FEDERAL COURT OF AUSTRALIA
Australian Securities & Investments Commission v GDK Financial Solutions Pty Ltd (in liq) & Ors [2010] FCA 710
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Citation: |
Australian Securities & Investments Commission v GDK Financial Solutions Pty Ltd (in liq) & Ors [2010] FCA 710 |
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Parties: |
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File number: |
VID 590 of 2006 |
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Judge: |
GRAY J |
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Date of judgment: |
8 July 2010 |
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Catchwords: |
CONTRACT – terms – construction – deed of purchase – purchase of interests of investors in unregistered managed investment scheme which was being wound up by the Court – terms of purchase deed expressed to include whole of entitlement of vendor in relation to scheme – whether deed effective to transfer equitable interests claimed by vendor in relation to land which was an asset of scheme, which vendor claimed to hold in priority to claims of investors in scheme – examination of circumstances surrounding entry into purchase deed – application of objective test – whether course of negotiations would have led reasonable people to regard subject matter of purchase as including all entitlements of vendor |
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Legislation: |
Corporations Act 2001 (Cth), s 601EE |
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Cases cited: |
Re: GDK Financial Solutions Pty Ltd and Ors; Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd and Ors [2006] FCA 1415 (2006) 236 ALR 699 referred to Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 (2004) 219 CLR 165 followed |
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Date of hearing: |
18 February, 30-31 March 2010 |
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Place: |
Melbourne (Via videolink to Sydney) |
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Division: |
GENERAL DIVISION |
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Category: |
Catchwords |
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Number of paragraphs: |
50 |
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Counsel for the seventh defendant: |
Ms D Hogan-Doran with Ms J Shepard |
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Solicitor for the seventh defendant: |
Arnold Bloch Liebler |
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Counsel for the thirteenth and fourteenth defendants: |
Mr A Kirby |
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Solicitor for the thirteenth and fourteenth defendants: |
Charlesworth Josem Partners |
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IN THE FEDERAL COURT OF AUSTRALIA |
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VICTORIA DISTRICT REGISTRY |
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GENERAL DIVISION |
VID 590 of 2006 |
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AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION Plaintiff
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AND: |
GDK FINANCIAL SOLUTIONS PTY LTD (IN LIQUIDATION) ACN 085 488 311 First Defendant
WINDSOR VILLAGE MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 088 339 913 Second Defendant
WESTERN RETIREMENT VILLAGE MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 091 443 239 Third Defendant
THE MEWS VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) ACN 091 526 224 Fourth Defendant
PERIDON MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 088 322 276 Fifth Defendant
ROSEDALE VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) ACN 089 667 096 Sixth Defendant
PETER HASTINGS WARNE Seventh Defendant
RENTAL FLEETS AUSTRALIA PTY LTD ACN 082 558 978 Eighth Defendant
JOHN MONTGOMERIE Ninth Defendant
ANDREW REGINALD YEO Tenth Defendant
GUISEPPE DE SIMONE Eleventh Defendant
SEACHANGE MANAGEMENT PTY LTD ACN 091 443 211 Twelfth Defendant
ZMB AUSTRALIA PTY LTD ACN 105 746 067 Thirteenth Defendant
YOUNG TURKS PTY LTD ACN 005 872 122 Fourteenth Defendant
TOUMA PTY LTD ACN 124 195 366 Fifteenth Defendant
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JUDGE: |
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DATE OF ORDER: |
8 JULY 2010 |
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WHERE MADE: |
MELBOURNE (VIA VIDEOLINK TO SYDNEY) |
THE COURT ORDERS THAT:
Question:
Whether the effect of the deed between Touma Pty Ltd (ACN 124 195 366) (“Touma”) and ZMB Australia Pty Ltd (ACN 105 746 067) (“ZMB”) dated 25 September 2007 was that ZMB assigned to Touma the rights and entitlements claimed by ZMB in its notice of motion filed on 23 April 2009?
Answer:
The effect of the deed was that ZMB assigned to Touma the rights and entitlements claimed by ZMB in its notice of motion filed on 23 April 2009.
2. The thirteenth defendant pay the costs of the seventh defendant of and incidental to the determination of the separate question pursuant to the order of 18 February 2010.
3. To the extent to which the actual costs incurred by the seventh defendant of and incidental to the determination of the separate question specified in the order of 18 February 2010 exceed those recovered from the thirteenth defendant pursuant to the order in paragraph 2, the seventh defendant be entitled to claim those costs on an indemnity basis out of the funds held by the Mews receivers and/or the liquidators of the third defendant as costs incurred in the winding up of the Mews Scheme or of the third defendant.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
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IN THE FEDERAL COURT OF AUSTRALIA |
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VICTORIA DISTRICT REGISTRY |
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GENERAL DIVISION |
VID 590 of 2006 |
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BETWEEN: |
AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION Plaintiff
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AND: |
GDK FINANCIAL SOLUTIONS PTY LTD (IN LIQUIDATION) ACN 085 488 311 First Defendant
WINDSOR VILLAGE MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 088 339 913 Second Defendant
WESTERN RETIREMENT VILLAGE MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 091 443 239 Third Defendant
THE MEWS VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) ACN 091 526 224 Fourth Defendant
PERIDON MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 088 322 276 Fifth Defendant
ROSEDALE VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) ACN 089 667 096 Sixth Defendant
PETER HASTINGS WARNE Seventh Defendant
RENTAL FLEETS AUSTRALIA PTY LTD ACN 082 558 978 Eighth Defendant
JOHN MONTGOMERIE Ninth Defendant
ANDREW REGINALD YEO Tenth Defendant
GUISEPPE DE SIMONE Eleventh Defendant
SEACHANGE MANAGEMENT PTY LTD ACN 091 443 211 Twelfth Defendant
ZMB AUSTRALIA PTY LTD ACN 105 746 067 Thirteenth Defendant
YOUNG TURKS PTY LTD ACN 005 872 122 Fourteenth Defendant
TOUMA PTY LTD ACN 124 195 366 Fifteenth Defendant
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JUDGE: |
GRAY J |
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DATE: |
8 JULY 2010 |
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PLACE: |
MELBOURNE (VIA VIDEOLINK TO SYDNEY) |
REASONS FOR JUDGMENT
The nature and history of the proceeding
1 These reasons for judgment deal with a question, stated in the following order made on 18 February 2010:
The question whether the effect of the deed between Touma Pty Ltd (ACN 124 195 366) (“Touma”) and ZMB Australia Pty Ltd (ACN 105 746 067) (“ZMB”) dated 25 September 2007 was that ZMB assigned to Touma the rights and entitlements claimed by ZMB in it’s notice of motion filed on 23 April 2009 be tried separately from any other question in the proceeding.
2 The circumstances in which the question arises for determination are complex. On the application of the Australian Securities and Investments Commission (“ASIC”), the Court has been winding up an unregistered managed investment scheme, pursuant to s 601EE of the Corporations Act 2001 (Cth), as well as a number of corporations that were involved in that scheme. A convenient summary of the nature of the scheme can be found in the judgment of Finkelstein J in Re: GDK Financial Solutions Pty Ltd and Ors; Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd and Ors [2006] FCA 1415 (2006) 236 ALR 699 at [3]-[5]. The scheme concerned was to involve the establishment of a retirement village, known as the Mews Retirement Village. It is convenient to call the scheme the “Mews Scheme”. In substance, the Mews Scheme involved the purchase of 28 hectares of land in Upper Swan, on the outskirts of Perth (“the Mews land”). The Mews land was acquired by Western Retirement Village Management Pty Ltd (“WRVM”). WRVM then entered into a contract to sell the Mews land to Mews Village Nominees Pty Ltd (“MVN”) for $93,425,000, a sum substantially greater than the purchase price paid by WRVM. MVN entered into the contract to purchase the Mews land as “bare nominee” for a group of investors. The contract of sale provided for the payment of a deposit of $18,048,000, with the balance to be paid by a loan from WRVM to MVN, secured by a vendor mortgage over the Mews land. Under the contract, WVRM was obliged to construct the village in two stages over several years. Most of the deposit was raised from investors, with the balance provided by WVRM under a loan agreement contemplating that the loan was to be repaid out of fees payable by residents of the village and, in the event of default, WVRM could look only to the Mews land for payment. There was a partnership agreement dated 18 April 2000, naming fourteen “Investor Partners”. Also party to that agreement were GDK Financial Solutions Pty Ltd, which was appointed to manage the business of the partnership, and Mews Retirement Nominees Pty Ltd, which was appointed to hold the partnership property as a “bare trustee for the partnership”.
3 The sale of the Mews land by WRVM to MVN was never completed. No retirement village was ever built on the Mews land. The Mews Scheme has been wound up and the Court has appointed receivers to administer its winding up. WRVM has been wound up by order of the Court, and the receivers of the Mews Scheme have been appointed as liquidators of WRVM. By order of the Court, the Mews land has been sold, and receivers hold the proceeds of its sale, either in their capacity as receivers of the Mews Scheme or in their capacity as liquidators of WRVM. The Court is in the process of determining entitlements to the balance of the proceeds of the sale of the Mews land held by the receivers. Those who invested in the scheme, or who have subsequently acquired the interests of the original investors, include Peter Hastings Warne, the seventh defendant in the proceeding, who acts as a representative party for those holding interests as investors in the Mews Scheme.
4 On 18 November 2008, Finkelstein J made orders requiring two classes of persons to file notices of claims, with affidavits verifying those claims. The first class was persons other than investors claiming to be creditors, or entitled to share in the assets, of the Mews Scheme. The second class was persons claiming to have a proprietary or other interest, whether legal or equitable, in the Mews Scheme, or entitlement to have claims satisfied in priority to the claims of the investors. In response to this order, on 12 December 2008, Touma Pty Ltd (“Touma”) filed a notice that it had acquired the interests of a number of investors in the Mews Scheme. Among those were the interests of Francis Street Pty Ltd (“Francis Street”) and Seachange Management Pty Ltd (“Seachange”), in the sums of $100,000 and $600,000 respectively. Touma’s notice of claim indicated that the receivers had stated that they would not recommend to the Court that the claim of Seachange be accepted.
5 On 23 April 2009, ZMB Australia Pty Ltd (“ZMB”) and Young Turks Pty Ltd (“Young Turks”) made an interlocutory application to the Court. Among the orders sought were three of importance in relation to the separate question dealt with in these reasons for judgment. The first was a declaration that either ZMB or Young Turks is the sole beneficiary of the rights and entitlements arising from the activities of WRVM in relation to the contracts of sale, vendor mortgage and other related transactions the subject of the proceeding. The second was an order that the receivers pay to ZMB or Young Turks the balance of the proceeds of sale of the Mews land by reason of the contract of sale between WRVM (as trustee for ZMB or Young Turks) as vendor, and MVN as purchaser, dated 18 April 2000. The third order, alternatively to the second, was an order that the receivers pay to ZMB or Young Turks the balance of the proceeds of sale of the Mews land by reason of a vendor mortgage held by WRVM as trustee for ZMB or Young Turks over the Mews land dated “in or about April 2000.”
6 At a directions hearing on 28 August 2009, I ordered that ZMB be added as the thirteenth defendant, Young Turks as the fourteenth defendant and Touma as the fifteenth defendant in the proceeding. The orders included the filing of statements of facts and contentions by ZMB and Young Turks, by Touma, and by Mr Warne, in relation to the respective claims. At a further directions hearing on 4 November 2009, I ordered that the applications of ZMB and Young Turks, and of Touma, be listed for hearing on a date to be fixed. Subsequently, the date was fixed for 18 February 2010.
7 On that date, two significant things occurred. One was that Touma and Mr Warne reached agreement to settle the claims of Touma in respect of the Mews Scheme. Because of Mr Warne’s status as a representative party for the investors, the view was taken that the settlement requires the approval of the Court. Application for that approval has been made, but that application has not yet been determined. The second event that occurred on 18 February 2010 was that counsel for Mr Warne referred to a deed between ZMB and Touma, dated 25 September 2007. By cl 2 of that deed (“the purchase deed”), Touma agreed to purchase and ZMB agreed to sell ZMB’s entitlement in the Mews Scheme. Counsel for Mr Warne contended that the purchase deed was a bar to any claim by ZMB in respect of the proceeds of sale of the Mews land held by the receivers, because Touma is the assignee of any such claim. Counsel for ZMB wished to contend that, on its true construction, the purchase deed dealt only with certain investor interests that had been acquired by ZMB, namely the interests of Francis Street and Seachange. If that were the case, ZMB would still be able to pursue its claim to an equitable interest in the proceeds of the sale of the Mews land, and its claim to hold that interest in priority to the interests of investors in the Mews Scheme. As a result, on 18 February 2010, I made the order for the determination of the separate question, which I have quoted in [1] above.
The terms of the purchase deed
8 It is convenient to set out the terms of the purchase deed between Touma and ZMB in their entirety:
PURCHASE DEED
Interest in Mews Scheme
1. In this Deed, the following expressions have the following meaning:
1.1 MEWS Scheme means Mews Village Retirement Scheme being an unregistered managed investment scheme established by various agreements including a partnership agreement dated on or about 18 April 2000 between various parties whereby investors including the Investors contributed funds for the purpose of constructing a retirement village on land known as Lot 4, 285 Railway Parade, Upper Swan, Western Australia, such scheme being the subject of proceedings in the Federal Court of Australia No. 590 of 2006.
1.2 including means including without limitation.
1.3 Investment Amounts means AUD $700,000 and includes the contributions made by the Investors in the MEWS Scheme.
1.4 Investors means Seachange Management Pty Ltd and/or Francis Street Pty Ltd.
1.5 Purchase Price means AUD $466,700 inclusive of any applicable GST.
1.6 ZMB’s Entitlement means any entitlement or equitable rights, title or interests in or arising out of the MEWS Scheme including any rights, title or interests acquired from the Investors including in respect of any contributions by the Investors, any chose in action, and any right to receive a benefit or costs (including legal or accounting costs) in respect of the MEWS Scheme including upon the winding up of the MEWS Scheme and including upon the sale of any asset of the MEWS Scheme.
2. Touma agrees to purchase, and ZMB agrees to sell, ZMB’s Entitlement in the MEWS Scheme for the Purchase Price with effect from the date of this Deed and ZMB’s Entitlement shall pass to and be held in the name of Touma upon payment of the Purchase Price.
3. ZMB agrees for valuable consideration to sell ZMB’s Entitlement to Touma for the Purchase Price notwithstanding the Investment Amount exceeding the Purchase Price.
4. Touma shall pay the Purchase Price to ZMB by bank cheque or deposit to the bank account nominated by ZMB by 5pm on 25 September 2007.
5. ZMB warrants to Touma that:
5.1 it has power to execute, deliver and perform its obligations under this Deed including the transfer ZMB’s Entitlement [sic] to Touma;
5.2 there is no other agreement under which any person or entity is entitled to purchase, acquire or charge ZMB’s Entitlement;
5.3 it understands that the transfer of ZMB’s Entitlement to Touma does not require the approval of the Federal Court and/or the Receiver appointed in respect of the MEWS Scheme or; and
5.4 it is not aware of any fact, act or matter which may materially adversely affect Touma’s rights, title or interests in respect of ZMB’s Entitlement such that a prudent purchaser in the position of Touma would not have entered into this Deed had such fact, act or matter been known to it.
6 ZMB irrevocably appoints Touma or its nominee as its lawful attorney from the date of this Deed to act exclusively on its behalf in respect of the MEWS Scheme including to exercise any right to vote at any meeting of investors or partners in the MEWS Scheme and any right, title or interest in ZMB’s Entitlement and to do anything which is otherwise reasonably necessary to give effect to any right or power given to Touma by this Deed including completing any further documentation required to effect the transfer of ZMB’s Entitlement to Touma.
7 The following general terms apply to this Deed:
7.1 This Deed is the entire agreement and understanding between the parties on everything connected with the subject matter of this Deed and supersedes any prior agreement between them;
7.2 If anything in this Deed is unenforceable, illegal or void then it is severed and the rest of this Deed remains in force;
7.3 Each party agree [sic] to bear their own costs in connection with the preparation and execution of this Deed;
7.4 Each party must promptly at its own cost do all things (including executing and if necessary delivering all documents) necessary or desirable to give full effect to this Deed;
7.5 An amendment or variation to this Deed is not effective unless it is in writing and signed by the parties;
7.6 The law of Victoria governs this Deed. The parties submit to the non-exclusive jurisdiction of the courts of Victoria and of the Commonwealth of Australia; and
7.7 This Deed may be executed in any number of counterparts. Each counterpart is an original but the counterparts together are one and the same agreement.
9 Counsel for ZMB argued that, on the face of the purchase deed, its terms were confined to dealing with the investor interests of Seachange and Francis Street. This argument cannot be accepted. The principal operative clause of the purchase deed is cl 2, which makes it clear that the subject matter of the sale is “ZMB’s Entitlement in the MEWS Scheme”. The phrase “ZMB’s Entitlement” is the subject of the specific definition in cl 1.6. The definition is broad. It extends to “any entitlement or equitable rights, title or interests in or arising out of the MEWS Scheme”. The definition then contains specific inclusions. The first is the interests acquired from Seachange and Francis Street in respect of their contributions. This appears from the words of the definition in cl 1.6 itself, in conjunction with the definition in cl 1.4. The second relevant inclusion is “any right to receive a benefit...in respect of the MEWS Scheme...including upon the sale of any asset of the MEWS Scheme.” If the general words of the definition were not sufficient to cover any right or entitlement of ZMB as beneficiary of a trust of which WRVM was the trustee, then this second relevant inclusion would surely make it clear that the purchase deed extended to such right or entitlement. The specific inclusion in the definition in cl 1.6 of the purchase deed of the reference to the interests of Seachange and Francis Street cannot be regarded as limiting the definition to those interests. So to read cl 1.6 would be to ignore most of the words appearing in it. It would also be to ignore cl 1.2, which provides that the use of the word “Including” is not to signify any limitation.
10 In the face of such clear wording, it would be necessary to find elsewhere in the purchase deed provisions that impose some limitation, expressly or impliedly. No such provisions appear. Clause 3 of the purchase deed is nothing more than a cautionary provision, making it clear that, even though the sale includes specified items with a value greater than the amount paid by the purchaser, it is the intention of the parties that the lesser sum be regarded as valuable consideration for all that is transferred. No other provision of the purchase deed suggests any relevant limitation.
The history and circumstances of the purchase deed
11 The time when it could be said that the meaning of a contract, including a purchase deed, could be determined only by looking at its terms has passed. So also has the time when it could be said that resort could be had to the matrix of facts surrounding the creation of the contract only to resolve an ambiguity apparent from the terms of the contract itself. The history and circumstances of the making of the contract are now regarded as relevant to the task of interpreting the contract in every case.
12 The current principle was expressed by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 (2004) 219 CLR 165 at [40]:
This Court...has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
13 At [41]-[44], the High Court referred to authorities underlining both the importance of the objective theory of contractual assent and “the significance which the law attaches to the signature (or execution) of a contractual document.”
At [45], the Court said:
It should not be overlooked that to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document. The representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents...whatever they might be.
14 It is therefore necessary to examine the surrounding circumstances known to the parties to the purchase deed in the present case, and the purpose and object of the transaction, to ascertain what the terms of the purchase deed would have been understood to mean by reasonable persons with knowledge of those circumstances and seeking to achieve that purpose and object.
15 In order to recount the circumstances, it is useful to understand the identities of the persons involved. Michael Brereton was a solicitor who practised principally in commercial law up to 2004, when he began running down his legal practice in order to engage in other pursuits. Since 7 October 2008, he has been prohibited from applying for a practising certificate until 1 July 2013. Michael Brereton was also a director of a number of corporations. He has been disqualified by ASIC from holding the position of a director of a corporation in Australia until 2011. Among the corporations of which he was a director were a number involved in the Mews Scheme and associated dealings. Until WRVM was wound up by order of the Court made on 19 October 2007, Michael Brereton was a director of WRVM. For many years until 2009, he was a director of Young Turks Pty Ltd, which claimed to hold a beneficial interest in the assets held by WRVM, and to have transferred that interest to ZMB prior to mid-2007. Michael Brereton was also a director of ZMB from 31 July 2003 to 2 August 2004.
16 Marie Brereton is Michael Brereton’s sister. In 2007, she was the sole director of ZMB. Kristen Thompson was Michael Brereton’s assistant at his law firm. She often drafted documents and emails from Michael Brereton’s dictation over the telephone, or on his direction. She sent and received communications on behalf of Michael Brereton. Any communications she received she either forwarded to Michael Brereton or read to him if he had not already seen them.
17 Mario Salvo is a director of a large number of corporations engaged in property development, investment, and other businesses. One of his corporations, Rental Fleets Australia Pty Ltd acquired investor interests in the Mews Scheme and is the eighth defendant in the proceeding. The group secretary of Mr Salvo’s group of corporations, and its financial controller, was Woodrow Wunsch, known as Woody Wunsch. The development manager for Mr Salvo’s group of corporations was Michael Touma. Touma was a corporate vehicle for Michael Touma’s dealings, and was not part of Mr Salvo’s group. Brett Wilson was a solicitor at a firm called Mills Oakley, engaged by Mr Touma to act on behalf of Touma in the negotiations that led to the execution of the purchase deed.
18 In the early stages of the Mews Scheme, Mr Salvo personally and one or more corporations he controlled became investors in the Mews Scheme. The total amount of those investments was $2,000,000. Claims were made for tax deductions in respect of the amounts invested. Initially, those deductions were allowed, but the ruling approving the Mews Scheme for tax purposes was subsequently revoked, and Mr Salvo and his corporations were called upon to pay the tax. Rather than contest the position, and risk having to pay penalties and a high rate of interest on unpaid tax, Mr Salvo decided to pay the tax. As a result, he became disenchanted with his involvement in the Mews Scheme. He entered into negotiations with Michael Brereton, inviting him to purchase the investor interests of Mr Salvo and his corporations in the Mews Scheme. The result of these negotiations was that, instead of the investor interests, one of Mr Salvo’s corporations became a joint venturer with WRVM in relation to the development of the Mews land. Mr Salvo’s corporation paid out a bank loan secured on the Mews land and became a mortgagee of the Mews land in place of the bank. Through one or more of his corporations, Mr Salvo engaged in the preparation of subdivision plans and the procuring of purchasers for blocks of the Mews land, with a view to salvaging something from the substantial amounts that had been invested by himself and corporations in his group. By the middle of 2007, when ASIC was seeking orders in relation to the winding up of the Mews Scheme, including the sale of the Mews land, Mr Salvo was adopting strategies designed to recoup as much as he could of what he had put in. One of these strategies involved attempting to purchase the Mews land, when it was sold by tender pursuant to orders of the Court, a strategy that was not carried through. Another strategy was to acquire the interests of other investors at a discounted rate, so as to stand in the shoes of those investors in the winding up.
19 In late May 2007, ZMB acquired the interests of Seachange and Francis Street as investors in the Mews Scheme. The deed dated 28 May 2007 by which ZMB purchased the Seachange interest for $600,000 was very brief. It consisted of three clauses. The subject matter of the purchase was described as “the Seachange interest in the MEWS Scheme”. There were no definitions of any terms used. The deed dated 30 May 2007, by which ZMB purchased the interest of Francis Street for $100,000 was similarly brief. The first clause referred simply to “the interest in the Mews Scheme” each of the other two clauses referred to “the Francis Street interest in the Mews Scheme.” Again, there were no definitions of terms.
20 In June 2007, the Court began the process of sale of the Mews land. By order made on 15 June 2007, the receivers were permitted immediately to invite proposals from three licensed real estate agents of their choosing in relation to the sale of the Mews land. The receivers were required to provide details of their preferred proposal, and a summary of other proposals, and any comments they wished to make to certain other specified parties to the proceeding. By order made on 29 June 2007, the receivers were permitted to appoint a nominated real estate agent to act as the agent in the marketing and sale of the Mews land. The receivers were permitted to instruct that agent either to call for expressions of interest from prospective purchasers or to take steps to offer the Mews land for sale by public tender. By notice of motion filed on 27 September 2007, the receivers sought the removal of a caveat placed on the register by two of Mr Salvo’s corporations, claiming an interest in the Mews land. On 3 October 2007, an order was made by consent that those two corporations do all things necessary and within their power to withdraw that caveat or cause it to be withdrawn. An order made on 16 October 2007 permitted the receivers to enter into a sale agreement in the form of a document attached to the order. By order made on 19 October 2007, WRVM was wound up and the receivers of the Mews Scheme were appointed as liquidators of WRVM. The order provided that the Mews land was to remain in the possession of the receivers pending the completion of the Mews Scheme or further order.
21 Against this background of court activity, events said to bear upon the construction of the purchase deed were occurring. At some stage in the course of his dealings with Michael Brereton, Mr Salvo learned that, in effect, Michael Brereton had purchased the investor interest of Seachange. On Wednesday, 15 August 2007, at 5.26 pm, Mr Wunsch sent an email to Michael Brereton in the following terms:
We understand that one of your related entities acquired the entitlements of Seachange in relation to their $600,000 original cash investment in the Mews Scheme.
We are offering to acquire those entitlements for $240,000 under the terms of the attached agreement.
We would also consider paying an additional $240,000 if we were able to use WRVM to continue to hold the Land and save the resulting stamp duty on the transfer of the Land if we are successful in acquiring the Land.
Your thoughts on both of the above proposals would be appreciated.”
22 Attached to that email was a draft agreement containing substantial terms, which designated the intended purchaser as Salwest Pty Ltd.
23 At 2.09 pm on 16 August 2007, Ms Moran, on Michael Brereton’s behalf, sent an email to Mr Salvo, copied to Mr Wunsch and Marie Brereton, apparently in response to Mr Wunsch’s proposal:
Let me get this straight. You are offering to buy ZMB out at a deep discount for assets it recently paid 100 cents in the dollar for and that you don’t want to pay it until the approval of the Court. Is that correct? I just want to understand it before I contact my client.
24 The next communication appears to have occurred on the following Tuesday, 21 August 2007, at 4.27 pm. Mr Wunsch sent an email to Michael Brereton and Mr Salvo, with a copy to Marie Brereton, saying:
Could you please call Mario or I [sic] to discuss with a view to wrapping this deal up.
On the following day, Wednesday 22 August 2007, at 1.36 pm, Mr Salvo emailed Michael Brereton saying:
I haven’t heard back from you I don’t know if there is interest or not. I would appreciate a call one way or the other.
Michael Brereton replied at 3.42 pm on the same day, with a copy to Ms Moran, saying:
My apology...thought Kris responded.…are you proposing a deep discount and a post court approved payment??
On the following day, Thursday, 23 August 2007, at 3.30 pm, Mr Salvo forwarded this email of Michael Brereton to Ms Moran, with a copy to Mr Wunsch, saying:
I’m not sure whether I should be expecting an email from you in response to a proposal offered to Michael re the purchase of Michael’s interests in Seachange.
The email invited Ms Moran to ring Mr Salvo on his mobile number.
25 Nothing of significance to the question to be determined appears to have occurred over the next four weeks or so. The next event was a meeting between Michael Brereton and Mr Salvo at Southbank. There was no clear evidence about the date on which this meeting occurred, but it can be inferred from other evidence that it was on or shortly prior to Friday, 21 September 2007. In the course of discussions, it became clear that Michael Brereton would accept a discount of one-third of the nominal value of the Seachange and Francis Street investments, in order to effect a sale of them. Mr Salvo was inclined to enter into the transaction to purchase those interests at that price. Before he decided to do so, however, he sought advice from his solicitors. He left Michael Brereton to go and make contact by telephone with the solicitors. The advice he received from his solicitors was that he should not enter into the purchase of the Seachange and Francis Street interests. Mr Salvo accepted this advice. He still thought that the proposed transaction might offer a valuable opportunity, however. He therefore rang Mr Touma and asked whether Mr Touma would be interested in that opportunity. Mr Salvo then returned to Michael Brereton and told him that he would not enter into the transaction. He suggested that Michael Brereton should contact Mr Touma to see if Mr Touma would be interested in entering into the transaction.
26 On Friday, 21 September 2007, shortly after 10.30 pm, Michael Brereton sent an email to Mr Touma, with copies to Marie Brereton and Ms Moran, in the following terms:
I act for ZMB Aust P/L which owns $700k of the cash investment in the Mews Retirement Village scheme.
I understand you know of it and the current circumstances.
My client is willing to sell its interest for 66.66% of the cash invested on the basis this is paid by close of business Monday 24 September to our office in cleared funds.
This offer is open for 24 hours from now. . . .on acceptance we will prepare a document evidencing our agreement.
27 Mr Touma replied to all recipients on Saturday, 22 September 2007, at 9.00 am:
Michael please prepare documents as I do wish to take up this offer I will be available Monday to excute [sic] and transfee [sic] funds.
On the same day at almost 12.45 pm, Ms Moran replied on behalf of Michael Brereton to Mr Touma:
Could you please advise me of the entity to which ZMB will be transferring its interest to enable me to prepare the document for signing.
I look forward to hearing from you.
On Monday, 24 September 2007, at 12.18 pm, Mr Touma sent an email to Michael Brereton, saying:
Please send document and I will inform you of the Name after I have reviewed the document
28 At 12.44 pm on Monday, 24 September 2007, Ms Moran on behalf of Michael Brereton sent an email to Mr Touma, saying:
Please find attached our draft Purchase Deeds for purchase price of $466,700 of ZMB’s interest in the Mews Scheme.
Attached to that email was a draft deed, giving the purchaser’s name as “NewCo”. Like the deeds by which ZMB had purchased the Seachange and Francis Street interests, the draft deed had only three clauses. The subject matter of the sale was described in cl 1 as “the interest in the MEWS Scheme” and in cll 2 and 3 as “the ZMB interest in the MEWS Scheme.” Further emails were exchanged, including one from Ms Moran at 3.07 pm, attaching a draft with Touma’s name and ACN as the purchaser, but without its registered address, and an email at 4.03 pm attaching a further draft which included Touma’s registered address.
29 Late in the afternoon on Monday, 24 September 2007, Mr Touma obviously engaged Mr Wilson to act on behalf of Touma in negotiating the purchase. Emails were exchanged between Mr Wilson and Ms Moran on behalf of Michael Brereton, until late in the evening on that day. Copies of the emails went to Mr Touma and Michael Brereton. The negotiations leading to the terms of the purchase deed were conducted by means of these emails.
30 At 4.40 pm, Mr Wilson sent an email to Michael Brereton and Ms Moran, with a copy to Mr Touma, entitled “Touma proposed purchase from ZMB”. The email was in the following terms:
We act for Michael Touma and understand that your firm acts for ZMB Australia Pty Ltd.
We have been provided with your email to our client earlier this afternoon attaching a draft purchase deed for our client’s consideration.
It is not entirely clear to us what our client (or its nominated entity) would be acquiring if it proceeded with the proposed transaction. The ‘interest’ to be acquired needs to be clearly identified. Indeed, we understand that your client’s interest was in fact acquired from third parties. It would greatly assist if you could provide us with the documentation that led to your client acquiring the said interest.
We understand that the proposed purchase is subject to approval by the Court and/or Receiver and/or Liquidator and/or pursuant to the terms of the original scheme. The deed would need to reflect and make allowance for these conditions. We understand that the proposed purchase is conditional upon obtaining the necessary approvals and to the extent that any necessary approvals are not obtained and our client does not acquire legal and beneficial title to the relevant interest, our client would not be bound to complete.
The proposed deed appears to be silent on how payment would be made by our client. Our client would propose to deposit the purchase price into an interest bearing controlled monies account or trust account held by this firm. Once the transfer of your client’s interest to our client is approved by the Court and/or Receiver and/or Liquidator (as may be necessary) those monies would be immediately transferred to your client’s nominated account.
Our client would need to acquire a proxy / Power of Attorney for any voting rights/interests for the period prior to the approval of the purchase.
Our client would also need your client to provide a warranty in respect of the known amount invested in the scheme.
The deed would need to provide for stamp duty obligations.
I look forward to hearing from you.
31 Ms Moran replied at 5.36 pm on behalf of Michael Brereton:
Thank you for your email.
We will forward you via email the documents under which the interests of Francis Street and Seachange Management were acquired. These were provided to the Receiver at the time of acquisition.
It is our understanding that this purchase does not require the consent of either the Court of [sic] the Receiver. This is a matter between ZMB and the purchaser in relation to the investment of ZMB as successor to two (2) original investors and as such does not require approval of any other party.
The payment was to be made in full by close of business today and that could occur by either bank cheque or transfer to our Trust account.
We are happy to execute a Power of Attorney if you provide it to us and look forward to hearing from you.
32 At 6.03 pm, Mr Wilson emailed as follows:
Thanks for your email.
We look forward to receiving the acquisition documents from you.
Thank you for letting us have your understanding regarding approvals not being required. However, in order that we can move forward quickly, our client would like some form of protection in the event that your understanding is not correct and that approvals are required and are not forthcoming. In this regard, please let us know if your client would agree to hold funds in escrow for some period or give an undertaking that if approval for the transfer is required and not forthcoming, that your client will immediately pay monies back to our client (as consideration would have failed). Would you kindly take instructions.
We also confirm that our client will require a warranty from your client regarding the known amount invested in the scheme.
We will provide a power of attorney in due course.
We look forward to hearing from you.
33 Again, the reply was from Ms Moran on behalf of Michael Brereton, at 6.08 pm:
The deal that was done contemplated payment and release of the monies by today. It should be realised that the sale of these interest [sic] are at a significant discount to what ZMB has only recently paid as per the Purchase Deeds which will follow shortly.
Please let me know if your client wishes to withdraw from the agreement.
34 At 6.36 pm, Mr Wilson sent an email, saying:
Our client wishes to proceed but as you can understand there needs to be clarity as to what our client is acquiring.
I propose to review the agreement you forwarded earlier today and to send back to you tonight a proposed agreement containing all the terms our client requires.
I understand that payment will be able to be arranged by cob tomorrow if the parties sign an agreement in the morning.
I expect to revert to you later tonight.
35 On behalf of Michael Brereton, Ms Moran replied at 7.26 pm:
Thank you Brett, we will wait to receive your email.
36 At 11.09 pm, Mr Wilson sent an email in the following terms:
I refer to our emails earlier tonight.
Please find attached a proposed amended Purchase Deed.
Given the time of night, I have not been able to obtain instructions in respect of the actual drafting but understand the clauses reflect the clauses that my client wishes to incorporate into the Deed. As such, the attached draft is issued on a subject to instructions basis.
I also understand that in order for my client to make payment tomorrow, the deed will need to be agreed by 9.30am so that my client can make appropriate arrangements with its bank. It would assist if you could provide account details for any transfer of funds. Alternatively, if payment is to be by bank cheque, please let me know where it should be delivered.
I look forward to hearing from you.
Attached to that email was a draft of the purchase deed, in the form in which it was executed on the following day.
37 On Tuesday, 25 September 2007, the transaction was completed by the execution of the purchase deed and the payment of the purchase money. Once again, this involved a chain of emails between Ms Moran on behalf of Michael Brereton, and Mr Wilson on behalf of Touma, with copies going to Michael Brereton and Mr Touma. The chain began with an email from Ms Moran at 9.35 am, attaching the “Purchase Deed signed by Marie Brereton, sole director or [sic] ZMB Australia Pty Ltd.” and requesting advice once the funds had been transferred. Mr Wilson replied at 10.24 am:
I refer to our telephone discussions this morning and your email enclosing a counterpart of the Purchase Deed executed by your client.
Please find enclosed our client’s counterpart of the Purchase Deed signed by Michael Touma as director on behalf of Touma Pty Ltd. I would be grateful if you could confirm receipt of this email.
I will forward the original counterpart to you once I receive same and would be grateful if you could forward your client’s original counterpart to me in due course.
I will confirm once the transfer of funds has been made by my client to the nominated account.
At 10.29 am, Ms Moran replied, confirming receipt of the counterpart of the purchase deed, signed by Michael Touma of Touma Pty Ltd and looking forward to receiving confirmation of the transfer. At 3.08 pm, Mr Wilson sent an email, attaching confirmation of the telegraphic transfer of funds made earlier that day.
38 There are some issues of fact on which there is conflicting evidence. Michael Brereton believed and asserted that the principal in the transaction was Mr Salvo, and that Touma entered into the purchase as Mr Salvo’s nominee. That was not the case. Mr Salvo was involved personally in the negotiations up to the time when he received advice from his solicitors that he should not go ahead with the purchase. He informed Michael Brereton that he had been advised not to enter into the transaction, but suggested Michael Touma as a substitute. Michael Touma, and through him Touma, became engaged in the negotiations in their own right, and not on Mr Salvo’s behalf. Michael Brereton may not have appreciated this, but it was the fact. I am satisfied that Mr Salvo did not tell Michael Brereton that he had been advised by his solicitors that it was preferable that the Court not be aware of Mr Salvo’s acquisition of investor interests. He simply told Michael Brereton that his solicitors had advised him not to enter into the purchase.
39 The issue of the independence of Touma from Mr Salvo in this sense is of some importance, because Michael Brereton sought to contend that Touma was to be fixed with knowledge that Mr Salvo had. In particular, Michael Brereton claimed to have told Mr Salvo that he would continue WRVM’s claim and that of ZMB as beneficial owner as developer, vendor and vendor mortgagee. Michael Brereton said that Mr Salvo wished him luck. In his affidavit, Mr Salvo said that he could not recall Michael Brereton saying this. Mr Salvo was not cross-examined about the subject. It is highly unlikely that Michael Brereton ever gave Mr Salvo to understand that WRVM, or ZMB, had a claim to the whole of the Mews land in priority to that of any investor in the Mews Scheme. By September 2007, Mr Salvo was focused on gaining control of the Mews land, in order to try and salvage whatever he could from the conversion of his original investment into a joint venture with WRVM, and his subsequent activities as a developer in relation to the Mews land. Mr Salvo believed that acquiring the interests of investors would assist him in obtaining control of the Mews land. The Mews land was the only substantial realisable asset of the Mews Scheme. If Mr Salvo had been given to understand that no amount of acquisition of investor interests would ever put him in the position of being entitled to do anything in relation to the Mews land, or the proceeds of sale of the Mews land, because WRVM or ZMB had a prior claim to the entirety of the Mews land or the proceeds of its sale, Mr Salvo would not have been interested in acquiring investor interests. Nor would he have suggested that Michael Brereton approach Mr Touma with a view to selling the Seachange and Francis Street investor interests to him. If those interests were worthless, because of a prior claim by WRVM or ZMB as its beneficiary, Mr Salvo would not have been interested, and would not have suggested to Mr Touma that he ought to be interested. In any event, even if Mr Salvo did have this knowledge, there is no evidence to suggest that he passed it to Mr Touma. In the absence of some relationship of principal and agent between Mr Salvo and Touma, Touma could not be fixed with the knowledge. The negotiations for the purchase deed were therefore conducted on the basis that Touma was unaware of any claim by WRVM or ZMB in relation to the Mews land, in priority to the claims of investors in the Mews Scheme.
40 One item of evidence on which counsel for ZMB relied to establish that Touma was the nominee of Mr Salvo was an email sent by Mr Wunsch to Ms Moran on 16 October 2008, more than a year after the execution of the purchase deed, entitled “Information Request”. The email was in the following terms:
I refer to our telephone discussion late yesterday afternoon.
Touma Pty Ltd has provided us with a copy of the Agreement dated 25 Sept 2007 between ZMB Australia Pty Ltd (“ZMB”) and Touma Pty Ltd (“Touma”), whereby Touma acquired ZMB’s entitlements in the Mews Scheme.
I note that Touma paid the full purchase price for these entitlements on 25 Sept 2007.
ZMB’s entitlements included the cash investments made by Seachange Management Pty Ltd ($600,000 on 15 June 2000) and Francis Street Pty Ltd. ($100,000 on 7 December 2000) in the original Mews Scheme.
As discussed, you noted that you would forward me today a copy of the agreements confirming ZMB’s purchase of the Seachange and Francis Street investments in the Mews Scheme.
Also, do you have any documents confirming the deposits of $600,000 and $100,000 into the Trust account where the original deposits were made in 2000. These last documents complete the full chain from Touma back to the original investments.
I await your reply. Thank you.
41 Mr Salvo was not able to explain in cross-examination why this email had been sent. He did not recall any discussion with Mr Wunsch about the Touma purchase. He did indicate that Mr Wunsch had substantial autonomy and did not act under Mr Salvo’s detailed direction in relation to everything he did. Mr Wunsch did not give evidence. It is not clear why Mr Wunsch should have been requesting the documents that were requested in the email on behalf of Mr Salvo’s group of corporations. It may be that he was doing so as a favour for Mr Touma, and entirely independently of Mr Salvo’s interests. The email does not go as far as establishing that Touma was Mr Salvo’s nominee in relation to the purchase of the Seachange and Francis Street investor interests. The wording of the second paragraph, particularly the words “Touma Pty Ltd has provided us”, suggests to the contrary.
42 It is necessary to deal with one further item of evidence. Counsel for ZMB relied on the terms of the notice of claim filed by Touma on 12 December 2008. This was a notice that Touma had acquired investor interests in the Mews Scheme. There were five interests listed, including Francis Street and Seachange. Counsel for ZMB relied on the fact that there was no suggestion of any other interests. Any attempt to rely on the absence from the notice of claim of any reference to a claim other than that of an investor as bearing upon the proper construction of the purchase deed must fail. Even if it were the case that, at the time of lodging the notice of claim, Touma through its controlling mind and will had a subjective belief that the purchase deed was limited to investor interests, such evidence would not be admissible as to the meaning of the terms of the purchase deed. The subjective views of the parties, whether held before or after the execution of the purchase deed, are not admissible in relation to its meaning, which must be determined objectively.
43 It is appropriate to find that, as far as the negotiations between Michael Brereton and Mr Salvo are concerned, reasonable people in their respective positions would have had a common understanding that what was being negotiated was the sale of the Seachange and Francis Street investor interests, and nothing more. The termination of negotiations between Michael Brereton and Mr Salvo and the commencement of negotiations involving Mr Touma brought about a complete change. As I have said, Mr Touma was negotiating in his own right and not as Mr Salvo’s nominee and it is not possible to attribute Mr Salvo’s knowledge, or any understanding that it might have been reasonable to attribute to him, to Mr Touma. Even if it could be said that the negotiations directly between Michael Brereton and Mr Touma should be regarded as based on the same common understanding, that they concerned only the Seachange and Francis Street investor interests, there was a complete change when Mr Wilson became involved. It is necessary to look more closely at the negotiations from that time, to see what reasonable people in the positions of Michael Brereton and Mr Wilson, negotiating on behalf of their respective clients, should be taken to have understood from the communications between them.
44 In his opening email, quoted in [30] above, Mr Wilson referred to the lack of clarity about what Mr Touma or his nominee would be acquiring, and to the need for clear identification of the interest to be acquired. Any reasonable person in Michael Brereton’s position, particularly one with his legal and commercial experience, would have understood that defining the subject matter of the sale had become an important aspect of the negotiations. Even though he referred in his email in reply, quoted in [31] above, to the subject matter of the negotiations as being “the investment of ZMB as successor to two (2) original investors”, Michael Brereton did not dispute the need for clear definition. At no stage did he raise any dispute about definition. Again, in his email at 6.36 pm on 24 September 2007, Mr Wilson repeated the need for there “to be clarity as to what our client is acquiring.” Finally, on 24 September 2007, the draft purchase deed was submitted.
45 There are three elements about the draft purchase deed that would have been understood by a reasonable person in Michael Brereton’s position as signifying that the negotiations were no longer confined to the Seachange and Francis Street investor interests. The first, and most important, was the definition in cl 1.6 of “ZMB’s Entitlement”. Especially in the light of the repeated assertions by Mr Wilson of the need for clear identification of the subject matter of the sale, a reasonable person in Michael Brereton’s position would have directed particular attention to the manner in which the subject matter of the sale was being defined in what amounted to an offer to purchase on specified terms. This is especially the case in respect of a reasonable person with Michael Brereton’s commercial and legal background. The second element that would have alerted a reasonable person to the broadening of the subject matter was the provision in cl 1.2, dealing with the meaning of “including”. In conjunction with the definition in cl 1.6, cl 1.2 would have made it abundantly clear to a reasonable person that interests acquired from Seachange and Francis Street were only part of what the purchase deed proposed should be transferred. The third provision in the draft purchase deed that would have alerted a reasonable person in Michael Brereton’s position to the broadening of the subject matter was cl 5.4. Such a reasonable person, with Michael Brereton’s knowledge that ZMB claimed to be entitled in equity to the whole of the Mews land, and consequently to the proceeds of its sale, when the steps already being undertaken by the Court to effect that sale were completed, was being invited to advise his client to give a warranty that would require disclosure of the claim to have such a prior interest. Even if the Mews land were not the sole substantial realisable asset of the Mews Scheme, it was nonetheless a substantial realisable asset, and knowledge of a prior claim of the kind ZMB asserts would have caused a prudent purchaser in the position of Touma not to have entered into the purchase deed. For a reasonable person in Michael Brereton’s position, either cl 1.6 of the draft purchase deed included the claim that ZMB now continues to assert in its own right, or ZMB would become liable in respect of the warranty proposed by cl 5.4. If neither of these two events was to be the result, it was necessary to speak up before the execution of the purchase deed, and to negotiate an alteration of its terms. Michael Brereton did not speak up and did not seek to negotiate any alteration.
46 The position of Marie Brereton in executing the purchase deed on the following day must also be examined objectively. Whether or not she acted on the advice of Michael Brereton, she was the directing mind and will of ZMB, as its sole director. A reasonable person in her position would have known that executing a deed was a significant act, binding ZMB, and that the terms of the purchase deed executed needed to be examined carefully. An examination of the terms of the draft purchase deed by a reasonable person in her position would have brought about an understanding that more was being transferred than just the Seachange and Francis Street investor interests. Indeed, to make good the transfer of those interests, in the sense of giving something of real value for the money received, ZMB had to include any equitable interest it claimed to have in the Mews land, or the proceeds of its sale. If it did not do so, it would be taking a large amount of money for something that was absolutely worthless. To enter into a transaction on that basis would have been unconscionable. A reasonable person in Marie Brereton’s position must be taken to have understood that every entitlement that ZMB had in the Mews Scheme, including its claim as a beneficiary of a trust in which WRVM was alleged to hold the Mews land for the rights of a vendor mortgagee of the Mews land, as well as the investor interests of Seachange and Francis Street, was to be transferred.
47 Further, the transmission to Mr Wilson of the counterpart of the purchase deed executed by Marie Brereton at 9.35 am on 25 September 2007 (see [37] above) would have conveyed to a reasonable person in Mr Wilson’s position, and to a reasonable person in the position of Mr Touma as the controlling mind and will of Touma, that ZMB accepted the terms of the purchase deed as they were written, and not subject to some understanding that those terms meant something other than what they said. Mr Touma’s execution on behalf of Touma of the other counterpart of the purchase deed must be taken to have been on the same basis.
48 For these reasons, an examination of the circumstances in which the terms of the purchase deed were negotiated, and the application of an objective test, leads to the same result as an analysis of the terms of the purchase deed themselves. It leads to the result that, by the time the purchase deed was executed, the object of the transaction was to transfer from ZMB to Touma something that was of value, not something that was worthless because of a prior claim by ZMB. The parties must be taken to have entered into an agreement whereby ZMB was transferring to Touma every entitlement that ZMB had in or arising out of the Mews Scheme. This included any right to the Mews land, or to the proceeds of the sale of the Mews land.
Conclusion
49 Whether the terms of the purchase deed be considered with or without reference to the surrounding circumstances, the result is the same. The purchase deed was effective to transfer from ZMB to Touma the entitlement that ZMB now claims as a beneficiary of a trust held by WRVM in relation to the Mews land, and consequently the proceeds of sale of the Mews land, or of any vendor mortgage over the Mews land. The question posed in the order made on 18 February 2010 must be answered in the affirmative.
50 Mr Warne’s position as a representative litigant, on behalf of investors in the scheme, has led to the situation in which he is entitled to claim his costs of any proceeding in which he is involved in that capacity on an indemnity basis from the funds held by the receivers of the Mews Scheme. Having been successful in relation to the determination of this preliminary question, however, Mr Warne should have the same entitlement as any successful litigant, of being entitled presumptively to claim costs against the unsuccessful party. There appears to be no reason why the usual principle, that costs follow the event, should not be applied, or why costs that are ordered against ZMB should be on anything other than a party-party basis. Such an order alone would not compensate Mr Warne fully for his involvement as a representative litigant. He should therefore be entitled to have recourse to the funds held by the receivers to the extent to which he does not recover costs against ZMB.
|
I certify that the preceding fifty (50) numbered paragraphs are a true copy of the reasons for judgment herein of the Honourable Justice Gray. |
Associate:
Dated: 8 July 2010
