transfer ownership of the first defendant's assets in the Czech Republic by way of the Donation Agreement. Mr Glick submitted that acquiescence is insufficient to sustain a finding that the fourth defendant was a party to the alleged conspiracy with the first to third defendants.[59] However, during final submissions, Mr Glick conceded that the evidence in respect to the fourth defendant 'probably' went beyond acquiescence.[60] Nevertheless, he submitted that the highest that could be put against the fourth defendant was that she 'assisted the conspiracy without being a party to the conspiracy.'[61] Mr Glick submitted that the fourth defendant's assistance was limited to her role in 'ministerially' forwarding correspondence to other family members.[62]

81 Mr Glick conceded that the evidence supported a finding that subsequent to 1997, the fourth defendant had consistently supported the course of keeping assets out of the reach of the plaintiffs.[63] Mr Glick submitted that whilst the fourth defendant may have been 'clapping', there was no evidence to support a finding that she participated in the agreement for the first to third defendants to enter into the Donation Agreement.[64]

82 In April 2009, the fourth defendant organised a Skype conference call, involving herself and the first, second, third and fifth defendants. The only direct evidence regarding this Skype call was given by the fifth defendant. His evidence was that the purpose of the call was to discuss the possibility of the first defendant transferring his Czech properties to the second and third defendants.[65] I shall set out my findings in relation to this Skype call in detail in the section of this judgment relating to the allegations against the fifth and sixth defendants. For present purposes, it is sufficient to record my finding that although the fourth defendant organised and initiated the Skype call, there is no evidence that she made any contribution to the discussion between the first, second, third and fifth defendants regarding the mooted Donation Agreement.

83 Mr Glick placed considerable weight upon the absence of any evidence of the fourth defendant having participated in the Skype call. He submitted that there was no evidence before the court which could sustain a finding or permit an inference to be drawn that the fourth defendant was a party to a combination with one or more of the defendants, the purpose of which was to thwart the legitimate claims of the plaintiffs. He further submitted that in the absence of direct evidence of the fourth defendant having been a party to such a combination, no adverse inference could be drawn that had the fourth defendant given evidence, such evidence would not have assisted her defence.

84 In advancing this submission, Mr Glick correctly submitted that the rule in Jones v Dunkel cannot be employed to fill gaps in the evidence, or to convert conjecture and suspicion into inference.[66] No inference can be drawn unless evidence is given of facts 'requiring an answer'.[67]

85 Contrary to Mr Glick's submission, there is direct evidence which supports the conclusion that the fourth defendant was a party to an agreement with the first to third defendants that the first defendant would transfer ownership of his Czech properties to the second and third defendants by the vehicle of the Donation Agreement. That agreement was executed on 12 May 2009. However, the registration of the property transfers did not occur until late July 2009. On 17 June 2009, Michael Witt, the first defendant's solicitor in the equitable compensation proceedings, sent an email to the first and fourth defendants in the following terms:

Dear Jan and Judy,

Further to our phone call this morning, attached are some extracts from the Czech Civil Code which, although they do not go as far as you thought, do support what you are saying. I have provided a copy of these to Russell and Daryl and asked them to consider whether they feel that Jan should sign an affidavit stating that he was gifting the properties to the boys in order to avoid Czech inheritance law.[68]

86 The reference to 'Russell and Daryl' is a reference to Russell Berglund QC and Daryl Williams, the counsel who were representing the first defendant in the equitable compensation proceedings which were due to be heard by Kyrou J in October 2009.

87 This email is direct evidence that the first and fourth defendants proposed to Mr Witt that an affidavit be prepared giving a false explanation for the Donation Agreement, deposing that the first defendant was gifting the properties to the second and third defendants in order to avoid Czech inheritance laws. This is not a case of the fourth defendant merely acquiescing in a course of action undertaken by the first defendant. Rather, the email supports a finding that both the first and fourth defendants had jointly proposed a false explanation for the Donation Agreement. Whilst the email post-dates the Donation Agreement by approximately one month, it is contemporaneous with that transaction. Further, the email pre-dates the transfer which was completed in late July 2009.

88 The email of 17 June 2009 constitutes direct evidence of common purpose. It is therefore unnecessary to have recourse to the principles in Jones v Dunkel for the purpose of drawing an adverse inference against the fourth defendant arising from her failure to have given evidence in the proceeding. Nevertheless, the email is properly characterised as evidence of facts 'requiring an answer.' In circumstances where the fourth defendant has failed to give evidence without providing a satisfactory explanation for doing so, I infer that had the fourth defendant given evidence regarding the email of 17 June 2009, such evidence would not have assisted her defence.

89 As noted earlier in this judgment, Mr Howells contended that the conspiracy alleged by the plaintiffs arose out of the first defendant's breach of the February 2001 terms of settlement. Nevertheless, Mr Howells submitted that the conduct of the defendants prior to February 2001 was relevant to the question of whether they had a common purpose of depriving the plaintiffs of access to any property within the Talacko family, which could be used to satisfy a judgment debt arising out of the equitable compensation proceedings.[69] I accept this submission.

90 During the proceedings before me, a considerable amount of evidence was led regarding a $400,000 loan taken out by the fourth defendant in May 2000 and secured by a mortgage over the Glenferrie Road property ('2000 mortgage'). The fifth defendant was the guarantor of the loan. The third amended statement of claim was filed and served by the plaintiffs on 30 September 2014. Paragraph 15A thereof pleads:

Further to paragraph 15 hereof from at least March 2000 the first to fifth defendants communicated amongst themselves discussing ways in which they might defeat the claims of the Plaintiffs by encumbering 312 Glenferrie Road Malvern and by transferring the Properties to entities or persons beyond the jurisdiction of this Court and by concealing the manner in which this was to be done and the reasons for which it was being done.

In pursuit and furtherance of the conspiracy pleaded in sub-paragraph 16D hereof the First and Fourth Defendants did the following overt acts

....

(h) in or about 2000 the fourth defendant took steps to encumber 312 Glenferrie Road Malvern.

92 Mr Glick accepted[70] that from the receipt of the third amended statement of claim on 30 September 2014, the fourth defendant was subject to an obligation to discover bank statements and taxation records to the extent that such statements disclosed details of the repayment of the principal of $400,000 of the 2000 mortgage and the source of that payment. No such documents were discovered. I shall deal with the consequences of the fourth defendant's failure to meet her discovery obligation below. However, in the first instance it is necessary to set out in some detail the relevant exchanges between the fourth defendant and other defendants relating to the 2000 mortgage and the guarantee thereof by the fifth defendant.

93 On 29 March 2000, the fourth defendant sent an email to the first, second, third and fifth defendants in the following terms:

Dearest Tato and Angels,

Just spoken to David F. re. taking a mortgage again. He is really adamant about doing it ASAP so that you can easily be declared bankrupt and should we lose then there is no worry about them getting anything. David said it can't be traced as gratuity because the house is in my name now anyway and I am fee (sic) to do with the money what I like. So I can take a mortgage to pay off debts elsewhere. He says they can touch nothing if it is that way. He wants to have a chat with Pete and me about this during the week. I shall try to get Pete to give us a moment even if it might be at midnight but David said that is fine... His feelings about the mortgage are that if it goes foul and the chips fall the wrong way then we don't have to care at all. I guess he has a point.[71]

94 The reference to 'Tato' is a reference to the first defendant. The reference to 'David F' is a reference to David Findlay, the solicitor acting for the first defendant in the 1998 Proceedings which were scheduled to commence in February 2001.

95 On 5 April 2000, the first defendant sent an email to the fourth defendant, copied to the second, third and fifth defendants which included the following:

Dearest Dodo,

I am in favour of that mortgage. It is very difficult to get good interest rates here on foreign currency as I would be holding them as a Czech citizen. To illustrate, I only get 1.5% for the US dollars I hold here with Peter (?).

I think the best bet would be to send it to Nicky's account and she should be able to park it on the Isle of whatever as we would get a much better interest there.

Also if possible the mortgage should only be for a short period, say three years, with option of early repayment.

If necessary I will get a sterling or U.S. dollar account here and then return the money to the Island anyhow as I would not want it to be here for a long time.[72]

96 It is not in dispute that the reference to 'Dodo' is a reference to the fourth defendant. The reference to 'Nicky' is a reference to Nicole Talacko, the daughter of the first and fourth defendant who is not a party to the current proceedings

97 On 6 April 2000, the first defendant sent an email to the fourth defendant, copied to the second, third and fifth defendants. The email included the following:

Dearest Dodo,

I visited my friendly bankers and ascertained that I can have an account here in Australian dollars. I will open one tomorrow or on Friday. I will give you a number when I get one, and the Bank of Melbourne can send the money straight to that account.

I will then transfer the sum received to a term account. The interest rate for Australian dollars are at present as follows:

1 month 4.47%, 3 months 4.74%, 6 months 5.02%, 12 months 5.45%.

This is I realized for amounts under $10 000. Over $50 000 the interest rates are as follows:

1 month 4.86%, 3 months 5.13%, 6 months 5.41%, 12 months 5.84%.

It will thus remain in Australian dollars. It is possible to transfer your signature to this new account, as I've found out, so you will have access to this account as well.

I think that this is a wonderful solution as we will not have any risks as far as foreign exchange rate is concerned. I will naturally arrange for interest to be paid for you one way or the other.

What amount to (sic) we want to raise as mortgage ? I thought $350 000 should be plenty as there is restrictive ownership as you are the owner of the rest anyhow.[73]

98 On 7 April 2000, the first defendant sent an email to the fourth defendant copied to the second, third and fifth defendants. It included the following:

Dearest Dodo and the young adults,

I have gone to the bank today and opened two AUD accounts.

One is a current account and that one can accept transactions. This one has no interest but incurs monthly charges. I have given you that number already. The other one is a term account. It now has a small sum in, about $2000 renewable monthly term. This is so that the money can be invested as soon as possible when received (time required would be under 30 days) and we can decide for how long when we want to invest it.

This was relatively painless. Now as far as the amount of the mortgage is concerned there is no need to overdo it. Perhaps 300 or 325 should be enough as you are buying from your husband, but better check with Peter.[74]

99 On 17 April 2000, the fourth defendant sent an email to the first defendant copied to the second, third and fifth defendants. It included the following:

Dearest Tato and Genii,

...To the other matter of the loan. The house has been valued at $950 000, this valuation is usually 20% below the market price so that gives you an idea of its worth. I have spoken to my mate Craig at Bank of Melbourne and all is ready for the papers to be signed etc. I just need to confirm with you the exact sum. In view of the valuation and to make things look correct and in order I think we should stick to the suggested $400 000. I am to confirm this first thing tomorrow so I need a reply tonight PLEASE. The transfer should be ready to go through during next week sometime. We do have Easter in between.[75]

100 On 5 May 2000, the fourth defendant sent an email to the first defendant. This email was the subject of a claim for legal professional privilege which was upheld. Most of the email has been redacted. However, an unredacted part of the email includes the following:

PS Pete's comments about payments of the loan are right too. What do you think of the idea of getting it paid into Findlay Trust Account? Should I ask David about it on Monday?[76]

101 On 10 May 2000, the fourth defendant sent an email to the first defendant, copied to the second, third and fifth defendants. Again, this email was the subject of a successful application for redaction based on legal professional privilege. The unredacted component of the email is in the following terms:

I also talked about the interest payment coming to OZ. He said they will talk about it and work out what is best. Paying it to their Trust account is fine but getting it to me from there may need some organising. I told him otherwise I may end up in prison and then we shall have a new problem on our hands. He thought that was very funny. I get on quite well with Michael now and I usually end up having him in hysterics. No point in being miserable about all this idiotic rot that we have been forced to go through.[77]

102 The reference to 'Michael' is a reference to Michael Witt, a solicitor employed by Findlay Arthur Phillips, the firm of solicitors acting for the first defendant in the 1998 Proceedings.

103 On 16 May 2000, the fourth defendant sent an email to the first defendant copied to the second, third and fifth defendants. It included the following:

Dearest Tato and Angels,

You will be pleased to hear that the loan has been approved today and the appropriate papers couriered to Pete and then on to me tomorrow. The transfer should be through by the end of the week. Pete is concerned that he is indebted from now on. I said 'yes but someone else will pay his interest for him'. The interest rate is not crash hot because, as luck would have it, they have just gone up. I shall be paying 7.2% which is horrific. Hope that the invested money at the Prague end can get something close to this. Let's hope this nonsense need not be for too long. I really don't like this borrowing at all.[78]

104 On 17 May 2000, the first defendant emailed the fourth defendant, copied to the second third and fifth defendants. It included the following:

Good news about the loan that it has been processed. One cannot expect to get more in interest here than one has to pay in OZ. This is the penally (sic) and reality of the case.[79]

105 On 17 May 2000, the fourth defendant sent an email to the first defendant, copied to the second, third and fifth defendants which included the following:

Dearest Tato and Genii,

... It's utter madness and I hate everything about this loan (so does Pete, he never believed he would be reduced to this position) and now this, which is the LAST STRAW. All this money to be chucked down the drain. Vermin are really scum...

Finally, the documents are signed the interest rate is a little better than I quoted yesterday 7.05%. Hopefully we won't have to suffer this for too long. I handed over the Title and so Vermin will now have to take on the bank if they want this property or compensation because you don't own it anymore.[80]

106 The reference to 'Vermin' is a reference to the plaintiffs in the 1998 Proceedings, who are also the plaintiffs in the current proceedings.

107 On 13 July 2001, the fourth defendant sent an email to the first defendant, copied to the second, third and fifth defendants which included the following:

Dearest Tart and Family,

...Artistry rang and they have finally contacted the client for the big paintings. They are to be collected and go for review on Monday. I shall be pleased to have them out of the way. Fingers crossed that he will be a happy chappy. Then I can look forward to some income to cover my mortgage payments as the funds are running low and income sparse.[81]

108 The contents of the emails referred to above support the following findings of fact:

(i) the Glenferrie Road property was mortgaged by the fourth defendant in May 2000 as security for a loan of $400,000 with an interest rate of 7.05% per annum;

(ii) the timing of the mortgage coincided with the lead up to the proceedings which were subsequently heard by Ashley J in February 2001;

(iii) David Findlay, the lawyer acting for the first defendant in the 1998 Proceedings, advised the fourth defendant that a mortgage should be taken out over the Glenferrie Road property so that the first defendant could be easily declared bankrupt. He also advised that the plaintiffs would not be able to access any funds raised by way of a mortgage;

(iv) the $400,000 secured by the mortgage was transferred to an interest bearing bank account established by the first defendant in Prague;

(v) the first defendant assured the fourth defendant that he would arrange for interest to be paid for the fourth defendant 'one way or the other';

(vi) the first and fourth defendants gave consideration to paying the interest payments on the loan from the moneys deposited in the Prague account into the trust account of Findlay Arthur Phillips, and for the moneys to then be forwarded onto the fourth defendant; and

(vii) throughout 2000 and 2001 the fourth defendant had limited income such that it would be unlikely that she would have had the capacity to repay the $400,000 loan by early 2002. In this regard, it is to be noted that the sixth defendant gave evidence that she was advised by the fifth defendant in January 2002 that the loan had been repaid.[82]

109 From 30 September 2014, the fourth defendant was placed squarely on notice that the plaintiffs would rely upon the fourth defendant's conduct in taking out a mortgage over the matrimonial home in May 2000 as evidence of her common purpose with the other defendants to deny the plaintiffs access to a property which could satisfy a judgment debt. If there was documentary evidence which established that the $400,000 loan or any part thereof, was repaid by either the first, second or third defendants such evidence would be relevant to the existence of the alleged common purpose between the fourth defendant and the first to third defendants.

110 The fifth and sixth defendants both gave evidence regarding the motivation of the fourth defendant for taking out the mortgage. The fifth defendant gave evidence that the fourth defendant was terrified that she was going to lose her house as the result of the litigation which was scheduled to commence in February 2001.[83] In or about September/October 1998, the first defendant had transferred his interest in the Glenferrie Road property to the fourth defendant for love and affection. The fifth defendant gave evidence that the purpose of the 2000 mortgage was to raise funds to allow the fourth defendant to purchase her husband's share in the matrimonial home for good consideration. The sixth defendant gave evidence that she had been told by the fourth defendant that the fourth defendant wanted to 'validate' the transfer which had occurred in late 1998.[84]

111 The evidence given by the fifth and sixth defendants is consistent with the fourth defendant's statement in her email of 17 May 2000: 'I handed over the Title and so Vermin will now have to take on the bank if they want this property or compensation because you don't own it anymore.' This statement is consistent with the fourth defendant having an appreciation that the first defendant may not have divested himself of his interest in the matrimonial home by the October 1998 transfer, and that the property might still be at risk as a consequence of the proceedings which were scheduled to commence in early 2001.

112 As the fourth defendant did not give evidence, the plaintiffs were denied the opportunity to cross-examine her regarding the matters set out above. Further, the failure of the fourth defendant to discover her tax returns and bank statements for the period 2000 to 2002 meant that the plaintiffs were denied access to documents which were relevant to the capacity of the fourth defendant to have repaid the loan from her own resources. The failure of the fourth defendant to have made discovery of these documents constitutes a serious breach of her discovery obligations. No satisfactory explanation has been provided for this breach. For a period of five months prior the commencement of the trial on 2 March 2015 the fourth defendant was squarely on notice that the plaintiffs were alleging that the purpose of the mortgage on the Glenferrie Road property was to defeat the claims of the plaintiffs in the litigation which was pending.

113 Section 56(2) (h) of the Civil Procedure Act 2010 (Vic) provides that if a court finds that there has been a failure to comply with discovery obligations it may make any order or give any direction it considers appropriate in respect of any adverse inference arising from the failure. I did not make any order arising out of the failure of the fourth defendant to comply with her discovery obligations. Each of the sub paragraphs of s 56(2), save for s 56(2) (h), is amenable to an order or direction, however, s 56(2) (h) is not. The power to 'make an order or give directions' in respect of any adverse inference arising from a failure to comply with discovery obligations should be read as conferring upon the court the power to record a finding of an adverse inference in a judgment. If this construction is not adopted the provision would be rendered nugatory.

114 Absent s 56(2) (h) of the Civil Procedure Act, it is well-established that where a party fails to comply with court orders for production of evidence such failure can constitute an implied admission or circumstantial evidence permitting an adverse inference.[85] I infer that had the fourth defendant provided discovery of taxation and financial records for the period 2000 to 2002 such records would not have advanced the fourth defendant's defence of the allegation that in entering into the 2000 mortgage, the fourth defendant had a common purpose with the first to third defendants of seeking to take the Glenferrie Road property out of the reach of the plaintiffs.

115 Mr Glick submitted that little, if any, weight could be placed upon the 2000 mortgage because it pre-dated the May 2009 Donation Agreement by some nine years. I do not accept this submission. Whilst the 2000 mortgage and the Donation Agreement were separated by nine years both were entered into shortly before the commencement of a trial with the potential to impose a significant financial burden upon the first defendant. Once the 2001 proceedings were settled, the risk of the plaintiffs pursuing the first defendant's assets to satisfy a judgment debt abated. That risk was not rekindled until 28 April 2008 when Osborn J made a finding that the first defendant had breached the terms of settlement. Within two days of that judgment, the third defendant sought legal advice as to how to take the first defendant's assets out of the reach of the plaintiffs. Notwithstanding the significant passage of time, I have no hesitation in concluding that in respect of both the 2000 mortgage and the Donation Agreement, the first to fourth defendants were motivated by exactly the same purpose: that of seeking to take the first defendant's assets out of the plaintiffs' reach.

116 I am fortified in reaching the conclusion set out above by the contents of emails sent and received by the fourth defendant throughout the period subsequent to the discharge of the mortgage. The contents of these emails demonstrate unequivocally that at no point did any of the first to fourth defendants resile from their common purpose of preventing the plaintiffs from accessing any of the first defendant's property.

117 On 12 February 2002, the fourth defendant sent an email to the first defendant, copied to the second, third and fifth defendants, which included the following:

Dearest Tart and Wonders,

I wouldn't be too fazed about Tom's email. I think they are too disinterested and too lazy to plan things with Liska to check you out or the like. Of course they would like some money for nothing but they are just like Vermin and have no intention of doing anything to contribute to getting it. In fact I think they are even too lazy to reply to your notes. If they are too lazy for that you can't believe they are organising suspicious meetings behind your back. Having said all that, I could be wrong. If I am, I am deeply disappointed. The Vermin behaviour (or lack of) is unreal. Thinking about Dresden, it is impossible to understand why they didn't at least get that into their hands through the year.[86]

118 On 27 April 2002, the first defendant sent an email to the fourth defendant, copied to the second, third and fifth defendants which included the following:

My Dearest Dodo,

...During the day I changed the proposed letter of Appeal to Pozemkovy urad and Mestsky soud which had to be sent this afternoon. I will need 1. the current address of Helen's (please Dodo look in the phone book) and 2. the appointment of Anna as Guardian and 3. the Statement of the Court that approved the Agreement.

I have the terms of settlement which I can eventually use once they are translated.

All this is of course is a delaying tactic to gain time for my actions if they become necessary.[87]

119 On 24 September 2002, the fourth defendant sent an email to the first defendant, copied to the second, third and fifth defendants which included the following:

Dearest Tart,

Fancy Vermin making an expedition to Slovakia. How very odd. They perhaps wanted to survey all that they think will be theirs. They are probably already totting up some mountains of $'s from the sale even though they have done nothing to try to transfer it. It's all very weird to waste time looking at it and not spend time doing the required details. What a weird mob

120 On 1 October 2003, the first defendant sent an email to the fourth defendant, copied to the second, third and fifth defendants which included the following:

My dearest Dodo,

...I eventually read the letter from Vermin lawyer Svovoda. It is rather interesting. I will have it copied tomorrow and will send a copy in England, Australia (Dodo and me) and to Peter and give one to Dave here. I did not study it completely but the bundle consists of at least 23 pages and will have cost a lot of money to prepare...

As in the past Vermin are 'coming with a cross after the funeral' - that is the Czech way of saying that they missed the bus.[89]

121 On 30 January 2004, the fourth defendant sent an email to the third defendant. This email was subject to a successful claim for legal professional privilege. The unredacted component of the email is in the following terms:

The Vermin saga continues with one foolish act following another. One wonders what the next trick might be. It all seems so very odd to me that 3 years down the track since settlement and suddenly it is, 'sign quickly and do as we say.' Maybe Helen is about to kick the bucket and they have hit panic stations. It seems that with Dresden the Sydneysiders arranged one thing and then Vermin 1 had to stick his bib in and organized Bunnett and translation in Melbourne. Anyway, they're all insane. It's a bit of a laugh about Repy now. Now they (V) might realise how hard everything is, assuming that they even know anything about that bit.[90]

The reference to 'Bunnett' is a reference to the solicitor who was acting for the plaintiffs in 2004. The reference to 'Vermin 1' is a reference to the first plaintiff in the 1998 Proceedings and the current proceedings.

122 Although there is no evidence that the fourth defendant actively participated in the April 2009 Skype conference call, she shared a common purpose with the first to third defendants to transfer the Czech properties from the first defendant to their sons in order to take those properties out of the reach of the plaintiffs in the pending equitable compensation proceedings. In reaching this conclusion I have taken into account the refusal of the fourth defendant to give evidence in the current proceedings, notwithstanding that she was afforded the opportunity to do so by way of video link.

123 In Chong and Neale v CC Containers Pty Ltd and Ors,[91] the Court of Appeal stated:

In Dilosa v Latec Finance Pty Ltd [No.2], Street J recognised that where the absent witness is a party then considerable importance may well attach to the inference that nothing which the party could say would assist his or her case. As Gleeson CJ said in Azzopardi, the judgments in Weissensteiner recognised that the inference that may be drawn from the silence of a party to civil litigation may be significant. Santow J drew such an inference in ASIC v Adler because the parties who were available and not called had a personal involvement in the transactions in question. Where a party elects not to give evidence "the court is entitled to be bold". As Heydon, Crennan and Bell JJ stated in Kuhl v Zurich Financial Services Australia Ltd, the rule has a particular application where it is the party which is the uncalled witness and may permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn.[92]

124 In circumstances where no satisfactory explanation has been provided for the failure of the fourth defendant to give evidence, coupled with her breach of her obligations of discovery, I am entitled to draw, with greater confidence, the unfavourable inference that had the fourth defendant given evidence in the current proceedings, such evidence would not have assisted her defence of the allegation that she was a party to an agreement with the first to third defendants during the period 2000 through to, at least, May 2009 to take the Talacko family property out of the reach of the plaintiffs. In reaching this conclusion I have had regard to the following matters:

(i) the emails forwarded by the fourth defendant to other family members openly express her contempt for the plaintiffs and their legitimate aspirations to obtain a share of the properties in accordance with the February 2001 terms of settlement;

(ii) the steps which were taken by the fourth defendant in April 2000 to mortgage the Glenferrie Road property, in particular her express statement that she handed the Title over to the bank 'so Vermin will now have to take on the bank if they want this property or compensation because you don't own it now'; and

(iii) the direct evidence of the fourth defendant and the first defendant jointly proposing an explanation to Michael Witt for the Donation Agreement of May 2009, which was false.

Did the fifth defendant have a common purpose with the first to fourth defendants of taking property out of the reach of the plaintiffs?

125 Peter Talacko and Amanda Fisher were joined as the fifth and sixth defendants in late September 2014. The claims against the fifth defendant mirror the claims against the first to fourth defendants. The claim against the sixth defendant is confined to a claim pursuant to s 172 of the Property Law Act. If the claims against the fifth defendant are not made out, the claim against the sixth defendant falls away.

126 Whilst he was joined to the proceedings as a defendant in September 2014, the fifth defendant's involvement in the current proceedings dates back to September 2013 when he was served with a subpoena for production of documents. The fifth defendant produced a substantial volume of emails in response to the subpoena. Many of the emails relied upon by the plaintiffs, which are referred to earlier in this judgment, were produced by the fifth defendant in compliance with the September 2013 subpoena.

127 I have set out earlier in this judgment my finding that the first to fourth defendants, from at least 2000 until May 2009, shared a common purpose of taking property out of the reach of the plaintiffs. The Donation Agreement was the critical transaction in giving effect to this purpose. It took properties out of the first defendant's hands and placed them in the hands of the second and third defendants shortly before the commencement of the equitable compensation proceedings in October 2009 which resulted in a significant order for equitable compensation in the plaintiffs' favour. The Donation Agreement was the overt act which gave effect to the common purpose of the first to fourth defendants. Unless the fifth defendant shared the common purpose with the first to fourth defendants as at May 2009, the claims against him in conspiracy must fail.

128 I have concluded that the fifth defendant did share the common purpose with the first to fourth defendants in May 2000 of taking the Glenferrie Road property out of the plaintiffs' reach. However, in April 2009 when the first to fourth defendants were actively considering disposing of the first defendant's Czech properties to the second and third defendants, the fifth defendant did not share a common purpose of taking the Czech properties out of the plaintiffs' reach.

129 The fifth defendant's evidence relating to the circumstances in which he came to act as guarantor in respect of the 2000 mortgage is as follows. In early 2000, his mother was very concerned about losing her home. The fourth defendant wanted to legitimise the October 1998 transfer of the first defendant's interest in the house by paying him for it.[93] The fourth defendant had approached a bank which would not lend her money because of her irregular income. The fourth defendant begged the fifth defendant to be the guarantor of the loan.[94] I accept this evidence. However, it cannot be viewed in isolation. It must be considered in the context of the pending proceedings in the Supreme Court of Victoria. Those proceedings had commenced in October 1998. At or about that time the first defendant transferred his interest in the Glenferrie Road property to the fourth defendant for 'love and affection'. The fourth defendant's subsequent desire to 'regularise' or 'validate' the October 1998 transfer was borne of her concern that the transfer of the first defendant's interest might be challenged because it was not for good consideration.

130 There is a direct nexus between the fourth defendant's desire to shore up the October 1998 transfer and her apprehension that the matrimonial home could be at risk as a consequence of the proceedings scheduled to commence in February 2001. The object of the mortgage was to take the family home out of the plaintiffs' reach by making good the transfer of the first defendant's interests in the property to the fourth defendant. The fifth defendant played a critical role in facilitating this by agreeing to be the guarantor on the loan, while aware that his mother intended (among other things) to harm the plaintiffs by it. The fifth defendant's motivation of helping his mother in no way precludes a finding that he also shared with her the purpose of taking the Glenferrie Road property out of the reach of the plaintiffs. If the fifth defendant did not share this purpose, of which he was aware, he could simply have refused to act as guarantor of the loan.

131 The plaintiffs do not contend that the 2000 mortgage constituted a standalone conspiracy, and nor could they. The mortgage was discharged by early 2002. The plaintiffs sustained no pecuniary loss as a consequence of the mortgage.

132 The fact that in April 2000 the fifth defendant shared a common purpose with the first to fourth defendants of taking the Glenferrie Road property out of the reach of the plaintiffs does not dictate a finding that in 2009 he similarly shared a common purpose with the first to fourth defendants that the first defendant's properties in the Czech Republic should be gifted to the second and third defendants. It is one thing for the fifth defendant to have been sympathetic to his mother's desire to preserve the matrimonial home; it is quite another thing for the fifth defendant to have shared a common purpose of supporting the transfer of the Czech properties to the second and third defendants.

133 There are a number of significant differences between the 2000 mortgage and the Donation Agreement. First, the properties which are the subject of the Donation Agreement were the very same properties which were the subject of the equitable compensation proceedings which were heard in October 2009. In contrast, the Glenferrie Road property was not the subject of those proceedings, albeit that if the first defendant had retained an interest in the property it would have been part of his estate in the event of bankruptcy flowing from non-satisfaction of any judgment debt. Second, there is the practical consideration that the fifth and sixth defendants were in the jurisdiction of the Supreme Court of Victoria. The fifth defendant gave evidence that in mid-2009 he was told by his mother that the plaintiffs had become aware of the Donation Agreement and that 'all hell had broken loose'. His evidence was that he replied that he was 'not effing surprised.'[95] Indeed, it is hardly surprising that 'all hell broke loose'.[96] Unlike the second and third defendants (who were permanently based in Prague), the first defendant (who spent the majority of his time in Prague) and the fourth defendant (who had the freedom to travel overseas as she saw fit), the fifth and sixth defendants did not have the luxury of simply leaving the jurisdiction. Their work and family commitments meant that they were firmly rooted in the Victorian jurisdiction. When the backlash from the Donation Agreement occurred (which included the arrest and detention of the first defendant and a raft of interlocutory proceedings) it was inevitable that by reason of the fifth defendant being in the jurisdiction, he would be directly affected. It is inherently unlikely that in April 2009, when first appraised of the prospect of the transfer of the Czech properties from the first defendant to the second and third defendants, that the fifth defendant would have warmly embraced this suggestion.

134 Quite apart from these contextual matters, the evidence of the fifth defendant that he did not support the Donation Agreement is compelling. In about April 2009, the fourth defendant contacted the fifth defendant to arrange a Skype conference call. The first to fourth defendants participated in the call, although there is no evidence that the fourth defendant said anything. It was during this call that the fifth defendant became aware for the first time that the first defendant was intending to transfer the Czech properties to his brothers. The fifth defendant's evidence is that upon hearing about the proposed transfer he:

pushed back on the idea and suggested that it was a 'bad idea';[97]
was 'talked over' by his brothers and father;[98]
became angry and said 'well, if you're really serious about doing this, I want nothing to do with it', and 'no Czech money can ever come to me'.[99]
hung up on the Skype conversation and stormed out of the study.[100]

135 In one significant respect, the fifth defendant's evidence as set out above, was corroborated by the sixth defendant. The sixth defendant gave evidence that during the Skype call she was in the kitchen, only metres away from the study where the fifth defendant was on the call. Her evidence was that she heard the fifth defendant shout words to the effect 'if you are going to do this I want nothing to do with it.'[101]

136 The sixth defendant was an impressive witness. She gave her evidence in a clear and forthright manner. There was no attempt on her part to embellish her evidence. Her corroboration of the fifth defendant's evidence of the Skype conversation was not challenged.

137 Mr Howells submitted that the fifth defendant was an unimpressive witness and that no weight could be placed on any of his evidence, including his account of what was said during the Skype call. It is true that when questioned about the contents of emails which he had received from family members, the fifth defendant displayed a poor recollection of the matters canvassed in the emails. However, poor recollection is not to be equated with dishonesty.

Plaintiffs v Defendants

At a glance

Court

Decision date

Before

Source

Judgment (507 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (19)