The evidence relating to the transactions between Ottoman and Mr Stojanovski
65 Mr Stojanovski and Mr El Ali are business associates who first met sometime around 2006. The explanation given by both of them for the transfer by Ottoman of the Kogarah Unit 2 property to Mr Stojanovski was that it was conveyed as security for a loan of $1 million from Mr Stojanovski to finance completion of the purchase of the Minto property by Ottoman. That loan was said to have been made on 23 December 2010.
66 Ottoman was served with a notice to complete the Minto property purchase by the vendor's solicitors on 30 November 2010. On 3 December 2010, Ottoman's solicitors wrote to the vendor's solicitors advising that Ottoman would endeavour to proceed to completion by 15 December 2010. On 14 December 2010, Mr El Ali was again appointed as sole director and shareholder of Ottoman. I have already rejected Mr El Ali's explanation as to why he transferred those shares to Mr Nazloomian in the first place and found that the reason for the transfer to Mr Nazloomian was because he was a trusted friend who would mind the shares whilst Mr El Ali dealt with his creditors. The re-transfer to Mr El Ali is explained by the fact that finance was needed to complete Ottoman's acquisition of the Minto property.
67 According to Mr Stojanovski, in or about early December 2010 he had a conversation with Mr El Ali to the effect that Mr El Ali told him that he had exchanged contracts on a property at Minto and was struggling to secure funding and asked whether Mr Stojanovski would be interested in "coming in on the purchase". Mr Stojanovski asked how much was needed and was told $1 million. Mr Stojanovski asked what security he would get and was told that Mr El Ali could give him security over three commercial properties at Kogarah and a caveat over the Minto property. Mr Stojanovski deposed that he agreed, "as long as [he] [got] the caveats and security upfront" and Mr El Ali said he would "draft up a deed" that detailed their agreement and set out the terms. Mr El Ali gave no evidence-in-chief about this but confirmed in cross-examination that he had discussions with Mr Stojanovski about the possibility that he might advance some funds towards the purchase of the Minto property.
68 Mr Stojanovski deposed that he met with Mr El Ali sometime later in around mid-December 2010 and that Mr El Ali told him that he would make him the trustee of the Ottoman Investments Unit Trust and transfer Kogarah Unit 2 to him as the new trustee, which would give him total control of the asset and that Mr Stojanovski said "that's fine. As long as it is in my name." Again Mr El Ali gave no evidence-in-chief about this but emails confirm that by 15 December 2010, Mr El Ali had instructed his solicitors to prepare, amongst other documents:
(a) a Deed of Appointment of New Trustee appointing Mr Stojanovski as the new trustee of the Ottoman Investments Unit Trust in replacement of Ottoman;
(b) three "consented caveats" over Kogarah Units 1, 2 and 3, showing the interest of Mr Stojanovski (and his brother) as a purchaser of Unit 2 from Ottoman; and
(c) a "consented caveat" over the Minto property showing the interest of Mr Stojanovski (and his brother) as a lender.
69 On 15 December 2010, the notice to complete the Minto property purchase was extended to 17 December 2010.
70 Also on 15 December 2010, Mr El Ali (on behalf of Ottoman) and Mr Stojanovski signed a number of documents. The documents included a Deed of Appointment of New Trustee, a transfer form for the transfer of the Kogarah Unit 2 property from Ottoman to Mr Stojanovski for $1, caveats over Kogarah Units 1 and 3 showing the interest of Mr Stojanovski as a purchaser of Units 1 and 3 from Ottoman and a caveat over the Minto property. Mr Stojanovski's evidence was that he did not obtain any legal advice before signing these documents.
71 The Deed of Appointment of New Trustee prepared by Mr El Ali's solicitors had left blank for completion the date of the Ottoman Investments Unit Trust deed and the number of the clause pursuant to which Ottoman was empowered to appoint a new trustee. It may be inferred that the solicitors did not review the trust deed for the purpose of preparing the document, although it does appear that the trust deed was requested from Mr El Ali. The significance is that the Deed of Appointment recorded cl 30, in handwriting, as the relevant clause empowering Ottoman to appoint Mr Stojanovski as the new trustee. In fact, Ottoman did not have that power as under cl 30, the appointment of a new trustee could only be made by the unitholder (ie, Isaac & Jacob).
72 The next day, Mr El Ali submitted the transfer form and the ineffective Deed of Appointment of New Trustee to the OSR. The transfer was stamped with $50 duty pursuant to s 54(3) of the Duties Act 1997 (NSW) ("Duties Act") as a transfer made in consequence of the appointment of a new trustee. Mr El Ali in cross-examination agreed that he had pointed out cl 27 of the trust deed to the OSR but not cl 30. The transfer of Kogarah Unit 2 was stamped with nominal duty of $50 pursuant to s 54(3) of the Duties Act.
73 Section 54(3) provides that duty of $50 is chargeable in respect of a transfer made in consequence of the appointment of a new trustee if the Chief Commissioner is satisfied, relevantly, that:
…
(b) none of the trustees of the trust after the appointment of a new trustee is or can become a beneficiary under the trust; and
(c) the transfer is not part of a scheme for conferring an interest, in relation to the trust property, on a new trustee or any other person, whether as a beneficiary or otherwise, to the detriment of the beneficial interest or potential beneficial interest of any person.
74 Clause 27 of the Ottoman Investments Unit Trust deed provided that the trustee is "both absolutely and irrevocable (sic) prohibited from being a unitholder or otherwise directly or indirectly benefitting under this deed" save for its rights to reimbursement and remuneration. It may be inferred that the relevant officer was satisfied that both conditions were met (based at least upon cl 27) because only $50 duty was imposed. Having been stamped, the transfer was then registered with the Lands Title Office on 21 December 2010.
75 Mr El Ali initially disagreed in cross-examination that he was responsible for the documents submitted to the OSR but said that he believed he "assisted". On pressing, he agreed that it would be a fair statement that he did the work. Mr El Ali also agreed that he had, by late 2010, considerable experience with the operation of the OSR. He had been involved in a number of property dealings before late 2010 and had also been involved in a mortgage broking business. He agreed that he was aware that stamp duty was levied on the transfers of property at a rate that was a percentage of the purchase price of the property. He agreed also that he was aware that a transfer made in consequence of the appointment of a new trustee was chargeable with only $50 in duty if the trustee did not benefit under the trust.
76 Ottoman did not complete the purchase of the Minto property by 17 December 2010 and on that day, the Minto contract was terminated by the vendor. According to Mr El Ali, negotiations still continued after that date, although the contract had been terminated.
77 Also on or around that date, Mr Stojanovski and Mr El Ali (on behalf of Ottoman) executed a Deed of Agreement which Mr El Ali had prepared. It was submitted for Mr Stojanovski that this deed contained the agreement for the provision of a loan of $1 million and for the Kogarah Unit 2 property to be assigned to Mr Stojanovski as security holder and entitled him to hold the property until he had been repaid.
78 The Deed of Agreement was expressed to be made on 13 December 2010 but it was accepted it was not made before 17 December 2010. The recitals recorded that Mr El Ali was the sole director of Ottoman, which was described as the nominated purchaser of the Minto property, and Mr Stojanovski was "an established investor with strong building experience". The recitals also recorded that Mr El Ali invited Mr Stojanovski to participate in "the project" by providing a cash investment of $1 million to complete the proposed purchase of the Minto property and that Mr Stojanovski accepted the offer to participate and the parties had agreed "to form an affiliation in accordance with the terms of this deed".
79 The document recorded that:
(a) the Minto property was to be purchased by Ottoman as trustee for the Ottoman Investments Unit Trust;
(b) the purchase price was $3.8 million and settlement was to have been effected on 30 November 2010. A development application to sub-divide the property was expected to be finalised by the end of January 2010 (but presumably meant 2011);
(c) a market valuation completed at 2 December 2010 reflected a value "as is" of $4.13 million and of $4.9 million with approval for three lots sub-division;
(d) the vendor had terminated the contract for sale on 17 December 2010;
(e) funding to complete the purchase price was expected to be generated as to $3 million from Mr El Ali "and associates" secured by way of a first registered mortgage over the Minto property and that Mr Stojanovski "and associates" were to provide a "direct Cash investment" of $1 million "secured in (sic) way of transfer ownership" of the Kogarah Unit 2 property and caveats over Kogarah Units 1 and 3 and a "consented Caveat" over the Minto property "in the event the purchase proceed (sic) to settlement";
(f) under the heading "Security", that Mr El Ali had agreed "to supply" Mr Stojanovski with a "written consent" for a caveat over the Minto property, "transfer ownership" of the Kogarah Unit 2 property, caveats over Kogarah Units 1, 2 and 3, and an executed contract for the sale of the Kogarah Unit 2 property; and
(g) also under the heading "Security", that:
Any net sale proceeds to the value of $1,000,000 of the [Kogarah Units] are to be disbursed to or as directed by [Mr Stojanovski]. Any amount disbursed would be [utilised] to reduce [the] value of [the] initial [investment] by [Mr Stojanovski] and associates but it would not reflect or effect (sic) the agreed profit share of 25% of net profit before tax or 25% of net amount received as a result of negotiations with the vendor.
80 Further terms were that:
(a) Mr Stojanovski agreed to lodge a withdrawal of caveat to effect a sale of Units 1 and 3 "subject to the sale being in line with market expectation of greater than $700,000 for each and every floor";
(b) Mr Stojanovski also agreed to provide an executed transfer to effect a sale of the Kogarah Unit 2 property "subject to the sale being in line with market expectation of greater than $700,000";
(c) Mr El Ali agreed "to be held personally liable for" the initial investment by Mr Stojanovski and associates with Ottoman; and
(d) should Mr Stojanovski elect to recall the loan of $1 million on 1 May 2011 or later, Mr El Ali must within 30 days provide Mr Stojanovski with $1 million "in way of Cash plus interest calculated at 10% annually."
81 Then on 21 December 2010, another Deed of Appointment of New Trustee was signed by Mr El Ali (on behalf of Ottoman) and Mr Stojanovski. This deed was identical to the Deed of Appointment signed on 15 December 2010. As best can be made out on the evidence, it appears that this document was executed along with transfer forms for the transfer of the Kogarah Units 1 and 3 from Ottoman to Mr Stojanovski, also for $1 each, and that this Deed of Appointment and the transfer forms for Units 1 and 3 were lodged with the OSR for payment of duty on 23 December 2010. Mr El Ali deposed that:
However the appointment was never finalised and Kogarah Units 1 and 3 were never transferred to [Mr Stojanovski] in his capacity as the trustee of the Ottoman Investments Unit Trust, because the [OSR] delayed stamping of the relevant documents and requested further information.
82 The reason given by Mr El Ali for the two Deeds of Appointment being executed was that the earlier deed had related to Kogarah Unit 2 and the later deed related to Kogarah Units 1 and 3, though he accepted in cross-examination that neither deed referred to any particular property. Mr Stojanovski in cross-examination stated that the 15 December version "was requisitioned by the LPI [Lands Titles Office], and then we had to sign a new trust around the 20th - around the 23rd. So there was another trust deed signed after this date". Mr Stojanovski made no mention of this in his evidence-in-chief. Furthermore, wholly unexplained was why Units 1 and 3 were to be transferred to Mr Stojanovski when this was not recorded in the Deed of Agreement. I found neither explanation for the second Deed of Appointment satisfactory but in any event the fact is that Units 1 and 3 were not transferred to Mr Stojanovski.
83 Mr El Ali and Mr Stojanovski claimed that, in the meantime, on 23 December 2010, Mr Stojanovski gave Mr El Ali two bank cheques for $500,000. According to Mr Stojanovski's evidence, Mr El Ali had phoned him on 23 December 2010 and said that now that he (Mr Stojanovski) had the security that he wanted, he (Mr El Ali) needed the cheques urgently. Mr Stojanovski stated in cross-examination that he was aware at the time that the vendors had terminated the Minto contract for sale, but he believed that Ottoman still had "two weeks" to complete the purchase and believed that there were "some negotiations going on" "to continue with [the contract]". Mr Stojanovski's evidence was that he believed that Mr El Ali was going to use the $1 million to settle on the Minto property. Mr Stojanovski deposed that at all times he believed that the transfer of the Kogarah Unit 2 property was as security for his loan to Ottoman as trustee of the Ottoman Investments Unit Trust. The Court was asked to reject that evidence.
84 It was argued for the applicants that the explanations of Mr Stojanovski and Mr El Ali for the transfer of the Kogarah Unit 2 property were "riven with self-contradiction" and should not be accepted. It was submitted that on the one hand, they say that the property was transferred as security for the loan of $1 million but, on the other hand, say it was the consequence of the appointment of Mr Stojanovski as trustee of the Ottoman Investments Unit Trust. It was submitted that Mr Stojanovski and Mr El Ali either have misled the Court as to the reasons for the transfer or they wilfully misled the Chief Commissioner to claim a concessional duty on the transfer. Conversely it was submitted for Mr Stojanovski that the Court should accept that the loan transaction was the fundamental underlying basis for the transfer of property and that the Court should accept Mr Stojanovski's evidence that the property was transferred to him as security for the advance of $1 million. I disagree with the latter submission.
85 I find that Mr Stojanovski did not in fact lend the $1 million to Ottoman (or otherwise). There is evidence that two bank cheques payable to the National Australia Bank ("NAB") were drawn from funds in Mr Stojanovski's account on 23 December 2010. The applicants did not dispute that the documentary evidence demonstrates the existence of those two bank cheques and that the photocopy of them bears the handwritten annotations of Mr El Ali to the effect that he received them. There is, however, no evidence that the cheques were ever banked by Mr El Ali. One of the key issues in the proceeding is whether, as the applicants alleged, consideration of $1 only was given for a property with a net value of $670,000. Mr El Ali's evidence was that he banked the $1 million into the Saracen bank account on or about 23 December 2010, that the $1 million "assisted in many other ventures to pay deposits for other stuff as well", including "the deposits for Wollongong, which we lost at the time" and the $1 million was thereafter "lost". All that evidence was given in cross-examination. In examination-in-chief, Mr El Ali deposed merely that "on 23 December 2010, [he] received two cheques, each in the amount of $500,000 from Stojanovski". He did not depose to what he did with those cheques. I am prepared to infer from Mr El Ali's failure to lead evidence on this critical issue that such evidence would not have assisted him. There are, in addition, other facts from which it may reasonably be inferred that the loan was not ultimately made.
86 First, completion of the Minto property never occurred. There was no need for the advancement of the funds.
87 Secondly, in April 2011, Mr Stojanovski was aware that settlement of the Minto property had not occurred. Yet Mr Stojanovski advanced an amount of approximately $400,000 to assist Ottoman to complete the purchase of the Taren Point property. I find it improbable that Mr Stojanovski would have advanced further funds had it been the case that he was owed the $1 million which, on his evidence, he had advanced for the purposes of the purchase of the Minto property when he knew that the Minto property had not been completed and when the fact was that, by that time, all negotiations had stopped. More so, given that Mr Stojanovski's own evidence was that Mr El Ali had told him that Ottoman had also received a notice to complete for the Taren Point property and needed more money. It is an uncontroverted fact, nonetheless, that Mr Stojanovski made the advance of $400,000 to assist in the completion of the purchase of the Taren Point property when, on his evidence, he had already lent $1 million for a property purchase that had not proceeded.
88 Thirdly, it is also uncontroversial that Kogarah Units 1 and 3 were sold in 2014 and that Mr Stojanovski withdrew the caveats on Units 1 and 3 to enable those properties to be sold. Notwithstanding the terms of the Deed of Agreement which provided for Mr Stojanovski to be paid out of the proceeds of sale in relation to his loan of $1 million, no amount was paid to Mr Stojanovski from the sale of those units.
89 Fourthly, although the Kogarah Unit 2 property continued to be registered in his name, Mr Stojanovski took no steps to realise the property in order to recoup his loan amounts. On his evidence, he expected that the loan would be for a short term of three to four months and that he would be repaid within that time. Several years later, though he had still not been paid, he had not taken any steps to realise his security. Additionally, he has never put in a proof of debt in the estate of Mr El Ali for the $1 million loan, notwithstanding that the Deed of Agreement provided that Mr El Ali personally guaranteed the repayment of the loan.
90 Fifthly, whilst Kogarah Units 1 and 3 have been sold, Unit 2 has not been. Mr Stojanovski's evidence was that Unit 2 had also been put up for sale but I do not accept that evidence. Mr Stojanovski admitted in evidence that he had never appointed an agent to sell Unit 2 and there is no objective evidence to show that he did put the unit up for sale.
91 Sixthly, in around October 2012, Mr Stojanovski entered into a lease with ECHL Pty Ltd ("ECHL") (another company wholly owned by Mr El Ali and later by Mahmoud). The lease was signed by Mahmoud for ECHL and it was negotiated by Mr El Ali. The term of the lease was identified as three years with an option to renew for a further five years with rent to be $78,000 per year in monthly instalments. Mr Stojanovski agreed in cross-examination that ECHL had never paid any rental and there was no evidence that Mr Stojanovski took any steps to enforce payment of the rental. The context in which the lease was executed was that Mr Stojanovski was seeking a loan from the ANZ Bank. Although Mr Stojanovski denied that the lease was executed to lead the ANZ Bank to believe that he was receiving an income stream from the property, I reject that denial. Nothing in the evidence supports a finding that Mr Stojanovski ever expected an income stream from the lease.
92 Seventhly, it is also implausible that Mr Stojanovski would have left the property vacant without using it for income producing purposes since 2010 if it were the case that there was $1 million outstanding to him. Mr Stojanovski did not offer any explanation as to why no step was ever taken by him to realise the property or to use the property as an income stream.
93 Eighthly, not only did Mr Stojanovski agree to lend another $400,000 (on his evidence) but he also agreed to a first registered mortgage over the Kogarah Unit 2 property to secure a loan from Yasoo Drachma Pty Ltd ("Yasoo") of around $600,000 which was used in the funding of the purchase of the Taren Point property in April 2011. I find it implausible that Mr Stojanovski would have lent an additional $400,000 when, according to him, his previous loan of $1 million had not been repaid and implausible that he was prepared to allow a first mortgage to be taken by Yasoo over the Kogarah Unit 2 property to secure the loan of $600,000 when that property, as at November 2010, had approximately a net value of $670,000 according to Mr El Ali's November 2010 affidavit of assets and liabilities. In other words, if he was holding that property as security for the $1 million loan, it is inconceivable that he would permit it to be mortgaged to secure a loan from a third party to fund the Taren Point property purchase. Furthermore, as stated, by April 2011, the negotiations for the Minto property had ceased. It is implausible that Mr Stojanovski would have lent more funds in April 2011 if, as Mr El Ali asserted in his evidence, he had used the $1 million for other purposes.
94 Finally, Mr Stojanovski's claim to be owed $1 million is implausible given that he was unaware at trial that Mr El Ali's nephew, Mahmoud, had become and remains the director of Ottoman, which is the trustee of the Ottoman Investments Unit Trust. If there was $1 million owing to him by that trust, it would be expected that he would have made enquiries as to who was in control of the trust and taken steps to recover the debt owed to him. He has done neither.
95 Nor do I accept that Mr Stojanovski ever believed that his appointment as trustee had anything to do with giving him security over the property. Mr El Ali admitted in cross-examination that Mr Stojanovski "never took on the trusteeship". His explanation was that it was because all the assets could not be transferred to Mr Stojanovski. I take this to be a reference to Units 1 and 3. However, there is no mention of the transfer of Units 1 and 3 in the Deed of Agreement, whether in consequence of the appointment of Mr Stojanovski as trustee or otherwise and indeed, there is no mention at all of the appointment of Mr Stojanovski as trustee as part of the arrangements relating to the advancement of monies by Mr Stojanovski for the completion of the Minto property purchase. In addition, putting to one side for the moment that Mr El Ali has conceded that both Deeds of Appointment were ineffective, there was nothing in the evidence to show that Mr Stojanovski ever performed any duties as trustee, believing that he had been duly appointed. The evidence that was elicited from him in cross-examination was to the contrary. Although Mr Stojanovski in cross-examination maintained that he believed that he had been appointed trustee, he admitted that he had not done anything in relation to managing the affairs of the trust. He was also asked whether he still considered that he was the trustee of the trust to which he replied "no". When asked when he ceased to be the trustee of the trust, he stated "as soon as I ceased to carry out any activities on behalf of the trust - of the beneficiaries of the trust". When further pressed, he stated in self-justification that there were no activities that needed to be carried out in December 2010. Given the control that Mr El Ali continued to exercise over the affairs of Ottoman and the Ottoman Investments Unit Trust, and the lack of any evidence to show that Mr Stojanovski at any time performed any duties as trustee, I reject Mr Stojanovski's version of events as implausible. Moreover, Mr El Ali gave a different version of events. On his version of events, the change of trusteeship did not proceed because the OSR "sent further documents requiring further changes or additional requirements. [Mr Stojanovski] refused to take on the mortgages in his name because [Units 1 and 3] were mortgaged, and everything was, in [his] understanding of it, was called off". It is salient, nonetheless, that Mr El Ali appeared not to regard Mr Stojanovski as ever holding the position of trustee of the Ottoman Investments Unit Trust. This is borne out by the fact that in April 2011, Mr El Ali had Mr Zreika appointed as trustee of the Ottoman Investments Unit Trust in lieu of Ottoman.
96 In summary, I reject the evidence of both Mr Stojanovski and Mr El Ali as to why Mr El Ali transferred the title to Kogarah Unit 2 (being the only unit which was not encumbered) to Mr Stojanovski. The examination of the evidence of both Mr Stojanovski and Mr El Ali did not present a plausible explanation for the transactions. Both witnesses were shown not to be credible and their accounts are not accepted. I find that Mr Stojanovski did not make the advance of $1 million, and find that Mr El Ali remained in effective control of the Kogarah Unit 2 property and the transfer was orchestrated by him to put that property beyond the reach of his creditors at a time when proceedings were pending against him and he was aware of the freezing orders against Saracen and him.