Sacca v El Saafin

Introduction 1 In February 2016, the First Plaintiff, George Sacca, and the First Defendant, Wael El Saafin entered into arrangements to acquire a business known as LBC Radio. This proceeding emanates from the breakdown of the relationship between those parties in respect of the purchase of the LBC Radio business, which included acquiring a radio broadcasting licence (the Licence) and an associated property located at Unit 3, 357 Barry Road, Campbellfield (the Premises). 2 The proceeding was commenced by Originating Process dated 12 November 2018. It suffices to say that the matter has since that time had a long and chequered procedural history, with various interlocutory applications and adjournments: see, eg, Sacca v El Saafin [2021] FCA 383. However, after some delay, the matter was listed for a five-day trial commencing on 5 July 2021. 3 It became apparent during the course of opening submissions that there was an appetite for settlement. Indeed, as it transpired, the Plaintiffs reached an in-principle settlement with the First Defendant to resolve the proceeding on the second day of the hearing. Accordingly, in respect of those parties, I have made consent orders necessary to facilitate the settlement of the dispute. 4 The present reasons relate only to judgment in respect of the Second Defendant, Baraka Media Pty Ltd (ACN 628 791 284), which is not a party to the in-principle settlement. Baraka has, at various times in the proceeding, appeared with the assistance of legal representation. First, from 5 July 2019 to 2 October 2020, Baraka was represented by Mills Oakley. Further, from 9 October 2020 to 5 July 2021, Baraka was represented by Toorak Law. Notwithstanding the above, Baraka did not engage solicitors, or retain counsel, for the hearing and did not appear to defend the claim. As a result, I am now required to determine whether judgment should be entered against Baraka, the matter having otherwise settled.

Background 5 There are two contracts relevant to the transaction in dispute. The first contract is a Contract of Sale of Business, executed on 22 February 2016, in which Mr Sacca and Mr El Saafin purchased the LBC Radio business from Mr Jimmy Odisho. That contract was entered into conditional on the transfer of the Licence, described as Apparatus License number 1308290/4 and issued by the Australian Communications and Media Authority (ACMA), and included plant and equipment such as broadcasting equipment and a FM transmitter. The total value of the first contract was $600,000. In a letter of instruction sent to his professional advisers on 21 April 2016, Mr El Saafin valued the licence component of the contract at $450,000. 6 The second contract is a Contract of Sale of Real Estate, also executed on 22 February 2016, in which Mr Sacca and Mr El Saafin purchased the Premises from Mr Odisho (being the real property from which the LBC Radio business would operate). The total value of this contract was $300,000. At all material times, Air Time Australia Pty Ltd (ACN 611 197 203), the Third Plaintiff, was the registered proprietor of the Premises. 7 On 4 March 2016, AAM Australian Arab Media Pty Ltd (ACN 611 134 064), the Second Plaintiff, was registered with the Australian Securities and Investments Commission (ASIC), with Mr Sacca and Mr El Saafin named as directors and equal shareholders. Similarly, on 8 March 2016, Air Time was registered with ASIC, with Mr Sacca and Mr El Saafin again named as directors and equal shareholders. 8 As I have indicated, Mr Sacca and Mr El Saafin were both directors at the inception of AAM and Air Time. However, on 10 March 2016, Mr El Saafin was removed as a director of both companies to enable Mr Sacca to secure finance from the Commonwealth Bank of Australia for the purchase of LBC Radio, the Licence and the relevant Premises. A loan of approximately $920,000 was approved with Air Time as the borrower. Mr Sacca and his wife were guarantors for the loan. On 22 March 2016, settlement of the purchase of LBC Radio and the Premises was completed. 9 On 23 March 2016, a form entitled "Application for the transfer of an apparatus licence" was lodged with ACMA for the transfer of the Licence to AAM. On 5 April 2016, ACMA confirmed the transfer of ownership of the Licence to AAM. AAM remained registered in ACMA's records as the owner of the Licence until 9 October 2018. 10 On 24 March 2016, Mr El Saafin was reappointed as director of AAM and Air Time. On and from that date, Mr El Saafin has been a director of AAM. Separately, on 21 April 2016, Mr El Saafin was removed as a director of Air Time. On and from that date, Mr Sacca has been the sole director of Air Time. 11 Over the subsequent two years, Mr El Saafin was responsible for the day to day management of LBC Radio. However, the relationship between Mr Sacca and Mr El Saafin deteriorated during that period. One of the reasons for the deterioration of their relationship was various disputed transactions purportedly entered into by Mr El Saafin, including allegedly unexplained cash withdrawals and the payment of personal expenses from AAM's business account. As a result, around May to June 2018, Mr Sacca, through his accountants and lawyers, requested that Mr El Saafin provide financial records, books and accounts in relation to the disputed transactions. 12 On 9 August 2018, Mr Sacca's lawyers wrote to Mr El Saafin advising that given Mr El Saafin's refusal to produce documents and records of AAM, Air Time would take possession of the Premises. Mr Sacca contended that this course was justified in circumstances where there was no right of occupancy and AAM occupied the premises as a bare licensee of Air Time. 13 On or around 15 August 2018, Mr El Saafin and Mr Ahmad Ayad arranged a meeting of relatives in which Mr Ayad paid a sum of cash of $50,000 to Mr El Saafin. The communications between the parties via WhatsApp, a messaging application, would appear to suggest that the transfer was effected for the purpose of registering Baraka and purportedly transferring the licence from AAM to Baraka. 14 Indeed, on 13 September 2018, Mr El Saafin caused Baraka to be registered with ASIC, with Mr El Saafin named as the sole director and shareholder. On 15 September 2018, Mr El Saafin entered into a contract for the sale of his shareholding in Baraka to Mr Ayad for the sum of $250,000 (of which, $50,000 was acknowledged as being paid to Baraka on 15 August 2018). In that same transaction, Mr El Saafin purportedly agreed to sell the License to Baraka. The contract also indicated that Mr Ayad would be the sole director of Baraka. 15 Pursuant to the arrangement described above, Mr El Saafin signed and lodged with ACMA an "Application for transfer of apparatus license" to transfer the licence to Baraka on 26 September 2018. Crucially, no consideration was paid by Baraka to AAM in relation to the transfer of the Licence. The transfer form was accepted by ACMA on 9 October 2018, with ACMA's records altered accordingly such that Baraka was registered as the new licensee. 16 On 16 October 2018, Mr El Saafin resigned as director of Baraka and executed a share transfer to Mr Ayad. From that time onwards, Mr Ayad has been the sole director and shareholder of Baraka.

Consideration 17 I accept the above evidence having regard to the documentary record and on the basis of a Notice to Admit filed and served on the Second Defendant on 5 February 2021, pursuant to r 22.01 of the Federal Court Rules 2011 (Cth). Baraka did not respond to the Notice to Admit issued by the Plaintiffs at all, let alone within the 14 days provided for in r 22.02 of the Rules (notwithstanding that it was legally represented at that time). In the absence of any Notice of Dispute, the Plaintiffs are entitled to rely on r 22.04 for the purpose of establishing the truth of the facts in the Notice to Admit. They submit that judgment should be entered on the basis of these deemed admissions, pursuant to r 22.07 of the Rules. 18 Plainly, the above facts demonstrate that Mr El Saafin was the controlling mind of Baraka throughout August and September 2018, that being the time during which the Licence was purportedly transferred from AAM to Baraka. That transfer occurred for no consideration and without any express or implied authority on the part of Mr Sacca to do so on behalf of AAM. Accordingly, I find that Mr El Saafin exercised his powers as a director of AAM for an improper purpose and in a manner that was contrary to the interests of the company in contravention of ss 181, 182 and 183 of the Corporations Act 2001 (Cth). 19 Section 79(c) of the Corporations Act provides that a person has been involved in a contravention if the person has been in any way knowingly concerned in, or party to, the contravention - whether by act or omission, or directly or indirectly. Given that Mr El Saafin was the sole director and shareholder of Baraka at the material time, his knowledge is to be imputed to Baraka and so Baraka is "involved in" the contraventions established against Mr El Saafin: Yorke v Lucas [1985] HCA 65; 158 CLR 661 at 667 (Mason ACJ, Wilson, Deane and Dawson JJ) and 677 (Brennan J); MG Corrosion Consultants Pty Ltd v Gilmour [2014] FCA 990 at [526] (Barker J). 20 Further, I find that Mr El Saafin's conduct constitutes oppressive conduct within the meaning of s 232 of the Corporations Act. The transfer of company assets without authority and for no consideration is plainly oppressive conduct. Accordingly, if it were necessary, I could also set aside the transfer pursuant to s 233(1)(j) of the Corporations Act: see, eg, Cassegrain v Cassegrain [2012] NSWSC 403 at [196], [212]-[218] (in relation to fiduciary duties), [219]-[223] (in relation to oppressive conduct) and [224]-[228] (in relation to statutory duties) (Bergin CJ). 21 Additionally, for the reasons I have already explained, Mr El Saafin's conduct is a breach of fiduciary duty. Amongst other things, Mr El Saafin: (1) failed to act in good faith, honestly and for the benefit of AAM; (2) used his position to secure a personal gain and caused detriment to AAM; (3) failed to avoid a conflict of interest and duty; and (4) exercised his powers as a director of AAM for an improper purpose. 22 As the sole director and shareholder of Baraka at the time of the relevant conduct, Mr El Saafin's knowledge is to be imputed to Baraka: Tesco Supermarkets Ltd v Nattrass [1972] AC 153 at 170, recently cited with approval in All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited (No 2) [2021] FCA 782 at [160] (Allsop CJ). Accordingly, there is also a claim for accessorial liability under the first limb in Barnes v Addy (1874) LR 9 Ch App 244 for knowing receipt. This is because the transfer of the Licence occurred in circumstances where Baraka knew, or ought to have known, that the Licence belonged to AAM: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89 at [112] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ). 23 Where a transaction is procured by a director in breach of a fiduciary duty, or an analogous statutory duty, the transaction may be voidable at the instance of the company: see, eg, Mernda Developments Pty Ltd (in liq) v Alamanda Property Investments No 2 Pty Ltd [2011] VSCA 392; 86 ACSR 277 at [48] (Warren CJ, Mandie JA, Judd AJA) citing Robins v Incentive Dynamics Pty Ltd [2003] NSWCA 71; 45 ACSR 244 at [73]-[75] (Mason P, Stein and Giles JJA agreeing). Accordingly, I am satisfied that the transfer of the Licence from AAM to Baraka should be declared void. 24 I will also make other consequential orders necessary to give effect to the transfer of the Licence, including that an application form be lodged with ACMA to approve and register the transfer of the Licence back to AAM and that Mr Ayad (as sole director and shareholder of Baraka) do all things reasonably necessary to effect that transfer. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anastassiou.