IN THE HIGH COURT OF AUSTRALIA No S347 of 2006
SYDNEY REGISTRY

BETWEEN:

FARAH CONSTRUCTIONS PTY LTD

First Appellant

FARAH ELIAS

Second Appellant

LESMINT PTY LTD

Third Appellant

MARGARET ELIAS

Fourth Appellant

SARAH ELIAS

Fifth Appellant

JADE ELIAS

Sixth Appellant

SAY-DEE PTY LTD

Respondent

RESPONDENT’S SUBMISSIONS

PART I: ISSUES

1.  This case arises out of a joint venture to develop and profit from a property in Burwood, Sydney. There is much that is not in dispute, including the following:

  1. that the two principals of the Respondent (Ms Sadie Elias and Ms Dalida Dagher), who were inexperienced in such matters, placed their trust in the principal of the First Appellant (Mr Farah Elias), a very experienced property developer;
  2. that the First Appellant owed a fiduciary duty to the Respondent;
  3. that full disclosure (at least “in terms”) of important information relating to Burwood Local Council’s view of the development of the property was not made by Mr Elias to the Respondent.

2.  In their submissions the Appellants raise seven issues. A number of them are not raised by either the grounds of appeal in the Notice of Appeal (AB 963-4), or in the extra ground sought to be added by summons. That is so in a context where the Appellants had originally raised only three grounds of appeal (paras 2-4 at AB 963) but then sought to raise a further five grounds after the adjournment of the special leave application.

3.  The Respondent does not oppose the single new ground in the summons being added. The Respondent itself seeks to rely on a Notice of Contention.

4.  But in circumstances where the Appellants have sought to amend their appeal grounds twice,[1] they should not be permitted to now introduce yet further issues into this already issue-laden appeal. They should be limited to what is raised in the Notice of Appeal combined with the one new ground.

5.  In that light, the issues which arise are as follows:

A.  Whether the Court of Appeal erred in overturning one finding of the trial judge – the Court of Appeal’s finding being that Mr Elias had not disclosed the opportunity to purchase No.s 13 and 15 Deane Street to the Respondent, where the trial judge found that he had (Notice of Appeal (“NA”) para 3);

B.  In circumstances where it is not disputed that Mr Elias acted as agent for the 4th-6th Appellants in purchasing the three units in No.15, are they “bound by his knowledge of his own breaches of fiduciary duty to the Respondent” (NA para 6)?

C.  If not, does liability arise in any event on unjust enrichment grounds (NA para 7)?

D.  Can the 4th-6th Appellants (only) avoid liability on either basis by reliance on s.42 of the Real Property Act (NA para 9)?

E.  Should a different test of causation apply to those who benefit from another’s breach of fiduciary duty (new ground raised by summons)?

F.  Whether the Court of Appeal erred in ordering that the 2nd-6th Appellants hold their interests upon a constructive trust on the terms that it did (NA para 2).

6.  Issues B, C, D and (significantly) F relate only to the 4th-6th Appellants. These Appellants are respectively the wife and two daughters of Mr Elias, who each hold title to one unit in No.15 Deane Street, with the fourth of the four units at No.15 being owned by Mr Elias himself (who is the 2nd Appellant). The other property at issue, No.13 Deane Street, is owned by Lesmint Pty Ltd (the 3rd Appellant) which is controlled by Mr Elias.

7.  The following matters are also addressed in the Appellant’s submissions but do not arise on the grounds of appeal:

  1. Whether the Court of Appeal erred in overturning a second factual finding of the trial judge, namely relating to what Mr Elias communicated to the Respondent about the position of the Council (cf Notice of Appeal para 3);
  2. The scope of the fiduciary duty;
  3. The application of s.42 of the Real Property Act to the 2nd and 3rd Appellants (cf Notice of Appeal para 9).

8.  Out of excess of caution brief submissions will also be addressed to these matters (see Sections A, AA and D below, respectively).

PART II: SECTION 78B

9.  No constitutional issue arises requiring a notice under s.78B.

PART III: FACTS

10.  In the Appellants’ statement of a number of significant points have been omitted. The following points are material.

11.  Mr Elias, the principal of the 1st Appellant (and himself the 2nd Appellant), was an experienced property developer. The principals of the Respondent had no such prior experience (CA AB 832 [16] and AB 849 [58]).

12.  It was common ground that the principals of the Respondent “had placed their total trust and confidence in Farah through Mr Elias to do whatever was necessary to achieve a profitable redevelopment of No. 11” (CA, AB 850 [61], see also 888 [170]). In particular, it was the 1st Appellant’s role to deal with the Burwood Council in seeking development approval (CA AB 835 [21]).

13.  This role provided the 1st Appellant “with a special opportunity to obtain knowledge or information from the Council concerning the redevelopment of No. 11 to the exclusion of Say-Dee” (CA AB 888 [170(e)]).

14.  The Council and its officers made clear to Mr Elias on a number of occasions from June 2000 that the development proposed for the subject property, No. 11 Deane St, Burwood, was too big for the site, however that site “should be amalgamated with the adjoining properties to achieve its maximum development potential” (CA AB 836 [25]-[27] re report of 20.6.00; AB 838 [28]-[31] re Dept’s report and Council meeting of 3.4.01; AB 839 [33] re report on 2nd DA of 12.3.02).

15.  By these reports and decisions the Council was not merely indicating that the proposed development was too big for the site, but was “telegraphing” that “if No. 11 was amalgamated with the adjoining properties … subject to achieving a positive urban design outcome, it would most likely be approved or, at least, recommended for approval” (CA AB 849 [60]). To a developer it was this aspect which was critical and “vital intelligence” (CA AB 850 [61], AB 890 [174]).

16.  That information was acquired by Mr Elias in dealing with the Council on behalf of the joint venturers, pursuant to an acknowledged fiduciary duty (CA AB 890 [174]).

17.  The trial judge found this information was not conveyed “in terms” to the Respondent (TrJ AB 805 [66]). The Court of Appeal found that neither the substance of the point, nor the significance of the information, was communicated to the Respondent (CA AB 843 [41]-[64]).

18.  On 30.6.01 – after Mr Elias first learned of the position of Council officers (from June 2000), and before a letter was sent to the Respondent which is claimed to have included a copy of the Council report (on 16.7.01) – Mr Elias, his wife and two daughters each bought one of the four units at No. 15 Deane St (CA AB 838 [28]-[32], AB 846 [51]).

19.  On 7.12.01 Mr Elias lodged a second development application for No. 11, only to get the same response from Council officers as for the first on 12.3.02 (CA AB 839 [33]). On 15 August 2002 he caused another of his corporate vehicles, Lesmint Pty Ltd, to purchase No. 13 Deane St, and 12 days later he withdrew the second development application (CA AB 840 [34]). His reason for the withdrawal was that it was a “lot better” to purchase No. 13 and amalgamate the sites (CA AB 869 [122]). However, he told the Respondent that both development applications had been rejected (CA AB 870 [123]).

20.  Mr Elias organised the purchase of No.s 13 and 15 for the purpose of seeking amalgamation and development with No. 11 (CA AB 877 [142]-[149]).

21.  In late 2002 or early 2003 Mr Elias put a purchase offer to the Respondent for No. 11, but did so misleadingly, suggesting that he was merely a consultant to the offeror when in fact his interests solely controlled it (CA AB 864 [105]). He then misleadingly purported to negotiate with this offeror to push the price upwards (CA AB 870 [123]-[124]). The offers were rejected.

22.  The Court of Appeal found (disagreeing with Palmer J) that Mr Elias had neither informed the Respondent of the opportunity to purchase No.s 13 and 15, nor offered an opportunity to participate, nor explained the significance of the opportunities to do so (AB 851 [65]-[131]). The Court of Appeal found in any case that on Mr Elias’ own evidence he did not claim to have explained the significance of the opportunities (AB 854 [73]-[74], AB 898 [198], AB 899 [200(e)]).

23.  By not passing on the information about the position of the Council in relation to amalgamation of the property, by not informing the Respondent of the opportunities to purchase No.s 13 and 15, by not obtaining fully informed consent, and by then Mr Elias then taking advantage of that information and those opportunities himself (personally and through related interests), the 1st Appellant breached its fiduciary duty both by acting in conflict of interest and in profiting from information gained in the course of acting as fiduciary (CA AB 890 [175]).

PART IV: PROVISIONS

24.  Relevant statutory provisions are set out in the submissions of the Appellants.

PART V: ARGUMENT

A. The Court of Appeal’s finding on communications between the parties

Notice of Appeal para 3

25.  The Appellants dispute two factual conclusions of the Court of Appeal:

  1. that Mr Elias had not communicated to the Respondent the Council’s view that No. 11 needed to be amalgamated with the adjoining properties to achieve its maximum development potential (CA at AB 843 [41]-[64]); and
  2. that the Respondent had not been informed by Mr Elias of his intention to acquire No.s 13 and 15, and were not offered the chance to participate in those acquisitions (CA at AB 851 [65]-[131]).

26.  Only the latter finding is raised by the relevant ground of appeal (NA para 3).[2] All that is at issue, therefore, is the second finding, although brief submissions will also (out of caution) be addressed to the first.

27.  Paragraphs 18 and 20 of the Appellants’ Submissions contain an important error. The trial judge did not find that Dalinda Dagher and Sadie Elias knew of Council’s view that No 11 needed to be amalgamated with adjoining properties. On the contrary, the trial judge found this information was not conveyed “in terms” to the Respondent.[3] Further, neither expressly nor implicitly, did the trial judge find that “in substance” this information was conveyed to the respondents. It is manifest there is no such express finding and it is apparent from the structure of his Honour’s judgment and his reasoning processes that he made no such finding implicitly. Having stated his finding that the information was not, in terms, conveyed to Say-Dee, his Honour posed the rhetorical question “what follows from that?”[4]

28.  Then, his Honour did not embark on a analysis or discussion as to whether the Respondent was implicitly told this by the Appellants or were already aware of it. Rather, “what followed from that” according to his Honour’s approach was to analyse the scope of the fiduciary duty owed by the 1st and 2nd Appellants and to find that the knowledge acquired by the 1st and 2nd Appellants from the Council of the opportunity to acquire (or the need to acquire) the adjoining properties was not knowledge which the 2nd Appellant was under any fiduciary duty to disclose to the Respondent.[5]

29.  Tobias JA carefully analysed the evidence and the trial judge’s reasoning and correctly came to the conclusion that the trial judge had not made any finding that the relevant information was conveyed either in effect or in substance.[6]

30.  Thus, the Appellants’ reliance on the principles expressed by this Court in cases such a Fox v Percy[7] and CSR v Maddalena[8] is misplaced in respect of the issue as to whether the Respondent was informed by the 2nd Appellant of the need for No 11 to be amalgamated with the adjoining properties or otherwise knew of that need.

31.  Rather, in respect of that issue, in the absence of finding by the trial judge, the Court of Appeal had an unfettered duty to make such a finding itself. It did so. It correctly found that the relevant information had not been conveyed to the Respondent either in effect or substance and that the Respondent was otherwise unaware of it.[9]

32.  For the reasons developed later in the submissions in this section, even if this Court was to determine that the Court of Appeal erred in reversing the trial judge’s findings that the 2nd Appellant informed the Respondent that there was an opportunity to acquire the adjoining properties and that he invited the Respondent’s participation in those acquisitions, nevertheless those acquisitions would remain ones which took place in breach of the 1st and 2nd Appellant’s admitted fiduciary duties. Fully informed consent was required.

33.  Accordingly paragraphs [19]–[21] of the Appellant’s submissions proceed upon a false premise. The Appellants in fact need to show, in the absence (not presence) of a relevant finding by the trial judge, that the finding of the Court of Appeal was infected by error. They have not done so.

34.  It follows that it is only in respect of the second of the two ‘points’ identified in paragraph 18 of the Appellant’s submissions that this Court needs to consider whether the Court of Appeal erred in overturning the findings of fact by the trial judge.[10]