Zaslavsky & 2 Ors v Crasti & Anor

CATCHWORDS : Appeal decision of Local Court Magistrate - breach of contract - misrepresentation Fair trading Act 1987 - s 42 LEGISLATION CITED : Local Courts (Civil Claims) Act 1970 (NSW) - s 69 Trade Practices Act 1974 (Cth) - s 52 Allen v Kerr & Anor (1995) Aust Torts Reports 81-354 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Carr v Neill [1999] NSWSC 1263 CASES CITED : Devries v Australian National Railways Commission (1993) 177 CLR 472 R L & D Investments Ptyh Ltd v Bisby [2002] NSWSC 1082 Sabag v Health Care Complaints Commission [2001] NSWCA 411 State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588 Serge Golman (Second Plaintiff)

Lidcombe Plastering Services Pty Ltd (Third Plaintiff) PARTIES : Leo Crasti (First Defendant)

Paltrust Pty Limited (Second Defendant) FILE NUMBER(S) : SC 10648/2003 Mr N Kidd (Plaintiffs) COUNSEL : Mr P See (First Defendant) Mr S Levitt, Levitt Robinson (Plaintiffs) SOLICITORS : Mr D Cohen, David Cohen & Co (First Defendant)

LOWER COURT Local Court JURISDICTION : LOWER COURT 4391/2001 FILE NUMBER(S) : LOWER COURT Magistrat Elaine Truscott JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

10648/2003 - PAUL ZASLAVSKY & 2 ORS v LEO CRASTI & ANOR

JUDGMENT (Appeal decision of Local Court Magistrate - breach of contract; misrepresentation) 1 MASTER: By summons filed 17 March 2003 the plaintiffs seek firstly, an order that the verdict, judgment and orders made by Magistrate Elaine Truscott in the Local Court (Civil Claims) at the Downing Centre on 18 February 2003 be set aside and that the case be heard and decided by this Court, without the hearing of further evidence; and secondly that the defendants pay the plaintiffs' costs of the appeal and of the Local Court proceedings. The plaintiffs relied on the two affidavits of Steven Kaouna sworn 29 May 2003 and 28 April 2004. 2 The first plaintiff is Paul Zaslavsky. The second plaintiff is Serge Golman. The third plaintiff is Lidcombe Plastering Services Pty Ltd. The first defendant is Leo Crasti and the second defendant is Paltrust Pty Limited. Paltrust played no role in the Local Court nor in this Court. 3 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 69(2) of the Local Courts (Civil Claims) Act 1970 (NSW) (the Act) permits a party who is dissatisfied with a judgment as being erroneous in point of law to appeal to this Court. The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered, inter alia, in Allen v Kerr & Anor (1995) Aust Torts Reports 81-354 and Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156 and two more recent cases, namely Carr v Neill [1999] NSWSC 1263 and R L & D Investments Pty Ltd v Bisby [2002] NSWSC 1082. It cannot be said that the Tribunal member acted on evidence inconsistent with facts incontrovertibly established by the evidence - see Devries v Australian National Railways Commission (1993) 177 CLR 472 per Brennan, Gaudron and McHugh JJ at 479 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588. Section 69(4) of the Act provides that the court may determine an appeal by either (a) setting the judgment or order aside or (b) by varying the terms of the judgment or order or (c) by setting the judgment or order aside and remitting the matter for determination in accordance with the court's directions or (d) by dismissing the appeal.

Grounds of appeal 4 The plaintiffs appeal from the whole of the decision of Magistrate Truscott. The grounds of appeal are numerous but have been refined into three main issues, namely: firstly, the claim for breach of contract; secondly, whether there was a subsequent agreement between Crasti and Zaslavsky and thirdly, whether there was misrepresentation by Crasti. Each of the plaintiffs, Zaslavsky and Golman, sued Crasti in the Local Court for breach of contract and misrepresentation.

Local Court proceedings 5 The Magistrate entered judgment in favour of Crasti against both Zaslavsky and Golman. 6 In her reasons for decision, the Magistrate set out the background (at p 2) as follows: "The Plaintiff Zaslavsky is suing for the sum of $20,000 paid on 10 May 2000 and the Plaintiff Golman is suing for the sum of $23,000 paid on 27 April 2000. The money was paid into two accounts at the direction of Mr Crasti as investments in a venture that was ultimately unsuccessful. The two cases were heard together as they arise from the same dealings.

The Plaintiff Serge Golman and the Defendant Leo Crasti were business associates involved in the building industry. In 1998 companies run by Mr Golman were placed into liquidation. At that time Mr Crasti, a mechanical engineer, was owed a considerable amount of money (according to Mr Crasti, about $880,000) by Mr Golman's companies for work and services performed. However, he did not become a registered creditor and received no monies pursuant to the liquidation. According to Crasti, there was some arrangement whereby Golman acknowledged a personal debt of about $200,000 apparently the remainder being forgiven by Crasti as he accepted that the cause of the debt was out of Golman's control. There is no evidence as to when this understanding arose or the manner or terms on which it came about."

The first ground of appeal 7 The plaintiff Golman submitted that the contractual obligation that was pleaded was not identical to the particular contractual obligation the learned magistrate found existed, but that the Magistrate should have entered judgment in favour of Golman in accordance with her findings -namely that Crasti had a contractual obligation to pay to Golman half of the moneys invested so as to equalise their contributions. 8 It is necessary to examine the pleading which sets out the alleged contract. It is the statement of claim that sets out the parameters of the plaintiff's claim. Paragraph 3B is headed "The Contract". It pleads that the plaintiff's agreement to advance monies at the request of the first defendant in order to acquire the benefits which the first defendant represented that such payment would confer, gave rise to a contract between the plaintiff and the first defendant in terms of the representations by the first defendant, relied on by the plaintiff, set out in paragraphs 1 and 3. 9 Paragraphs 1 and 3 plead false representation. Paragraph pleads: "1. On or about 11 May 2000, the Plaintiff met with the First Defendant and the Third Party, whereupon the First Defendant induced the Plaintiff, on 12 May 2000, to cause the sum of $20,000.00 to be wired into the account of Paltrust Pty Limited ('Paltrust'), the Second Defendant ; BSB: 082 574, Account No. 473143159 with the National Australia Bank at Erina. In consideration of that payment, the First Defendant represented to the Plaintiff and the Third Party that they would jointly acquire 12.5% ownership in the issued capital of the Paltrust with the First Defendant to take up a further 12.5% shareholding in Paltrust, such shareholding to be held jointly by the Plaintiff, the First Defendant and the Third Party through a new company to be acquired by them, in which the shareholdings would be 25:Plaintiff; 25:the Third Party and 50:the First Defendant. At the time, the First Defendant represented to the Plaintiff and to the Third Party that Paltrust was negotiating for a 40% share of the issued capital of Tru Blu Management Holdings Limited ('Tru Blu'), which was represented by the Defendant to the Plaintiff to be the registered proprietor of properties set forth in the Schedule hereto, which had the valuations attributed to them in a schedule of properties shown by the Defendant to the Plaintiff and to the Third Party and which were subject to the encumbrances as set forth in the schedule." 10 And paragraph 3 reads: "At the time when the First Defendant represented to the Plaintiff that he would receive the benefit of his investment of $20,000.00 as particularised in paragraph 1 hereof, he further represented to the Plaintiff that in the event that the investment could not be placed so as to result in the issue of equity in Paltrust to the Plaintiff and the Third Party or their nominee, then the sums invested by them would be promptly refunded in full." 11 The plaintiff referred to Sabag v Health Care Complaints Commission [2001] NSWCA 411 at paras 20 to 22. A fair reading of these pleadings do not give rise to the allegation that Crasti was in breach of paragraph 3 of a document titled "Heads of Agreement" where paragraph 3 says: "All monies to be paid out by new company is to be treated as equal interest for both Leo Crasti and Serge Golman. All monies deposited to new company or paid others on behalf of new company is to be treated as loans." [This document has been reproduced in the Magistrate's judgment at p 4]. 12 In the plaintiff's solicitor's oral submission attached to the affidavit of Steven Kaouna sworn 28 April 2004 (at 13.37-45) he said: "I just have to say this, that my case is this that the defendants case is this, that the money put up by Zaslavsky and Golman was all put up by Golman. So if Zaslavsky's got a problem it's Golman's problem. That they accept the heads of agreement in clause three. Clause three provides that all monies to be deposited equally by either Crasti or Serge Golman as ….. to deposit equal shares and the amount not deposited shall be personally guaranteed to the payee party. What I'm saying is that clause three on the Crasti case, on the defendants case is supportive of the proposition that Mr Crasti should indemnify Mr Golman for half of the money that was advanced on any view." 13 When the Bench pointed out that the plaintiff Golman had not pleaded that Crasti was in breach of clause 3, the plaintiff's solicitor submitted at 40.13-23): "No, but there's a - it's not so much - we're not relying upon the breach of clause three, we're relying upon the representation contained in clause three as a representation that Mr Crasti was prepared to invest, that he indicated a willingness to invest but he indicated that the commitment to match dollar for dollar monies that were put in by other people and also effectively made a commitment to do those things that were reasonable and necessary to optimise the prospects of the investment paying off and the fact is that on his own version he did nothing and his own version he didn't intend to use any of the funds that were invested, do apply any of those funds for the benefit of the people investing them because he regarded them as repayment of monies due to him and that's the key point." 14 Not surprisingly, the Magistrate stated (J p 10): "Clause 3 of the Heads of Agreement annexure C. makes it clear that in the event of the company being formed so that Crasti and Golman could be involved in the venture via a company, any money put in by one and not the other would be guaranteed by the other. The Plaintiff's cause of action does not plead that Crasti has breached his agreement to guarantee under Cl. 3. The Plaintiff's claim is that Crasti was personally liable to return the money to him if the venture failed. There is no evidence by Golman about any verbal or written agreement about that. Cl 3 certainly does not say that." 15 After the hearing was concluded and judgment was reserved, the plaintiff's solicitor provided unsolicited submissions to the Magistrate. There is a dispute as to whether the defendant was even served with these submissions. In any event, the defendant did not consent to the additional submissions being provided to the Magistrate. This practice is wrong and should be discouraged, particularly where the opposing party may not have any knowledge of it and cannot address any further issues that are raised in the latter submissions. 16 The statement of claim did not plead that there was a breach of clause 3 of the document entitled "Heads of Agreement" which gave rise to a claim for damages. Rather, it was pleaded that certain representations were made. When the plaintiff's solicitor was specifically directed to the lack of pleading in this regard, he replied that they were not relying on the breach of clause 3. The plaintiff is now seeking to make out an entirely different case to that which was pleaded before the Magistrate. The solicitor did not seek to amend the statement of claim. It is my view that this ground of the appeal fails.

Second ground of appeal 17 The second ground of appeal is that the Magistrate erred in law in failing to recognise that the 24 June 2000 facsimile letter from the first defendant to the first plaintiff constituted a new agreement or a variation of the former agreement concerning the terms for the repayment of monies advanced by the first plaintiff, at the direction or pursuant to the inducement of the first defendant. 18 The fax from Mr Crasti to Mr Zaslavsky dated 24 June 2000 has been reproduced in the Magistrate's judgment at p 11. It states: "To: Paul Zaslavsky, Keycorp Developments. (Sent to Serge Golman for retransmittal) In April '00 I invited Serge Golman to participate in the potential acquisition of various property assets. Later it became necessary to contribute funds in good faith that the investment would proceed. Mr Golman introduced yourself as a further investor when additional funds were required and you contributed $20,000 on short call. It subsequently occurred that the investment under terms and conditions anticipated did not occur and I still await return of the funds. Mr Golman's contribution has been satisfied through off-sets on other projects we share. I have also continually assured you that your contribution of $20,000 will be returned. Initially this was to be within days of the investment deal not proceeding as stated. It is still my intention to settle this promptly, regardless of the outcome I will personally make payment to you. However, this may take until the end of September '00 to complete. I am also prepared to pay a reasonable interest rate (say 2% per month) for the duration of the period. Best efforts are still being made to return the funds promptly. Please call me at any time on 04195555514." 19 The Magistrate at p 11 of her judgment found: "I accept that the letter of 24 June was provided by Crasti to Zaslavsky via Golman under considerable pressure. I am satisfied that Crasti was told by either or both Plaintiffs that Zaslavsky borrowed the money from a disreputable third party. Crasti clearly believed that a third party was to view the letter, why else would he include his telephone number, given that Mr Zaslavsky already had it?. Whether or not a third party was really involved is of no concern, I only need be satisfied that Mr Crasti had been told that there was and the letter of 24 June was written for a purpose other than establishing an agreement to repay the money. Likewise, whether or not Zaslavsky repaid Golman or Lidcombe Plastering the $20,000 is also of no concern. I accept at some stage prior to 24 June that Golman told Crasti that he need not repay his money so long as he repaid Zaslavsky. I do not consider this offer to bar the Plaintiff Golman from making his claim given that Zaslavsky has not been repaid. There has never been a contract between Crasti and Zaslavsky. There is no contract between Golman and Zaslavsky and though he was shown the Heads of Agreement and though Crasti was aware that the Plaintiffs had agreed that Zaslavsky would share Golman's return, there was nothing said or done to suggest that he would be party to their agreement. There is no evidence that Crasti promised Golman or Zaslavsky that he personally would ensure that Paltrust returned the money if they should invest nor that he would personally pay the money should Paltrust fail to return the money. There is accordingly no contract. I do not consider the letter of 24 June to evidence a contract between them or a variation of a contract between them. I do not accept that either Plaintiff or Mr Crasti intended that he would be personally liable for the return of the monies in the first place. I am of the opinion that Crasti eventually agreed to say that he would pay because of the circumstances in which he found himself. Namely, he had introduced the parties to the scheme. He knew that the parties expected a return of their money should the venture fail. He was involved with Palmer and knew what was happening or not happening with Tru Blu - indeed by that stage he was a company director. Paltrust had asked Tru Blu for the return of the monies and Crasti at some stage raised the issue of the return of monies to the Plaintiffs with Palmer. He was under intense pressure by Golman and Zaslavsky for the return of the money and to write a document to that effect. However, there is no contract between the parties. The promise is not accompanied by any consideration." 20 Thus the Magistrate found that there was neither the intention of the parties to form a legally binding contract nor was there the requisite consideration. The plaintiff submitted that holding that there was no consideration was an error in law and that the Court will readily infer consideration in the nature of forbearance to sue in appropriate circumstances. But there was no forbearance given up until the fax. Thus there was no contract in existence between Crasti and Zaslavsky. There was nothing to forbear. It was open to the Magistrate to make the finding that this letter did not form a contract.

The third ground of appeal 21 In their written submissions, the plaintiffs referred to the following findings in respect of misrepresentation: "(a) on or about 19 April 2000, Crasti approached Golman, gave Golman an outline of the venture and handed him a number of documents about the venture. (Reasons page 4); (b) on 26 April 2000, Golman and Crasti each signed the 2 agreements and Golman paid the $25,312.50. (Reasons page 4); (c) Golman put up that money on the expectation that it would be returned if the venture did not proceed, such expectation being derived from the contents of the documents provided to him by Crasti (Reasons page 9); (d) Crasti told the Plaintiffs that the money would be returned if the venture did not proceed (Reasons page 12);" 22 The plaintiff submitted that the Magistrate found that prior to and at the time of signing the agreement in April 2000, Crasti in fact intended to use the proposed investment as a means of recovering money that he believed was owed to him by Golman. The Magistrate also found that Crasti did not inform Golman of that fact (J p 10). The plaintiffs say that these two findings were apparently based on evidence given by Mr Crasti to the effect that at all times up to and including the payment of the monies by the plaintiffs, Crasti never intended to return the monies to the plaintiffs but rather intended to treat the monies as payment of a debt he claimed Golman owed to him (t 15, 27/11/02; t 13 - 27/11/02, Crasti written statement 31.19). 23 The plaintiffs submitted that the Magistrate erroneously concluded that Crasti had not made any misrepresentation to the plaintiffs and there can be no conclusion of law other than that Crasti's conduct involved a misrepresentation that caused Golman, and later Zaslavsky, to advance the moneys they did. 24 However the Magistrate also made findings that:

(1) Mr Crasti gave Mr Golman an outline of the venture and handed him a number of documents. Both plaintiffs were adduced by Crasti as to what purpose the money was to be put before the money was paid (J 7). When these documents were read they clearly demonstrated that the venture was a highly speculative one. There is no evidence in this case that that the documents provided by Crasti and relied on by the Plaintiffs did not truly reflect the situation of the venture at the time the investments were made.

(2) There is no suggestion on the evidence that the money was used for any purpose other than what is intended (J 7).

(3) At the time the plaintiffs invested their money, the plaintiffs believed that the money would be returned if the venture failed. The documents provided by Crasti to Golman demonstrate as to where this understanding was founded.

(4) Given that Paltrust's involvement was founded on the fact that Tru Blu had a lack of cash, a person reviewing the documents would, should or must have asked himself "How, if the "bail-out" failed, was Tru Blu going to return the money?"

(5) Golman's evidence was quite simple that he was approached by Crasti and presented with a business opportunity that was backed up by documents upon which he relied.

(6) Having looked at the documents and given the nature of Tru Blu's problems, it was not reasonable for them to rely on the documents to believe that their money would be safely returned. They are both experienced businessmen involved in property development. They were on notice that the venture was highly speculative. 25 Section 52 of the Trade Practices Act 1974 (Cth) (TPA) provides for a general prohibition against misleading or deceptive conduct. Section 52(1) of the TPA states: "A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive". Section 42(1) of the Fair Trading Act 1987 (NSW) (FTA) is similar except where s 52(1) of the TPA refers to 'a corporation', s 42(1) of the FTA does not limit its operation to conduct engaged in by corporations. 26 For there to be breaches of s 52 TPA and s 42 of the FTA, Golman and Zaslavsky need to establish: firstly, conduct on the part of a corporation or person; secondly, conduct that is misleading or deceptive; thirdly, conduct effected in trade or commerce; fourthly, that there was reliance on the conduct and fifthly, loss or damage caused by the conduct. The plaintiff may satisfy the first and third elements. The Magistrate found that the plaintiffs failed to establish the other elements. The Magistrate held that the plaintiff relied upon the documentation and it was not reasonable for them to rely upon it. She also held that there was no evidence that the Crasti or Paltrust Pty Ltd, via Crasti made any false representations to Golman and Zaslavsky or were engaged in misleading or deceptive conduct. The Magistrate found that were was no misleading or deceptive conduct. 27 This submission fails. The orders of Magistrate Truscott dated 18 February 2003 are affirmed. The appeal is dismissed. The summons is dismissed. 28 Costs are discretionary. Costs normally follow the event. The plaintiffs are to pay the defendants' costs as agreed or assessed.

(1) The orders of Magistrate Truscott dated 18 February 2003 are affirmed.

(4) The plaintiffs are to pay the defendants' costs as agreed or assessed. **********

Last Modified: 08/03/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.