FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (No 13) [2012] FCA 1389

THE COURT ORDERS THAT:

1.    The application made by the interlocutory application dated 13 March 2012 be refused.

2.    The claims made by the sixteenth defendant (Mr Phillip Clements) to an interest in the assets of the Mews Scheme, in the amounts of:

(a)    $173,000 on behalf of Mr Phillip Clements; and

(b)    $173,000 on behalf of Mr Luke Atkins and Mrs Annette Atkins;

be rejected in full.

3.    The Clements Proceeding (as defined in the orders of Dodds-Streeton J dated 23 March 2012) be dismissed.

4.    Unless any party files and serves written submissions on costs on or before 4pm on 11 December 2012, the orders set out at subparagraphs 5.2(c) and 5.2(d) on p 8 of the Mews Receivers’ Statement of Issues, Facts and Contentions filed on 25 October 2012, will be made.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth)

REASONS FOR JUDGMENT

Introduction

1    By an interlocutory application dated 13 March 2012, the applicant, Phillip Clements, seeks the Court’s approval of his claim to an interest in the Mews Scheme. Mr Clements, who on 23 March 2012 was joined as the 16th defendant in these proceedings, seeks the following orders:

(1)    The applicant’s claim to an interest in the Mews Scheme in the amount of $173,000 in his own right and $173,000 as trustee for Luke Frederick Atkins and Annette Atkins, be approved.

2    Mr Clements objects to the provisional assessment of the respondents, Mark Mentha and Brian McMaster, who, as receivers of the Mews Scheme (“the Mews Receivers”) recommended the rejection of his claim. The Mews Scheme has been described in previous decisions, including Australian Securities & Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 6) [2010] FCA 1092; Australian Securities & Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 8) [2011] FCA 997; Australian Securities & Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 9) [2011] FCA 998; and Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (No 11) [2012] FCA 1034. It was an unregistered managed investment scheme involving the proposed establishment of a retirement village on land in Western Australia (“the Mews Land”). On 28 November 2006, Finkelstein J ordered that the Mews Scheme, as defined, be wound up and that the respondents be appointed receivers of the Mews Land as follows:

9.    The Mews Scheme [being the scheme constituted by the agreements described in Schedule A to the orders] … be wound up BUT this order is not to affect the rights of any prior encumbrancers of any Mews Scheme property NOR is it to bring about a dissolution of any partnership or a discharge of any agreement referred to in Schedule A. [emphases in original]

…

11.    Mark Francis Xavier Mentha and Brian Keith McMaster be appointed … joint and several receivers of the Mews Land … for the purposes of winding up the Mews Scheme.

3    The Mews Land was subsequently sold and the proceeds of the sale are currently held by the Mews Receivers, pending the Court’s determination of the persons beneficially entitled to a distribution.

4    On 21 December 2011, I made orders (“December 2011 orders”) for procedural steps necessary to determine entitlement to distribution, including calling for claims, the Mews Receivers’ provisional assessment of whether claims should be accepted or rejected and the Court’s determination of any objection to such provisional assessment. As stated in the reasons delivered on 23 December 2011, at [6] to [11], the legislative background to the process is as follows:

6    The [Corporations] Act includes provisions governing the procedure a liquidator is to follow on the winding up of a corporation and empowering the liquidator to make a distribution of the available property (see, e.g., s 478 & Division 6 of Part 5.6 of the Act and reg 5.6.37 - 5.6.72 of the Regulations). There are no equivalent statutory provisions applicable on the winding-up of an unregistered managed investment scheme by the court.

7    Accordingly, the applicants required an order of the court to authorise them to make a distribution of the Mews Scheme property, which is under the court’s control.

8    Section 601EE(2) of the Act provides:

The Court may make any orders it considers appropriate for the winding up of the scheme.

9    Section 601EE(2) empowers the court to make such distribution orders. In ASIC v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240 at [13], Barrett J stated:

... it must be accepted that the court has jurisdiction to settle or prescribe any aspect or element of the basis for winding up or the winding up process which it is necessary to supply because that element cannot be obtained from any other source.

10    The authorities establish, however, that s 601EE(2) cannot be employed to sanction the release of funds to persons who have no legal entitlement to them: ASIC v Edwards [2009] QSC 360 at [7]-[8]; ASIC v Idylic Solutions Ltd (2009) 76 ACSR 129 at [6]. Nor can it be used to create substantive obligations: ASIC v Piggott Wood & Baker (No 3) (2008) 172 FCR 257 at [13].

11    Therefore, in the present case, as a precondition of authorising a distribution, the court must be satisfied as to the respective legal entitlements of the claimants against the fund. To facilitate such a determination, the applicants proposed a process of: (1) calling for claims; (2) submission of claims; (3) provisional assessment of claims; (4) identification of objections to the provisional assessment of claims; and (5) final adjudication of claims, including any objections to the provisional assessments.

5    The application was supported by:

(1)    The affidavit of Phillip Clements sworn on 13 March 2012.

(2)    A document entitled “Response to Mews Receivers’ Statement of Issues, Facts and Contentions” dated 29 October 2012.

(3)    Written submissions in reply dated 4 November 2012.

6    The application was opposed by the Mews Receivers on behalf of all persons with a beneficial interest in the assets of the Mews Scheme. The Mews Receivers relied on:

(1)    A Statement of Issues Facts and Contentions filed on 25 October 2012.

(2)    Written submissions in reply filed on 2 November 2012.

(3)    Affidavit of Brian McMaster sworn on 17 February 2012.

(4)    Affidavit of Simon Harris sworn on 22 March 2012.

7    At the hearing of the application, Mr Clements, who was legally qualified and represented himself, appeared by telephone.

8    The description of the claim in the interlocutory application was unclear. Mr Clements clarified the claim in his supporting affidavit as follows:

By way of clarification and confirmation, I claim on behalf of the Perth Partners an interest in the Mews scheme of an amount of $346,665 made up as follows: $166,666 each being one third of the cash investment of $500,000 in the scheme as provided for in the third bullet point of the letter of offer from Michael Brereton and Co undated but accepted by the Perth Partners on 26th June 2000, plus $6666 cash amount payable in terms of the second bullet point of the letter referred to above but not paid, being a total amount of $173,332 per Perth Partner (the Claim).

9    Before me, Mr Clements acknowledged that any claim to $20,000 (comprising three tranches of $6660) of the total amount sought in the interlocutory application was statute-barred. He did not pursue that aspect of the claim. Accordingly, the claim in dispute was (in round figures) for $500,000, composed of three tranches of $166,666, two of which Mr Clements claimed in his capacity as a trustee.

10    The interlocutory application was filed pursuant to the December 2011 orders, which required any person who had not previously submitted a claim to share in the assets of the Mews Scheme and wished to claim that he is a creditor, investor or otherwise entitled, to file and serve a notice stating the nature and particulars of the claim and an affidavit verifying the claim.

11    On 7 February 2012, Mr Clements served a notice of his claim and a supporting affidavit on the Mews Receivers.

12    The December 2011 orders required the Mews Receivers to file a Supplementary Assessment Report recommending whether, as a result of information in their possession, any such claim should be accepted or rejected.

13    On 17 February 2012, the Mews Receivers filed a Supplementary Assessment Report (“the Report”) as annexure “BKM1” to the affidavit of Brian McMaster sworn on 17 February 2012. Mr McMaster’s affidavit also annexed the material filed by Mr Clements in support of his claim. In the report, the Mews Receivers did not recommend acceptance of Mr Clements’ claim.

14    The Report relevantly stated:

Phillip Clements/Luke Atkins/Annette Atkins

Mr Clements submitted an affidavit dated 7 February 2012 claiming $346,665 on behalf of himself and Luke and Annette Atkins, as follows:

    Phillip Clements $173,332

    Luke and Annette Atkins $173,332.

A copy of Mr Clements’ affidavit is attached as Annexure F.

The claims are based on an agreement between Mr Charles Morton, Mr Luke Atkins and Mr Phillip Clements, in their capacity as directors of Mango Properties Pty Ltd (“Mango”), giving up Mango’s interest in the Mews Land in favour of Western Retirement Village Management Pty Ltd (In Liquidation) (“WRVM”). The agreement is dated 27 June 2000 and is part of an Annexure D to Mr Clements’ affidavit.

Mr Clements has submitted claims previously in the Mews Scheme, both in his own capacity, and as a director of Mango. In our previous reports we have not assessed Mr Clements’ claim.

Mr Clements, Mango, Luke or Annette Atkins did not advance any funds to the Mews Scheme.

We are unable to assess the commerciality or appropriateness of the agreement with WRVM dated 27 June 2000.

Mr Clements has previously advised us that he will seek to press his claim before the court.

Conclusion: We do not recommend this claim for acceptance.

15    Pursuant to the December 2011 orders, the Mews Receivers circulated a “Claims Schedule” by which they notified Mr Clements that they would seek the Court’s approval to reject his claim.

Background

16    As found in previous reasons for decisions in these proceedings, the background to the winding up of the Mews Scheme relevant to this claim is set out below.

17    In late 1999 or early 2000, Mango Properties Pty Ltd (“Mango”) (a company controlled by Mr Clements and his associate, Mr Atkins) entered into a contract to purchase the land at Lot 4, Railway Parade, Upper Swan, Western Australia (“Mews Land”) for $2,850,000 (ASIC v GDK Financial Solutions Pty Ltd (in liquidation) [2007] FCA 1600 at [2]).

18    Mango did not become the registered proprietor of the Mews Land. On 16 March 2000, the third defendant, Western Retirement Village Management Pty Ltd (“WRVM”), contracted to purchase the Mews Land for $2.85 million. Michael Brereton was the sole director of WRVM (ASIC v GDK Financial Solutions Pty Ltd (in liquidation) (No 4) [2008] FCA 1071 at [16]).

19    By a contract dated 18 April 2000, WRVM agreed to sell the Mews Land to the fourth defendant, The Mews Village Nominees Pty Ltd (“MVN”), for $93,425,000. MVN entered into the contract as “bare nominee” for a group of investors described as “Investor Partners” (ASIC v GDK Financial Solutions Pty Ltd [2006] FCA 1415 at [5]).

20    The purchase price under the 18 April 2000 agreement was paid in full. Part of the purchase price (approximately $6 million) came from money subscribed by investors and the balance was derived from a loan from WRVM, provided under a separate agreement (ASIC v GDK Financial Solutions Pty Ltd (in liquidation) [2007] FCA 1600 at [4]).

21    Under the 18 April 2000 agreement, WRVM agreed to construct a retirement village on the Mews Land, with building work to take place in two stages over several years (ASIC v GDK Financial Solutions Pty Ltd [2006] FCA 1415 at [5]).

22    At or shortly before WRVM’s sale of the Mews Land to MVN, both WRVM and the first defendant, GDK Financial Solutions Pty Ltd (“GDK”), began marketing the scheme to investors. A prospectus was prepared for that purpose (ASIC v GDK Financial Solutions Pty Ltd (in liquidation) [2007] FCA 1600 at [6]).

23    Approximately 43 investors contributed money to the scheme. The investors were grouped into several partnerships (ASIC v GDK Financial Solutions Pty Ltd (in liquidation) [2007] FCA 1600 at [6]) which are described in detail in the orders of Finkelstein J made on 28 November 2006.

24    The principal partnership, established by a partnership agreement dated 18 April 2000, was known as “the Mews Village Partnership”. It comprised 14 “investor partners” (ASIC v GDK Financial Solutions Pty Ltd [2006] FCA 1415 at [6]).

25    On 11 July 2000, WRVM became the registered proprietor of the Mews Land (ASIC v GDK Financial Solutions Pty Ltd (in liquidation) (No 4) [2008] FCA 1071 at [16]).

26    WRVM did not transfer the Mews Land to MVN or carry out any building works (ASIC v GDK Financial Solutions Pty Ltd [2006] FCA 1415 at [9]). It remained the registered proprietor until the Mews Land was sold by the Mews Receivers pursuant to orders of Finkelstein J made 6 December 2007 (ASIC v GDK Financial Solutions Pty Ltd (in liquidation) (No 4) [2008] FCA 1071 at [5] and [17]).

27    On 19 October 2007, by order of Finkelstein J, Messrs McMaster and Mentha were also appointed as joint and several liquidators of WRVM.

Mr Clements’ evidence and submissions

28    By his affidavit sworn on 13 March 2012 (“2012 affidavit”), Mr Clements annexed a document “A” of 12 March 2012, entitled “Nature and particulars of claim made pursuant to order number 2(a) made on the 21st December 2011” (“the annexure”). Mr Clements deposed that the matters particularised in the annexure were true.

29    In the annexure, Mr Clements stated that as at 1999, he had 12 years extensive experience in property development in Western Australia and established contacts with builders, town planners and real estate agents. In 1999, Luke Atkins introduced him to Michael Brereton, who asked him to identify, by February 2000, a suitable property for the project of developing a retirement village in Western Australia. Mr Clements agreed to identify, with Atkins, a suitable property and to complete all necessary studies within that deadline, in return for “a success fee” to be paid from investor funds (which were to be subscribed) at settlement of the purchase of the property. The quantum of the success fee was not specified at the time, but Mr Clements had some “understanding” as to how it might be calculated. Mr Clements was to meet all his own costs and out-of-pocket expenses associated with providing the services.

30    Mr Clements and Mr Atkins considered a large number of properties, narrowing them down to 23. After further consideration, they identified several properties in Perth, Mandurah and Busselton as most suitable. Mr Clements, with another person, completed a feasibility study for one of the Busselton properties. He paid for a chartered aircraft for Mr Brereton and Mr McLeod of GDK to view the properties from the air and further inspect properties in Busselton.

31    Following the inspection tour and extensive discussion, two properties (the Mews Land and Port Bouvard at Mandurah) were identified and Mr Clements and an associate conducted feasibility studies.

32    After further discussion, Mr Clements and Mr Atkins recommended the Mews Land, as its price was significantly lower than that of the other property.

33    Mr Brereton requested Mr Clements and Mr Atkins to arrange for the incorporation of a company to purchase the Mews Land. Consequently, Mango was incorporated on 15 March 2000.

34    On 1 December 1999, Mango, although not yet incorporated, offered to purchase the Mews Land for $2,850,000, subject to its suitability for a retirement village and arrangement of finance of the “$ full amount of the purchase price” by an entity which Mr Brereton named “MB Finance”. The offer was accepted by the vendors of the Mews Land on 2 December 1999.

35    Mr Brereton provided a check list of tasks for Mr Clements and Mr Atkins to perform in relation to the Mews Land. Mr Clements subsequently consulted with a town planning consultant, who produced a detailed report on a number of residences and suggested layout and design, which indicated that (subject to the satisfaction of certain conditions) the site was likely to receive planning approval as a retirement village.

36    Mr Clements and an associate then prepared a feasibility study based on the town planning report. Mr Clements also took photographs and completed an estimated construction schedule.

37    Mr Clements stated that he and Mr Atkins thus completed the services required and paid all the out of pocket expenses. In consequence, a property suitable for the project was provided.

38    In June 2000, when settlement of the Mews Land was due to occur and Mr Clements was travelling overseas, Mr Brereton advised that he had raised only $1.6 million from investors, so the purchase of the Mews Land could not be settled.

39    Mr Clements stated that, in order to complete the purchase, Mr Brereton proposed that he would provide the balance of the funds from his own interests and that Mr Clements and his associates would relinquish their interests in the project and the Mews Land for stated consideration as follows:

31.    Mr Brereton then proposed that Mango and the Claimant and Mr Atkins and a Mr Charles Morton Smith (who had introduced Mr Atkins and the applicant to the project) relinquish all their respective interests and entitlements in the project and the Mews land, in return for the claimant receiving an interest in the Mews project the equivalent of a cash investment of one third each of $500,000 together with $50,000 each in cash payable upon settlement of the sale of the Mews and a further one third of $6666 within 90 days of the settlement.

40    In the annexure, Mr Clements stated:

32.    On the basis of Mr Brereton’s representations that there was a shortfall of the purchase price of some $1.2 million and that the project would collapse unless further funds were found, the claimant agreed to the proposal set out in paragraph 31 above and subsequently signed an agreement to that effect and an authority for Western Retirement Village Management Pty Ltd (WVRM) to replace Mango as purchaser of the Mews (the “compromise agreement”).

41    The letter of Mr Brereton dated 27 June 2000 (“June 2000 letter”) stated:

Dear Sirs,

Re:     Western Retirement Village Management Pty Ltd – “The Mews”

    Lot 4 Railway Parade, Upper Swan, Western Australia

We refer to your previous discussions with Michael Brereton of this office in relation to the above matter and confirm that Mango Properties Pty Ltd (including its officers, agents, employees and assigns) agrees to release all of its interest in the abovementioned property in consideration of the following:

    payment of a total amount of $150,000.00, to be divided equally between Luke Atkins, Charles Morton and Phillip Clements or their nominees, at settlement of the abovementioned purchase;

    a further payment of $20,000.00, to be divided equally between Luke Atkins, Charles Morton and Phillip Clements or nominees, within 90 days of settlement;

    Western Retirement Village Management Pty Ltd will indemnify and hold harmless each of you in respect of your collective investment by way of your cash contribution of $500,000.00 in the retirement village to be developed on the abovementioned property.

In order to confirm your acceptance of these terms and conditions, please sign the acknowledgement below and return to our office by return facsimile as a matter of urgency.

We look forward to your prompt reply.

Yours faithfully

MICHAEL BRERETON & CO.

I, HEREBY ACKNOWLEDGE and ACCEPT the terms and conditions contained herein.

Dated:

____________________

Signature

____________________

Print Name

42    The materials exhibited to the affidavit of Mr McMaster sworn on 17 February 2012 included a copy of the letter of Mr Clements’ solicitor, Graham Quartermaine, to Michael Brereton and Co dated 29 June 2000, which attached a copy of the June 2000 letter signed by Mr Clements. The letter of Graham Quartermaine stated:

Dear Sirs,

We refer to your earlier facsimiles in this matter and confirm that we have instructions to act for Phillip Clements.

We enclose herewith a copy of your facsimile of the 27 June 2000 duly signed by our client.

We are instructed that our client’s agreement is based upon the representations (made by Michael Brereton to Phillip Clements) that:

1.    There is a shortfall of approximately $1.2 million required for the settlement of the purchase; and

2.    That the amount could not in the time reasonably be borrowed; and

3.    That the shortfall was to be provided by the other partners within the group/development.

We confirm advice from your office that the $500,000.00 investment in the retirement village was provided as part of the consideration and no further contribution from our client was required for the same.

Would you kindly instruct Paul Kordic of Talbot & Olivier:

(a)    To inform the writer of the time and place of settlement; and

(b)    To contact this office a reasonable period prior to settlement to confirm that he is provided with funds to pay at settlement the sum of $50,000.00 payable to our client Phillip Clements.

Yours faithfully

PYE & QUARTERMAINE

43    In his 2012 affidavit, Mr Clements deposed in further detail to the work he had performed and to some additional work for which he and Mr Atkins and Mrs Atkins had paid.

44    The materials exhibited to Mr McMaster’s affidavit also included an affidavit sworn by Mr Clements on 7 February 2012 in support of the claim, which is substantially similar to his affidavit sworn on 13 March 2012, but refers to and annexes two earlier affidavits sworn by Mr Clements on 28 September 2007 and 10 July 2007 respectively.

45    By his affidavit sworn on 10 July 2007 (“July 2007 affidavit”), in support of a claim by Mango, Mr Clements alleged that Mr Brereton represented that there was a shortfall in the money raised to purchase the Mews Land.

46    In his July 2007 affidavit, Mr Clements deposed:

e.    At the time the representation was made, Michael Brereton proposed that Mango relinquish its right to become the registered proprietor of the Mews in favour of another company, Western Retirement Village Management Pty Ltd (“WRVM”) in return for:

(i)    Payment on settlement of the purchase of the Mews to Atkins, Clements and Morton of $150,000 to be divided equally between them.

(ii)    A further payment of $20,000 shared equally as in (i) above and payable 90 days after settlement.

(iii)    An investment equivalent to a cash contribution of $500,000 in the retirement village to be developed on the Mews. (the “offer”)

f.    The offer was responded to by Phillip Clements’ solicitor Mr. Graham Quartermaine by letter dated 29 June 2000, confirming that acceptance of the offer was based on the representation. Annexure (b) is a copy of that letter.

g.    The offer was accepted by Messrs. Atkins, Clements and Morton and Mango relinquished all its rights under the purchase agreement, in favour WRVM. Annexure (c) and (d) are respectively letters of offer and acceptance signed by Clements and Atkins.

h.    Settlement was subsequently effected and WRVM became the registered proprietor of the Mews.

47    In his July 2007 affidavit, Mr Clements deposed that Mr Brereton’s representation was false and that as a result, WRVM became registered proprietor of the Mews Land.

48    The affidavit of Mr Clements sworn on 28 September 2007 in support of his claim as an investor in the Mews Scheme in his own right and, as a trustee of Luke and Annette Atkins, annexed a copy of the June 2000 letter, which Mr Clements described as an agreement. Mr Clements deposed:

The Agreement provided amongst other things that Morton, Atkins and Clements or their nominees would receive a fully paid $500,000 investment (the “Investment”) in the retirement village to be developed on the Mews land. This meant and was understood to mean an Investment in the Mews scheme as that term is used in the Federal Court proceedings referred to above. The Investment was to be divided equally between Morton, Atkins and Clements or there nominees.

49    Mr Clements further deposed:

4    At the time of my entering into the Agreement it was my belief and understanding that there was only one partnership of investors in the Mews Scheme and that my capital contribution in that partnership was $166.00 (being one third of $500,000). It was further understood by me that my interest in the Mews scheme was therefore $166,000 expressed as a percentage of the total capital contributed by the members of the partnership and that the total amount contributed was $2,850,000 being the purchase price of the Mews Land. My interest in the mews scheme was therefore 17.16%.

50    In his September 2007 affidavit, Mr Clements deposed that when he subsequently discovered that his shares and those of Mr and Mrs Atkins in the Mews Scheme were incorrectly recorded in two partnerships, Mr Brereton assured him that his full interest in the Mews Scheme would be reinstated.

51    Mr Clements referred to the GDK Partnership Mews and Young Turks Partnership returns as at June 2002. He deposed:

6    Luke Atkins his wife Annette Atkins (the “Atkins”) and my shares in the Mews scheme were subsequently incorrectly recorded in two partnerships. Annexure “B” is a copy of the Partnership Mews balance sheet as June 2002. This records Phillip Clements as having an interest of $33,333 and Luke Frederick and Annette Margaret Atkins as having an interest of $16,666 each in that partnership.

8    Annexure “C” is a copy of the Young Turks Partnership as of June 2002 which records:

a)    Jetbird Holdings Ltd as having an interest of $66,666 (my nominee)

b)    Phillip Clements as holding an interest of $66,666 as trustee.

c)    Phillip Clements as having an interest of $133,000.

52    In his written submissions in support of the present application, Mr Clements stated that “[t]he claim is for an interest in the Mews Scheme including the sale proceeds of the Mews Land (“the fund”). The claim is not being made for an interest in any of the relevant partnerships… The oral and compromise agreements did not provide an interest in those partnerships; they provided for an interest in the Mews Scheme. The relevance of the partnerships in the present context is simply to show that the oral agreement (as part of the compromise agreement) was subsequently executed according to its terms”.

53    The written submissions further stated that Mr Clements’ claim was not based on the June 2000 letter, but on the matters contained in paragraphs 28-38 of the “Nature and particulars of claim”, and in particular the “oral agreement” outlined in paragraph 31, being the compromise agreement. Mr Clements submitted that the June 2000 letter varied the oral compromise agreement by adding a provision for an indemnity to be given by WRVM with respect to any liabilities arising from the claimants’ interest in the Mews Scheme.

54    In oral submissions, Mr Clements stated that his interest in the Mews “project” as at June 2000 was his entitlement to the success fee. He acknowledged that the sum of $150,000 had been paid as amounts of $50,000 each to Luke Atkins, Charles Morton Smith and Phillip Clements as contemplated in the June 2000 letter.

55    Mr Clements conceded that neither he nor Mr and Mrs Atkins made any cash contributions to acquire an interest in the Mews Scheme or the Mews Land. Rather, he relied on the oral agreement with Mr Brereton (acting on behalf of WRVM) that the claimants would receive an interest in the Mews Scheme in lieu of the success fee.

56    Mr Clements submitted that the June 2000 letter should be construed as confirming the existence and size of his pre-existing interest in the Mews Scheme, which had been conferred pursuant to the oral agreement, but varying the latter by adding an indemnity.

57    Mr Clements contended that to the extent of any inconsistency between the June 2000 letter and the alleged oral agreement, the latter was “part performed”, as evidenced by the claimants’ recorded interests in the GDK and Young Turks June 2002 partnership accounts.

mEWS RECEIVERS’ SUBMISSIONS

58    The Mews Receivers submitted that they properly recommended the rejection of Mr Clements’ claim. First, neither Mr Clements nor the persons for whom he claimed to act as trustee had contributed any money. Secondly, the basis of the claimed interest was very unclear. If based on interest in the partnerships, which had not been terminated, it was properly a claim as between the partners. If based on an interest in the Mews Land, it must fail, as the oral agreement on which Mr Clements relied was too uncertain and in any event, there was no sufficient note or memorandum or acts of part performance.

59    The Mews Receivers submitted that Mr Clements’ evidence was imprecise and conclusory, merely asserting the substance, rather than the words stated. It was based on his recollection of events which occurred about 12 years ago. Mr Clements also had an interest in establishing the agreement alleged. Therefore, the Court could not reach the requisite state of actual persuasion of an oral contract on the terms alleged. The Mews Receivers relied, in that context, on Watson v Foxman (1995) 49 NSWLR 315 at 318-9 and McMurtrie v Commonwealth of Australia [2006] NSWCA 148 at [5]-[6], where Hodgson JA stated:

[5] The difficulties in proving the precise terms or effect of a conversation that occurred a long time ago are well expressed by McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318–9 as follows:

Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described as “misleading”) within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court “must feel an actual persuasion of its occurrence or existence”. Such satisfaction is “not … attained or established independently of the nature and consequence of the fact or facts to be proved” including the “seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding”: Helton v Allen (1940) 63 CLR 691 at 712.

Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), in the absence of some reliable contemporaneous record or other satisfactory corroboration. That is the position in the present case.

[6] This passage refers particularly to alleged representations in a conversation, but it applies also to alleged contractual promises; and in my opinion, it also applies to attempts to prove from recollection the contents of lost documents.

60    The Mews Receivers submitted that if Mr Clements did not base his claim on any interest in the partnerships that constitute the Mews Scheme (as defined in the orders made by Finkelstein J on 28 November 2006) it could only be based on an interest in the Mews Land, the proceeds of sale of which constituted the fund administered by the Court.

61    The Mews Receivers submitted that an agreement to confer an interest in land in Western Australia would, in the absence of an indication to the contrary, be governed by Western Australian law, under which s 4 of the Statute of Frauds 1677 (Imp) continues to apply, as follows:

No action shall be brought to charge any person... upon any contract or sale of lands, tenements or hereditaments, or any interest in or concerning them... unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorized.

62    An oral agreement would therefore require either a sufficient note or memorandum to satisfy s 34(1) of the Property Law Act 1969 (WA) or sufficient acts of part performance.

63    Section 34(1) of the Property Law Act 1969 (WA) provides that no interest in land is capable of being created or disposed of except by writing signed by the person creating or conveying the interest, or by his agent lawfully authorised in writing, or by will, or by operation of law.

dISCUSSION

64    Mr Clements bore the onus of establishing his claim to an interest in the assets of the Mews Scheme. As the Mews Receivers acknowledged, many of the relevant circumstances, including the events of 2000, were not within their knowledge.

65    The central issues arising under the application were correctly identified by the Mews Receivers as:

(a)    Was there any legally binding agreement between Mr Clements and/or Mr and Mrs Atkins on the one hand, and, on the other hand, any other party, under which the other party promised to give any of those persons an interest in the Mews project?

(b)    If so, what was the effect of any relevant agreement? In particular, did it give any of the Claimants an interest in the Mews Land?

(c)    Whether Mr Clements had standing to make the claim on behalf of Mr and Mrs Atkins?

66    The 21 December 2011 orders concern claims against the assets of the Mews scheme. The Court is relevantly administering the fund produced by the sale of the Mews Land which is to be distributed between the persons entitled to it (ASIC v GDK Financial Solutions Pty Ltd (in liquidation) (No 6) [2010] FCA 1092 at [19]). Consistently with paragraph 9 of the orders of Finkelstein J winding up the scheme made 28 November 2006, the December 2011 orders do not concern claims to an interest in the partnerships that constituted the scheme (ASIC v GDK Financial Solutions Pty Ltd [2006] FCA 1415 at [22], [24] and [47]).

67    The Court is, as a result, engaged in a process of determining the persons with an interest in the proceeds of the sale of the Mews Land in order to distribute those proceeds.

68    The Mews Receivers set out their approach to recommending acceptance or rejection of claims on the fund constituted by the proceeds of sale of the Mews Land in paragraph 4.1 of their supplementary report dated 17 February 2012 (which substantially reiterated the methodology outlined in their 5 May 2007 report) as follows:

4.1    Methodology Used in Assessing Claims

In assessing claims received, we have adopted the following methodology:

1.    If the amount claimed can be traced to the Michael Brereton & Co trust account, we have recommended that no further information be sought from the claimant.

2.    If the amount claimed cannot be traced to the Michael Brereton & Co trust account, we have undertaken the following additional steps:

i.    Claims by head partnerships:

•    Sought documentation to evidence funds advanced.

ii.    Claims by investors in sub-partnerships

•    Ascertained whether the business of the sub-partnership was in respect of the Mews Land; and

•    Sought documentation to evidence funds advanced.

If we have been able to satisfy ourselves with respect to each of these matters for each investor, we have recommended that no further information be sought from the claimant. In the alternative, we have requested further information which has not been received to date.

3.    In some instances, the head partner has provided sufficient evidence to substantiate the claim on behalf of all of the respective sub-partners. In this instance we have assessed the head partner's claim. In circumstances where we have recommended that a claim by a head partner be accepted and we have also received claims from investors to the respective sub-partnership, we have recommended that, in order to avoid a duplication of claims, that the claims of the investors in the sub-partnership be rejected.

4.    In the alternative, where the head partner has either not claimed or not provided sufficient evidence, we have assessed the claims of the respective sub-partners.

We consider this methodology allows all substantiated claims to be assessed.

69    As stated in my reasons given on 19 September 2012, that approach was reasonable in a context where the Mews Receivers were faced with a dearth of documentation.

70    As Mr Clements acknowledged that neither he nor Mr and Mrs Atkins (nor, apparently, any assignor of their interests) had contributed money, his claim could not, consistently with that approach, be recommended.

71    More fundamentally, while there is no reason to reject Mr Clements’ assertion that he provided services at the behest of Mr Brereton, I was not persuaded that Mr Clements established any entitlement to a relevant interest. Claims based on interests in the partnerships, which were not wound up, are properly to be pursued against the relevant partners and would not constitute a basis for a claim pursuant to the December 2011 orders on the fund comprising the proceeds of sale of the Mews Land. Moreover, Mr Clements advanced no clear particulars of a claim to an interest in the partnerships which, in any event, could not be determined in the absence of the other members: News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 524; John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 at [131]-[132].

72    As the Mews Receivers submitted, Mr Clements’ claim was attended by great uncertainty and inconsistency. The articulation of the nature of the claim and the identity of the claimants fluctuated, both within the material filed in support of the present application and when that material was compared with previous affidavits sworn by Mr Clements.

73    In his submissions, Mr Clements sought to conflate the conceptually distinct interests in, on the one hand, the continuing partnerships and, on the other hand, the Mews Land, apparently contending that an interest in the former comprehended an interest in the latter. He nevertheless made clear that his claim was not based on an asserted interest in the partnerships, on which he relied only as evidence or “part performance” of the alleged oral agreement.

74    Despite its inconsistencies, the material filed by Mr Clements contains the following principal assertions:

(1)    In early 1999, Mr Clements entered an informal agreement or understanding with Mr Brereton to provide services in relation to the identification and acquisition of land for a proposed retirement village project. Mr Brereton informed him that he was involved in the project with GDK.

(2)    The terms of the agreement for services were that Mr Clements and Mr Atkins would perform specified services by a specified deadline and would pay their own associated out of pocket expenses, in return for a success fee, the quantum of which was not stated, although Mr Clements had an “understanding” as to its calculation and that he would be paid at settlement, from amounts which would be subscribed by investors in the project.

(3)    Mr Clements and Mr Atkins completed the specified services and paid the out of pocket expenses. They also, at Mr Brereton’s request, incorporated Mango to purchase the identified Mews Land, for which Mango entered a contract of sale in December 1999.

(4)    In paragraph 31 of the annexure, Mr Clements refers to a relinquishment of all the interests of Mango and Messrs Clements, Atkins and Morton Smith (a previously unidentified person) in what he described as “the project” and the Mews Land, in return for other benefits, as part of a compromise.

75    Assuming that in June 2000 Mango had an interest in the Mews Land under the contract of sale, there was no apparent basis on which Mr Clements, Mr Atkins or any other individual had an interest in the Mews Land which they could relinquish.

76    The only asserted basis for an interest “in the project” which would be relinquished by some or all of the named persons was the oral agreement or understanding with Mr Brereton, whereby Mr Clements and Mr Atkins (although the latter was not asserted to be party to the understanding) would provide services in relation to “the project” for a payment of a success fee, the quantum of which was not stated, from funds which were to be subscribed by investors, contingent upon settlement occurring. Before me, Mr Clements confirmed that his interest in the Mews project as at June 2000 was an entitlement to his success fee.

77    On Mr Clements’ evidence, the quantum of the success fee was not initially stated or agreed, and there was no evidence of, nor explanation for how, at what stage or by whom, the amount of the success fee was to be determined. Further, there was no evidence of, or explanation for, the basis on which Mr Morton Smith was entitled to a share of the success fee or any other interest (or for the basis on which Mrs Atkins was said to have replaced Mr Morton Smith as the person beneficially entitled to a third share of the relevant interest). Moreover, Mr Clements (and, by inference, Mr Atkins) as at June 2000 were, at the highest, merely contingent unsecured creditors of a party the identity of which is unclear. It was, perhaps, Mr Brereton, albeit Mr Brereton had identified subscribers’ funds as the source of proposed payment.

78    Under the position as described by Mr Clements, neither he nor any other party had any enforceable entitlement to be paid for the services prior to negotiations with Mr Brereton in June 2000, as the contingency of settlement was not fulfilled, due to an insufficient subscription of investor funds.

79    Mr Clements deposed that “a compromise” was nevertheless arranged. In paragraph 31 of the annexure, Mr Clements identified only Mr Brereton as the other party to the compromise, but in paragraph 34, asserted that Mr Brereton was a director of WRVM with the authority to enter the compromise agreement on its behalf.

80    Under the oral agreement described in paragraph 31, Mr Clements would receive “an interest in the Mews project the equivalent of a cash investment of one third each of $500,000 together with $50,000 each in cash payable upon settlement of the sale of the Mews and a further one third of $6666 within 90 days of settlement”. Only Mr Clements (“the claimant”) was identified as a recipient of the promised consideration, although four parties were stated to relinquish an interest. Mr Clements’ interest was, however, described as one third of the total consideration. Assuming (despite the lack of clarity) that the three nominated individuals were to be equal recipients of the consideration, in lieu of entitlement to a success fee, no consideration was payable to Mango, albeit it was the only party with an interest in the Mews Land.

81    In paragraph 32, Mr Clements identified the June 2000 letter of Mr Brereton as being the agreement “to [the] … effect” of the compromise. In his written submissions, however, Mr Clements described the June 2000 letter as a variation of the oral agreement referred to in paragraph 31. Mr Clements submitted that the June 2000 letter was consistent with the oral agreement and simply added the indemnity as an additional benefit.

82    The terms of the June 2000 letter differ from those of the alleged oral agreement in significant respects. First, the parties providing the release and the subject matter of the release are different. While the oral agreement refers to release of interests in the project and the Mews Land by Mango and Messrs Clements, Atkins and Morton Smith, the June 2000 letter confirms only that Mango agreed to release its interest in the Mews property.

83    Secondly, the consideration which is to be paid to the three nominated individuals is different. The June 2000 letter reiterates the first two elements of the consideration referred to in the oral agreement, but the third element (at dot point 3 in the June 2000 letter) significantly diverges from that in the oral agreement. The oral agreement refers to an “interest in the Mews project the equivalent of a cash investment of one third each of $500,000”, but the June 2000 letter refers to an undertaking that WRVM will indemnify each of the three individuals in respect of a “collective investment by way of your cash contribution … in the retirement village” to be developed on the Mews property.

84    Contrary to Mr Clements’ submission, the June 2000 letter does not confirm that he or the other stated claimants had, as at June 2000, any existing interest in the partnerships, the Mews Land or the Mews Scheme in any other sense. It does not refer to a grant, whether past or future, of an interest in the Mews Land. To the contrary, it indicates that any interest would be acquired on a different basis from that alleged in the oral agreement, namely, by a “cash contribution … in the retirement village”. Further, it does not identify the nature of the interest which may be acquired.

85    Mr Clements did not assert, and there is no evidence that he, Mr Morton Smith or Mr or Mrs Atkins ever made a cash contribution of $500,000 or any other amount.

86    The June 2000 letter does not record the central term of the alleged oral agreement on which Mr Clements’ claim depends, and, in my view, is inconsistent with it.

87    As the June 2000 letter does not refer expressly or implicitly to the acquisition of an interest in the Mews Land, it could not constitute a sufficient note or memorandum of an alleged oral agreement for the acquisition of such an interest. The June 2000 letter relevantly refers to an indemnity in respect of an interest which is not identified with precision, and is to be acquired pursuant to an investment by way of cash contribution. If the June 2000 letter, contrary to the above, could be construed as referring to the disposition of an interest in the Mews Land and were otherwise a sufficient note or memorandum of an oral agreement to acquire such an interest, it was not signed by the person charged or an agent of that person lawfully authorised in writing, as required by the Statute of Frauds.

88    Further, there are no sufficient acts of part performance unequivocally and in their own nature referable to an agreement of the general nature of that alleged (see Regent v Millett (1976) 133 CLR 679).

89    As I understood his submissions, Mr Clements relied on the recording of interests in partnerships in the June 2002 partnership returns as evidence or part performance of the alleged oral agreement. The quantum of the recorded interests in the partnerships did not, as Mr Clements acknowledged, correlate to the $500,000 specified in the alleged oral agreement. The acquisition of such interests, if established, would not, in my view, be unequivocally referable to an agreement of the general nature of either the oral agreement or that reflected in the June 2000 letter.

90    In his submissions in reply, Mr Clements also sought to rely on estoppel. In the absence of a clear and unambiguous representation, that basis for the claim was not made out.

Whether standing to claim as trustee for mr and mrs Atkins

91    The Mews Receivers submitted that Mr Clements merely asserted that he was pursuing a claim to the alleged interests of Luke and Annette Atkins as a trustee, and adduced no evidence as to the source or nature of the alleged trust relationship.

92    In his 2012 affidavit, Mr Clements deposed:

This affidavit is deposed to by me to confirm and further particularise the claims made by myself and by myself as trustee for Luke and Annette Atkins jointly (the “Atkins”) who together are referred to below as the “Perth Partners”. The claim is made pursuant to an order made by the Federal Court of Australia on the 21st December 2011 and relating to the Mews Scheme and as requested by the receiver of that scheme, Mr Brian McMaster of Korda Mentha (the Receiver).

93    Mr and Mrs Atkins did not file or give evidence and gave no indication that they authorised Mr Clements to act on their behalf or endorsed his assertions. While the material filed by Mr Clements broadly explained Mr Atkins’ asserted role, any claim by Mr Atkins based on the events described would properly be made as a principal rather than the beneficiary of a trust. The role of Mrs Atkins and the basis of her alleged interest in the Mews Land remained entirely unexplained.

94    Accordingly, Mr Clements’ status as a trustee entitled to pursue claims on behalf of Mr and Mrs Atkins was not established.

CONCLUSION

95    In my opinion, the applicant did not establish any entitlement, whether in his own right or as a trustee for Mr and Mrs Atkins, to an interest in the assets of the Mews Scheme. The application for approval of Mr Clements’ claim to an interest in the Mews Scheme should be refused.

Associate:

Dated:    5 December 2012