Sassine v Mondray Pty Limited [2011] NSWSC 297 | Case summary | Zoe

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Sassine v Mondray Pty Limited [2011] NSWSC 297 | Case summary | Zoe

In 2006, Mondray owned a property at Pennant Hills.
In or about September 2006, the four brothers, being all of the members and all of the directors of Mondray, agreed that Mondray should sell the property and that the proceeds should be used to reduce the indebtedness of RaySons to the National Australia Bank, which indebtedness was supported by a guarantee and charge given by Mondray to the National Australia Bank.
The property was sold. The net proceeds were $1,374,727.
George Sassine, as a director of Mondray, caused Mondray to disburse the net proceeds as follows: (a) $335,000 to George Sassine; (b) $502,000 to Sunrays; (c) $100,000 to Nu-Look Building & Constructions Pty Ltd, a company owned and operated by George Sassine; (d) $437,457 to RaySons.
These four payments were not referable to any debt or obligation owed by Mondray, did not benefit Mondray and conferred an improper benefit on George Sassine.
By causing Mondray to make the payments, George Sassine breached duties owed by him to Mondray as a director of Mondray or, in the alternative, breached the September 2006 contract. 4Charlie Sassine maintains that George Sassine should render equitable compensation or pay damages of $1,374,727 to Mondray accordingly. 5In determining Charlie Sassine's application for leave to bring such proceedings on behalf of Mondray, I must address the several matters identified in s 237(2). If the court is affirmatively satisfied as to all those matters, it must grant leave. If it is not affirmatively satisfied as to any of the matters, it must refuse leave. Section 237(2) is as follows: "The Court must grant the application if it is satisfied that: (a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and (b) the applicant is acting in good faith; and (c) it is in the best interests of the company that the applicant be granted leave; and (d) if the applicant is applying for leave to bring proceedings--there is a serious question to be tried; and (e) either: (i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or (ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied." 6The matters raised by s 237(2)(a) and s 237(2)(e) are not contentious. It is agreed that those conditions are satisfied. The parties are, however, in dispute about the matters in s 237(2)(b), s 237(2)(c) and s 237(2)(d). 7It is necessary at this point to refer to separate and earlier proceedings which are still pending. I shall call these "the 2007 proceedings". The parties there are George Sassine as plaintiff and RaySons, Charlie Sassine, Milaad Sassine and John Sassine as defendants. Of relevance, for present purposes, is a second cross-claim brought by all four defendants against George Sassine. By that cross-claim, RaySons, Charlie Sassine, Milaad Sassine and John Sassine plead an agreement the parties to which were those four plus George Sassine and Mondray, being an agreement that: (a) Mondray would sell the Pennant Hills property; (b) Milaad Sassine would withdraw a caveat lodged by him so that the sale could proceed; (c) the whole of the net proceeds of sale would be paid to RaySons; and (d) RaySons would pay the whole of the net proceeds to the National Australia Bank to repay or reduce its indebtedness to the National Australia Bank. 8The agreement thus pleaded by RaySons, Charlie Sassine, Milaad Sassine and John Sassine is said by them to have been made at a meeting attended by the four brothers, their accountant and their solicitor. 9The cross-claim goes on to allege that the net proceeds of sale ($1,374,727) were paid to the National Australia Bank and that George Sassine then directed the National Australia Bank to disburse those proceeds in the way set out at item 4 of paragraph [3] above, which the bank did; also that the sum of $502,000 paid to Sunrays was subsequently used by George Sassine for his own benefit. It is then alleged that, by reason of having so directed the National Australia Bank, George Sassine breached duties owed by him to RaySons as a director of RaySons and is liable accordingly to render compensation to RaySons. 10By his defence to this cross-claim, George Sassine admits, first, the agreement regarding sale of the property and application of the proceeds, second, receipt of the proceeds by RaySons and, third, payment of those proceeds by RaySons to the National Australia Bank. As to the payments by the National Australia Bank out of the proceeds (in the sums and to the payees referred to at item 4 of paragraph [3] above), George Sassine admits that the bank made those payments at his direction but denies that he subsequently used the $502,000 for his own benefit. 11There are some differences between the agreement pleaded by Charlie Sassine and others in the cross-claim in the 2007 proceedings and the agreement that Charlie Sassine wishes to have Mondray plead in the proposed derivative action. The parties are different, in that the four brothers, Mondray and RaySons are put forward as the parties to the agreement pleaded in the cross-claim, while the four brothers alone are said to have been the parties to the agreement on which the proposed derivative action is based. There are also some differences in the alleged terms, although the basic thrust is the same in each case: that the net proceeds of the sale of Mondray's property were to be made available for the benefit of RaySons by being applied to pay off or reduce RaySons' indebtedness to the National Australia Bank. 12The two claims are also generally consistent in alleging that George Sassine caused the net sale proceeds to be disbursed in the manner set out at item 4 of paragraph [3] above. 13It is at that point, however, that the two versions diverge. In the cross-claim in the 2007 proceedings, Charlie Sassine (along with the other cross-claimants, including RaySons itself), says that George Sassine's actions in causing the net sale proceeds to reach the destinations at item 4 of paragraph [3] above involved a breach of duties owed by George Sassine to RaySons so that RaySons is entitled to recover as against George Sassine; while in the proposed derivative action, Charlie Sassine will have Mondray say that those actions of George Sassine involved a breach of duties owed by George Sassine to Mondray so that Mondray is entitled to recover precisely the same moneys from George Sassine. 14It was submitted by counsel for George Sassine on the present application that Charlie Sassine simply cannot embrace two such fundamentally opposed positions with respect to rights of recovery against George Sassine. George Sassine cannot, it is said, be liable to account to RaySons for the net sale proceeds and also to account to Mondray for the net sale proceeds. If there was in truth any loss, it was a single loss. 15It is clear that Charlie Sassine cannot properly espouse both the propositions he seeks to pursue. His frame of mind and intentions emerged from the following part of his cross-examination: "Q. And you honestly believe, don't you, that you have got a proper claim pleaded in this cross-claim, don't you? A. Yeah, of course. Q. And you intend to bring this claim and make George Sassine pay the money to Ray & Sons, don't you? A. To pay to - no to what they call NAB. Q. On behalf of Ray & Sons? A. Yeah, of course. Q. And you intend to do what you can to make sure that that happens, correct? A. That's right." 16And later: "Q. Well, in the cross-claim you are talking about, you say you honestly believe George Sassine should pay to the NAB on behalf of Ray & Sons? A. That's right. Q. So how can you honestly believe you should also pay that money to Mondray? A. The same asset. HIS HONOUR Q. He doesn't have to pay twice, does he? A. No, he doesn't have to pay twice." 17It was only in the course of re-examination by his own counsel after an adjournment that Charlie Sassine belatedly accepted that he had to pursue one claim or the other and could not pursue both. And it was only at that point that he, as it were, threw in his lot with the derivative action rather than the already pending cross-claim in the 2007 proceedings. This brought the following submission from counsel for George Sassine: " Prior to the luncheon adjournment your Honour heard me put to Mr Sassine that it was his intention to fully prosecute this cross-claim, to bring it to conclusion and to get the money back to Ray & Sons. Clearly he or somebody else realised over lunch that that might be a problem and he then gave completely inconsistent evidence that he was now only going to run one claim, where clearly he didn't actually say which one it was going to be." 18The court cannot with any confidence accept Charlie Sassine's statement that he would pursue the derivative action instead of the competing RaySons claim. The circumstances in which that statement was eventually made severely undermine its reliability. The reliability of Charlie Sassine's statements more generally is also very suspect. I shall explain why. 19In the first place, Charlie Sassine has in the very recent past stated an intention of pursuing yet differently constituted proceedings. He was taken to an affidavit sworn by him as recently as 28 February 2011 in which he stated a desire to have leave to sue on behalf of Mondray not only George Sassine but also "two companies which George Sassine controls, namely Sunrays Constructions Pty Limited (Sunrays) and Nu-Look Building & Construction Pty Limited (Nu-Look)". Later in the affidavit he referred to having prepared a statement of claim against George Sassine, Sunrays and Nu-Look. The subsequent cross-examination was as follows: "Q. ... And you are simply unaware what claim you want to bring, correct? A. No. Q. It's the case, isn't it, that you are well aware Sunrays has suffered no loss by anything that has happened relevant to these proceedings? A. It suffer huge loss. Q. And that is the loss you are seeking to recover on behalf of Ray & Sons, correct? A. Sorry. Q. That is the loss you are seeking to recover on behalf of Ray & Sons Construction Proprietary Limited? A. Yes." 20Another aspect of the cross-examination is pertinent. It was put to Charlie Sassine that he had copied large parts of his most recent affidavit verbatim from an unread affidavit of Milaad Sassine. He denied this and persisted in doing so. This reflected adversely on his bona fides because it was patently obvious that he had done just that. His insistence that the use of identical words when quoting conversations several years earlier was explicable because, in effect, there could be only one version of the truth was damaging. More damaging was his insistence that passages in his own affidavit referring to himself in the third person and Milaad Sassine in the first person had not been copied from identical passages in Milaad Sassine's affidavit - for example, the words "a meeting at our parents' home, which George, John, Charlie, Mr Youris and I attended" appear in Milaad Sassine's affidavit and also in that very form in Charlie Sassine's later affidavit. 21In the course of cross-examination Charlie Sassine accepted several important propositions:
that he had known in the early part of 2007 precisely where the net proceeds of sale had gone;
that he had seen by January 2007 a letter of 6 December 2006 from the National Australia Bank to Mondray detailing the disbursement of funds;
that he, Milaad Sassine and John Sassine could, in early 2007, have caused Mondray to sue George Sassine;
that he, Milaad Sassine and John Sassine (together with RaySons), had brought the cross-claim against George Sassine in March 2008;
that he, Milaad Sassine and John Sassine could, in March 2008, have caused Mondray to sue George Sassine. 22Against this background, I turn to the s 237(2) conditions in issue, 23In relation to the s 237(2)(b) condition, the Court of Appeal emphasised in Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; (2008) 65 ACSR 661 at [69] that it is for the applicant seeking leave under s 237 to establish affirmatively and to the satisfaction of the court that he or she is acting in good faith. It is not for the person opposing the grant of leave to establish bad faith. 24One component of good faith is, in the particular context, an honest belief of the applicant that a good cause of action exists and has reasonable prospects of success. This formulation - first stated by Palmer J in Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313, and repeated in later cases - was approved by the Court of Appeal in Chahwan v Euphoric Pty Ltd (above). 25Charlie Sassine has not shown that he has such an honest belief. At the time he filed his s 237(2) application, he was actively promoting and pursuing a claim of RaySons to recover equitable compensation or damages from George Sassine. It must have been obvious to any informed observer that either that claim or the postulated claim by Mondray must fail. Both could not be viable claims with good prospects of success. Charlie Sassine not only embraced the alternative recovery claim of RaySons against George Sassine when he made his s 237(2) application but he adhered to it in cross-examination and changed his tune only in re-examination after an adjournment when, it appears, he had become aware that it made no sense to assert both claims. And it was then - when the light had dawned, as it were - that he disavowed the RaySons claim and adhered to the Mondray claim alone. He did so, however, only by his words in the witness box amounting, at best, to a statement of intention. 26Given what I have said about Charlie Sassine's unreliability (paragraph [20] above), it is necessary to treat the expressed last minute change of intention as highly suspect. 27In addition, there is nothing to indicate that Charlie Sassine has taken any step to disengage himself from and to disown the cross-claim brought against George Sassine by Charlie Sassine, RaysSons and the other cross-claimants. 28Another matter that causes Charlie Sassine's bona fides to be compromised is the fact that he knew all relevant facts in early 2007 and then, in early 2008, when he, Milaad Sassine and John Sassine could have caused Mondray to bring the now postulated claim against George Sassine, he deliberately chose instead to join with Milaad Sassine and John Sassine in causing RaySons, not Mondray, to sue George Sassine. 29In the whole of the circumstances, the court cannot accept Charlie Sassine's contention that he is acting in good faith in relation to the proposed derivative action. Until the last few minutes of his evidence he was prepared not only to have RaySons compete with Mondray in attempts to recover compensation or damages from Charlie Sassine (a course he had helped set in train in March 2008) but also to give active support to RaySons' attempt. That is not the action of someone who honestly believes that Mondray has a good cause of action and wishes to see it pursue for the benefit of Mondray. 30The same circumstance is relevant to the s 237(2)(c). Under that provision, the court must be affirmatively satisfied not only that lit is in the best interests of the company that leave be granted for the bringing of the derivative action but also that the leave be granted to the particular applicant. It will not be in the best interests of the company that the particular applicant have leave if he or she is precluded by some independent duty from pursuing the derivative proceedings with single minded regard for the interests and welfare of the company on behalf of which the proceedings are intended to be brought: McEvoy v Caplan [2010] NSWCA 115; (2010) 78 ACSR 167. 31Charlie Sassine cannot act on behalf of Mondray in pursuing the proposed proceedings with single minded regard for the interests and welfare of Mondray. He is actively attempting to secure recovery against the same defendant for another party in circumstances where he acknowledges that one claim or the other must fail. His commitment to the RaySons cause makes him unable to embrace the Mondray cause in the necessary way; and this is despite his eleventh hour statement of intention to prefer Mondray's claim and to abandon the RaySons cause. 32The conclusions with respect to the s 237(2)(b) and s 237(2)(c) criteria are, for the reasons stated, adverse to Charlie Sassine. The court is not satisfied as to those matters. Leave under s 237 must therefore be refused. 33This makes it unnecessary to consider the s 237(2)(c) question, that is, whether there is a serious question to be tried. I would, however, observe that Charlie Sassine seems quite clearly to accept that all the members and all the directors of Mondray (being the four brothers) expressly agreed that the asset of Mondray should be applied for the benefit of RaySons and therefore that Mondray should thereby give up that asset. That would present a substantial difficulty for Mondray (as distinct from RaySons) in alleging misfeasance by George Sassine. The matter of serious question to be tried may therefore be regarded as at least problematic from Charlie Sassine's viewpoint. 34The amended notice of motion by which Charlie Sassine seeks leave under s 237 of the Corporations Act 2001 (Cth) is dismissed. 35I shall hear submissions on costs at a later date. The question of costs is reserved.