FEDERAL COURT OF AUSTRALIA

Royal v El Ali [2016] FCA 782

ORDERS

THE COURT ORDERS THAT:

1.    The parties provide, by way of email to Chambers, proposed short minutes of order to give effect to these reasons on or before 26 July 2016.

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

REASONS FOR JUDGMENT

DAVIES J:

INTRODUCTION

1    On 16 December 2011 Nathan El Ali (“Mr El Ali”) was made bankrupt on the petition of Peter Royal and Judith Royal (“the Royals”). The Royals are creditors of Mr El Ali pursuant to a judgment debt in the sum of $1,099,456.74 together with costs (“the judgment debt”). Michael Jones (“the Trustee”) is the Trustee of his bankrupt estate. In these proceedings, which have been heard together, the Trustee and the Royals (collectively “the applicants”) seek declarations that various transactions are void or voidable as against the Trustee pursuant to s 37A of the Conveyancing Act 1919 (NSW) (“the Conveyancing Act”) and/or s 121 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”).

2    The transactions in issue in chronological order are:

(a)    The transfer of the shares owned by Mr El Ali in Isaac & Jacob Pty Ltd (“Isaac & Jacob”) to John Nazloomian (“Mr Nazloomian”) on 19 October 2010.

(b)    The Deed of Appointment of New Trustee dated 15 December 2010 by which Ottoman Investments Pty Limited (“Ottoman”) resigned as trustee of the Ottoman Investments Unit Trust and Otsi Stojanovski (“Mr Stojanovski”) was appointed the new trustee.

(c)    The transfer by Ottoman of the property at Unit 2, 4 Hogben Street, Kogarah (“the Kogarah Unit 2 property”) to Mr Stojanovski on 16 December 2010.

(d)    The Deed of Retirement and Appointment of New Trustee executed on or around 21 or 28 April 2011 by which Ottoman resigned as trustee of the Ottoman Investments Unit Trust and Mahmoud Zreika (“Mr Zreika”) was appointed the new trustee.

(e)    The transfer by Ottoman of the property at 2 Woodlands Road, Taren Point (“the Taren Point property”) to Mr Zreika on 21 April 2011.

(f)    The transfer of the shares owned by Mr El Ali in Ottoman to his nephew Mahmoud El Ali (“Mahmoud”) on 22 August 2011.

(g)    The transfer of the shares owned by Mr El Ali in EasyChoice Home Loans Pty Ltd (now ACN 092 879 733 Pty Limited) (“EasyChoice”) to Mahmoud on 7 September 2011.

(h)    The transfer of the shares owned by Mr El Ali in Saracen Holdings Pty Limited (“Saracen”) to Mahmoud on 1 November 2011.

(i)    The Deed of Retirement and Appointment of New Trustee dated 8 December 2011 by which Saracen resigned as trustee of the Voyager Point Unit Trust and Mr Zreika was appointed the new trustee.

(j)    The transfer by Saracen of the property at 1 Sirius Road, Voyager Point (“the Voyager Point property”) to Mr Zreika on 8 December 2011.

(k)    The transfer by Saracen of the property at 1A McDonald Lane, Potts Point (“the Potts Point property”) to Mr Nazloomian on 22 November 2012.

overview

3    Isaac & Jacob, Saracen, Ottoman and EasyChoice were each owned and controlled by Mr El Ali before the challenged share transfers. EasyChoice was the vehicle through which Mr El Ali conducted his mortgage broking business. Saracen and Ottoman were the vehicles through which Mr El Ali acquired and owned properties. Isaac & Jacob was, and still is, the sole unitholder of the Voyager Point Unit Trust, the Helensburgh Unit Trust and the Ottoman Investments Unit Trust. Saracen was the trustee of the Voyager Point Unit Trust and the Helensburgh Unit Trust. Ottoman was the trustee of the Ottoman Investments Unit Trust. Isaac & Jacob holds the units in the Voyager Point Unit Trust and Helensburgh Unit Trust as trustee for the Elali Family Trust, a discretionary trust of which Mr El Ali is a specified beneficiary, and holds the units in the Ottoman Investments Unit Trust as trustee for the Second Elali Family Trust, a discretionary trust of which Mr El Ali is within the designated class of beneficiaries. Mr El Ali, at all relevant times, was, and still is, the appointor of both family trusts. As appointor, Mr El Ali has, under the terms of both family trusts, the power to remove and appoint the trustee.

4    In March 2010 the Royals commenced proceedings in the Supreme Court of New South Wales against Mr El Ali on a debt claim for the payment of the sum of $925,000 plus interest (“the debt proceedings”).

5     On 1 October 2010, the Royals obtained freezing orders (“the freezing orders”) in the debt proceedings against Mr El Ali and Saracen. The terms of the freezing orders against Mr El Ali restrained him from disposing of, dealing with, or diminishing the value of any of his assets up to the unencumbered value of $925,000 plus interest (quantified in the sum of $229,417.50). Exclusion was made for paying his ordinary living and reasonable legal expenses and dealing with, or disposing of, his assets in the ordinary and proper course of his business. The terms of the freezing orders against Saracen restrained it from disposing of, dealing with, or diminishing the value of any of its assets up to the unencumbered value of $1,099,456.17 and had similar exclusions. Mr El Ali was ordered to file and serve an affidavit setting out his assets and liabilities within 14 days from the making of the freezing orders.

6    In both orders the term “assets” was defined to include:

(1) …

(a)    all your assets whether or not they are in your name and whether they are solely or co-owned;

(b)    any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and

(c) …

(2)    the value of your assets is the value of the interest you have individually in your assets.

It was not in dispute that the shares held by Mr El Ali in Isaac & Jacob, Saracen, Ottoman and EasyChoice, as well as the properties owned by Saracen and Ottoman, were “assets” covered by the terms of the orders.

7    At the time that the freezing orders were made, Saracen was the registered proprietor of the Voyager Point and Potts Point properties and Ottoman was the registered proprietor of the Kogarah Unit 2 property (as well as units 1 and 3) and had entered into a contract to purchase the Taren Point property. It was not in dispute that Saracen owned the Potts Point property in its own right. In dispute is whether Ottoman and Saracen owned the other properties in their own rights (as the applicants contended) or in their capacities as trustees of the respective trusts (as the respondents contended).

8    On 19 October 2010 Mr El Ali transferred his shares in Isaac & Jacob and Ottoman to Mr Nazloomian (who was described in evidence as a friend of Mr El Ali). The transfers were for nominal consideration and were purportedly effected as security for outstanding loans from Mr Nazloomian to Mr El Ali and his companies, including Ottoman. Mr Nazloomian also replaced Mr El Ali as the sole director of both companies. The applicants’ case (which was denied by Mr El Ali) was that Mr El Ali effected the transfer of the Isaac & Jacob shares in knowing breach of the freezing orders and with intent to defraud his creditors. The applicants have not sought to impugn the transfer of the Ottoman shares to Mr Nazloomian as the shares were later transferred back to Mr El Ali.

9    On 22 November 2010 (after the share transfers and outside the time ordered) Mr El Ali affirmed his affidavit of assets and liabilities. He disclosed that he was the director and shareholder of Saracen and EasyChoice (as well as other companies that are not presently relevant). He listed in his assets and liabilities the Voyager Point and Potts Point properties, as well as a property at Helensburgh (“the Helensburgh property”) (also owned by Saracen), as follows:

10    He also disclosed that until 19 October 2010 he had been a director of, and held shares in, Ottoman and Isaac & Jacob. He deposed that the reason he had resigned as director of those companies was:

… due to the credit defaults which have been recorded against me personally. This prevented me from borrowing funds to purchase real estate. The transfer of the shares … was part of the overall transaction replacing me as director of the companies referred to … above [which included Ottoman and Isaac & Jacob].

11    He deposed that Ottoman was the registered proprietor of Kogarah Units 1, 2 and 3 which he valued at $670,000 each and that Units 1 and 3 (but not Unit 2) were mortgaged, each securing the amount of $545,000. He also deposed that Ottoman had entered into two contracts for the purchase of property as follows:

(a)    on 23 July 2010, a contract to purchase a property at Lot 3, Stonny Batter Road, Minto (“the Minto property”) for the purchase price of $3.8 million, on which a deposit of $38,000 had been paid with completion due on 30 November 2010; and

(b)    on 15 September 2010, a contract to purchase the Taren Point property for the purchase price of $2.025 million with a deposit paid of $50,625 and a completion date 130 days after the date of contract.

12    On 26 November 2010 the freezing orders were varied by consent to allow Mr El Ali to sell two residential properties (which are not presently relevant).

13    On 14 December 2010, Mr Nazloomian resigned as the director of Ottoman and transferred the shares in Ottoman back to Mr El Ali, who was also re-appointed sole director.

14    On 15 December 2010 (or thereabouts) Ottoman purported to appoint Mr Stojanovski as the new trustee of the Ottoman Investments Unit Trust and on 16 December 2010, Ottoman transferred the Kogarah Unit 2 property to Mr Stojanovski for $1. The transfer was said to be effected as security for an advance of $1 million from Mr Stojanovski to Ottoman to fund the balance due on the purchase of the Minto property. The applicants’ case (which was denied by Mr El Ali) was that these transactions were effected by Mr El Ali in knowing breach of the freezing orders and with intent to defraud his creditors.

15    The debt proceedings were heard by Macready AsJ on 11–13 April 2011 with judgment reserved.

16    On or around 21 April 2011 Ottoman purported to appoint Mr Zreika as the new trustee of the Ottoman Investments Unit Trust in place of Ottoman and a transfer form for the transfer of the Taren Point property from Ottoman to Mr Zreika for consideration of $1 was stamped at the Office of State Revenue (“OSR”). On 29 April 2011, the Ottoman purchase of the Taren Point property was completed. On 5 May 2011, Ottoman was registered as the owner on the title. On the same day, the transfer from Ottoman to Mr Zreika was also registered. The applicants’ case (which was denied by Mr El Ali) was that these transactions were effected by Mr El Ali in knowing breach of the freezing orders and with intent to defraud his creditors.

17    Judgment in the debt proceedings was delivered on 3 June 2011. Macready AsJ found Mr El Ali liable to the Royals in the sum of $1,099,456.74. On 23 June 2011, orders were entered giving effect to the judgment delivered on 3 June 2011. The orders included the continuation of the freezing orders against Mr El Ali and Saracen for a period of 28 days and a stay on the judgment for a period of 28 days pending the filing of an appeal foreshadowed by Mr El Ali. Mr El Ali filed a notice of intention to appeal but ultimately did not appeal.

18    The freezing orders and the stay were due to expire on 21 July 2011. On 18 July 2011, on the Royals’ application, McDougall J in the Supreme Court of New South Wales continued the freezing orders “until further order”. The orders were made ex parte in the absence of Mr El Ali and Saracen.

19    On 13 August 2011 the Royals served a bankruptcy notice on Mr El Ali. On 22 August 2011, Mr El Ali resigned as the director of Ottoman and Saracen and transferred the shares in those companies for nominal consideration to his nephew, Mahmoud, who was also appointed the sole director of each company. On 7 September 2011, Mr El Ali also resigned as the director of EasyChoice and transferred the shares in that company to Mahmoud, who was also appointed the sole director of that company. The applicants’ case (which was denied by Mr El Ali) was that these transfers were made by Mr El Ali for nominal consideration in knowledge of the judgment against him and the extension of the freezing orders, and done with the intent of defrauding Mr El Ali’s creditors. Mr El Ali has denied that he knew about the extension of the orders at the time that the transfers were effected. He claimed that he did not become aware of the extension of the freezing orders until about 12 September 2011. He has also denied that the transfers were effected with the intent of defrauding his creditors, claiming that the shares in EasyChoice were transferred to Mahmoud because Mahmoud wanted to take over EasyChoice and recapitalise it, and that the shares in Saracen and Ottoman were transferred to Mahmoud because Mr El Ali did not consider that either Saracen or Ottoman had any value left in them.

20    On 12 September 2011, the Royals’ solicitors, Holman Webb, wrote to Mr El Ali putting him on notice that the Royals were in the process of enforcing the judgment debt against him and “anticipate[d] that as a result a trustee in bankruptcy will be appointed in respect of all [his] assets”, and also putting him on notice that the transfer of the shares in Saracen was “in all likelihood” in breach of the freezing orders made in October 2010 and July 2011, and demanding that Mr El Ali rectify the “likely breach” by immediately taking all necessary steps to have the shares transferred back to him.

21    The Royals filed a creditor’s petition against Mr El Ali on 20 September 2011.

22    On 23 September 2011, Holman Webb wrote a letter to Mahmoud in similar terms to the 12 September 2011 letter to Mr El Ali.

23    On 8 October 2011, the creditor’s petition was served on Mr El Ali. The petition was originally listed for hearing on 3 November 2011 but for reasons that were left unexplained in the evidence the petition was not heard until 16 December 2011.

24    On 10 October 2011, Holman Webb sent follow up letters to Mr El Ali (through his solicitors) and to Mahmoud seeking an undertaking that all necessary steps be taken to have the shares in Saracen transferred back to Mr El Ali. On 11 October 2011, Holman Webb sent another letter to Mr El Ali’s solicitors enclosing various court documents, including the freezing orders of 18 July 2011.

25    On or about 17 October 2011, the Saracen shares were transferred back from Mahmoud to Mr El Ali. On or about 24 October 2011, Mr El Ali’s solicitors informed Holman Webb that this had happened.

26    On 4 November 2011 Holman Webb wrote again to Mr El Ali’s solicitors, this time demanding that the shares in EasyChoice be transferred back to Mr El Ali. That did not happen.

27    On 8 November 2011 there was a hearing of the creditor’s petition. The evidence did not explain what transpired at the hearing save that a sequestration order was not made that day.

28    In the meantime, Mr El Ali had, on 1 November 2011, re-transferred the Saracen shares back to Mahmoud. Consideration of $17,500 was said to have been given. On 21 November 2011 Holman Webb sent another letter to Mr El Ali’s solicitors and to Mahmoud noting that subsequent to 17 October 2011, Mr El Ali had again transferred the shares in Saracen to Mahmoud. The applicants’ case (which was denied by Mr El Ali) was that the share transfer was made by Mr El Ali in knowledge of the judgment against him and the extension of the freezing orders and done with the intent of defrauding Mr El Ali’s creditors.

29    On 24 November 2011, Mr El Ali’s solicitors informed Holman Webb that the only asset of Saracen was the Potts Point property which currently had a value of $25,000, there was a caveat on the property supporting a loan of $22,500 in relation to the purchase of the property and Saracen was a “mere trustee” in respect of the Helensburgh and Voyager Point properties. They also stated that their instructions were that Mr El Ali had sold his shares in Saracen to Mahmoud for $17,500 which “appears to be at better than estimated market value” and that Mr El Ali required the funds to enable him to continue to fund his defence of the proceedings and believed that he was entitled to have sold his shares for that purpose.

30    On 8 December 2011, Mahmoud, in his capacity as the sole director of Saracen, executed a Deed of Retirement and Appointment appointing Mr Zreika in place of Saracen as trustee of the Voyager Point Unit Trust. Also on 8 December 2011, Saracen transferred the Voyager Point property to Mr Zreika for $1. The applicants’ case (which was denied by Mr El Ali) was that these transactions were effected by Mr El Ali in knowing breach of the freezing orders and with intent to defraud his creditors.

31    On 16 December 2011, a sequestration order was made against the estate of Mr El Ali.

32    The remaining disposition that has been challenged by the applicants as a disposition with intent to defraud Mr El Ali’s creditors occurred in November 2012 when Saracen transferred the Potts Point property to Mr Nazloomian for $30,000, purportedly in reduction of the loan amounts then outstanding to Mr Nazloomian.

the proceedings

33    There are two proceedings which have been heard together, with evidence in one being evidence in the other.

34    In proceeding NSD 1731 of 2013 the Royals and the Trustee are the applicants and Mr El Ali, Mahmoud, Mr Zreika, Saracen, Ottoman and Mr Stojanovski are the respondents. The transactions the subject of this proceeding are, in chronological order:

(a)    The resignation of Ottoman as trustee, and the appointment of Mr Stojanovski as the new trustee, of the Ottoman Investments Unit Trust on 16 December 2010.

(b)    The transfer by Ottoman of the Kogarah Unit 2 property to Mr Stojanovski on 16 December 2010.

(c)    The resignation of Ottoman as trustee, and the appointment of Mr Zreika as the new trustee, of the Ottoman Investments Unit Trust on 21 April 2011.

(d)    The transfer by Ottoman of the Taren Point property to Mr Zreika on or about 21 April 2011.

(e)    The transfer by Mr El Ali of his shares in Ottoman to his nephew Mahmoud on 22 August 2011.

(f)    The transfer by Mr El Ali of his shares in Saracen to his nephew Mahmoud on 1 November 2011.

(g)    The resignation of Saracen, and the appointment of Mr Zreika as the new trustee, of the Voyager Point Unit Trust on 8 December 2011.

(h)    The transfer by Saracen of the Voyager Point property to Mr Zreika on 8 December 2011.

35    In proceeding NSD 771 of 2014, the Trustee is the applicant and Mr El Ali, Mahmoud, Mr Nazloomian, Saracen and Isaac & Jacob are the respondents. The transactions the subject of this proceeding are, in chronological order:

(a)    The transfer by Mr El Ali of his shares in Isaac & Jacob to Mr Nazloomian on 19 October 2010.

(b)    The transfer by Mr El Ali of his shares in EasyChoice to his nephew Mahmoud on 7 September 2011.

(c)    The transfer by Saracen of the Potts Point property to Mr Nazloomian on 22 November 2012.

36    In both proceedings, the Trustee and the Royals were represented by Dr Birch SC and Ms Thew of counsel. Mr Carey of counsel appeared for Mr El Ali. Mr Barlin of counsel appeared for Mahmoud, Mr Zreika, Saracen and Ottoman, and Mr Fernon of counsel appeared for Mr Nazloomian, Mr Stojanovski and Isaac & Jacob.

outline of the applicants’ case

37    The applicants’ case was that Mr El Ali alienated the shares in the three companies and the properties owned by Saracen and Ottoman with the relevant intent to defraud creditors within the meaning of s 37A of the Conveyancing Act. Section 37A of the Conveyancing Act provides as follows:

(1)    Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.

(2)    This section does not affect the law of bankruptcy for the time being in force.

(3)    This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of alienation, notice of the intent to defraud creditors.

38    In relation to the transfers of shares, the applicants, in addition, also relied on s 121 of the Bankruptcy Act. Section 121 of the Bankruptcy Act relevantly provides:

Transfers to defeat creditors

Transfers that are void

(1)    A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if:

(a)    the property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and

(b)    the transferor's main purpose in making the transfer was:

(i)    to prevent the transferred property from becoming divisible among the transferor's creditors; or

(ii)    to hinder or delay the process of making property available for division among the transferor's creditors.

Showing the transferor's main purpose in making a transfer

(2)     The transferor's main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.

Other ways of showing the transferor's main purpose in making a transfer

(3)     Subsection (2) does not limit the ways of establishing the transferor's main purpose in making a transfer.

Transfer not void if transferee acted in good faith

(4)     Despite subsection (1), a transfer of property is not void against the trustee if:

(a)     the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and

(b)    the transferee did not know, and could not reasonably have inferred, that the transferor's main purpose in making the transfer was the purpose described in paragraph (1)(b); and

(c)    the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.

outline of the respondents’ case

39    The respondents have denied that the applicants are entitled to relief under either s 37A of the Conveyancing Act or s 121(1) of the Bankruptcy Act.

40    The four primary defences are that:

(a)    there was no intent to defraud creditors;

(b)    the real estate (save for the Potts Point property) was not property that would have been available to Mr El Ali’s creditors, if those properties had not been disposed of, because the properties were the trust property of the Ottoman Investments Unit Trust and the Voyager Point Unit Trust and Mr El Ali did not hold any beneficial estate or interest in those properties at any material time;

(c)    in the alternative, if those properties do constitute property divisible amongst his creditors, the properties at the time of disposition were encumbered to such an extent that there was no relevant value in those properties at the time of disposition and, accordingly, the properties and the shares in Saracen and Ottoman were worthless and there was no diminution of the property available to creditors by reason of those dispositions;

(d)    the shares in EasyChoice were also worthless at the time of disposition and there was no diminution of the property available to Mr El Ali’s creditors by reason of the transfer of those shares.

41    Mr Stojanovski and Mr Nazloomian also relied on the defence under s 37A(3) of the Conveyancing Act.

42    Mr Stojanovski contended that he acquired Kogarah Unit 2 by way of security for a loan that he made to Ottoman and entered into the transaction in good faith without notice of an intention to defraud creditors.

43    Likewise Mr Nazloomian contended that he acquired the shares in Isaac & Jacob as security for loans that he made to Mr El Ali and/or his related companies and entered into the transaction in good faith without notice of an intention to defraud creditors. He contended also that he acquired the Potts Point property for valuable consideration and entered into the transaction in good faith without notice of an intention to defraud creditors. He also relied on the defence under s 121(4) of the Bankruptcy Act with respect to his acquisition of the shares in Isaac & Jacob, contending that he acquired the shares in Isaac & Jacob for value and did not know, or have reason to believe, at the time of the transfer that Mr El Ali was insolvent or about to become insolvent.

44    An alternative defence was raised on behalf of Mr Stojanovski in closing submissions in relation to the transfer of the Kogarah Unit 2 property to him and leave of the Court is required to amend the defence. As the proposed amendment was opposed it is appropriate to deal with the question of leave when considering the other defences advanced by Mr Stojanovski.

credit issues

45    Mr El Ali, Mahmoud, Mr Zreika, Mr Stojanovski and Mr Nazloomian each gave evidence-in-chief by way of affidavit and the credit of all of them was put into issue by the applicants. The applicants submitted that the Court should make adverse credit findings against each of them and should largely reject their evidence concerning the reasons for the transfers. Given the serious nature of the allegations, their evidence is to be tested by reference to the principles in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 and a very high level of satisfaction should be reached before making the findings urged by the applicants.

The evidence relating to the transfers of Mr el ali’s shares in isaac & jacob and ottoman to Mr Nazloomian

46    Mr El Ali and Mr Nazloomian described each other in evidence as friends. Mr El Ali stated that he had known Mr Nazloomian for many years and “had come to think very highly of him”. Mr Nazloomian deposed that he had developed a “very close and trusting commercial relationship” with Mr El Ali and they generally had “care towards each other’s financial and personal wellbeing”. Mr Nazloomian described Mr El Ali as a “very honourable man” and stated that he trusted him.

47    They first met in the 1990s when Mr El Ali, then a lending manager at Sunway Metcorp, handled Mr Nazloomian’s application for an extension of credit. After Mr El Ali started up EasyChoice in 2000, Mr Nazloomian kept in contact with him and had regular business dealings with him, which included lending money to Mr El Ali and his companies for various ventures. It was uncontroversial that as at October 2010, Mr Nazloomian was owed approximately $1.2 million in respect of those loans.

48    Mr Nazloomian deposed that in or about October 2010, he was pressing Mr El Ali for repayment of his loans and Mr El Ali asked him to consider being the director and shareholder of Isaac & Jacob and had a conversation in which Mr El Ali told him to the effect that:

That way you will control the assets it holds, and have some comfort that you are in control of all the assets available. It would give you comfort about the outstanding loan accounts you have.

49    Mr Nazloomian deposed that he was aware at that time that Isaac & Jacob was the trustee of the Elali Family Trust and the Second Elali Family Trust and that its sole function was to act as the trustee of those trusts. He deposed that he was “extremely honoured by the level of trust” that Mr El Ali had in him and that Mr El Ali was “prepared to hand over control to give [Mr Nazloomian] comfort and security over outstanding loans [he] held”. Mr Nazloomian deposed that he thought that he would be able to carry out the duties required in managing the trusts, and that “to oversee the management of the assets” would give him some security and so he decided to accept Mr El Ali’s offer.

50    Unsatisfactorily Mr Nazloomian left wholly unexplained why the shares in Ottoman were also transferred to him and why he assumed the role as sole director of that company. Nor did he give any evidence as to why he transferred the Ottoman shares back to Mr El Ali on 14 December 2010 and resigned as director of that company. The only evidence about these share transfers came from Mr El Ali.

51    Mr El Ali gave a different version of events. Mr El Ali deposed that he retired as the director of Isaac & Jacob and Ottoman in October 2010 because he did not consider that it was in the interests of either company or the beneficiaries of the two Elali family trusts or the Ottoman Investments Unit Trust “who were ultimately my family” for him to continue as a director of either company at that time. He also considered that it was not in the interests of individuals such as Mr Nazloomian who had loaned money to Ottoman “or indeed any of Ottoman’s creditors” for him to remain as its sole director and secretary. He deposed that he formed that view on the basis that he became aware, in about July 2010, that his own credit history was impacting upon the ability of Ottoman to secure funding which Ottoman needed to complete the purchase of the Minto property. He deposed that he recalled that he was provided with a credit report on himself by one lender which recorded that he had a very low credit score and a number of defaults recorded against his name and that his directorship of Ottoman, EasyChoice, Isaac & Jacob and Saracen was also recorded in the report. He deposed that he had been required to provide a director’s guarantee for each loan made to Ottoman and was aware that lenders were generally reluctant to lend to single director private companies in circumstances in which the director has a poor credit history. He further deposed that the due date for completion of the Minto property contract was 15 November 2010 and Ottoman was, by the middle of October 2010, still not in a position to complete as it had not yet obtained finance. He also deposed that he was “becoming increasingly distracted at this point by litigation”, referring to the debt proceedings as well as a dispute with the Commonwealth Bank of Australia (“CBA”). Mr El Ali deposed that both he and Saracen had become involved in a dispute with the CBA which involved two sets of proceedings also commenced in the Supreme Court of New South Wales in 2010 in relation to the possession of the Voyager Point property as well as residential properties that he owned himself and owned together with his partner. He deposed that he considered that “these distractions” were impairing his ability properly to look after the affairs of both Ottoman and Isaac & Jacob and therefore came to the view by around mid-October 2010 that Ottoman was more likely to obtain finance to complete on the Minto property contract if someone else was the director of those companies. He deposed that he asked Mr Nazloomian if he would become the director of both Ottoman and Isaac & Jacob because he had known him for a long time and “had always thought highly of him and [he] trusted him”. Mr El Ali deposed that also, in his opinion, Mr Nazloomian was “very prudent and calculating” and to Mr El Ali’s knowledge “held good assets, stable employment, a good credit rating and was not involved in any litigation”. He deposed that in his opinion Mr Nazloomian was “therefore more likely to be viewed favourably by potential lenders”.

52    Mr El Ali’s account of the conversation that took place between Mr Nazloomian and him was that when he asked Mr Nazloomian to take on both roles, he said words to the effect of:

John, I am not going too well with all the litigation and lack of income to complete the purchases that would add equity to the family trusts and to repay the debts we owe to you and others. Would you take over?

This way you could look after Elali family interests and your own.

53    Mr Nazloomian was said to have agreed and to have said:

I am honoured by the level of trust that you and your family have bestowed upon me.

54    Mr El Ali further deposed that in retiring as the director of Ottoman and Isaac & Jacob, it was not his intention to defraud anybody or to transfer or diminish his assets. He gave two reasons. First, he did not consider that the properties held by Ottoman were his own assets but belonged to the Ottoman Investments Unit Trust and ultimately to the Second Elali Family Trust. Secondly, he was not intending to diminish the assets of those trusts but to the contrary, by removing himself as a director of both companies, he intended to increase them. That evidence, however, left wholly unexplained why he transferred the shares as well as resigning as director and why he transferred the shares for the nominal consideration of $1.

55    As to why in December 2010, Mr El Ali re-assumed the position as director of Ottoman and Ottoman shares were transferred back to him, Mr El Ali deposed that throughout November and early December 2010, Ottoman had been experiencing difficulty in arranging completion of the Minto property contract due in part to its inability to obtain finance but also as the result of the vendor’s unwillingness to provide its prompt consent to Ottoman’s development application in relation to the Minto property. He deposed that settlement had been due on 15 November 2010. On 30 November 2010, the vendor of the Minto property served a notice to complete under the Minto contract but Ottoman did not have finance in place and was unable to complete. Mr El Ali deposed that it was looking increasingly like the acquisition of the Minto property would fall through and he expected that Ottoman would likely be sued by the vendor of the Minto property as a result. He deposed that in those circumstances he did not consider that he could prevail upon Mr Nazloomian to continue as the director of Ottoman and they had a conversation in the following terms:

[Mr El Ali]:    John, it looks like the receivers for the Minto property are not willing to talk, they want more money and are probably aware of the increase in value for the property if Ottoman’s development proposal is approved. It is very likely they will rescind the contract, retain the deposit and pursue the company and possibly its director. This is not what you would have expected and it is not fair. I’ll resume the directorship and try to defuse the situation.

Mr Nazloomian:     I’ve tried to help you and your family. I did not and would not want to be sued especially when it was you who entered into the contract and all that I have done is trust you. Yes it would be better for you to take Ottoman back but I will hang on to Isaac & Jacob; there is no legal action against it.

56    I do not think that either witness gave candid evidence, nor did I find their evidence credible.

57    I do not accept Mr Nazloomian’s explanation that he “felt [he] would be able to carry out the duties required in managing the trusts, would be able to oversee the management of the assets which would give [him] some security, and so [he] decided to accept [Mr] El Ali’s offer”. That explanation was not supported by the evidence and is contradicted by his own conduct. According to Mr Nazloomian, taking up Mr El Ali’s offer put him in a position to monitor his loans to Saracen and Ottoman by knowing what assets were being sold. In cross-examination Mr Nazloomian stated that:

… it gave me a window into the assets, and if they were coming and going, so that I would at least know if there was any profits made from any sales, then I could say “Hey, Nathan. Here’s some money that has come in. How about retiring some debts with me?”

However, when challenged in cross-examination on what he knew about the property dealings by Saracen and Ottoman, he admitted that he had no knowledge that Saracen and Ottoman had disposed of properties between 2010 and 2012 (save for the Potts Point property which Mr Nazloomian acquired from Saracen in 2012). He also admitted that he had not reviewed the financial accounts of Saracen or Ottoman or seen their books. It was then put to him that it was not true that he was holding the Isaac & Jacob shares because he would have some commanding view of the arrangements of Mr El Ali and could protect his interests. He denied this. It was also put to him that he did not have very much knowledge about what either company was doing. He denied this also. But both denials have no credibility in light of his earlier answers and his responses to further questions that were put, in which he agreed that he did not know whether Saracen held a property at Voyager Point and did not know that Ottoman had transferred Taren Point. It is clear that he had no idea about what either Saracen or Ottoman were doing and clear that Mr Nazloomian did not use his position as shareholder and controller of Isaac & Jacob “as a window” into Saracen’s and Ottoman’s affairs, when that was his ostensible purpose for taking the shares. Nor did the evidence show that Mr Nazloomian managed the two family trusts of which Isaac & Jacob was the trustee.

58    I infer that Mr Nazloomian’s role was essentially to do as instructed by Mr El Ali. Other than to sign documents presented to him for signature, there was no evidence that Mr Nazloomian otherwise performed any duties as director of Isaac & Jacob, notwithstanding his assertion that he was “in control”. Mr Nazloomian could not recall ever reading the trust deed of either family trust, did not know who the beneficiaries of those trusts were, other than that the trusts were Mr El Ali’s “private trusts”, and his only knowledge about the trusts came from what he was told by Mr El Ali. Tellingly, when in December 2011 he signed the Deed of Retirement and Appointment as director of Isaac & Jacob, by which Saracen resigned as trustee of the Voyager Point Unit Trust and Mr Zreika was appointed as the new trustee, he did so simply at the direction of Mr El Ali. His signature as director of Isaac & Jacob was required under the terms of the trust deed for the Voyager Point Unit Trust, which provided that the change of trustee could only be effected with the consent of the unitholder, viz: Isaac & Jacob. Mr Nazloomian gave consent on behalf of Isaac & Jacob when he had never met Mr Zreika, and was unable to explain the commercial purpose of the change. He denied that he had no idea when he signed the document what its commercial purpose was but when challenged in questioning, he claimed Mr El Ali had told him what the commercial purpose was behind the change in trustee, but he could not recall the details of the conversation. His answers given to that line of questioning were evasive and unconvincing. I do not accept that Mr Nazloomian knew what the commercial purpose was when he signed and find that the document was signed by him simply at the direction of Mr El Ali. There was no evidence to indicate that Mr Nazloomian, as the director of Isaac & Jacob, exercised any independent judgment concerning the change in trustee. To the contrary, the evidence showed, and I find, that Mr El Ali remained in effective control of Isaac & Jacob and directed its affairs.

59    Also impacting on Mr Nazloomian’s creditworthiness was his lack of candour in his evidence. As stated he never explained why the shares in Ottoman were also transferred to him and why he subsequently transferred them back to Mr El Ali. Nor did he disclose in his evidence-in-chief that, at the time he was asked by Mr El Ali if he would be the director and shareholder of Isaac & Jacob and Ottoman, he knew that Mr El Ali was being sued by the Royals, and indeed had been given regular updates by Mr El Ali on the legal proceedings, and also knew that Mr El Ali was under financial pressure from other creditors. None of this was disclosed in his two affidavits. When it was put to Mr Nazloomian that when he “took the shares [he] took them because [he] knew that Mr El Ali was under financial pressure and he needed to put the shares for his private family trust into safe hands while he dealt with those problems”, Mr Nazloomian agreed. Mr Nazloomian agreed in cross-examination that he considers that Mr El Ali is “honour bound to do what he can for [Mr Nazloomian] in the future to repay” the money that Mr Nazloomian has loaned him and that he expects that Mr El Ali will ultimately repay him in full. I infer from his answer that by helping Mr El Ali out, Mr Nazloomian believes that ultimately he will get paid in full.

60    Mr El Ali was not candid in his evidence and I did not find him a witness of truth. He went to great lengths to explain why he resigned as director of Isaac & Jacob and Ottoman but he left wholly unexplained in his evidence-in-chief why he also transferred his shares in those companies to Mr Nazloomian. There is nothing at all in his affidavits about why he transferred the shares. Even if I were to accept that I should read his evidence as also dealing with the share transfers (ie even if I accept that the share transfers were “part of the overall transaction replacing [him] as director of [Ottoman and Isaac & Jacob]” as he deposed in his 22 November 2010 affidavit of assets and liabilities), I do not accept the reasons given by him in his evidence as to why he transferred his shares in Ottoman and Isaac & Jacob on 19 October 2010. I explain why in the following paragraphs.

61    First, I found Mr El Ali’s evidence about his knowledge of the effect of the freezing orders unconvincing and contrived. He admitted that he knew about the 1 October 2010 freezing orders before he transferred the shares in Isaac & Jacob and Ottoman to Mr Nazloomian on 19 October 2010. There is some evidence that he had also read the orders before then, although his evidence in this regard was unclear and contradictory. Nonetheless, it was clear from his evidence that he was aware of the terms of the orders when he disposed of his shares. When cross-examined on his understanding of the orders he stated that it was his belief that the Ottoman shares were not the subject of the freezing orders and not affected by the freezing orders because “Ottoman didn’t have much money and the freezing orders referred to equity” and also because “Ottoman was not part of the [debt] proceedings”. He asserted that it was his understanding at the time that he was only restrained from dealing with property that had equity in it, and he “did not give away equity” because he believed, when he transferred the shares, that Ottoman held its assets on trust. Mr El Ali claimed to believe that the company itself had nothing and therefore that the Ottoman shares were not affected by the freezing orders “because nothing out of nothing is nothing, so there was no value”. Mr El Ali was, however, unable to explain how he came to hold that belief which has no support in the terms of the orders themselves. Moreover, there was nothing said by him in any of his affidavits that he had the belief that the freezing orders did not prevent him from disposing of the shares, notwithstanding it was part of the case pleaded against him that he transferred the shares in breach of the freezing orders. I reject his evidence about his understanding of the freezing orders.

62    Moreover I find it implausible that the obtaining of the freezing orders against Mr El Ali and Saracen and the transfers by Mr El Ali of shares in Isaac & Jacob and Ottoman were independent, unconnected events and do not accept that the transfers are to be explained by the reasons asserted by Mr El Ali in his evidence. I have already rejected Mr Nazloomian’s version of events as credible. Mr El Ali’s version of events was also not credible. Critically and tellingly, contrary to Mr El Ali’s assertion that he transferred the shares because he considered that the distractions of the litigation then pending against him were impairing his ability properly to look after the affairs of the two companies, the evidence all pointed to Mr El Ali remaining actively involved in both companies’ affairs despite the change in control and ownership to Mr Nazloomian, including with respect to the Minto property purchase. The impelling matter that needed to be attended to was the finance to enable the Minto property purchase to be completed. It was not Mr Nazloomian, however, who was attending to that, but Mr El Ali (by his own admission), and it was because Mr El Ali was having difficulty in arranging the finance and it looked like the acquisition of the Minto property would fall through that Mr El Ali asked for the Ottoman shares back. Mr El Ali’s explanation as to why, in the first place, he asked Mr Nazloomian to take over Ottoman is contradicted by his own conduct in continuing to attend to the affairs of that company as if he was still the sole director and shareholder.

63    Thirdly, I do not accept the timing of the share transfers to be coincidental to the freezing orders that had been made on 1 October 2010. I note that the three Kogarah Units were acquired by Ottoman on 23 August 2010. Whilst Mr El Ali was not asked any questions about the timing of the share transfers with the completion of the acquisition of those properties, it is inherently unlikely that the decision to transfer the Ottoman shares was unconnected with the acquisition of valuable property by Ottoman.

64    Accordingly I reject the submission for Mr El Ali that he provided “an entirely reasonable explanation” for his decision to transfer the shares in Isaac & Jacob and Ottoman on 19 October 2010. I did not find Mr El Ali’s evidence in this regard reliable and his evidence about his understanding of the freezing orders, which I have also rejected, reflects generally on his creditworthiness. In the light of the rejection of the reasons given by Mr El Ali and Mr Nazloomian for the share transfers and the finding that Mr El Ali continued to remain in effective control of Isaac & Jacob and directing its affairs, I accept the submission for the applicants that the only plausible explanation for the share transfers to Mr Nazloomian in October 2010 was because he was a trusted friend who would mind the shares whilst Mr El Ali dealt with his creditors.

The evidence relating to the transactions between Ottoman and Mr Stojanovski

65    Mr Stojanovski and Mr El Ali are business associates who first met sometime around 2006. The explanation given by both of them for the transfer by Ottoman of the Kogarah Unit 2 property to Mr Stojanovski was that it was conveyed as security for a loan of $1 million from Mr Stojanovski to finance completion of the purchase of the Minto property by Ottoman. That loan was said to have been made on 23 December 2010.

66    Ottoman was served with a notice to complete the Minto property purchase by the vendor’s solicitors on 30 November 2010. On 3 December 2010, Ottoman’s solicitors wrote to the vendor’s solicitors advising that Ottoman would endeavour to proceed to completion by 15 December 2010. On 14 December 2010, Mr El Ali was again appointed as sole director and shareholder of Ottoman. I have already rejected Mr El Ali’s explanation as to why he transferred those shares to Mr Nazloomian in the first place and found that the reason for the transfer to Mr Nazloomian was because he was a trusted friend who would mind the shares whilst Mr El Ali dealt with his creditors. The re-transfer to Mr El Ali is explained by the fact that finance was needed to complete Ottoman’s acquisition of the Minto property.

67    According to Mr Stojanovski, in or about early December 2010 he had a conversation with Mr El Ali to the effect that Mr El Ali told him that he had exchanged contracts on a property at Minto and was struggling to secure funding and asked whether Mr Stojanovski would be interested in “coming in on the purchase”. Mr Stojanovski asked how much was needed and was told $1 million. Mr Stojanovski asked what security he would get and was told that Mr El Ali could give him security over three commercial properties at Kogarah and a caveat over the Minto property. Mr Stojanovski deposed that he agreed, “as long as [he] [got] the caveats and security upfront” and Mr El Ali said he would “draft up a deed” that detailed their agreement and set out the terms. Mr El Ali gave no evidence-in-chief about this but confirmed in cross-examination that he had discussions with Mr Stojanovski about the possibility that he might advance some funds towards the purchase of the Minto property.

68    Mr Stojanovski deposed that he met with Mr El Ali sometime later in around mid-December 2010 and that Mr El Ali told him that he would make him the trustee of the Ottoman Investments Unit Trust and transfer Kogarah Unit 2 to him as the new trustee, which would give him total control of the asset and that Mr Stojanovski said “that’s fine. As long as it is in my name.” Again Mr El Ali gave no evidence-in-chief about this but emails confirm that by 15 December 2010, Mr El Ali had instructed his solicitors to prepare, amongst other documents:

(a)    a Deed of Appointment of New Trustee appointing Mr Stojanovski as the new trustee of the Ottoman Investments Unit Trust in replacement of Ottoman;

(b)    three “consented caveats” over Kogarah Units 1, 2 and 3, showing the interest of Mr Stojanovski (and his brother) as a purchaser of Unit 2 from Ottoman; and

(c)    a “consented caveat” over the Minto property showing the interest of Mr Stojanovski (and his brother) as a lender.

69    On 15 December 2010, the notice to complete the Minto property purchase was extended to 17 December 2010.

70    Also on 15 December 2010, Mr El Ali (on behalf of Ottoman) and Mr Stojanovski signed a number of documents. The documents included a Deed of Appointment of New Trustee, a transfer form for the transfer of the Kogarah Unit 2 property from Ottoman to Mr Stojanovski for $1, caveats over Kogarah Units 1 and 3 showing the interest of Mr Stojanovski as a purchaser of Units 1 and 3 from Ottoman and a caveat over the Minto property. Mr Stojanovski’s evidence was that he did not obtain any legal advice before signing these documents.

71    The Deed of Appointment of New Trustee prepared by Mr El Ali’s solicitors had left blank for completion the date of the Ottoman Investments Unit Trust deed and the number of the clause pursuant to which Ottoman was empowered to appoint a new trustee. It may be inferred that the solicitors did not review the trust deed for the purpose of preparing the document, although it does appear that the trust deed was requested from Mr El Ali. The significance is that the Deed of Appointment recorded cl 30, in handwriting, as the relevant clause empowering Ottoman to appoint Mr Stojanovski as the new trustee. In fact, Ottoman did not have that power as under cl 30, the appointment of a new trustee could only be made by the unitholder (ie, Isaac & Jacob).

72    The next day, Mr El Ali submitted the transfer form and the ineffective Deed of Appointment of New Trustee to the OSR. The transfer was stamped with $50 duty pursuant to s 54(3) of the Duties Act 1997 (NSW) (“Duties Act”) as a transfer made in consequence of the appointment of a new trustee. Mr El Ali in cross-examination agreed that he had pointed out cl 27 of the trust deed to the OSR but not cl 30. The transfer of Kogarah Unit 2 was stamped with nominal duty of $50 pursuant to s 54(3) of the Duties Act.

73    Section 54(3) provides that duty of $50 is chargeable in respect of a transfer made in consequence of the appointment of a new trustee if the Chief Commissioner is satisfied, relevantly, that:

…

(b)    none of the trustees of the trust after the appointment of a new trustee is or can become a beneficiary under the trust; and

(c)    the transfer is not part of a scheme for conferring an interest, in relation to the trust property, on a new trustee or any other person, whether as a beneficiary or otherwise, to the detriment of the beneficial interest or potential beneficial interest of any person.

74    Clause 27 of the Ottoman Investments Unit Trust deed provided that the trustee is “both absolutely and irrevocable (sic) prohibited from being a unitholder or otherwise directly or indirectly benefitting under this deed” save for its rights to reimbursement and remuneration. It may be inferred that the relevant officer was satisfied that both conditions were met (based at least upon cl 27) because only $50 duty was imposed. Having been stamped, the transfer was then registered with the Lands Title Office on 21 December 2010.

75    Mr El Ali initially disagreed in cross-examination that he was responsible for the documents submitted to the OSR but said that he believed he “assisted”. On pressing, he agreed that it would be a fair statement that he did the work. Mr El Ali also agreed that he had, by late 2010, considerable experience with the operation of the OSR. He had been involved in a number of property dealings before late 2010 and had also been involved in a mortgage broking business. He agreed that he was aware that stamp duty was levied on the transfers of property at a rate that was a percentage of the purchase price of the property. He agreed also that he was aware that a transfer made in consequence of the appointment of a new trustee was chargeable with only $50 in duty if the trustee did not benefit under the trust.

76    Ottoman did not complete the purchase of the Minto property by 17 December 2010 and on that day, the Minto contract was terminated by the vendor. According to Mr El Ali, negotiations still continued after that date, although the contract had been terminated.

77    Also on or around that date, Mr Stojanovski and Mr El Ali (on behalf of Ottoman) executed a Deed of Agreement which Mr El Ali had prepared. It was submitted for Mr Stojanovski that this deed contained the agreement for the provision of a loan of $1 million and for the Kogarah Unit 2 property to be assigned to Mr Stojanovski as security holder and entitled him to hold the property until he had been repaid.

78    The Deed of Agreement was expressed to be made on 13 December 2010 but it was accepted it was not made before 17 December 2010. The recitals recorded that Mr El Ali was the sole director of Ottoman, which was described as the nominated purchaser of the Minto property, and Mr Stojanovski was “an established investor with strong building experience”. The recitals also recorded that Mr El Ali invited Mr Stojanovski to participate in “the project” by providing a cash investment of $1 million to complete the proposed purchase of the Minto property and that Mr Stojanovski accepted the offer to participate and the parties had agreed “to form an affiliation in accordance with the terms of this deed”.

79    The document recorded that:

(a)    the Minto property was to be purchased by Ottoman as trustee for the Ottoman Investments Unit Trust;

(b)    the purchase price was $3.8 million and settlement was to have been effected on 30 November 2010. A development application to sub-divide the property was expected to be finalised by the end of January 2010 (but presumably meant 2011);

(c)    a market valuation completed at 2 December 2010 reflected a value “as is” of $4.13 million and of $4.9 million with approval for three lots sub-division;

(d)    the vendor had terminated the contract for sale on 17 December 2010;

(e)    funding to complete the purchase price was expected to be generated as to $3 million from Mr El Ali “and associates” secured by way of a first registered mortgage over the Minto property and that Mr Stojanovski “and associates” were to provide a “direct Cash investment” of $1 million “secured in (sic) way of transfer ownership” of the Kogarah Unit 2 property and caveats over Kogarah Units 1 and 3 and a “consented Caveat” over the Minto property “in the event the purchase proceed (sic) to settlement”;

(f)    under the heading “Security”, that Mr El Ali had agreed “to supply” Mr Stojanovski with a “written consent” for a caveat over the Minto property, “transfer ownership” of the Kogarah Unit 2 property, caveats over Kogarah Units 1, 2 and 3, and an executed contract for the sale of the Kogarah Unit 2 property; and

(g)    also under the heading “Security”, that:

Any net sale proceeds to the value of $1,000,000 of the [Kogarah Units] are to be disbursed to or as directed by [Mr Stojanovski]. Any amount disbursed would be [utilised] to reduce [the] value of [the] initial [investment] by [Mr Stojanovski] and associates but it would not reflect or effect (sic) the agreed profit share of 25% of net profit before tax or 25% of net amount received as a result of negotiations with the vendor.

80    Further terms were that:

(a)    Mr Stojanovski agreed to lodge a withdrawal of caveat to effect a sale of Units 1 and 3 “subject to the sale being in line with market expectation of greater than $700,000 for each and every floor”;

(b)    Mr Stojanovski also agreed to provide an executed transfer to effect a sale of the Kogarah Unit 2 property “subject to the sale being in line with market expectation of greater than $700,000”;

(c)    Mr El Ali agreed “to be held personally liable for” the initial investment by Mr Stojanovski and associates with Ottoman; and

(d)    should Mr Stojanovski elect to recall the loan of $1 million on 1 May 2011 or later, Mr El Ali must within 30 days provide Mr Stojanovski with $1 million “in way of Cash plus interest calculated at 10% annually.”

81    Then on 21 December 2010, another Deed of Appointment of New Trustee was signed by Mr El Ali (on behalf of Ottoman) and Mr Stojanovski. This deed was identical to the Deed of Appointment signed on 15 December 2010. As best can be made out on the evidence, it appears that this document was executed along with transfer forms for the transfer of the Kogarah Units 1 and 3 from Ottoman to Mr Stojanovski, also for $1 each, and that this Deed of Appointment and the transfer forms for Units 1 and 3 were lodged with the OSR for payment of duty on 23 December 2010. Mr El Ali deposed that:

However the appointment was never finalised and Kogarah Units 1 and 3 were never transferred to [Mr Stojanovski] in his capacity as the trustee of the Ottoman Investments Unit Trust, because the [OSR] delayed stamping of the relevant documents and requested further information.

82    The reason given by Mr El Ali for the two Deeds of Appointment being executed was that the earlier deed had related to Kogarah Unit 2 and the later deed related to Kogarah Units 1 and 3, though he accepted in cross-examination that neither deed referred to any particular property. Mr Stojanovski in cross-examination stated that the 15 December version “was requisitioned by the LPI [Lands Titles Office], and then we had to sign a new trust around the 20th – around the 23rd. So there was another trust deed signed after this date”. Mr Stojanovski made no mention of this in his evidence-in-chief. Furthermore, wholly unexplained was why Units 1 and 3 were to be transferred to Mr Stojanovski when this was not recorded in the Deed of Agreement. I found neither explanation for the second Deed of Appointment satisfactory but in any event the fact is that Units 1 and 3 were not transferred to Mr Stojanovski.

83    Mr El Ali and Mr Stojanovski claimed that, in the meantime, on 23 December 2010, Mr Stojanovski gave Mr El Ali two bank cheques for $500,000. According to Mr Stojanovski’s evidence, Mr El Ali had phoned him on 23 December 2010 and said that now that he (Mr Stojanovski) had the security that he wanted, he (Mr El Ali) needed the cheques urgently. Mr Stojanovski stated in cross-examination that he was aware at the time that the vendors had terminated the Minto contract for sale, but he believed that Ottoman still had “two weeks” to complete the purchase and believed that there were “some negotiations going on” “to continue with [the contract]”. Mr Stojanovski’s evidence was that he believed that Mr El Ali was going to use the $1 million to settle on the Minto property. Mr Stojanovski deposed that at all times he believed that the transfer of the Kogarah Unit 2 property was as security for his loan to Ottoman as trustee of the Ottoman Investments Unit Trust. The Court was asked to reject that evidence.

84    It was argued for the applicants that the explanations of Mr Stojanovski and Mr El Ali for the transfer of the Kogarah Unit 2 property were “riven with self-contradiction” and should not be accepted. It was submitted that on the one hand, they say that the property was transferred as security for the loan of $1 million but, on the other hand, say it was the consequence of the appointment of Mr Stojanovski as trustee of the Ottoman Investments Unit Trust. It was submitted that Mr Stojanovski and Mr El Ali either have misled the Court as to the reasons for the transfer or they wilfully misled the Chief Commissioner to claim a concessional duty on the transfer. Conversely it was submitted for Mr Stojanovski that the Court should accept that the loan transaction was the fundamental underlying basis for the transfer of property and that the Court should accept Mr Stojanovski’s evidence that the property was transferred to him as security for the advance of $1 million. I disagree with the latter submission.

85    I find that Mr Stojanovski did not in fact lend the $1 million to Ottoman (or otherwise). There is evidence that two bank cheques payable to the National Australia Bank (“NAB”) were drawn from funds in Mr Stojanovski’s account on 23 December 2010. The applicants did not dispute that the documentary evidence demonstrates the existence of those two bank cheques and that the photocopy of them bears the handwritten annotations of Mr El Ali to the effect that he received them. There is, however, no evidence that the cheques were ever banked by Mr El Ali. One of the key issues in the proceeding is whether, as the applicants alleged, consideration of $1 only was given for a property with a net value of $670,000. Mr El Ali’s evidence was that he banked the $1 million into the Saracen bank account on or about 23 December 2010, that the $1 million “assisted in many other ventures to pay deposits for other stuff as well”, including “the deposits for Wollongong, which we lost at the time” and the $1 million was thereafter “lost”. All that evidence was given in cross-examination. In examination-in-chief, Mr El Ali deposed merely that “on 23 December 2010, [he] received two cheques, each in the amount of $500,000 from Stojanovski”. He did not depose to what he did with those cheques. I am prepared to infer from Mr El Ali’s failure to lead evidence on this critical issue that such evidence would not have assisted him. There are, in addition, other facts from which it may reasonably be inferred that the loan was not ultimately made.

86    First, completion of the Minto property never occurred. There was no need for the advancement of the funds.

87    Secondly, in April 2011, Mr Stojanovski was aware that settlement of the Minto property had not occurred. Yet Mr Stojanovski advanced an amount of approximately $400,000 to assist Ottoman to complete the purchase of the Taren Point property. I find it improbable that Mr Stojanovski would have advanced further funds had it been the case that he was owed the $1 million which, on his evidence, he had advanced for the purposes of the purchase of the Minto property when he knew that the Minto property had not been completed and when the fact was that, by that time, all negotiations had stopped. More so, given that Mr Stojanovski’s own evidence was that Mr El Ali had told him that Ottoman had also received a notice to complete for the Taren Point property and needed more money. It is an uncontroverted fact, nonetheless, that Mr Stojanovski made the advance of $400,000 to assist in the completion of the purchase of the Taren Point property when, on his evidence, he had already lent $1 million for a property purchase that had not proceeded.

88    Thirdly, it is also uncontroversial that Kogarah Units 1 and 3 were sold in 2014 and that Mr Stojanovski withdrew the caveats on Units 1 and 3 to enable those properties to be sold. Notwithstanding the terms of the Deed of Agreement which provided for Mr Stojanovski to be paid out of the proceeds of sale in relation to his loan of $1 million, no amount was paid to Mr Stojanovski from the sale of those units.

89    Fourthly, although the Kogarah Unit 2 property continued to be registered in his name, Mr Stojanovski took no steps to realise the property in order to recoup his loan amounts. On his evidence, he expected that the loan would be for a short term of three to four months and that he would be repaid within that time. Several years later, though he had still not been paid, he had not taken any steps to realise his security. Additionally, he has never put in a proof of debt in the estate of Mr El Ali for the $1 million loan, notwithstanding that the Deed of Agreement provided that Mr El Ali personally guaranteed the repayment of the loan.

90    Fifthly, whilst Kogarah Units 1 and 3 have been sold, Unit 2 has not been. Mr Stojanovski’s evidence was that Unit 2 had also been put up for sale but I do not accept that evidence. Mr Stojanovski admitted in evidence that he had never appointed an agent to sell Unit 2 and there is no objective evidence to show that he did put the unit up for sale.

91    Sixthly, in around October 2012, Mr Stojanovski entered into a lease with ECHL Pty Ltd (“ECHL”) (another company wholly owned by Mr El Ali and later by Mahmoud). The lease was signed by Mahmoud for ECHL and it was negotiated by Mr El Ali. The term of the lease was identified as three years with an option to renew for a further five years with rent to be $78,000 per year in monthly instalments. Mr Stojanovski agreed in cross-examination that ECHL had never paid any rental and there was no evidence that Mr Stojanovski took any steps to enforce payment of the rental. The context in which the lease was executed was that Mr Stojanovski was seeking a loan from the ANZ Bank. Although Mr Stojanovski denied that the lease was executed to lead the ANZ Bank to believe that he was receiving an income stream from the property, I reject that denial. Nothing in the evidence supports a finding that Mr Stojanovski ever expected an income stream from the lease.

92    Seventhly, it is also implausible that Mr Stojanovski would have left the property vacant without using it for income producing purposes since 2010 if it were the case that there was $1 million outstanding to him. Mr Stojanovski did not offer any explanation as to why no step was ever taken by him to realise the property or to use the property as an income stream.

93    Eighthly, not only did Mr Stojanovski agree to lend another $400,000 (on his evidence) but he also agreed to a first registered mortgage over the Kogarah Unit 2 property to secure a loan from Yasoo Drachma Pty Ltd (“Yasoo”) of around $600,000 which was used in the funding of the purchase of the Taren Point property in April 2011. I find it implausible that Mr Stojanovski would have lent an additional $400,000 when, according to him, his previous loan of $1 million had not been repaid and implausible that he was prepared to allow a first mortgage to be taken by Yasoo over the Kogarah Unit 2 property to secure the loan of $600,000 when that property, as at November 2010, had approximately a net value of $670,000 according to Mr El Ali’s November 2010 affidavit of assets and liabilities. In other words, if he was holding that property as security for the $1 million loan, it is inconceivable that he would permit it to be mortgaged to secure a loan from a third party to fund the Taren Point property purchase. Furthermore, as stated, by April 2011, the negotiations for the Minto property had ceased. It is implausible that Mr Stojanovski would have lent more funds in April 2011 if, as Mr El Ali asserted in his evidence, he had used the $1 million for other purposes.

94    Finally, Mr Stojanovski’s claim to be owed $1 million is implausible given that he was unaware at trial that Mr El Ali’s nephew, Mahmoud, had become and remains the director of Ottoman, which is the trustee of the Ottoman Investments Unit Trust. If there was $1 million owing to him by that trust, it would be expected that he would have made enquiries as to who was in control of the trust and taken steps to recover the debt owed to him. He has done neither.

95    Nor do I accept that Mr Stojanovski ever believed that his appointment as trustee had anything to do with giving him security over the property. Mr El Ali admitted in cross-examination that Mr Stojanovski “never took on the trusteeship”. His explanation was that it was because all the assets could not be transferred to Mr Stojanovski. I take this to be a reference to Units 1 and 3. However, there is no mention of the transfer of Units 1 and 3 in the Deed of Agreement, whether in consequence of the appointment of Mr Stojanovski as trustee or otherwise and indeed, there is no mention at all of the appointment of Mr Stojanovski as trustee as part of the arrangements relating to the advancement of monies by Mr Stojanovski for the completion of the Minto property purchase. In addition, putting to one side for the moment that Mr El Ali has conceded that both Deeds of Appointment were ineffective, there was nothing in the evidence to show that Mr Stojanovski ever performed any duties as trustee, believing that he had been duly appointed. The evidence that was elicited from him in cross-examination was to the contrary. Although Mr Stojanovski in cross-examination maintained that he believed that he had been appointed trustee, he admitted that he had not done anything in relation to managing the affairs of the trust. He was also asked whether he still considered that he was the trustee of the trust to which he replied “no”. When asked when he ceased to be the trustee of the trust, he stated “as soon as I ceased to carry out any activities on behalf of the trust – of the beneficiaries of the trust”. When further pressed, he stated in self-justification that there were no activities that needed to be carried out in December 2010. Given the control that Mr El Ali continued to exercise over the affairs of Ottoman and the Ottoman Investments Unit Trust, and the lack of any evidence to show that Mr Stojanovski at any time performed any duties as trustee, I reject Mr Stojanovski’s version of events as implausible. Moreover, Mr El Ali gave a different version of events. On his version of events, the change of trusteeship did not proceed because the OSR “sent further documents requiring further changes or additional requirements. [Mr Stojanovski] refused to take on the mortgages in his name because [Units 1 and 3] were mortgaged, and everything was, in [his] understanding of it, was called off”. It is salient, nonetheless, that Mr El Ali appeared not to regard Mr Stojanovski as ever holding the position of trustee of the Ottoman Investments Unit Trust. This is borne out by the fact that in April 2011, Mr El Ali had Mr Zreika appointed as trustee of the Ottoman Investments Unit Trust in lieu of Ottoman.

96    In summary, I reject the evidence of both Mr Stojanovski and Mr El Ali as to why Mr El Ali transferred the title to Kogarah Unit 2 (being the only unit which was not encumbered) to Mr Stojanovski. The examination of the evidence of both Mr Stojanovski and Mr El Ali did not present a plausible explanation for the transactions. Both witnesses were shown not to be credible and their accounts are not accepted. I find that Mr Stojanovski did not make the advance of $1 million, and find that Mr El Ali remained in effective control of the Kogarah Unit 2 property and the transfer was orchestrated by him to put that property beyond the reach of his creditors at a time when proceedings were pending against him and he was aware of the freezing orders against Saracen and him.

The evidence relating to the transfer of THE TAREN POINT PROPERTY FROM ottoman to Mr ZREIKA

97    Mr Zreika is another business associate of Mr El Ali. They met about 10 years ago. Mr Zreika and Mr El Ali have claimed that the Taren Point property is held by Mr Zreika as trustee of the Ottoman Investments Unit Trust and that the property was transferred to him in that capacity.

98    The contract for the Taren Point property had been entered into in September 2010. Settlement was due in February 2011 but did not complete then. Various correspondence passed between the solicitors between February and April 2011 about settlement and on 8 April 2011, a notice to complete the sale of the Taren Point property was served on Ottoman requiring completion of the sale by 29 April 2011. Mr El Ali deposed that ultimately sufficient finance to complete the purchase of the Taren Point property was obtained but only with the assistance of Mr Stojanovski, Mr Zreika and Mr Nazloomian.

99    Mr El Ali deposed that he was told “at some point in April 2011” by a lending manager at Bankwest that the bank would not lend to him or to Ottoman the funds required to complete the purchase because of Mr El Ali’s poor credit rating, but the bank could lend 60% of the value of the property to Mr Zreika who was a customer of the bank. Mr El Ali deposed that he concluded from this that Ottoman was still unable to borrow on behalf of the Ottoman Investments Unit Trust because of him.

100    He deposed that he then spoke with Mr Zreika whom he had known for many years and who was a trusted friend who had also loaned money to him and to Ottoman and EasyChoice in the past. Mr El Ali’s evidence of the conversation with Mr Zreika was in the following terms:

[Mr El Ali]:     [Mr Zreika] I’m in need of your help. Ottoman can’t raise the finance to complete on the Taren Point Contract. EasyChoice is not doing well and the bank will not lend to companies associated with me. My family needs someone else to take over as the trustee in Ottoman’s place.

[Mr] Zreika:     Nathan I would like to help if I can but what do you want me to do?

[Mr El Ali]:     I would like you to be the trustee for the Ottoman Trust. You would take over the Taren Point deal and see it through to completion and development. In doing so you would be looking after my family’s interest in the development, but also your own position as our ability to repay your loans will be improved if it succeeds and you could share in the profit.

[Mr] Zreika:     What about the properties in Kogarah; aren’t they part of the trust?

[Mr El Ali]:     Technically yes, but there is no value left in them. The trust has negative equity in those properties and they can stay with Ottoman. [Mr Stojanovski] has the title to level 2 as security for his loan. Levels 1 and 3 are mortgaged to Rapid Capital and I expect they will take possession any time now. The only asset of any value left is Taren Point. That’s what I’m asking you to look after.

[Mr] Zreika:     Of course Nathan; you know I would like to help your family out.

101    Mr El Ali deposed that he “caused” Ottoman to transfer the Taren Point property to Mr Zreika for consideration in the amount of $1 and a Deed of Retirement and Appointment of New Trustee was entered into pursuant to which Mr Zreika replaced Ottoman as the trustee of the Ottoman Investments Unit Trust. Mr El Ali deposed that “again” it was not his intention to defraud anybody or to transfer or diminish his assets and he did not consider that any property held by Ottoman was his own or even Ottoman’s but belonged to the Ottoman Investments Unit Trust and ultimately to the Second Elali Family Trust. Furthermore, Mr El Ali deposed “in causing Ottoman to retire as trustee I was not intending to diminish the assets of those trusts. To the contrary, by removing myself and Ottoman from the equation I intended to increase them”.

102    On 21 April 2011, a transfer form for the transfer of the Taren Point property from Ottoman to Mr Zreika for consideration of $1 was stamped at the OSR with $50 duty. Curiously the transfer was signed before completion of the contract to purchase (which was on 29 April 2011) and, it appears, the Deed of Appointment appointing Mr Zreika as the trustee of the Ottoman Investments Unit Trust in place of Ottoman, which bears the date 28 April 2011. Mr El Ali explained that a Deed of Appointment appointing Mr Zreika as the trustee of the Ottoman Investments Unit Trust in place of Ottoman was executed on 21 April 2011 (but was undated) with Alan El Ali witnessing Mr Zreika’s signature, but he did not take a copy of that document. He thought he would need a second “original” to give to the OSR so he had another version executed, and the second time Peter Tan witnessed Mr Zreika’s signature because Alan El Ali was not available. Mr El Ali’s evidence did not explain why the copy witnessed by Alan El Ali was not signed by Mr Nazloomian (on behalf of Isaac & Jacob as the unitholder) whereas the version dated 28 April 2011 had Mr Nazloomian’s signature. This is yet another example of irregularity and inconsistency in the documentation relied on by Mr El Ali in this case.

103    Mr Zreika’s evidence was not essentially different from Mr El Ali’s evidence on this part of the events. He deposed that he first met Mr El Ali approximately 10 years ago when Mr El Ali was a finance broker and he used Mr El Ali’s services to secure finance for his business and other financial needs. He deposed that over the years they had remained in contact both socially and in relation to their respective business interests.

104    Mr Zreika’s version was that he recalled having a conversation with Mr El Ali in or around April 2011 at which Mr El Ali told him that the Ottoman Investments Unit Trust had bought a property at Taren Point but needed the finance to settle and asked whether he could “help out”. Mr Zreika deposed that he asked whether he would be buying the property in his own right or would be “doing it for the trust” and was told that the property was in the Ottoman Investments Unit Trust so he would need to hold it on trust. According to Mr Zreika, he told Mr El Ali that if he was going to raise finance to fund the settlement then he would need to do that in his own name with the lenders and asked how that would work, and that Mr El Ali replied that Mr Zreika could have the property transferred to him on settlement and at the same time sign a document saying that he was holding it on trust for the Ottoman Investments Unit Trust. He deposed that Mr El Ali also told him that when the property was redeveloped and on-sold, Mr Zreika would get “all the loans paid out from the settlement proceeds and split the profit with the trust 50/50”, and Mr Zreika said that sounded good and he would do it. Mr Zreika deposed that he understood at the time that on the settlement of the property at Taren Point he would be holding the title in the Taren Point property “both as Trustee of the Ottoman [Investments Unit] Trust, and as security trustee for [his] own benefit as a secured creditor with respect to the Taren Point Property”. He further deposed that he has held the Taren Point property in his name on this basis since completion of the sale of the Taren Point property on 29 April 2011.

105    Mr El Ali’s evidence was that he also had a conversation with Mr Stojanovski at about this time “largely because it was looking increasingly like the Minto deal would not go forward” and that Mr Stojanovski said that he was not interested in the Kogarah Units and did not want to be a lender long-term, but the Taren Point property was of interest to him due to the fact that it could be subdivided and he could build a house for himself on one side and for his brother on the other side. Mr El Ali gave evidence that he asked Mr Stojanovski if he could advance “the family” around $427,000 to complete the purchase because Ottoman was not able to obtain the full funding “or, in fact, any funding whatsoever” and Mr Stojanovski agreed to advance the money provided he could obtain a further security and “have the right to re-purchase the property or purchase the property if he [was] in a position to do so”. Mr El Ali deposed that Mr Stojanovski made an “advance” and exhibited a bank statement on the account of “Stoj & Co Pty Ltd” showing two withdrawals totalling $200,000 (rounded) on 29 April 2011 which he had signed, acknowledging receipt of those funds. The “security” taken by Mr Stojanovski was a caveat lodged by him on the title of the property, claiming an “equitable interest as purchaser” under a contract of sale between Mr Zreika as vendor and Mr Stojanovski as purchaser. Although Mr El Ali gave no evidence-in-chief regarding that contract of sale, he was plainly aware of the contract as on 28 April 2011, his solicitors had provided him with that contract for signing by the parties and also with a transfer. The consideration under that contract was also expressed to be $1.

106    Mr Stojanovski gave evidence to similar effect. He deposed that in January 2011, Mr El Ali showed him the Taren Point property and that whilst inspecting the Taren Point property he thought that the property was unique and saw value in it. He deposed that sometime around mid-April 2011 he met with Mr El Ali and Mr Zreika during which meeting Mr El Ali told him that Mr Zreika was lending money towards the purchase of the Taren Point property but more finance was required and enquired of Mr Stojanovski whether Mr Stojanovski would “lend some more money for this property”. Mr Stojanovski deposed that he told Mr El Ali that he would need further security because he had already given $1 million and Mr El Ali said “you can have a caveat along with a signed contract and signed transfer to allow you potentially full control of the property” and that Mr Stojanovski said “ok”. Shortly afterwards, he had a further conversation with Mr El Ali in which Mr El Ali told him that they were getting funding from Bankwest and another finance company but needed about $400,000 to complete the purchase. He was asked whether he “can do that?’ to which he replied “ok”. Mr Stojanovski also deposed that he was also told that the other finance company was “coming in as second mortgagee and in order for it to hand over its money, it needs security” and wanted to take a first mortgage over the Kogarah Unit 2 property for a short term only. Mr Stojanovski apparently agreed to that.

107    He deposed that Mr El Ali subsequently provided him with an indicative letter of offer for a loan from Yasoo of around $600,000 for the purpose of completing the purchase of the Taren Point property on terms that included that the loan be in the joint names of Ottoman, Mr El Ali, Mr Zreika and Mr Stojanovski and that Yasoo take a first mortgage over the Kogarah Unit 2 property to be released once Bankwest had settled the Taren Point property. Mr Stojanovski was also provided with a letter from the lender’s solicitors to Mr El Ali enclosing the loan agreement and collateral documents.

108    On Mr Stojanovski’s chronology of events, he signed the mortgage document for the loan from Yasoo on 28 April 2011. On 29 April he met with Mr El Ali who gave him a signed transfer, signed contract for sale and caveat for the Taren Point property which he countersigned. He then withdrew a total of $200,000 from his NAB account by way of bank cheque in favour of St George Bank and the OSR and another $180,000 from a Westpac account also by way of bank cheque in favour of St George Bank which he gave to Mr El Ali, together with $7,000 cash that Mr El Ali had also asked for. They then attended settlement at which he observed Mr El Ali “meet with other people and carry out the settlement and attend to stamping”. He deposed that he then went with Mr El Ali to the Land Titles Office so that the “documents could be lodged for registration”.

109    Finally, Mr Stojanovski deposed that in addition to the bank cheques and cash of $7,000 already provided, he provided Mr El Ali with another $40,000 in cash which Mr El Ali said he needed for “various fees and expenses for the loan and legal fees”. Mr Stojanovski deposed that in total he provided $427,000 and he has not been repaid any of the monies that he lent. It does not appear, however, that the Taren Point property was ever transferred to Mr Stojanovski. Rather it continues to be registered in the name of Mr Zreika. Further, Mr Stojanovski’s caveat over the Taren Point property has lapsed, though Mr Stojanovski’s evidence is that he did not know why and had instructed his solicitors to have it re-lodged.

110    On Mr Zreika’s version of events, he was the one who approached Mr Stojanovski. He deposed to a conversation with Mr Stojanovski in around April 2011 in which he told Mr Stojanovski that Mr El Ali had said that he (Mr Stojanovski) might be interested in providing some finance to him (Mr Zreika) to complete a contract later that month for a property at Taren Point for the Ottoman Investments Unit Trust and that he needed to borrow around $400,000. Mr Stojanovski was said to have replied that he knew that trust as he had already lent $1 million in relation to a development at Minto that did not look as though it was going ahead and that if he was to lend more money he would need to be secured. Mr Zreika’s evidence was that he told Mr Stojanovski that the deal was that he (Mr Zreika) “will raise the finance and then hold the property for the trust and also to protect [his] investment” and that he could give Mr Stojanovski “a signed contract for sale of land for [him] to lodge if [he] think it necessary along with a caveat to protect [his] interest as a purchaser in the meantime”. Mr Stojanovski was said to have agreed. In cross-examination Mr Zreika stated that he did not intend to sell the Taren Point property to Mr Stojanovski for $1, but that Mr Stojanovski wanted to hold the contract “as a security”. When pressed, Mr Zreika stated that he “had to trust” Mr Stojanovski and that if he was not going to pay him back, he would not have sold him the property for $1 but would have negotiated with him.

111    It was not controversial that Mr El Ali also approached Mr Nazloomian who also agreed to advance a sum of $106,000 towards the purchase of the Taren Point property. Apart from deposing that Mr Nazloomian advanced those funds, Mr El Ali did not otherwise give evidence about his approach to Mr Nazloomian. Mr Nazloomian’s evidence was that Mr El Ali told him if the contract was terminated by the vendor then he (Mr El Ali) and Ottoman would be sued, possibly for hundreds of thousands of dollars, as resale by the vendor could be for less than the price paid by Ottoman of $2.025 million. Mr Nazloomian stated that he considered that the Taren Point property appeared to be “good value” and “an improved opportunity for [him] to recover loan accounts owed against improved equity of [the] El Ali group” and that he agreed “considering [his] new status as the director and shareholder of [Isaac & Jacob] and the closeness of [his] relationship with [Mr] El Ali, the El Ali family and [his] familiarity with [Mr] Zreika”. Mr Zreika said nothing in his evidence other than reference to the fact of the loan from Mr Nazloomian.

112    In summary, it appears that settlement of the property was funded by a Bankwest loan in Mr Zreika’s name (which was secured by a mortgage over Taren Point), a loan from Yasoo in the name of Mr El Ali, Mr Zreika, Mr Stojanovski and Ottoman (secured by a mortgage over the Kogarah Unit 2 property), and the balance of the funds came from Mr Stojanovski and Mr Nazloomian.

113    I found the evidence of both Mr Zreika and Mr El Ali unsatisfactory and unconvincing concerning the circumstances of the transfer of the Taren Point property to Mr Zreika. On their version of events, the transfer occurred because Ottoman was unable to secure the finance to complete the purchase of the property because of Mr El Ali’s poor credit rating. I reject that explanation.

114    Mr Zreika’s evidence-in-chief was that in order to fund the settlement of the purchase of the Taren Point property, he arranged for funds from a number of parties, namely a Bankwest home loan contract dated 23 March 2011 obtained by him for $989,000, the Yasoo loan pursuant to which the sum of $617,059.77 was advanced, the advance of $427,000 from Mr Stojanovski and the advance of $106,000 from Mr Nazloomian. The evidence that he was the person who arranged that finance was shown to be plainly incorrect in cross-examination. He accepted in cross-examination that Mr El Ali had arranged those loans (although in respect of the Bankwest loan he said that Mr El Ali had “assisted” him to obtain the loan). Consistently, both Mr Stojanovski and Mr Nazloomian gave evidence that it was Mr El Ali who arranged the loans from them.

115    Mr Zreika was shown generally to be an unreliable witness. Apart from changing his evidence in cross-examination on the critical question as to who arranged the finance, his credit was also impugned by his evidence about the reason for the transfer of the Voyager Point property from Saracen to him, which I deal with later in these reasons. In all, I did not find him to be a person whose testimony could be relied upon. On his own evidence, Mr Zreika was prepared to mislead. Mr Zreika admitted (subject to a certificate granted under s 128 of the Evidence Act 1995 (Cth) in respect of the admission) that he had made a false statutory declaration in June 2012. The statutory declaration had been sought by Gee Bee Airfreight Pty Ltd (“Gee Bee Airfreight”) as part of a process of providing finance in regard to the Taren Point property in June 2012. Mr Zreika declared that he held and owned the Taren Point property for business purposes and that the property would be “free from encumbrances” at the time of the loan, without declaring that he held the property on trust (as he asserts in this proceeding), and declared that he had not sold the property, agreed to sell it, offered it for sale or granted any option relating to it, without disclosing that he had contracted to transfer the property to Mr Stojanovski for $1. He sought to explain away the declaration by stating that he signed the statutory declaration without having read it or understood what it said. I do not accept that self-justification which has no support in the evidence.

116    Mr El Ali’s evidence that Ottoman could not secure the requisite finance because of his poor credit rating was not believable, given that part of the funding came from a loan from Yasoo to, amongst others, Mr El Ali and Ottoman, for the purpose of financing the completion of the Taren Point property contract. Yasoo had also financed Ottoman’s purchase of the Kogarah Units to the amount of $980,000 and taken a mortgage over Units 1 and 3 as security. The fact was that Mr El Ali was able to obtain the finance, despite his “poor credit rating”.

117    Neither Mr El Ali nor Mr Zreika gave any evidence about the loans from Bankwest and Yasoo other than to refer to the fact that the loans were made, in contrast to the detail offered by them about the circumstances in which Mr Stojanovski and Mr Nazloomian also agreed to advance funds. Mr El Ali tendered no corroborating evidence in support of his assertion that Bankwest would not lend to him and, in particular, failed to adduce evidence from David Tran of Bankwest in respect of the conversation in which Mr Tran was said by Mr El Ali to have told Mr El Ali that the bank would not lend to him or to Ottoman.

118    Curiously, the Bankwest loan in respect of which Mr Zreika was the borrower had already been approved as at the date that Mr El Ali purportedly asked him to take over the Taren Point property deal and see it through to completion and development, which was said to have happened in “around April 2011”. The Bankwest loan had a disclosure date of 23 March 2011 and the offer was expressed to lapse by 22 April 2011. It was submitted for the applicants that, presumably, Mr Zreika had already obtained this loan from Bankwest for other purposes, contradicting the evidence of Mr El Ali that he approached Mr Zreika after Bankwest had suggested that it may be able to provide finance to Mr Zreika. One of the conditions of the loan, however, was for the bank to take a mortgage from Mr Zreika over the Taren Point property. Wholly unexplained in the evidence was how this came about as at 23 March 2011 and in light of this document, Mr El Ali’s chronology of events does not make sense. The failure of either witness to explain the circumstances of that loan is a glaring omission in view of the centrality of that loan to the matrix of facts upon which both Mr El Ali and Mr Zreika rely in defence of the claims made against them by the applicants. I am prepared to find, from the timing of that loan and from Mr Zreika’s admission in his cross-examination, that Mr El Ali was involved in arranging that loan with Bankwest and that Mr El Ali had approached Mr Zreika before April 2011, contrary to Mr El Ali’s and Mr Zreika’s evidence-in-chief. I am also prepared to find that Mr El Ali only approached Bankwest after he had spoken to Mr Zreika, contrary to Mr El Ali’s evidence-in-chief. Mr Zreika said nothing about when Bankwest was approached. It may also be inferred that the 21 April 2011 transfer from Ottoman to Mr Zreika was executed on that date because the loan offer from Bankwest to Mr Zreika expired on 22 April 2011. The evidence otherwise did not explain why that transfer occurred on that date, when Ottoman was not the registered proprietor of the property. Settlement of the Taren Point property did not take place until 29 April 2011 and the transfer to Ottoman was registered on 5 May 2011. Further, I am prepared to infer from the unexplained failure by Mr El Ali to adduce evidence from Mr Tran at Bankwest that such evidence would not have assisted his case.

119    Furthermore, the evidence does not show that Mr Zreika carried out any functions or duties as the trustee of the Ottoman Investments Unit Trust other than at the direction of Mr El Ali. On the face of the evidence it is clear that Mr El Ali has remained the person in control and directing the affairs of Ottoman and the Ottoman Investments Unit Trust. Significantly, apart from arranging the finance for the completion of the Taren Point property purchase, Mr El Ali was the one who organised the refinancing in June 2012. In June 2012, Mr Zreika entered into a loan agreement with Gee Bee Airfreight to borrow $1.75 million to refinance the Taren Point property. Mr El Ali was the person who conducted the negotiation leading to the new loan arrangements with Gee Bee Airfreight, although purporting to act on behalf of Mr Zreika. Mr El Ali confirmed in cross-examination that he had negotiated with Gee Bee Airfreight “in big part” but not in full although he later confirmed that he had “facilitated” the refinancing transaction of the Taren Point property. The Gee Bee Airfreight loan in turn was refinanced in June 2013 with NAB. Again, the person who was involved in the refinancing was Mr El Ali, not Mr Zreika. Mr Zreika maintained in cross-examination that he “made the decisions” but it is clear from the evidence that it was Mr El Ali, not Mr Zreika, who was the controlling force behind this refinancing as well. It was put to Mr El Ali in cross-examination that the refinancing from Gee Bee Airfreight was all arranged by him. His response was “not totally”. It was put to him that he was the one who was principally responsible for taking all action in regard to procuring that finance and principally responsible for the discussions that took place when the finance was paid out. He responded that he “assisted”. I do not accept Mr El Ali’s answer that he was merely “assisting” Mr Zreika. He agreed that he had written extensive correspondence on Mr Zreika’s behalf to solicitors and financiers. When put to him that he had “done everything … in order to organise and arrange what was going to happen with [the Taren Point] property”, his response was that he continued to assist. He agreed that he has had conversations with Mr Zreika about what Mr Zreika is planning to do with the Taren Point property and that he makes suggestions about how Mr Zreika might realise the property. When asked whether Mr Zreika has a plan that he has conveyed to Mr El Ali about what he intends to do with the property, Mr El Ali responded that he did, which was “to add value to it, repay himself and everyone else and move on with life”. Mr El Ali’s responses were evasive and contradicted by the evidence that he was the one who arranged the finance. Furthermore there is no evidence that Mr Zreika has any plans with respect to the Taren Point property. I find that Mr El Ali was the person who was calling the shots.

120    It follows that I reject both Mr El Ali’s and Mr Zreika’s evidence as to the reason for Mr Zreika’s appointment as trustee and the transfer of the Taren Point property to him. I find that Mr El Ali remained the directing and controlling force of the Ottoman Investments Unit Trust, notwithstanding the appointment of Mr Zreika as trustee. I infer that Mr El Ali approached Mr Zreika to act as trustee in place of Ottoman because Mr Stojanovski had not been prepared to act as trustee and accept the submission for the applicants that Mr Zreika is in effect “warehousing the property” for Mr El Ali. Completion of the acquisition of the Taren Point property occurred at a time when judgment in the debt proceedings was reserved and Mr El Ali was aware of the freezing orders against Saracen and him. It is reasonable to infer and I find that the transfer from Ottoman to Mr Zreika was orchestrated by Mr El Ali to put that property also beyond the reach of his creditors.

The evidence relating to the transfer of the shares held by Mr El Ali in ottoman, saracen and easychoice to mahmoud

121    The shares were all transferred for nominal consideration.

122    Mr El Ali deposed that by mid-2011, EasyChoice’s business had more or less ground to a halt and he formed the view that it had no remaining value. It had effectively ceased trading in 2008 when it had been evicted from the premises that it leased under a “demolition clause” in the relevant lease and after that, EasyChoice was unable to secure suitable premises close to its main client base, and its capacity to trade was seriously diminished.

123    He deposed that around that time he had a conversation with his nephew Mahmoud, who told him he wanted to take over EasyChoice and recapitalise it. Mr El Ali deposed that he had doubts about whether that was possible, but he was happy for Mahmoud to try and said to Mahmoud that he could try but he should take over Saracen and Ottoman as well. He deposed that by that time he did not consider that either Saracen or Ottoman had any value left in them for the following reasons:

(a)    Saracen was a trustee and he did not believe that it owned any assets in its own right. Further, he considered that the assets that it held on behalf of the Voyager Point Unit Trust and the Helensburgh Unit Trust were by that stage “in negative equity” given the extent to which Saracen was indebted to the NAB and CBA;

(b)    by that time, Ottoman had retired as the trustee of the Ottoman Investments Unit Trust and the only property of the trust that he considered to be of any value, the Taren Point property, had been transferred to the new trustee, Mr Zreika; and

(c)    Ottoman continued to hold the title to Kogarah Units 1 and 3 but these were subject to mortgages.

124    Mr El Ali deposed that in those circumstances he did not perceive that he was diminishing his own assets by transferring his shares in Saracen and Ottoman to Mahmoud. He deposed that it was not his intention to defraud anybody or to transfer or diminish his own assets and did not consider that any property held by Ottoman or Saracen was his own or even Ottoman’s or Saracen’s, and that if there was any value left in any properties held by either company, so far as he was concerned, that value belonged to the trusts.

125    The Ottoman shares were transferred to Mahmoud on or about 22 August 2011, the Saracen shares were transferred to him on or about 23 August 2011 and the EasyChoice shares were transferred on or about 7 September 2011. At the same time, Mahmoud was also appointed the sole director of each company in place of Mr El Ali. Mr El Ali deposed that he was not aware at the time that McDougall J had extended the freezing orders on 18 July 2011 and that he first became aware of the extension of the orders when he received Holman Webb’s letter dated 12 September 2011 putting him on notice that the Royals were seeking to enforce the judgment and that the transfer of the Saracen shares to Mahmoud was in breach of the July 2011 freezing orders. Mr El Ali deposed that upon receiving Holman Webb’s letter dated 12 September 2011, he considered whether he had in fact breached the freezing orders and during the course of considering that issue, he became aware that Saracen had never accounted for the Potts Point property as being property of either the Helensburgh Unit Trust or of the Voyager Point Unit Trust, but as its own property. He deposed that he spoke with Mahmoud and on 17 October 2011, Mahmoud transferred the 10 ordinary shares in Saracen back to Mr El Ali for nominal consideration. On 1 November 2011 Mr El Ali transferred the 10 ordinary shares in Saracen back to Mahmoud. Mr El Ali and Mahmoud gave inconsistent evidence as to the reason why Mahmoud was said to have paid $17,500 for the shares. I deal with this later in these reasons.

126    In evidence is an email sent by Mr El Ali’s solicitors to the Royals’ solicitors dated 24 November 2011 conveying his instructions. The email was in response to letters from Holman Webb Lawyers to Mr El Ali and Mahmoud noting that Mr El Ali had transferred the shares in Saracen to Mahmoud and that following the Royals raising concerns as to the transaction, the shares were thereafter transferred back from Mahmoud to Mr El Ali. The solicitors noted that it had come to their attention that, subsequent to 19 October 2011, the shares again had been transferred from Mr El Ali to Mahmoud. The letter referred to the October 2010 freezing orders and the further orders made by McDougall J on 18 July 2011 over the assets of Mr El Ali and Saracen and noted that the freezing orders remained in place.

127    The email response stated that Mr El Ali’s position was that the only asset of Saracen was the Potts Point property which was valued at around $25,000, there was a caveat on the Potts Point property supporting a loan of $22,500 in relation to the purchase of the property and that Saracen was a mere trustee in respect of the Helensburgh and Voyager Point properties. The email further advised that the instructions from Mr El Ali were that Mr El Ali “therefore” sold his shares in Saracen to Mahmoud for the sum of $17,500, on which stamp duty had been paid, and that sale appeared to be at better than estimated market value. The email further stated that Mr El Ali acquired the funds to enable him to continue his defence of the proceedings and that he believed that he was entitled to have sold his shares for that purpose under the freezing orders and that he was of the view that he had not taken any action in contravention of the freezing orders.

128    Mahmoud’s evidence was that he lived with Mr El Ali from 1996 to 2003, after his father became ill and that Mr El Ali had been like a father to him. He deposed that in or about June 2009, he had a conversation with Mr El Ali to the following effect:

[Mahmoud]:     As you know I am looking for a new business to get involved with. I want to get out of doing manual work for a living. I would really like to do some mortgage broking and property investment, like you. There are lots of opportunities in what you do. Do you have any ideas?

[Mr El Ali]:     I am looking for someone to take over EasyChoice Home Loans. It isn’t doing so well at the moment for a variety of reasons, but you are welcome to see if you can turn it around. If you are interested, you would also need to take on Ottoman Investments and Saracen Holdings. They are just companies that don’t own anything and aren’t doing any business at the moment. All or nothing so to speak.

129    Mahmoud deposed that he knew EasyChoice to be Mr El Ali’s mortgage broking company and he was very interested in taking that over and he saw it as an opportunity to turn around a struggling business in an area that he wanted to be working in. He deposed that he was not particularly interested in taking on Ottoman or Saracen based on what Mr El Ali had said about them but that “even so” if he needed to take them on in order to be able to run EasyChoice, he was prepared to do so and he thought, at the time, that he could find someone else to take on Ottoman and Saracen and keep EasyChoice himself.

130    Mahmoud deposed that he told Mr El Ali that he was excited about the chance to get involved with the EasyChoice business but was not really interested in taking on Ottoman or Saracen, as he could not see a use for them but that Mr El Ali told him that he would need to take all three companies “or none of them”. Mahmoud said that he agreed and Mr El Ali told him that he would need to pay something for the companies: “they aren’t worth much at the moment, but they still have a value.”

131    Mahmoud deposed that at the time he was about to travel to Syria to be with his new wife and it was agreed they would wait until he returned from Syria. He deposed that in late 2009 he travelled to Syria where he stayed for approximately one year and seven months. He returned to Australia around 11 July 2011. He deposed that upon his return he had a conversation with Mr El Ali in which he told Mr El Ali that he was now ready to take on EasyChoice and the other companies, and that Mr El Ali told him they would need to agree a price first. He also deposed that Mr El Ali said that the financial position of the companies had not changed since their discussion before Mahmoud went to Syria. Mr El Ali asked him how much he could afford to pay and Mahmoud told him he had about $17,500, “that is all”. Mr El Ali was said to have replied “That’s enough. Can you pay it all now?” and Mahmoud said no, he could pay “say $5,000 within a few weeks and the rest over a couple of months after that” and Mr El Ali said ok.

132    According to Mahmoud, in early August 2011, he visited Mr El Ali at his home in Hurstville Grove and paid him $5,000 in cash “as agreed” and over the next five or six weeks, he visited Mr El Ali at his home and paid the remaining $12,500 in cash of varying amounts.

133    Mahmoud deposed that the business conducted by EasyChoice was not going well at the time that he took it over in September 2011 and had essentially ceased trading by early 2012. On 28 May 2014, EasyChoice was placed into liquidation by a creditor.

134    As to the circumstances in which Mahmoud, in October 2011, transferred the Saracen shares back to Mr El Ali, Mahmoud deposed that in early October 2011, Mr El Ali told him that he had just discovered that Saracen did own some property, namely a laneway in Potts Point and “this means that the money you paid for the shares should have been recorded as consideration on the share transfer form” and that needed to be fixed up. According to Mahmoud, Mr El Ali told him that he would need to transfer the shares back to him for the amount of the consideration on the first form, and Mr El Ali would then transfer them back to him for consideration of $17,500 and that Mahmoud agreed to this.

135    Mr El Ali deposed that he was not aware at the time that the freezing orders had been extended by McDougall J on 18 July 2011, though he agreed in cross-examination that he was “possibly” “conscious that the freezing orders might have been extended at the time” but he did not know that they had been, and denied that the judgment against him was “operating on [his] mind during [his] dealing with [Mahmoud]”. He said that he “continued business and continued to try to do the best [he] can”.

136    I do not accept Mr El Ali’s reasons for transferring the shares in Ottoman, Saracen and EasyChoice to Mahmoud. Nor do I accept Mahmoud’s evidence that he wanted to take on the EasyChoice mortgage broking business to recapitalise it. The evidence of both witnesses was not credible and in my opinion wholly unconvincing.

137    I was asked to find that at the time of each of the transfers Mr El Ali knew about the extension of the freezing orders on 18 July 2011. I am not prepared to make that finding except in relation to the transfer of the Saracen shares back to Mahmoud around 1 November 2011. Even on Mr El Ali’s own evidence, he was plainly aware by then of the existence of those orders and that they applied to the Saracen shares. In relation to the earlier transfers, the evidence was equivocal as to whether Mr El Ali in fact knew about the extension of the orders. The evidence showed that Mr El Ali had been put on notice of an application to be heard on 22 July 2011 but in fact the application was heard on 18 July 2011 pursuant to orders of McDougall J made on 14 July 2011. The evidence did not irrefutably show that Mr El Ali was on notice of the earlier date for hearing and Mr El Ali denied that he was. He did, however, in cross-examination, accept that he was “possibly” “conscious that the freezing orders might have been extended at the time” that the transfers were made. The re-transfer of the Saracen shares in the face of the freezing orders is another instance of a disposition made by Mr El Ali with the knowledge that he was restrained from doing so, which goes to his credibility generally in relation to his explanations for the property and share transfers.

138    Whether or not Mr El Ali had actual knowledge of the extension of the freezing orders made on 18 July 2011 when he made the earlier dispositions, it is implausible that Mahmoud asked to take over the EasyChoice mortgage broking business. At that stage, even on Mr El Ali’s evidence, the business was defunct. EasyChoice had ceased trading, was “worthless” and “useless”, was unlicensed under the National Consumer Credit Protection Act 2009 (Cth) (“National Credit Act”) and had against it an infringement notice imposing a penalty of $27,500 for contravening s 30(2) of the National Credit Act issued by ASIC on 22 June 2011. Tellingly, Mahmoud had no qualifications to conduct a mortgage broking business and upon acquiring the shares in EasyChoice, apparently because he wanted to conduct the mortgage broking business, he took no steps to commence, or revive, the business apart from making an enquiry about courses in mortgage broking, which he never undertook. He spoke to no clients of the EasyChoice business, did not look at its website, did not look at its books and records and took no steps at all either to conduct the business or recapitalise it. Mahmoud’s evidence as to the circumstances under which he came to take the shares in EasyChoice is contradicted by his inaction and complete failure to take any steps to conduct the business, let alone to recapitalise it.

139    It is also implausible that because Mahmoud was to carry on the EasyChoice business, he should take the shares in Saracen and Ottoman as well. Those companies had nothing to do with the EasyChoice business and further each of those companies owned valuable pieces of property.

140    The explanation given by Mr El Ali and Mahmoud for the transfer back and then re-transfer of the Saracen shares in October 2011 is also not plausible. Those transfers occurred in the context where Mr El Ali knew that the shares were subject to the freezing orders. Moreover, there was considerable confusion in the evidence both from Mr El Ali and Mahmoud as to whether and when Mahmoud allegedly paid the $17,500 to Mr El Ali. Mahmoud deposed that he had paid the $17,500 in consideration for the EasyChoice shares in or around August 2011 (and also received the Saracen and Ottoman shares at the same time). However, Mr El Ali deposed that no consideration was received in respect of the August 2011 transfer but rather this amount was agreed later as consideration for the Saracen shares because Saracen held the Potts Point property in its own right and Mr El Ali had not realised this at the time of the August 2011 transfer. Mahmoud seemed to change his position and gave evidence later that the reason he had paid $17,500 to Mr El Ali was because it “turned out” that Saracen owned the Potts Point property in its own right. This is also inconsistent with the instructions that Mr El Ali gave his solicitors that he transferred the shares to Mahmoud for $17,500 to raise funds for his legal defence. I am not satisfied on the evidence that the shares were transferred other than for nominal consideration.

141    Moreover, despite Mahmoud’s evidence that he acted as director of Ottoman, EasyChoice and Saracen, there was no evidence supporting that claim. Indeed, the evidence all showed that Saracen and Ottoman continued to be run and controlled by Mr El Ali. Tellingly, Mahmoud knew nothing about the Voyager Point property disposition, which I deal with later in these reasons, although he was the director of Saracen at the time. Likewise, although he purported to be the person who sold the Helensburgh property, he was unable to provide any details concerning it. Mahmoud also knew nothing about the July 2011 freezing orders.

142    The evidence did not support the explanations given by Mr El Ali or Mahmoud for the share transfers to Mahmoud and I find that notwithstanding the share transfers, Mr El Ali remained in effective control of Ottoman, Saracen and EasyChoice.

The evidence relating to the transfer of THE voyager POINT PROPERTY FROM saracen to Mr ZREIKA

143    This property was transferred in December 2011 for $1.

144    Mr Zreika deposed that in or about late October 2011 he had a conversation with Mr El Ali during which Mr El Ali told him that Saracen had been having some problems with the CBA in relation to the Voyager Point property and asked Mr Zreika whether he may be able to refinance the property and take it on in his own name on the same basis that he did with the Taren Point property. Mr Zreika deposed that he replied “You mean as a trustee for the Voyager Point [Unit] Trust and also for me to make some money out of it as well?” and Mr El Ali responded “yes” and Mr Zreika agreed to do it.

145    On 8 December 2011, a transfer of the Voyager Point property from Saracen to Mr Zreika, for consideration expressed to be $1, was signed by Mahmoud on behalf of Saracen and by Mr Zreika. In addition, a document was executed appointing Mr Zreika as trustee of the Voyager Point Unit Trust. The document was signed by Mahmoud on behalf of Saracen, Mr Zreika and Mr Nazloomian on behalf of Isaac & Jacob (the unitholder). Isaac & Jacob’s consent to the change of trustee was required by cl 11.6 of the Voyager Point Unit Trust deed. Documents subpoenaed from the OSR disclosed that Mr El Ali lodged the documents with the OSR and nominal stamp duty of $50 pursuant to s 53(4) of the Duties Act was paid on the transfer. The transfer was not lodged for registration on the title of the Voyager Point property, however. Mr Zreika deposed this was because, at that time, his intention was to proceed with the refinancing and hold the Voyager Point property “as trustee and as a way of protecting [his] investment in the property”. However, “despite the intention … for [him] to seek refinance”, the refinancing of the Voyager Point property did not ultimately occur.

146    The ostensible explanation for the transfer of the property to Mr Zreika for $1 in December 2011 was contradicted by Mr Zreika’s own inaction. He took no steps to refinance and neither he nor Mr El Ali gave any explanation as to why no such steps were taken. The unexplained failure to give such evidence leads to an inference that such evidence would not have assisted their cases. It is clear however that the transactions effected in December 2011 were at Mr El Ali’s initiative and direction, even though Mahmoud was the director of Saracen at the time. In cross-examination Mahmoud was unable to give a satisfactory explanation as to his understanding of what the transaction was all about, save that Mr El Ali was behind the disposition of the property and he did what he was told by Mr El Ali. So too did Mr Nazloomian, who had never met Mr Zreika before. Mr Nazloomian confirmed in cross-examination that he signed the Deed of Appointment (on behalf of Isaac & Jacob) at the request of Mr El Ali.

147    It is clear also on the evidence that despite the Deed of Appointment, Mr Zreika did not take on the role of trustee. Mr Zreika’s evidence in cross-examination was that he never actually assumed the role of trustee in regard to the Voyager Point Unit Trust, notwithstanding the Deed of Appointment signed in about December 2011. He signed the document but he stated that he “never went ahead with being a trustee”. He stated that when he signed this document he wanted to become the trustee but when he saw the complication with the CBA he did not want to have anything to do with it. Mr El Ali similarly admitted that Mr Zreika never became trustee of the trust and the Deed never took effect.

148    It was contended for Mr El Ali and Mr Zreika nonetheless that the sole intent of the transfer, considered as at 8 December 2011, was to deal with the CBA dispute and financing issue. It was submitted that the subsequent course of events showed this to be the case. They relied on the following evidence that was said to be “objective, unchallenged and un-contradicted”:

(a)    as at 8 December 2011, the Voyager Point property was subject to a mortgage in favour of the CBA securing a loan of $1,285,000 made to Saracen in May 2010;

(b)    the CBA loan was in default from (at least) 3 February 2011;

(c)    by August 2011 Saracen was indebted to the CBA for $1,490,531.22;

(d)    on 15 January 2013 the property was valued at $900,000;

(e)    in December 2012, Saracen’s dispute with the CBA was settled pursuant to a Deed of Settlement and Release;

(f)    under the CBA Deed, Saracen was required to pay $800,000 by 25 January 2013 to the CBA in return for which the CBA would discharge the mortgage over the property;

(g)    under the CBA Deed, if Saracen did not pay $800,000 by 25 January 2013, then default judgment would be given in favour of the CBA for $1,684,131.73 and CBA would be entitled to costs on an indemnity basis; and

(h)    Saracen sought to source the $800,000 before 25 January 2013.

149    It was submitted that the rational explanation for the 8 December 2011 transfer was that it was a step in achieving an outcome in the CBA dispute. It was submitted further that the only explanation for the delay in registration of Mr Zreika as registered proprietor of the property was the dispute with the CBA and indeed that a change in registration could not occur whilst CBA was the mortgagee.

150    According to Mr Zreika, in December 2012, Mahmoud told him that a deed had been entered into with the CBA and Mahmoud asked him whether he was able to help by paying the $800,000 which was needed to pay the CBA by 25 January 2013 in return for the CBA discharging its mortgage. Mr Zreika deposed to a conversation with Mahmoud in December 2012 to the following effect:

[Mr Zreika]:    How is it going with the Voyager Point property?

Mahmoud:    We’ve entered into a deed with the Commonwealth Bank. Saracen needs to pay the bank $800,000 by 25 January in return for the bank discharging its mortgage. If we don’t they’ll take the property and we will have to pay them $1.7 million. Are you able to help with paying the $800,000 by 25 January?

[Mr Zreika]:    Sure. But I don’t want the hassle of being involved with the Trust. I want to buy the property in my own right. I don’t want to get caught up with all the problems with the Trust.

Mahmoud:    That’s okay. I want to clean up the Trust and deal with the problem once and for all as well.

[Mr Zreika]:    Okay, I’ll make enquiries about finding the money to pay the bank on that basis. Once I do, the property becomes mine.

Mahmoud:    Okay.

151    Mahmoud gave largely similar evidence.

152    Mr Zreika deposed that he decided to use the transfer that had been prepared in December 2011 to have the property transferred to himself because the transfer had already been prepared and stamp duty had already been paid on it so that “there were a few less things for [him] to do”. That transfer was registered on title on or about 29 January 2013. Mr Zreika further deposed that he did not intend by using that transfer to hold the property as trustee of the Voyager Point Unit Trust and that he purchased the property from Saracen in his own right. Mr Zreika was either deceitful in his action in relation to avoiding the duty payable on the transfer, knowing that he did not take the property as trustee, or he was lying to the Court about the reason for the use of that transfer. Mr Zreika acknowledged in his affidavit evidence that full stamp duty should have been paid on the transfer of the Voyager Point property from Saracen to him and deposed that he undertook to pay the full amount of the stamp duty plus interest plus penalties. Despite his acknowledgment and undertaking, he still has not done so. This is another example of Mr Zreika’s preparedness to mislead and reflects adversely on his creditworthiness generally.

153    Mr Zreika claimed that he paid the $800,000 due to the CBA under the Deed of Settlement, pursuant to an arrangement he made with Mahmoud on behalf of Saracen. There was evidence that on 25 January 2013, Mr Zreika entered into a loan agreement with Gee Bee Airfreight (from which Mr Zreika had obtained a loan in June 2012 to refinance the Taren Point property) under which the sum of $900,000 was advanced and Gee Bee Airfreight took a mortgage over the Voyager Point property. The evidence disclosed that Mr El Ali was also involved in obtaining the loan from Gee Bee Airfreight to pay out the CBA loan. The applicants did not dispute that Mr Zreika obtained a loan in the sum of $900,000 from Gee Bee Airfreight on 25 January 2013 and that this loan was secured by a mortgage over the Voyager Point property. Whilst there was no direct evidence of the funds used to pay out the CBA, it may reasonably be inferred that the funds obtained from Gee Bee Airfreight were used for that purpose, having regard to the concurrent timing of the due settlement date under the CBA deed, the registration of the property in Mr Zreika’s name, the loan from Gee Bee Airfreight and the registration of the mortgage over the property in favour of Gee Bee Airfreight.

154    The settlement of the CBA dispute however was not the whole matrix of facts relevant to the 8 December 2011 transfer. What happened next was as follows:

155    Mr Zreika deposed that having acquired the Voyager Point property he “decided to on sell the property”. Mr Zreika used Mr El Ali’s solicitors for that purpose. On 21 March 2013 he entered into a contract for sale between himself as vendor and Pronto Properties (NSW) Pty Ltd (“Pronto Properties”) as purchaser for $1.7 million. The sale of the Voyager Point property to Pronto Properties was completed on 15 May 2013 and the proceeds of the sale of $1.7 million were applied by paying out the Gee Bee Airfreight loan secured over the Voyager Point property of $927,123.28 (comprising a principal sum of $900,000 and $27,123.28 in interest).

156    Pronto Properties was a company associated with Peter Walker, a solicitor at Walker Hedges & Co, the solicitors for Gee Bee Airfreight. Mr Walker was also director of Gee Bee Airfreight at the time. Mr El Ali was also involved in that deal. In cross-examination, Mr Zreika initially maintained that Mr El Ali “assisted” with negotiations with Pronto Properties and that they spoke to Peter Walker “together”. However, Mr Zreika subsequently agreed that “Mr Nathan El Ali was … the person who was involved completely in organising and arranging the sale to Pronto Properties”.

157    Mr Zreika’s explanation as to why he was able to sell the property for $1.7 million in March 2013, when Mr El Ali had obtained a valuation of the Voyager Point property in January 2013 which valued the property at $900,000, was that Mr Walker “personally wanted that property. It wasn’t valued at that price; he wanted it” and “we agreed”. I find that explanation implausible.

158    Curiously and telling against Mr Zreika’s credibility is that he used the proceeds of sale not only to pay out the $900,000 Gee Bee Airfreight loan secured by the mortgage over the Voyager Point property but he also used $600,000 towards payment of the loan outstanding to Gee Bee Airfreight which was secured by the Taren Point property. The following exchange occurred in cross-examination between Dr Birch SC and Mr Zreika concerning the payment of $600,000 to Gee Bee Airfreight:

And as I understood the evidence that you gave yesterday, when you came to sell that property in March 2013, you maintain that that property was yours to do with as you saw fit; is that correct?---Yes.

And so when those moneys went to Gee Bee Airfreight to reduce the loan under the Taren Point property, was that because you just decided that you wished to advance that fund?---I wanted to reduce the debt on the Ottoman property at Taren Point.

But do you say that you could have, had you wished, have used that $600,000 in some other way?---Yes. I can but Peter Walker insisted that he wanted to reduce that loan in Gee Bee.

Now, Peter Walker was a man associated with Gee Bee Airfreight; is that correct?---Yes.

And when that money was used to reduce the mortgage on the Taren Point property, do you say that this was some form of loan by you of proceeds that belonged to you?---Yes.

And did – and the Taren Point property was the property that was held in your name in any event. That’s correct, isn’t it?---On the trust. It was held on a trust at the same time.

So is this what you understood you were doing, you were taking $600,000 that was essentially yours and lending it to yourself in your capacity as the trustee of the Taren Point property?---Not lending it to myself, paying off Gee Bee.

Well, the – some – the money - - -?---Because he had taken action already that he wanted to reduce that loan.

All right. Well, did you understand then that that $600,000 really had to be accounted for to the trust associated with the Taren Point property?---Yes.

Do you say then that it really wasn’t your money to do with as you wished at all?---No. No. No. No. No. It was my money from when I bought the property and I have sold it. That money is mine. But Peter Walker has taken action and he was – he issued a notice of possession of Taren Point, so I had to make him happy and I had to pay him $600,000.

All right. Well, do you say that the - - -?---And at the same time he released $200,000 for me in ..... 1 March.

Do you say that the trust will have to pay you back $600,000 one day?---Yes.

And the view that you’ve maintained is that the money is being leant by you to the trust. Is that what you say to the court?---Yes.

And will the trust be paying you interest when it pays you back?---Of course.

And what’s the rate of interest that it will be paying you back?---Well, that’s just something I have to work out with them.

Work out with whom?---The El Ali families – the trust.

Why would you have – well, which members of the El Ali family would you be working it out with?---Mahmoud.

Not Nathan?---No

159    Mr Zreika denied that the mortgage repayments were arranged by Mr El Ali stating that “he assisted, but I was there and I made the decisions”. I reject that denial. The evidence disclosed that Mr El Ali was the person making the decisions.

160    Moreover, there was no documentation in evidence that records Mr Zreika having lent $600,000 to the Ottoman Investments Unit Trust, and Mahmoud had no idea what Mr Zreika did with the property, asserting that “it’s nothing to do with Saracen anymore, had nothing to do with me”. I accept that Mahmoud knew nothing about the sale of the Voyager Point property to Pronto Properties.

161    I reject the contention that the sole intent of the December 2011 transactions was to deal with the CBA dispute and financing issue. In the first place, nothing at all happened for a further 12 months and, in the absence of evidence which explained why nothing did happen, it is reasonable to infer that the timing of the transfer had everything to do with the impending sequestration order against Mr El Ali which was made on 16 December 2011, only 8 days after the transfer. Secondly, the evidence all pointed to Mr El Ali as the person continuing to call the shots in relation to the dealings with the Voyager Point property, with Mr Zreika and Mahmoud simply acting at his behest and direction. I find that Mr El Ali remained in effective control of the Voyager Point Unit Trust and of the property. I also find that Mr El Ali effected the transactions in December 2011, knowing at the time that the property was subject to the freezing order.

The evidence relating to the transfer of THE potts POINT PROPERTY FROM saracen to Mr Nazloomian

162    This property was transferred by Saracen to Mr Nazloomian in November 2012 and registered in Mr Nazloomian’s name in January 2013. The transfer form was signed by Mahmoud (on behalf of Saracen) and Mr Nazloomian and was for consideration expressed to be the sum of $1, though duty at ad valorem rates was in fact paid by Mr Nazloomian. The value for duty purposes was given as $30,000. The transfer was made in prima facie breach of the 2011 freezing orders which Mahmoud claimed not to know about. Whether or not Mr El Ali knew about the extension of the freezing orders when he transferred the shares in Saracen to Mahmoud, he certainly knew about the orders by September 2011. Either Mahmoud was not telling the truth that he knew nothing about the freezing orders or Mr El Ali kept that vital piece of information from Mahmoud. Either way, there was deceit by Mr El Ali who was plainly aware of the transfer of the Potts Point property to Mr Nazloomian.

163    Mr Nazloomian’s evidence on the transfer of the Potts Point property was as follows. Mr Nazloomian kept a “running account” of his loans to Mr El Ali and as at October 2012 he was owed in excess of $1.5 million. This amount was said to include an amount of $440,000 that Mr Nazloomian recorded as a loan to “Nathan/Saracen” made in December 2009 for the development of the Helensburgh property. The loan was said to be for “finalising approvals for a resort.” The loan was not otherwise documented. Mr Nazloomian lodged a caveat against the Potts Point property in April 2011, claiming an interest as “purchaser under uncompleted purchase contract” dated 21 January 2010. Mr Nazloomian deposed that he lodged the caveat “considering the monies he had loaned to the El Ali family and its trusts”.

164    The evidence was that Mr Nazloomian, in October 2012, had a conversation with Mr El Ali in which Mr El Ali said that Mr Nazloomian should offer to buy the property for its value and set-off that amount against what Saracen owed him and that Mr Nazloomian agreed. In October 2012, a valuation of the Potts Point property was given by Property Logic (entitled “Stamp Duty Valuation”) which gave an “as is” value of $30,000. Following the transfer, Mr Nazloomian set off $30,000 against the debt owed recorded in his running account. Mr Nazloomian knew at the time that Mr El Ali had been declared bankrupt. Mr Nazloomian also gave the full credit of $30,000 to Mr El Ali, not to Saracen, when he lodged a proof of debt against Mr El Ali’s estate.

165    Although Mr Nazloomian alleged that his dealings regarding the Potts Point property were with Mr El Ali, Mr El Ali did not give evidence regarding the transfer to Mr Nazloomian. In cross-examination Mr Nazloomian gave evidence that he never discussed the Potts Point property directly with Mahmoud, although Mahmoud was the director of Saracen at the time. Mr Nazloomian agreed that “all the dealings in regard to [the Potts Point property] in the name of Saracen [were] with Mr Nathan El Ali himself” and stated that “all my dealings with all the companies, the focal point was always Nathan and still is Nathan”.

166    Mahmoud denied that the discussions regarding the transfer of the Potts Point property were conducted between Mr Nazloomian and Mr El Ali, though he could not recall his conversation with Mr Nazloomian. His denial was unconvincing and cannot be accepted and I consider it implausible that he had any discussions with Mr Nazloomian concerning the sale of the Potts Point property given his complete lack of knowledge about the fundamental elements of the deal.

167    It is clear on the evidence that Mr El Ali was the initiator and directing mind and driving force behind the sale of the Potts Point property to Mr Nazloomian.

conclusions on credit

168    For the reasons given above I have concluded that none of the respondents was a witness of truth and I have largely not accepted the evidence of any of them. The testimony of each of them on key factual matters was contradicted on many occasions by their actual conduct which showed that their evidence-in-chief could not be accepted as credible, and I have not accepted their explanations for the transactions which are the subject of these proceedings.

169    Mr El Ali, in particular, was a most unsatisfactory witness who showed himself prepared to colour the truth during the course of evidence to advance his own interests.

summary

170    Based on the above analysis of the evidence in relation to each of the impugned transactions, I find that Mr El Ali remained at all times the controlling mind and directing force of Isaac & Jacob, Ottoman, Saracen and EasyChoice, notwithstanding the changes of directorships and share dispositions. I also find that it was Mr El Ali who procured each of the share and property transfers and that he did so in the knowledge of the proceedings against him by the Royals and the freezing orders made against Saracen and him (with the proviso in relation to the extension of the freezing orders on 18 July 2011 which I accept he did not learn about until mid-September 2011). Having rejected the explanations of the respondents for those transactions, I find that Mr El Ali procured those transactions to safeguard his assets from present or future creditors by placing them with friendly third parties.

Were the properties trust property?

171    In short compass, the respondents’ case was that the Voyager Point, Taren Point and Kogarah Unit 2 properties were held under a series of unit and discretionary trusts and therefore were not “property” divisible amongst Mr El Ali’s creditors for the purposes of s 116 of the Bankruptcy Act due to the nature of Mr El Ali’s interest in the property (or, they say, lack of interest). As for the Potts Point property, Mr El Ali accepts that this property was not purchased by Saracen in its capacity as trustee but was purchased by Saracen in its own right.

172    The first issue here is not whether the trusts were constituted (which was not disputed) but whether the properties were acquired by Saracen and Ottoman in their capacity as the trustees of the Voyager Point Unit Trust and Ottoman Investments Unit Trust respectively, or in their own right.

The Voyager Point property

173    The respondents submitted that the Court should draw the inference that the Voyager Point property was acquired by Saracen as trustee for the Voyager Point Unit Trust based upon the following objective facts and circumstances:

(a)    Mr El Ali’s ownership and control of Saracen;

(b)    the establishment of the Voyager Point Unit Trust on the same day that Saracen contracted to purchase the Voyager Point property (8 February 2008);

(c)    the name of the trust (ie the Voyager Point Unit Trust);

(d)    the unitholding of the trust, namely Isaac & Jacob as the trustee of the Elali Family Trust;

(e)    the terms of the trust deed – in this regard it was submitted that the acquisition of the Voyager Point property was clearly within the scope of Saracen’s powers and in furtherance of the objects of the trust which were stated to include “to acquire, hold and deal with real and personal property”;

(f)    Saracen’s position as a fiduciary – in this regard it was submitted that it ought to be assumed that Saracen acquired the property in its capacity as a trustee consistent with its duties and obligations to the beneficiaries of the Voyager Point Unit Trust and did not prefer its own interests in conflict with those duties and obligations;

(g)    the assessment of Saracen in its capacity as trustee of the Voyager Point Unit Trust for land tax in respect of the Voyager Point property for the 2009 and 2010 tax years under s 3 of the Land Tax Management Act 1956 (NSW) as a “special trust”. For the purposes of s 3, a trust is a “special trust” if the trust property includes land, the trustee of the trust is the owner of the legal estate in the land and the trust is not a fixed trust: s 3A of the Land Tax Management Act.

174    There are a number of reasons for not drawing the inference urged by the respondents.

175    First, Mr El Ali’s direct evidence went no further than to assert his belief, when he transferred the shares in Saracen to Mahmoud in September 2011, that Saracen did not own any assets in its own right. He did not give direct evidence about the circumstances of the establishment of the Voyager Point Unit Trust (other than the fact that it was established) or as to whether Saracen purchased the property in its own right or as trustee. Having regard to the adverse credit findings I have made against him, I place no weight on his assertion. Likewise, having regard to the adverse credit findings I have made against Mr Zreika, I place no weight at all on his evidence about his asserted conversation with Mr El Ali in which Mr El Ali was said to have asked whether he would take the Voyager Point property as trustee for the Voyager Point Unit Trust. Nor do I place any weight on the Deed of Retirement and Appointment accompanying the transfer of the property by Saracen to Mr Zreika as evidence that Saracen held the property as trustee, given that Mr Zreika never purported to act as trustee.

176    Secondly, it was not claimed that the only activities carried on by Saracen were in its capacity as trustee. To the contrary, on Mr El Ali’s own admission, Saracen acquired and owned the Potts Point property in its own right, not as trustee. Mr Carey submitted this was to be explained by the fact that it was a speculative acquisition and such a speculative investment would not have been an appropriate investment for a trustee to make without express power. I find that submission argumentative, as none of the witnesses gave evidence that that was the reason why the Potts Point property was not purchased by Saracen in its capacity as trustee. Mr El Ali did give evidence that he considered at the time, and still does, that the purchase by Saracen was speculative, but it was not his evidence that the speculative nature of the purchase was the reason why it was purchased by Saracen in its own right. On his evidence, it was only in late 2011, more than three and a half years after entering the contract of sale in February 2008, that he “discovered” that the property was not owned by Saracen in its capacity as trustee.

177    Thirdly, the only documents produced by the respondents in asserted proof that the properties were trust properties were documents produced by the OSR and the evidence shows that these documents were generated by the OSR based on information provided to it by Mr El Ali. Mr El Ali did not put into evidence the material that was provided to the OSR on the basis of which the OSR assessed the Voyager Point Unit Trust as a “special trust”. If there were primary documents to support that claim, it would be expected that such documents would have been put into evidence. They were not, and no explanation was provided as to why those documents were not produced. Absent knowing what in fact was put before the OSR, I am not prepared to accept the land tax assessments as sufficiently establishing the capacity in which Saracen acquired the property. The basis upon which the assessments were made is simply not known.

178    Fourthly, no books, records or accounts identifying the Voyager Point property as trust property, of the kind that would be expected, were put into evidence, such as tax records, accounting and financial records or business records such as minutes of meetings or resolutions notwithstanding the observation of Foster J in Royal v El Ali, In the Matter of the Bankrupt Estate of El Ali [2014] FCA 834 at [50]–[56]. Furthermore, there was no evidence of any kind (other than elicited through cross-examination) given about the records kept in relation to the affairs of the Voyager Point Unit Trust (or indeed of the Ottoman Investments Unit Trust, relevant to the Kogarah Unit 2 property and Taren Point property) although all those companies have an accountant at Nexia Court & Co, who, according to Mr El Ali, prepares the accounts for Saracen and with whom Mr El Ali has remained in contact. Mr El Ali gave the following evidence:

DR BIRCH: Mr El Ali, in the last 10 years, have you had an accountant that you’ve retained ..... for you in regard to your own personal affairs?---I have to certain, you know, to certain extent, but I haven’t done many tax returns lately.

Well, in fact, you told the – your trustee in bankruptcy that you hadn’t lodged tax returns for years. Do you recall telling him that in a note?---That is true.

And as best you recall, when was the last time you did prepare a tax return?---Probably around 2005/2006.

And since those dates, were those tax returns done for you by an accountant?---Yes.

And since those dates, have you retained an accountant to otherwise give you any accounting advice about your personal affairs?---No.

Have you retained an accountant on behalf of any of the companies that you’ve been involved in?---Yes, I did.

And who was that accountant?---Nexia Court & Co.

And which companies did you retain that accountant on behalf of?---Ottoman, Saracen, EasyChoice.

And did that accountant prepare accounts for those companies as best you recall?---The best as I recall – yes.

Right. And when was the last time that that accountant was retained to your knowledge on behalf of one or other of those companies?--- I – as far as I’m concerned it’s continuous.

So – well, let me go back a bit. If we go back to say 2010, beginning of that year, you were a director of Ottoman, Saracen and EasyChoice, for example. That’s correct, isn’t it?---That is correct.

And do you say that the accountant was retained personally by you on behalf of those three companies at that time?---That is true.

And you asked him to prepare accounts for those companies; is that correct?---Not necessarily. I asked him to prepare who was retained.

Right. Well, to your knowledge, did he prepare accounts for those companies any time in calendar year 2010?---I don’t recall if that was done in 2010.

Had it been done in 2009?---In 2008, we had lots of financial issues, so I don’t know when it was brought up-to-date.

Well, you can’t, sitting now in the witness box, think of any event that contributed to bringing it up-to-date since 2009; is that correct?---In 2008 and in 2009, I believe those years were completed during that period of time.

Yes. What about 2010, do you say there were any accounts prepared in 2010?---I don’t know whether that was prepared in 2010 or a later date.

Well - - -?---That’s what I’m saying.

All right. So your belief is that there are accounts prepared for 2008 and 2009. Is that your belief?---That’s correct. That’s right.

Right. They were prepared on your instructions to the accountant; is that correct?---That’s correct.

And you said to him at some point, “Please prepare accounts for my companies for 2008 and 2009 in those years; is that correct?---It wouldn’t have been to that description.

Well, how it would have happened?---The accountant would ask for details and the details would be sent through to him and would prepare the accounts.

Right. And do you recall paying bills to the accountant back in 2008 and 2009?---During that period, I didn’t handle the accounts. But I do recall receiving overdue payments and notices.

When you say you didn’t handle the accounts, you had someone that paid the bills on behalf of the companies; is that correct?---That is exactly correct you’re .....

Yes. And after 2000 and – let’s go to 2010 now. In 2010, do you recall any accounts being prepared for the companies?---I don’t recall.

Right. So sitting in the witness box today, you simply don’t know whether accounts exist for Ottoman, Saracen or EasyChoice for the 2010 year?---No, they do exist. But whether they were prepared in 2010 or 2009, I don’t know.

Right. When you say they exist, you’ve seen them recently, is that the case?---I have come across them.

Well, when did you come across them?---I’ve been – been – been lots of questions to answer and I’ve been answering questions about the financials.

Right. In the preparation of this litigation which you’ve been involved in; is that correct?---The litigation, of course.

You’ve been involved in preparation for this Federal Court case for some time; is that correct?---That is correct.

Right. Did you view any accounts of Ottoman, Saracen or EasyChoice for the preparation of this case?---Yes, I did.

Right. And were any of them for the year 2010 or later?---Yes.

And the accountant that you’ve spoken of, have you spoken to him in the last 12 months?---Yes.

All right. And he’s someone who does work for companies associated with you today?---Not companies associated with me today, companies that I was associated with.

Right. And he’s – well, let me put it differently. Is he someone that you’re in contact with?---When I get called, yes.

All right. Now, did he ever prepare any accounts in regards to any trusts for you?---In the past he did.

All right. Now, when you say “the past”, when was the last time you recall him having prepared some accounts for you for a trust?---For me, it would have been 2008, 2009.

So it was the last time he prepared any trust accounts on your instruction?---Me personally, on my instructions.

All right. Did he prepare any trust tax returns for you?---During those periods, I would say so.

All right. And, again, that would have been on your instruction, you believe?---I would say so.

Mr El Ali once again gave evasive and non-responsive answers to direct questions on a topic of critical importance in this case. If the answers were truthful, the evidence does not explain why the accounting, financial and tax records and, specifically, the trust accounts for the Voyager Point Unit Trust, if they exist, were not put into evidence or why the accountant was not called. The failure to adduce such evidence, coupled with the failure to explain why that evidence was not adduced, takes on particular significance in view of the judgment of Foster J in Royal v El Ali; In the Matter of the Bankrupt Estate of El Ali [2014] FCA 834 to which I refer further below when considering the claim that the Taren Point and the Kogarah Unit 2 properties were held on trust by Ottoman. It would be expected that such primary records, if they exist, would be cogent proof substantiating that the Voyager Point property was held on trust by Saracen as trustee for the Voyager Point Unit Trust. I infer from the fact that such primary records were not put into evidence, and the accountant was not called (without explanation), that such evidence would not have assisted the respondents. I also reject the submission by Mr Barlin that because Mr El Ali was the sole director, shareholder and secretary, any internal documents would have been “artificial”. Mr El Ali’s position as sole director, shareholder and secretary of the company did not relieve the company of the obligation to keep books and records in compliance with the relevant laws where the property was said to be held on trust. To the contrary, the fiduciary duties owed by the company to the trust mandated that proper and correct records be kept.

179    Fifthly, the purchase of the Voyager Point property was financed by a loan from the CBA secured by a mortgage but there is no specific evidence that the CBA was aware at the time that Saracen was acquiring the property as trustee and not in its own right. The Deed of Settlement and Release between the CBA and Saracen entered into in December 2012 equivocally stated that “Saracen or Saracen Trustee Company is the actual owner of the Property”. Moreover, “Saracen Trustee Company” was defined as “Saracen Holdings Pty Limited as trustee for the Helensburgh Unit Trust”. I infer that the CBA had not itself independently verified the capacity in which the Voyager Point property had been acquired by Saracen.

180    I note also that the Voyager Point property transfer was not stamped until November 2009, almost two years after the Voyager Point Unit Trust deed was executed on 8 February 2008 and as there are no primary records (apart from the land tax assessments which have been addressed) which show that Saracen actually purchased the property in its capacity as trustee, I do not draw the inference that Saracen acquired the property in its capacity as a trustee merely because the Voyager Point Unit Trust has the same name.

181    In view of the lack of primary records to substantiate that Saracen acquired the property in its capacity as a trustee and the failure to provide any explanation as to why such evidence was not adduced, I am not prepared to find merely on the basis of the establishment, terms and unitholding of the trust nor the OSR’s assessment of Saracen as special trust, that the property was actually acquired by Saracen in its capacity as a trustee. I am not satisfied on the evidence that Saracen did acquire the property in its capacity as trustee, not in its own right.