Themis Holdings Pty Ltd v Canehire Pty Ltd
[2014] QSC 38
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- Themis Holdings Pty Ltd v Canehire Pty Ltd[2014] QSC 38
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Themis Holdings Pty Ltd v Canehire Pty Ltd[2014] QSC 38
Themis Holdings Pty Ltd v Canehire Pty Ltd[2014] QSC 38
SUPREME COURT OF QUEENSLAND
CITATION: | Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC 38 |
PARTIES: | THEMIS HOLDINGS PTY LTD ACN 141 216 944 ATF THE HOLZAPFEL PROPERTY TRUST BY ORIGINATING PROCEEDING CANEHIRE PTY LTD (ACN 010 920 519) and PHILIP ROBERT HAM |
FILE NO/S: | 1993 of 2011 |
DIVISION: | Trial Division |
PROCEEDING: | Trial |
ORIGINATING COURT: | Supreme Court of Brisbane |
DELIVERED ON: | 13 March 2014 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 15-16, 19-20, 22-23, 27-30 August, 24-25 October 2013 |
JUDGE: | Philippides J |
ORDER: |
|
CATCHWORDS: | EQUITY – TRUSTS – POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES – LIABILITY FOR BREACH OF TRUST – WHAT CONSTITUTES A BREACH OF TRUST – where Canehire Pty Ltd (Canehire) was a trustee of the Holzapfel Property Trust (HPT) – where Canehire held a leasehold of Crown land on behalf of the HPT – where Canehire purchased the freehold – whether the freehold was purchased by Canehire on trust for the HPT or in its own right – where conflicting versions as to an agreement between Mr Ham, the director and controlling mind of Canehire (and also the accountant for the HPT and Holzapfel family) and Mr Holzapfel as to the acquisition of the freehold – whether the agreement was that the freehold be acquired for the HPT or for Canehire in its own right – whether the beneficiaries of the HPT consented to Canehire acquiring the freehold in its own right – whether Canehire breached its duty of trust and fiduciary duty in paying away the proceeds of the sale of the property EQUITY – TRUSTS – POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES – LIABILITY FOR BREACH OF TRUST – WHO MAY BE LIABLE – ACCESSORY LIABILITY – whether Mr Ham was knowingly concerned in Canehire’s breach of duty and trust EQUITY – TRUSTS – POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES – LIABILITY FOR BREACH OF TRUST – RELIEF FROM LIABILITY – GENERALLY – whether cl 24 of the Trust Deed applied – whether the breach of trust and duty was committed in personal conscious bad faith – whether s 76 and s 77 of the Trusts Act 1973 applied EQUITY – EQUITABLE REMEDIES – EQUITABLE COMPENSATION – BREACH OF FIDUCIARY OBLIGATIONS – whether compound or simple interest should be ordered Trusts Act 1973 (Qld), s 76, s 77 Armitage v Nurse [1998] Ch 241 |
COUNSEL: | PJ Flanagan QC with CA Johnstone for the plaintiff M Stewart QC with KA O'Gorman for the defendants |
SOLICITORS: | Minter Ellison for the plaintiff Russells for the defendants |
Background
The proceedings
- The plaintiff, Themis Holdings Pty Ltd (Themis) is trustee of the Holzapfel Property Trust (HPT), a discretionary family trust for Mr Trevor Holzapfel (Mr Holzapfel) and family members. It brings proceedings for equitable compensation against the first defendant, Canehire Pty Ltd (Canehire), the former trustee of the HPT, and the second defendant, Philip Ham, Canehire’s director and shareholder at all relevant times, who also had acted as the accountant for the HPT, Mr Holzapfel and family members over many years and was a close family friend.
- The plaintiff’s claim centres on the circumstances and capacity in which Canehire purchased, in November 2002, the Crown freehold over property at 319 Fison Avenue (the Fison Avenue property), where Mr Holzapfel’s company, Myttons Qld Fabrication Pty Ltd (Myttons Qld), had conducted its business. The crux of that dispute is whether there was an agreement between Mr Holzapfel and Mr Ham that the freehold be purchased on a trust for the HPT, as the plaintiff contended, or whether the agreement was that Canehire purchase the freehold in its own right, as the defendants contended.
- The defendants in turn have brought proceedings by counterclaim against the plaintiff and Mr Holzapfel.
The HPT
- The HPT was established by a trust deed executed on 31 July 1991. Canehire, a shelf company of Mr Ham’s, became the trustee of the HPT from 31 July 1991 until 21 December 2009, when it was replaced by Themis. At all relevant times, the beneficiaries of the HPT have been Mr Holzapfel, companies and trusts controlled by Mr Holzapfel, his son, Todd Holzapfel (Todd) and daughter, Simone Holzapfel (Simone).[1]
Myttons Qld and the Crown lease
- Over the years Mr Ham provided advice to the Holzapfels as to establishing trusts to hold assets. In about 1990/1991 Mr Holzapfel was interested in acquiring a metal fabrication business, which supplied stainless steel products used in shopfitting. He was concerned that should his competitor shopfitting businesses know that he had acquired the business, they would not do business with Myttons Qld. Mr Ham became a director.[2]
- The Myttons Qld business was relocated to the Fison Avenue property which was the subject of a Crown lease. On 27 September 1993, Canehire, as trustee for the HPT, acquired the Crown lease due to expire on 31 December 1997 for about $250,000. During the period from 1993 to 2000, improvements, including the construction of manufacturing and office facilities, were made to the Fison Avenue property financed by Holzapfel entities, including the Myttons Group and the HPT. This included about $250,000 from Mr Holzapfel’s superannuation.
The Suncorp loans
- In 1996, a QIDC loan was refinanced and three credit facilities were entered into with Suncorp-Metway. Canehire as trustee for the HPT entered into various financing loan agreements for a $150,000 business loan. Myttons Trust, a Holzapfel entity, obtained a $50,000 business loan and a $100,000 fluctuating credit facility. Guarantees were provided by Mr Holzapfel, his wife, Myttons Qld, Canehire as trustee for the HPT and in its own right, and Jandine Pty Ltd (one of Mr Holzapfel’s companies). A mortgage over the leasehold was obtained by Suncorp-Metway from Canehire to secure the $150,000 business loan.
Negotiations as to the Crown lease
- Between 1996 and 1998 negotiations were conducted by Canehire as trustee for the HPT through Mr Holzapfel with the Department of Natural Resources (DNR) in relation to the freehold of the Fison Avenue property. An offer to purchase the freehold for $730,000 was unable to be taken up before it lapsed on 29 May 1998. Canehire was not in a financial position to pay the purchase price sought. Instead, the Crown lease was able to be renewed, with an extension of the Crown lease being granted for a further five years from 1 January 1998 to 31 December 2002. (Arrears owing were required to be paid before the lease could be registered.)
Refinancing of Suncorp loans
- In 2000, Mr Holzapfel asked Mr Ham to look into the accounts of Myttons Qld, which was experiencing financial problems. Mr Ham discovered that the manager had produced profit and loss accounts based on totally inaccurate stock figures, which he thought had been deliberately done. The manager’s services were terminated.
- In August 2000, Suncorp-Metway served notices of demand on Canehire, in its own right and as trustee for the HPT, in respect of amounts owing under the credit facilities (the Suncorp Debts). Canehire had provided guarantees for the facilities.
- Mr Holzapfel and his entities had no capacity to repay the Suncorp Debts. Mr Ham decided that Canehire should pay out the whole of the Suncorp Debts, as otherwise there would be default interest to be paid by Canehire and Mr Ham was able to source funds at a cheaper rate than Suncorp was charging. Mr Ham proposed to Mr Holzapfel that Canehire in its own right pay the Suncorp Debts and that the Holzapfel entities repay Canehire. Mr Ham was concerned to ensure that he obtained security for the loan to the Holzapfels and he instructed his lawyer, Rowan Astill, to draft agreements between Mr Ham and the Holzapfels and Holzapfel entities.
- Mr Astill drafted a Loan Agreement, Deed of Settlement and Deed of Forbearance which were executed by the Holzapfels and Holzapfel entities.
- By the Loan Agreement dated 2 November 2000, H & P Services Pty Ltd (a company related to Mr Ham) agreed to provide Canehire with the funds to enable it to discharge, in its own right, all of the moneys and liability due by it under the Guarantee and Indemnity given by it to Suncorp. Myttons Qld and other Holzapfel entities (including Canehire in its capacity as trustee for the Trust) agreed to provide securities to H & P Services Pty Ltd, including an assignment by Suncorp to Canehire of all the securities it held over the interests of the Myttons group.
- At the time, the vessel, “Montego Bay”, then valued at about $300,000, was an asset of the Happy Apple Trust, whose trustee was Meikleour Pty Ltd (a company controlled by Mr Ham). By the Deed of Settlement it was provided that Meikleour Pty Ltd as trustee for the Happy Apple Trust agreed to the transfer and assignment of the “Montego Bay” to Canehire. By cl 3.1 there was an absolute assignment to Canehire. Mr Astill advised Mr Holzapfel that the Deed of Settlement effected an outright assignment of the “Montego Bay” from Holzapfel (or his entity) to Mr Ham’s entity.
- Before these documents were executed, Mr Ham advised Mr Holzapfel, Todd, his wife Judith and Simone (who were parties to the agreements) to obtain independent legal advice on the agreements. Mr Ham recommended a lawyer to Mr Holzapfel and his wife, who signed certificates to the effect that he had explained to them in their personal capacities, and to Mr Holzapfel in his capacity as director of relevant Holzapfel companies, the provisions and effects of the Deed of Forbearance. Additionally, Mr Holzapfel, Simone, Todd and Judith signed a Certificate of Independent Legal Advice which confirmed that they understood that Astills did not act on behalf of the Myttons group or any of them individually and that they had been advised to consult a solicitor in relation to the Deed of Settlement and transfer application for the “Montego Bay”. (Thereafter, Mr Holzapfel continued to have the use of the vessel until Mr Ham took possession in about August/September 2011, after the present proceedings were instituted.)
- On 29 November 2000, Suncorp, Myttons Qld, Canehire as trustee for the HPT, Jandine Pty Ltd, Mr Holzapfel and his wife executed the Deed of Forbearance by which Canehire (in its own right) agreed to repay the Suncorp Debts and Suncorp agreed to forbear temporarily from enforcement of the loans and guarantees.
- On 5 April 2001, Canehire discharged the Suncorp Debts and Suncorp assigned its securities for the Suncorp Debts to Canehire. This included a transfer on 6 April 2001 of Suncorp’s mortgage over the Crown lease. As a result, on 4 May 2001 Canehire in its own right became mortgagee of the property. The other guarantors of the Suncorp Debts, namely, Canehire as trustee for the HPT, Jandine Pty Ltd, Mr Holzapfel and his wife, became indebted to Canehire, in its own right, for their pro tanto shares of the Suncorp Debts. Additionally, the principal debtor, Myttons Qld, became indebted to Canehire, in its own right, for repayment of the Suncorp Debts.
- On 9 April 2001, demand was made by Canehire on the HPT for payment of the sum that it had paid to Suncorp. Demand was also made on Myttons Qld, which on 10 April 2001 changed its name to WSC Pty Ltd.
Deterioration in finances
- Myttons Qld went into liquidation in August 2001. By this time, all of the Holzapfel companies were in financial distress. On 17 August 2001, the Australian Taxation Office issued proceedings against Mr Holzapfel for a debt of $305,894.48 in relation to unpaid tax which he had no prospects of paying at that time.
- By 2002, Mr Holzapfel and the Holzapfel entities owed Mr Ham approximately $210,000 in unpaid accountancy fees. The Suncorp Debts owed to Canehire under the Deed of Settlement also remained unpaid, with $318,175.97 owing to Canehire. Mr Holzapfel, Todd, Simone and their entities had no resources left to repay Mr Ham the outstanding debts and Mr Holzapfel accepted that, by the time the Crown lease was up for renewal, he personally “had no way of raising the finance to acquire the freehold”. By early 2003, all of the Myttons Group ceased trading. In 2003 and 2004 a number of the companies were wound up. Mr Holzapfel was bankrupted in or around 2003 and Todd in 2004.
Matrimonial issues
- In 2002 Mr Holzapfel and his wife divorced, with a Family Court consent order being made on 10 July 2002 recording the terms of the property settlement.
The disputed agreement
- In 2002, Mr Holzapfel and Mr Ham had discussions about the acquisition of the freehold over the Fison Avenue property, the terms of which are in dispute. The plaintiff contended that Mr Holzapfel and Mr Ham entered into the arrangements pleaded in paras 18 and 19(d) of the Further Amended Statement of Claim (the Statement of Claim). The defendants, on the other hand, contended that an agreement was reached in the terms pleaded in para 13(e) of the Third Further Amended Defence and Counterclaim (the Defence). Essentially, Mr Holzapfel contended that Mr Ham agreed to arrange finance to fund the freehold acquisition on behalf of the HPT, whereas the defendants’ case was that Mr Holzapfel agreed that Canehire could acquire the freehold in its own right.
The freeholding of the Fison Avenue property
- Canehire had been notified on 31 July 2001 that the DNR would not consent to another Crown lease over the property. At the time, rental arrears under the Crown lease totalled $67,783.75. On 5 November 2001, the DNR inquired as to whether Canehire would make an application for the freehold.
- On 8 August 2002, DNR approved an application for conversion of the Crown lease to freehold which was extended from 14 October 2002 to 29 November 2002.
- On 14 November 2002, Mr Ham and his business partner in property development ventures, Russell Kempnich, established the Fison Avenue Unit Trust (FAUT), with Canehire as the trustee. The units in that trust were held equally by their respective companies, Meikleour Pty Ltd and Terraford Pty Ltd.
- On 29 November 2002, the offer to acquire the freehold for $924,000 was accepted by Canehire and payment was made with funds advanced by South East Property Developments Pty Ltd (SEPD), a property development company owned and controlled by Mr Ham and Mr Kempnich. A loan was obtained from the Commonwealth Bank of Australia (CBA) for $1 million which was used to repay the advances by SEPD. By that stage, Allight Pty Ltd had been identified as a potential tenant.
- The Deed of Grant for freehold title to the property was issued on 30 January 2003 and registered on 3 February 2003. The new title for the estate in fee simple was issued to Canehire on 4 February 2003. No trust was disclosed on the title.[3]
- Canehire made improvements to the Fison Avenue property so that it could be leased to Allight Pty Ltd and a five year lease was entered into commencing from June 2003.
Subsequent events
- In May and June 2003, enforcement proceedings were brought in the Family Court for failure to meet the terms of the property settlement. Both Mr Holzapfel and Mr Ham gave evidence under subpoena in those proceedings. Thereafter, in September 2003, Mr Ham sought legal advice from Mr Astill and also attended a meeting with Mr Fraser QC in respect of the Fison Avenue property.
- Various payments were made out of Canehire to Holzapfel family members after the freeholding. These included payments to Ms Bright, Mr Holzapfel’s de facto, which however ceased in 2006.
- On 31 August 2006, the CBA loan facility was increased from $1,180,756 to $1,750,000. The additional $570,000 was for SEPD’s property development business purposes. Thereafter, there was a refinancing with a loan facility taken out in February 2008 with Westpac Bank for $2,606,000 (allowing an additional $886,000 to be used for SEPD property development purposes).
- In February 2008, there was a meeting between Mr Holzapfel, Simone and Mr Ham, following a meeting in 2007 to discuss the position in respect of the Fison Avenue property.
- On 30 October 2008, Canehire sold the Fison Avenue property to a third party purchaser for $4,892,030. The proceeds of sale were used to discharge the Westpac loan secured over the property and the balance was paid into SEPD’s bank account and advanced for various development projects. No payment was made to the HPT or to Mr Holzapfel.
Issues for determination as to the nature of the agreement
- As identified in the Agreed Statement of Issues, it is common ground that a critical issue in the trial concerns the nature of the agreement reached as to the freeholding of the property, that is, whether:
1.Mr Holzapfel and Mr Ham made the agreement in the terms pleaded in paras 18 and 19(d) of the Statement of Claim or para 13(e) of the Defence.
2.Canehire acquired the freehold over the property in its own right or as trustee for the HPT.
- A further issue concerns the consent of the beneficiaries and was expressed in slightly different ways by the parties in the Agreed Statement of Issues.
It was stated by the plaintiff in the following way:
"3.Whether if the agreement as alleged in paragraph 13(e) is found to have been made, whether that agreement was made for Mr Trevor Holzapfel, for Canehire, and all beneficiaries of the Trust and thereby constituted the consent of all the beneficiaries of the Trust.”
The defendants preferred the following formulation:
"3.Whether the beneficiaries of the Holzapfel Property Trust consented – either expressly or by implication – to Canehire acquiring the freehold over the Property in its own right.
4.If the beneficiaries of the Holzapfel Trust did consent to Canehire acquiring the freehold over the Property in its own right, whether that consent was ‘fully informed’.”
- The plaintiff submitted that the defendants in their written submissions at [122] reduced the first part of this issue in the form of the following admission:
“The Defendants admit that Canehire would have breached its fiduciary duty by failing to distribute to the beneficiaries of the Trust the proceeds from the sale of the Property had it not, before it acquired the freehold, made the Agreement with Trevor in the terms pleaded in paragraph 13(e) of the Defence (and subject of course to other defences).”
- That admission, it should be noted, accords with evidence given by Mr Ham and referred to below, that he knew he had to have the consent of the beneficiaries to buy the property but was relying on his agreement with Mr Holzapfel. Indeed, Mr Ham agreed that the only reason that he did not seek the sanction of the court (which was one of the agenda items referred to in Mr Astill’s letter to him of 12 September 2003) was that, on his case, he “already had an agreement” with Mr Holzapfel.
- It was asserted by the plaintiff that, on the basis of that admission, the real questions for determination were:
(a)was the agreement reached in 2002 consistent with Mr Ham’s version or Mr Holzapfel’s version; and
(b)if the agreement was consistent with Mr Ham’s version, was Mr Holzapfel’s agreement:
(i)given on the basis of his being fully informed as to the transaction; and
(ii)sufficient to constitute the fully informed consent of the other beneficiaries.
- The plaintiff submitted that if Mr Ham’s version of the agreement was not accepted, then Canehire has acted in breach of its duty, and Mr Ham was knowingly concerned in that breach. If Mr Ham’s version was accepted, that version was insufficient to constitute fully informed consent, so that Canehire acted in breach of its duty, and Mr Ham was knowingly concerned in that breach.
- It is appropriate to address firstly the nature of the agreement and whose version is to be accepted.
The pleaded cases about the agreement to freehold
The plaintiff’s pleaded case as to the agreement to freehold the property
- By para 18 of the Statement of Claim, it was pleaded that during the course of meetings between 2000 and 2002, between Mr Ham, Mr Holzapfel and Todd to discuss the business of Myttons Group and the HPT, including the purchase of freehold title, Mr Ham proposed the following method of obtaining freehold interest, to which Mr Holzapfel and Todd agreed, namely:
(a)Mr Ham or an entity associated with him would lend the HPT the funds necessary to purchase the freehold interest in the Fison Avenue property;
(b)On obtaining the freehold interest, a loan should be obtained, secured by a mortgage over the property, to repay Mr Ham and pay the existing debt on the Fison Avenue property;
(c)The rent received from a tenant of the Fison Avenue property would be utilised to meet the ongoing interest payments on the finance obtained, ongoing costs of the property and to make distributions from time to time to Mr Holzapfel or his nominee, with any surplus being used to pay down the principal debt.
- By para 19(d) of the Statement of Claim, it was pleaded that Mr Ham, Mr Holzapfel and Todd had agreed to the effect that:
(a)the cost of purchasing the freehold interest in the property would be approximately $900,000 and
(b)a loan would be obtained by Canehire from a bank, secured by way of a mortgage over the property in an amount sufficient to make the payments pleaded in para 18.
- Although it was pleaded that the discussions concerning the agreement as to the freeholding were conducted by Mr Ham, Mr Holzapfel and Todd, the evidence given by the latter two was not to that effect, but rather that only Mr Holzapfel was involved.
The defendants’ pleaded case as to the agreement
- As the plaintiff pointed out, the defendants’ pleaded case as to the agreement Mr Ham reached with Mr Holzapfel underwent a number of alterations. Initially, by para 13(b)(ii) of the Defence, it was pleaded that, in the course of discussions between Mr Ham and Mr Holzapfel in mid 2002, Mr Ham “proposed to obtain the freehold for an entity controlled by him and not for the Trust” and that Mr Holzapfel “assented to [this] proposal on behalf of all of those beneficiaries of the Trust”.
- In August 2012, para 13 was amended to plead that, in mid 2002, Mr Ham and Mr Holzapfel discussed the freeholding of the Crown lease (para 13(c)) and to plead (by para 13(e)) that Mr Holzapfel and Mr Ham agreed that:
(i)Mr Ham (through an entity associated with or controlled by him) could proceed to acquire the freehold for his own benefit;
(ii)Mr Ham would recover the outstanding accountancy fees and the balance of the Suncorp Debts from whatever profit might be made from ownership of the freehold of the Fison Avenue property;
(iii)recovery of those debts from the sale of the vessel “Montego Bay” would occur only as a last resort.
- Particulars of those discussions had been requested by the plaintiff but the request was refused by the defendants. However, on the first day of trial, counsel for the defendants was requested to open in a preliminary way the conversations giving rise to the alleged agreement. Thereafter, on 19 August 2013 (day 3 of the trial) para 13 of the Defence was further amended to allege:
•In para 13 (ea) of the Defence, that in the course of a conversation between Mr Holzapfel and Mr Ham
(i)Mr Ham said words to the effect that, in the event that Mr Ham made a profit from the sale of the Fison Avenue property and after a return on Mr Ham’s investment, Mr Ham would consider making a payment to Mr Holzapfel; and
(ii)Mr Holzapfel said that he had total trust and faith in Mr Ham;
•In para 13 (eb) of the Defence, that shortly after that conversation:
(i)Mr Holzapfel asked if the Fison Avenue property could be transferred back to him; and
(ii)Mr Ham said words to the effect that provided Mr Holzapfel had the ability to fund the purchase, then he could.
Evidence of Mr Holzapfel
Mr Holzapfel’s evidence about the agreement
- Mr Holzapfel gave evidence that he had discussions with Mr Ham about the ramifications of the Fison Avenue property being subject to a Crown lease. It was discussed that the property was to be Mr Holzapfel’s retirement fund and that it would need to be freeholded so that it could be used “as either a rental property, or whatever the future held for it”. Mr Ham did not dispute that he had been told by Mr Holzapfel and Todd that the property was intended as a retirement asset.
- Mr Holzapfel’s evidence-in-chief about the discussions concerning the freeholding was that he was approached by Mr Ham[4] and that:
“Phil came to us with an offer, or a suggestion as to [how to] solve the problem for both parties. That would be he would borrow on the property to cover the payment of the lease. He would also borrow the 300,000 to cover the Metway debt, and also 200,000 for his fees and expenses that he was owed. So that was the – and that was the arrangement that eventually happened. It did two things: it solved Phil’s problem; he got paid out his borrowings that he’d done with Metway. He got his fees paid, the lease was paid, and the lease was paid, and the property trust was then going to inherit the rent from the property. And then that’s the – that’s when Allight were then – signed a lease to pay the five year lease.”
- Mr Holzapfel also said Mr Ham told him “he was going to use his own property to come up with the funds until the bank settled the loan” and that CBA was to be used for the loan. There was a discussion of a loan of $1.3 million which was to be repaid from rental. There was also discussion of rental income of about $200,000 and that some of it would be made available for the family. There was discussion of about $400,000 being needed to be spent on the property on the tenant’s behalf and that that would be amortised over 10 years at $40,000 a year to be paid by the tenant.
- Mr Holzapfel further gave evidence of a meeting at Mr Ham’s office at about the time that the property was leased to Allight during which Mr Ham explained how the loan was to be paid down. Mr Ham did a calculation on a piece of paper, showing how the property would be free and unencumbered in eight to 10 years and that it would “be handed back to the control of the Holzapfel family” and “would come back to us in clear title”. By clear title he said he meant “the loan being paid off ”. That conversation was in 2003.
- Mr Holzapfel’s cross-examination evidence as to the agreement was consistent with his evidence-in-chief as is evidenced from the exchange below:
“MR STEWART: … Tell us about the agreement that you reached with Mr Ham about him being paid his fees?‑‑‑That was ‑ that was an agreement that's actually transpired, that in freeholding the property, the property would be ‑ the bank ‑ we borrowed from the bank the freeholding amount plus the $300,000 that he was owed from the borrowing from Metway, plus the 200,000 that was the accountancy fees and costs, right, and that came to the amount of ‑ off the top of my head, about 1.3 million. It solved two things. Mr Ham got paid for his accountancy fees. His loan was repaid to the Metway, the borrowings there, and the land was freeholded with – the whole object of that was it would be leased out and the tenant would repay the loan over a period of time.”
- Mr Holzapfel was further challenged as to his version of the agreement as follows:
“MR STEWART: … So you knew – and you said you were in a very bad financial situation by early 2002?‑‑‑Yes.
Can I suggest to you that that is why you turned to Mr Ham for a solution as to how to acquire the freehold on Fison Avenue?‑‑‑There was – there was a discussion with Mr Ham. I believe that Mr Ham actually approached – came up with the solution that eventually happened to freehold the land. It included a – the payment of his funds. It included his – his invoices which – or his amount of money owing to him for services down, which, by way, we as a family, or I, have never, ever had that ever substantiated by invoices.
…
I agreed the amount of money he suggested was owing, but I will say here in court now I have never ever seen documentation to substantiate that amount of money. It has never, ever come before me.
…
You don’t doubt that he did work that justified those charges, do you? ‑‑‑ Well, I don’t – I can’t agree or disagree, but I accepted the amount of money that he is requesting for work done.
And the time you accepted you thought that the charges were reasonable? ‑‑‑ I accepted the amount of work that was – that – the money that was offered to me, and that – that whole thing was – I agreed to – to put the whole thing to bed, ‘cause he’d offered – he’d offered to go to the – to finance the – the acquisition of freehold for the – for the trust, and it – it solved everybody’s problem. I’ve said this before. The whole agreement was – it – he got his $300,000 back from Metway, he got his fees paid, the acquisition of the freeholding was done and – and that was – that was where we – we never, ever had the opportunity – or didn’t require the opportunity to look for funds outside, because it was a fait accompli that the offer was given to us. It was just – there was no reason or any discussion to even look outside for funds.
So is it your case that without any approach from you, Mr Ham came up with this idea? ‑‑‑ Yes.
That was very fortuitous in early 2002, wasn’t it? ‑‑‑ Yes.
In your evidence yesterday when – on the third day of the trial, rather – when you were answering questions put to you by my learned friend, Mr Flanagan, about the discussions that you had with Mr Ham concerning the basis upon which the property would be freeholded, you said – you were asked this question: did you ever discuss with Mr Ham what would happen to that rent? And your answer was yes, yes. That sum – the rent would become available for the family – for us. Do you recall that evidence? ‑‑‑ Yes.
Do you say that you had that conversation with Mr Ham? ‑‑‑ Yes.
When did that conversation take place? ‑‑‑ Look, we’re going back in – 10 to 12 years ago. Exactly what day, time, date – I can’t recall.
Mr Holzapfel‑ ‑ ‑?‑‑‑You’re asking questions that ‑ ‑ ‑
- ‑ ‑ was there – was there only one discussion?‑‑‑I beg your pardon?
Was there only one discussion with Mr Ham about the basis upon which the property would be freeholded, or were there a number of conversations?‑‑‑I don’t believe that there were quite a number of conversations, no. I think once the – once the agreement had been made, I don’t believe there was any further discussion on it.
I suggest to you that you had no conversation with Mr Ham in which he said to you that the rent that might be earned by the Fison Avenue property would become available to support the family?‑‑‑Mr Stewart, I’m not hear to tell lies, I’m sorry. You may suggest what you wish, but I’m not here to tell lies.
You told us in the evidence in chief that you knew that the total amount of payments that were made were about 1.3 million?‑‑‑Correct.
How was that to be repaid?‑‑‑That was to be repaid from the rent from the property.
So the discussions that you had with Mr Ham were to the effect that the rent would be used – applied first, at least, to pay for expenses?‑‑‑Correct.
So it’s not the case that the rent was available just to be used by the family?‑‑‑Did not say that.”
- There was an additional passage of cross-examination as to Mr Holzapfel’s version of the agreement where the following was put to him:
“… I’d suggest to you that, in early – sorry in approximately the middle of 2002 prior to or in the early part of April 2002, you approached Mr Ham and asked him how the freehold of Fison Avenue could be obtained. Do you deny that?‑‑‑Yeah, I can’t – look, I don’t deny it, I just can’t recall that, no.
And it’s your case that he would have came to you out of the blue with the proposal?‑‑‑I believe that the proposal came up in discussions.
Well, again, I’ll suggest to you that Mr Ham was approached by you some time in the early part of or before April 2002, about the prospect of freeholding 319 Fison Avenue?‑‑‑It could have been so.
So at that stage, you knew that Canehire, as trustee of the trust, owed Canehire in its own right about $318,000, being the amount that had been used to pay out Suncorp?‑‑‑We’ve been over this many times, yes. The answer’s still yes.
I suggest to you that Mr Ham told you that if he was to be involved with the freeholding of the property, he would want to acquire it in his own entity[5] and that he was not prepared to lend money to the Holzapfel Property Trust so that it could freehold the property?‑‑‑Never been a discussion of that nature whatsoever. The answer’s no.
I suggest to you that Mr Ham told you that what he would do was investigate whether or not the freehold could be acquired and whether or not bank finance would be used?[6]‑‑‑I’m not aware of that.
I suggest to you that, in one conversation, you asked Mr Ham what would be in it for you, do you remember using that sort of language?‑‑‑No.
I suggest to you that Mr Ham replied that property transactions didn’t always result in a good outcome, but that after a return on his investment, he would consider making a payment to you?‑‑‑Unaware of that conversation also.
… is it the case that you deny that a conversation like that took place?‑‑‑Yes. Yes.
…
You deny that one?‑‑‑Yes. Yes.
All right?‑‑‑Definitely, there was never any conversation of that nature whatsoever, sorry.
I suggest to you that, in that conversation when you’d asked him what would be in it for you and he’d given that response, you told him that you were happy with that proposal and that you had total trust and faith in Mr Ham.[7] Do you recall saying those words?‑‑‑No.
Then I suggest to you that on another occasion after that first conversation you had a meeting, and at this meeting I suggest that you asked Mr Ham how long it would be for the bank debt on the property to be repaid. Do you recall having a conversation where that – you asked him that?‑‑‑We sat down and had a – in his office, we went through that and I’ve explained to you that before. Yes, we did do that, and he sat down and worked out in his own handwriting when that would be repaid, correct.
I suggest to you that this was – this conversation took place some time shortly after April 2002. I can’t give you a date or even the month, I’m afraid?‑‑‑Sorry. The only conversation I had with that sort of conversation was in his board room after Allight had become the tenant.
All right?‑‑‑And we knew what the rental was.
I suggest to you in the conversation I’m putting to you, Mr Ham did some calculations and said to you, ‘I’m giving you an example of what a standard approach to property development can look like,’ do you remember a conversation like this?‑‑‑No.
I suggest to you that he told you that, provided the property remained tenanted with a 10 per cent return or thereabouts and a bank debt of 50 to 60 per cent, then it would take about 10 years to repay the bank debt. Do you remember a conversation‑ ‑ ‑?‑‑‑I’m not aware of that, I’m sorry.
In this conversation, you asked Mr Ham if the property could be transferred back to him in the future and he replied that, provided you have the ability to fund the purchase then it could be. I assume you deny a conversation along those lines?‑‑‑Well, seeing that – seeing it was owned by the trust I can’t sort of comprehend that that conversation would have ever come into play.
So it’s your case that the land has always – the freehold has always been held by the trust?‑‑‑Totally, exactly.”
Mr Holzapfel’s evidence about the February 2008 meeting
- Mr Holzapfel gave evidence that he phoned Mr Ham to seek an explanation after payments to Ms Bright ceased in 2006 and was told that there was no money available. His evidence was that he “objected strongly” because “that’s what we were using for our funds to live on”. Mr Holzapfel stated that thereafter he made numerous requests for the accounts of the HPT, but to no avail. One of the reasons given by Mr Ham for not making any more payments was that he could not do so because of a Family Court order. Mr Holzapfel was aware that his son Todd also tried to communicate with Mr Ham. He said Mr Ham complained to Mr Holzapfel about a letter he had received from Todd and threatened to sue Todd for defamation over it.
- Mr Holzapfel gave evidence of a meeting with Mr Ham in February 2008. He and Simone met with Mr Ham, after having had a previous meeting (which in cross‑examination he accepted may have been in May 2007). Although he was unable to provide details of the previous meeting, he “completely” recollected the meeting in February 2008 which he described as “major”. Mr Holzapfel’s evidence-in-chief about the February 2008 meeting was consistent with his evidence as to his version of the agreement. His evidence as to what was said at the February 2008 meeting was as follows:
“We went to that meeting specifically with the conversation to take possession of the property in the name of the Holzapfel family, the trust, right, and it was then explained to me by Mr Ham that that is impossible to happen, as the – we didn’t own the property. It was owned by a Fison Avenue Unit Trust, of which it was the first time I’d ever heard of the Fison Avenue Unit Trust, and we went on to say that the Fison Avenue Unit Trust was between Mr Kempnich and Mr Ham, and they were the unit holders. And, that if there was to be a transfer of the property it would have to be auctioned, and we would have to buy the property at auction, and then it further went on that the – that there were – the monies owing on the borrowings were now 2.5 million, not the original 1.3 that was originally borrowed, and the problem got worse. In this – I’m – at this stage of my life – absolutely stunned that this conversation’s going on. I just could not believe my ears on what was happening and what was coming out to us; Simone was aghast also. To the extent that we said all right, what does happen? Oh well, the thing will be that the 2.5 million gets paid out and that Mr Ham and Mr Kempnich would probably take a million each, and then what was left we would look at probably dispersing, and I think the amount that they came – that Phil came up with was 500,000. I told him that I just could not believe the conversation that we were having with this – with Phil, and fortunately I had my daughter there to substantiate this conversation, because a lot of the conversations we had were just both with Phil and myself. But, Simone was there listening to this, and it was – just completely shot me to pieces. I just couldn’t believe the fellow that I had trusted with my life and he looked me in the eye all those years and just plain lied to me. I just – I just – I was stunned. I was really concerned that somebody could do such a thing to me with all the association and friendship and everything that had gone on and so the long and short of it all is that we left with our tail between our legs, scratching our head as to where we go from here and what we do, but that’s, as I said here, that’s exactly what happened.
Can you recall what you said to him?‑‑‑I said – I told him I was stunned. I know the exact words I said. I am stunned at this conversation.
I think you’ve told us before. Had you heard of the Fison Avenue Unit Trust before then?‑‑‑No. That’s the first indication that I had of any recollection or knowledge of the Fison Avenue Unit Trust.
Had you heard of the involvement of Mr Russell Kempnich in the arrangement?‑‑‑No. That was the first time I’d heard of Russell Kempnich being involved in the property whatsoever.
What explanation was given to you for why the debt was now ‑ ‑ ‑?‑‑‑He ‑ ‑ ‑
Sorry, go on?‑‑‑Mr Ham said – I really didn’t have the funds available at that stage so I had to get a partner in to borrow – for him to fund part of the deposit that was required to pay out the lease to the Department of Natural Resources.
Prior to freeholding, had you ever been told that by Mr Ham?‑‑‑No.
Prior to freeholding, had you ever been told of the existence of the Fison Avenue Unit Trust?‑‑‑No.”
- Mr Holzapfel explained his evidence that he went to the meeting “to take possession of the property in the name of the Holzapfel family.” He stated his intention in going to the meeting was to discuss refinancing the property in the name of the Holzapfel family, that is, to “change the finance over from who had possession”. He was proposing to borrow money to pay out the outstanding loan and change the loan from Canehire to the Holzapfel family. (Simone had told him she had the capacity to borrow funds.)
Mr Ham’s call to obtain Mr Holzapfel’s consent for the sale of the Fison Avenue property
- Mr Holzapfel gave evidence that he received a telephone call from Mr Ham one Friday that Mr Holzapfel “had to make a decision as to the sale of the property”. Mr Ham said that he had a deposit and there was a 14 day settlement and he had to know immediately. Mr Holzapfel said Mr Ham “wanted [his] approval to go ahead with the sale”. Mr Ham did not disclose the sale price. Mr Holzapfel said that he asked Mr Ham what he was going to get out of the sale and was told that it would be whatever was available after the unitholders were paid out. Mr Holzapfel said he “objected strongly”. Mr Ham said that if Mr Holzapfel objected to the sale and stopped the sale going ahead, “we’ll get sued for not letting the property settle”. Mr Holzapfel replied that as far as he was concerned the property was not for sale.
Mr Holzapfel’s letter of 28 October 2008
- On 28 October 2008 Mr Holzapfel wrote to Mr Ham following a meeting with Mr Ham. In the letter he stated:
“… I am in total objection of Russell receiving half the proceeds of the sale notwithstanding your explanation of why he should receive such a large slice. This transaction started with 2 parties namely Canehire and Holzapfel family. Now we after 5 years suddenly have three parties. At no time was I informed of these changes or agreed to same. … We must remember that this property in all discussions until recently would at some time in the future transfer back to the Holzapfel family. This appears to have been forgotten … The sale involves my sole asset which is being sold without my full understanding and consent as I do not know what is in it for me.”
- In the letter, Mr Holzapfel also asked to be provided with details of the gross amount he was to receive and requested that no funds be distributed until an agreement had been reached on all matters. By facsimile dated 30 October 2008 Mr Ham responded to Mr Holzapfel, confirming that no funds would be distributed to unitholders until 30 June 2009 and that the sale price for the property was $4,447,300 excluding GST, with settlement being scheduled for the following day.
Mr Holzapfel’s letter of 18 September 2009
- On 18 September 2009 Mr Holzapfel sent Mr Ham a facsimile, apparently after a phone call on 18 August 2009, as follows:
“… As you are aware Fison Av was to be my retirement fund never to be sold and contained all my superannuation fund monies (250k) being used in the building expansion.
You offered to finance the freeholding of the property and to clear property debts and bank loans I also offered ‘Montego Bay’ as security.
At no time was Russell (surname unknown) to provide the finance not you as you now suggest is the situation. I always looked at you providing the finance. I was never aware or agreed that a third party was involved in the agreement between yourself and myself or signed any documents to agree to this happening.
Had I known this situation I may have opted to raise finance another way but as I have said many times that I trusted you without question to look after my finances as my accountant and friend.
It took 4½ years for the fact that a third party was involved in the property and that half the property would be distributed to him at which time and still do object strongly.
It has always been the belief that the property would revert back to the Holzapfel Trust after 10 years. The property was leased for 5+5 years and your own calculations you provided us with sitting in your office that the loan would be clear by year 8 with 2 years of rent to go to Canehire for its involvement.
These are the conversations that I accepted as gospel with total trust.”
- In his evidence about this letter, Mr Holzapfel said that it was his “anticipation” that Mr Ham would get a reward of two years rental. He said he received no response from Mr Ham.
Evidence of Simone Holzapfel
- Simone gave evidence that after her parents divorced in 2002 she remained in regular contact with her father. She spoke to Mr Ham in relation to the divorce proceedings and the property settlement. Her evidence was that they had a discussion about ensuring that her father was “looked after” as part of the settlement, and ensuring that the Fison Avenue property was protected. Simone was aware that the property had been freeholded by late 2002 and that Mr Ham provided the funds, although she did not know where he procured the funds. She stated that she had trusted Mr Ham for 25 years to look after her father and “expected that this was a continuation of that process”.
- Simone said that in or around March 2006, she was shown a valuation of the Fison Avenue property by her father. She stated that she had discussions with Mr Ham in the presence of her father in relation to improvements of the Fison Avenue property.
- Simone gave evidence that she received payments from Canehire, after the property had been freeholded. These payments including approximately $11,500 in 2006 for her wedding, and $15,000 in 2007 associated with the sale of her business. She also knew of the money being paid to Ms Bright.
- After becoming aware that those payments had ceased, she made an arrangement to meet with Mr Ham and her father. They met in October 2007 in Mr Ham’s office. Simone said that they had a conversation with Mr Ham about the Fison Avenue property and Mr Holzapfel receiving a regular income out of the property. Mr Ham explained that there were difficulties in relation to the ongoing rental. At that meeting, Mr Ham provided a document headed “Holzapfel Loan to Fison Avenue Unit Trust Cash Transactions Only”, which he said was a running balance of the accounts, showing transactions in and out of the account. Simone said that she did not read the document in detail at the meeting.
- Simone said she was aware that, between October 2007 and February 2008, her father had been in contact with Mr Ham on several occasions to request additional information and a meeting. The only document provided by Mr Ham before February 2008 was the document he gave her during the meeting in October 2007. She took a copy of that document and gave it to her father when they left the meeting.
- On 4 February 2008, Simone and her father met with Mr Ham in his office. Prior to the meeting, she prepared an agenda of matters she and her father wanted to discuss. During the meeting she took notes on the agenda. Simone was concerned that the family’s trust in Mr Ham was misplaced and about a year later she typed the notes to provide to her father and brother.
- Simone stated that the February 2008 meeting was arranged with the distinct purpose of determining how they “could chart a pathway to return the asset to the family, which had always been the intention”. Simone told Mr Ham that they thought they might be in a position to return the control of the property to the family and they wanted to know how they could do so. Mr Ham then told them that he had had a partner, Mr Kempnich, involved in the transaction. Simone’s evidence was that that was a surprise to both of them - they had never heard that name before. Her father said, “I’m surprised. I’m shocked. I’ve not heard this before. … What is the situation?” Mr Ham explained that when the property was freeholded, Mr Kempnich had provided money and as a result was entitled to half the proceeds of the sale, if there was a sale. When asked to estimate how much he and Mr Kempnich were entitled to, Mr Ham nominated a figure of approximately $1 million each, once the debt was repaid. In cross-examination, she said that it was when she pressed Mr Ham for information about what profit there would be in the case of a sale, that Mr Ham mentioned Mr Kempnich’s interest. She said that Mr Ham told them that Mr Kempnich had been his business partner who had assisted with the freeholding and that they had an arrangement that required that he receive 50 per cent of any sale proceeds. Simone reiterated that this was the first that her father or she had heard about Mr Kempnich’s involvement.
- One of the items on Simone’s agenda concerned what was the “core debt” to the bank and total debt balance and whether there had been an additional bank debt taken out against the property. Simone stated that they had had a discussion about the debt prior to this meeting, because from her understanding of the transaction, the debt seemed high. She had been told that the debt amounted to approximately $2.5 million. She said that although Mr Ham tried to explain the reasons for that amount, they were not clear to her at the time.
- As to the item on the agenda referring to the “transfer” of the property, Simone gave evidence that she wished to explore when the property could be transferred back to her father. Her understanding was that the property was held by someone other than her father, but for his benefit, under an agreement between him and Mr Ham. In re‑examination, she stated that as at February 2008, she understood the property was to be transferred from whatever trust Mr Ham had it in to her father or an entity associated with him and she asked how control could be returned to her family, Mr Ham suggested that there would need to be a public auction or an arm’s length transaction so it would not be a preferential sale. The property would need to be put on the market and that the family may not be the highest bidder. She asked about the cost of the transfer, including the stamp duty applicable and capital gains implications.
- Simone agreed that there was a discussion about the renewal of the tenancy and Mr Ham told her that the tenant had indicated that they were not going to exercise their option to renew. She also stated that Mr Ham made a number of comments about the suitability of the property, including reservations about the value of the land because of the age of the buildings and that attaining a new tenant at a higher rent would not be an easy task. Mr Ham did not provide an updated version of the running balance sheet but undertook to provide figures after the meeting.
Evidence of Todd Holzapfel
- As mentioned, Todd did not participate in the contentious discussions constituting the disputed agreement. Nor was he present at the February 2008 meeting. Todd’s evidence is addressed below where pertinent in respect of the arguments made by the parties.
Evidence of Mr Astill
- Mr Astill acted for Mr Ham in relation to the Fison Avenue property and opened a file “re purchase from Canehire” which was later destroyed in the ordinary course after the expiration of 7 years.
- Mr Astill was referred to an email of 13 September 2002 in which Mr Ham sought his advice as to the conversion of the property from leasehold to freehold. Although he could not specifically recall the actual email, he recalled conversations with Mr Ham about that matter. His recollection was that Mr Ham, “clearly told me he placed his property within the SEPD group as an asset of that group”. (He was aware that SEPD was Mr Ham’s property company with Mr Kempnich). Mr Astill recalled Mr Ham asked, “Can we leave it where it is or should we transfer it to another shelf company”. Mr Astill recalled that his advice was, “yes, you can transfer it, but there’s quite [an] amount of stamp duty that’s payable in respect of any transfer”. He did not think that he was ever asked the question again once the stamp duty issue was raised.
- Mr Astill gave the following evidence of his general recollection of discussions with Mr Ham about the conversion of the Fison Avenue property:
“Well, Phillip was, you know, he was equivocating as to, you know, how he was going to secure this asset within SEPD, given that it was held as trustee for the Holzapfel Property Trust at the time. Nothing had changed. So that’s why he’s floating these questions. And what I do know is I would have given answers to each of those in subsequent discussions and what he did with those answers is a matter for him. What I do know is that there was no transfer and subsequently Phillip did instruct me to prepare a trust deed, known as the Fison Avenue Unit Trust at which he and Russell Kempnich were the unit holders and equal shares or the company’s associated with them. And that was ‑ so that was Phillip’s answers to these issues that he had, was to prepare this trust deed and, you know, how he booked that within his accounting system or how he managed to resolve that with Trevor Holzapfel, I was never informed. I never knew what their agreements were or what their relationships were. I was never informed.
…
Again, just generally, do you recall any other advice you gave Mr Ham in relation to the subject matter of this email?‑‑‑I know what I would have advised him and that is that, you know, for as long as Canehire is the trustee of the Holzapfel Property Trust and that trust remains unresolved there is risk to him and all parties involved and that he would need to resolve that with Trevor and his family and not be something that you would put behind you or shove in the corner because it’s not going to get any better. It’s only going to get worse over time. So I would have definitely given him that advice.”
- Mr Astill referred to Family Court proceedings in June 2002 at which Mr Ham gave evidence under subpoena. He said those proceedings:
“… just simply agitated what had been brewing for some considerable period of time which is what are you doing about this property and do you understand that, you know, for as long as you go on that there are always going to be risks associated with leaving matters unresolved. … it was my suggestion that we seek proper advice from an experienced counsel in relation to the avenues that are available to you, and I said to Phillip, not only you, but you have a partner in your business, Russell Kempnich, SEPD supposedly has some interest in this property. You all need to be aware of what the circumstances are and then you can make your commercial decisions after that.”
- Mr Astill also gave evidence that:
“… I did say to Phillip that I recommend that you get advice because time is rolling on. Canehire is still a trustee. The trustee hasn’t ended. There’s been no – you’ve not had a resolution. Things have transpired and perhaps, you know, given, … I think Trevor was ‑ went into bankruptcy at the time or some time earlier that, you know, there’s other people involved here and you need to address it and that was ‑ clearly he agreed.”
- Mr Astill recalled instructions to draft a trust deed for the FAUT. He was aware that the trustee was Canehire, the same trustee as for the HPT. Mr Ham’s instructions were:
“… we don’t want to pay all that stamp duty so I’ll organise accounts within SEPD group to resolve the ownership. What I would like you to do is prepare a unit trust deed. Call it the Fison Avenue Unit Trust. Make Russell’s company give it half and give me half. …”
- Mr Astill gave evidence that he told Mr Ham:
“… there’s issues involved with that as we have already discussed, as you already know, however, that’s a matter for you. Trevor’s your client so I’m sure you assure me you can resolve all your issues with Trevor then I’ll do whatever you ask. I’m merely the scribe. ...”
- Mr Astill said his focus was on “generally just having the matter done and done properly” but as far as he was aware that had not been done before he ceased to act for Mr Ham. Mr Astill referred to an advice received from Mr Fraser QC. The advice followed a conference in September 2003 with Mr Fraser QC, Mr Ham and Mr Astill at which there was discussion about “the duties of the trustee and the rights of beneficiaries and how they are to be resolved”. Mr Astill’s evidence was:
“What was discussed was a number of different issues. One was, you know, what was the exposure of SEPD, the notional developer, is it involvement in the property, as I think from memory it had already been paid out and leased at the time. How was it to secure itself against a possible attack by the beneficiaries. How was Phillip to secure to himself the fees to his firm and the interest that he claimed on those fees and what was the best course of action to bring this matter to a resolution and a number of ‑ that was a bit of thing, (indistinct), you know, a mortgage was discussed. A deed of termination of the trust was considered to be the most effective option.
What was said about a deed of termination in the presence of Mr Ham?‑‑‑Well, what was said that that would be the ‑ we were there to be ‑ because of the concern about beneficial interests in property that ‑ in the nature of which had changed. So what was said was clearly the best option was a deed of termination was a resolution with interested parties, including Holzapfel family. In that way, Canehire could continue on with whatever it had and do whatever it wished. So that was basically the nature of the conference.”
- Mr Astill also gave evidence that Mr Ham made no statement in the course of Mr Astill giving him legal advice “and being present at the conference with Mr Fraser”, that the matters involving the beneficiaries of the HPT had been resolved. Nor, as at September 2003, was it ever raised with Mr Astill that one or more of the beneficiaries of the HPT “had consented to the proposed arrangement by Mr Ham.”[8]
- Mr Astill gave the following cross-examination evidence:
“Yes. Was it your understanding that the freehold of Fison Avenue was acquired by Canehire as trustee of the Fison Avenue Unit Trust?‑‑‑No.
That’s the trust that you set up?‑‑‑yes.
And you set it up just before the transaction involving the freehold?‑‑‑Yes.
Okay. And I would suggest to you that Mr Ham told you that he wanted that set up so that it could be Canehire’s trustee of that trust that would hold the freehold that would be issued. …?‑‑‑Well, he would have set it up for that purpose, but it’s not the advice I gave him.
What did ‑ ‑ ‑?‑‑‑Well, that’s – I said that’s all very well, but it needs to be transferred. Canehire – the only – Canehire as trustee of the Holzapfel trust was the only party that had the option to take the option and pay out that lease.
When do you say you gave him this advice?‑‑‑When he asked me to set up the trust, when he asked about the Eagle Farm trust. I said, that’s fine, you can do all that, but you’ll need to pay stamp duty on it. You’ll need to do it – you’ll need to legally do it, because otherwise, unless that transfer takes place, then Canehire, the party that has the option to pay out that lease, is Canehire as trustee of the Holzapfel Property Trust.”
- Mr Astill reiterated in cross-examination that when Mr Ham said he wanted to purchase the property, he told him, “that’d be fine, not a problem. It’ll cost you thirty-seven and a half thousand dollars of stamp duty.” When he was challenged that Mr Ham never asked or instructed that he wanted to purchase the property, Mr Astill responded that his file said, “re purchase from Canehire”. Mr Astill disputed that the purchase was never discussed, stating: “I was instructed not to proceed with that. He said don’t worry about it, we’ll – we’ll work it out later. I’ll sort that out [with] his client. There was no animosity between them. I – I had no reason to question that.”
- Mr Astill also gave the following evidence in cross-examination:
“Can I suggest to you that when you raised with Mr Ham the need to get the consent of the beneficiaries in relation to the transaction that occurred in 2002, he told you that he would have no difficulty obtaining that?‑‑‑Which transaction are we talking about?
The transaction in 2002?‑‑‑Which one’s that one?
The freehold of the property?‑‑‑Okay. Thank you. No. That’s not correct at all. If he did, we should’ve got it.”
Evidence of Mr Kempnich
- Mr Kempnich gave evidence under subpoena issued by the plaintiff. Mr Ham was Mr Kempnich’s personal accountant and the accountant for his companies in addition to being a close family friend. Mr Ham was also a business associate in property development through various entities, including SEPD of which Mr Kempnich and Mr Ham were directors, and Terraford Pty Ltd (the trustee of Mr Kempnich’s family trust) and Meikleour Pty Ltd (Mr Ham’s company) were shareholders.
- In 2011, Mr Ham and Mr Kempnich “parted ways professionally”. Mr Kempnich took his accounting work elsewhere and made a “commercial decision” to take full control of the assets that were in the company structure generally of SEPD. Mr Kempnich claimed this parting of ways was not informed by the litigation which was brought in 2011. A Deed of Separation was entered into, which provided for security in favour of Terraford for indemnities given by Mr Ham to Mr Kempnich or Kempnich related companies.
- As to the Fison Avenue property, Mr Kempnich became aware from Mr Ham that “the property was in a position to be freeholded”. His evidence was that, as at 30 November 2002, what had been agreed as between him and Mr Ham as to the property was that “we had an opportunity to purchase it and to freehold it” and that it “was an opportunity to purchase a well-positioned commercial industrial property”.
- Mr Kempnich said he became a director of Canehire from 11 December 2002 to 28 January 2003. He “became a director [of Canehire] because Canehire became involved in a property development for which I was a party”. Mr Kempnich was not aware which entity held the Crown lease over the property and he denied having any knowledge through Mr Ham of the HPT. He said he was “aware that there were trusts involved in the transaction around that property and that certain of the entities were, of course, trustees if the asset was transferred via a trust.” That “superficial knowledge” came from Mr Ham and “the transactional nature of these dealings was generally managed by Mr Ham”.
- Mr Kempnich said in evidence-in-chief that he did recall an inspection of the premises at the time of purchase and “had met certain individuals”, who he “understood” were the Holzapfels, but he had no recollection of “a structured conversation with any of the Holzapfel family”. When counsel for the defendants put it to Mr Kempnich that he was given a tour “by one of the Holzapfels”, he said that it was “quite possible” and thought that Mr Ham was present. Despite these cautious answers, Mr Kempnich accepted without hesitation the following proposition put in a leading question of the defendants’ counsel:
“You were present because you were a partner of Mr Ham in the proposed freeholding or the freeholding that had just occurred, weren’t you?--- Yes.
… Can we take it that the probabilities are that you would have introduced yourself that way, ‘I’m Mr Ham’s partner and we’re taking the freehold, that’s why I’m here’?---Most certainly.”
- Mr Kempnich said the purpose of establishing the FAUT was to “facilitate the transfer from a leasehold to a freehold property and transfer that ownership of the freehold into effectively the beneficial ownership of SEPD and myself and Mr Ham.” The FAUT was Mr Ham’s idea. As to which entity the title was issued to when freeholded, Mr Kempnich said Canehire was always “an entity which [he] saw as associated with the property.” He had “no reason to look beyond that”. He was not aware that Canehire was trustee of the HPT. He had no recollection of being told that Coolanpart Pty Ltd (a company of which he was a director with Mr Ham) was advised by the DNR that it could not become the registered freeholder. Mr Kempnich’s company, Terraford Pty Ltd, provided a portion of the amount required for the freeholding as bank loans could not be effected until after the freeholding. Mr Kempnich’s evidence was that refurbishments to the property were financed out of cash flow.
- Mr Kempnich’s evidence was that he understood from Mr Ham that “one component of the freeholding was the freeholding of the land and the improvements, the buildings, etcetera, that were on the land represented some settlement with the Holzapfels to facilitate the transfer of the whole property, its freehold land and improvements, to the control of effectively Mr Ham and myself”. His recollection was that “there was a loan to the Suncorp bank by the Holzapfels which would be – part of the transaction would be that that loan would be settled and – as payment for the improvements and … the permission to freehold”. Mr Kempnich said he had no knowledge who had paid for the improvements on the property prior to freeholding. When questioned as to how pre-freehold improvements were dealt with by Mr Ham, he said they “were dealt with in a single negotiation” which was the purchase of the property. When further questioned on that issue he replied, “it’s a moot point because I don’t have any recollection of the improvements being separated as a specific issue of the negotiation. It was, in my mind, simply a property.”
Mr Ham’s evidence as to “the agreement”
Mr Ham’s evidence about the agreement as opened
- On the first day of trial, counsel for the defendants opened in a preliminary way the conversations giving rise to the agreement as alleged by the defendants as follows:[9]
“The two men had a number of discussions about this, during one of which, Mr Ham told Mr Holzapfel that if he was going to be involved in doing anything by way of attempting to obtain the freeholding of the property, it would only be by him acquiring the property using his own entity. Mr Ham said that he told Mr Holzapfel that he was not prepared to lend money to the trust so that it could freehold the property.
In one of these conversations, he’d outlined the procedure that he could adopt, which would be to see if it was worthwhile to use bank finance to the maximum extent, with the rest being equity provided by him. He will say that, during one of the conversations, Mr Holzapfel asked him what would be in it for him and Mr Ham will say that he replied that property transactions might look rosy at the outset but they did not always result in a good outcome, but that after getting an appropriate return on his investment, he will consider making a payment to him. He will say that Mr Holzapfel said that he was satisfied of the proposal and told him that he had total trust in him – total trust and faith in him.
In one of these meetings, Mr Ham will say that Mr Holzapfel asked him how long it would be – it might be before the bank debt could be paid off. Mr Ham will say he said that will depend upon whether the property could be tenanted, what rental would be received, what the expenses were, but he said he gave an example to Mr Holzapfel of what he described to him as a standard approach, and said that provided the property remained fully tenanted with a 10 per cent return, and had a bank debt of only 50 to 60 per cent, then it would take approximately 10 years to repay the bank debt. Mr Holzapfel asked him if the property could be transferred back to him in the future, and Mr Ham replied that provided he have the ability to fund the purchase, that is Mr Holzapfel could fund the purchase then he could.”
Mr Ham’s evidence-in-chief about the agreement
- Mr Ham gave evidence that he and Mr Holzapfel had a discussion initiated by Mr Holzapfel about the leasehold of the property in which Mr Holzapfel asked him to become involved. He said that the conversation with Mr Holzapfel was in late March/early April 2002. Mr Ham said he “thought about possibilities” that could be put in place to freehold the property. He did not think, at that stage, that there was any prospect of any company or trust in the Holzapfel group being able to fund the acquisition of the freehold. He “went away and considered things” and then had a further conversation with Mr Holzapfel. Mr Ham’s evidence-in-chief about that conversation was:
“I met with Trevor and – and proposed a scenario to him, whereby we could – where the property could be freeholded. At the outset of that, I said that if I was to get involved, I’d have to freehold it in – in an entity in my own right, in one of my entities, that I wasn’t prepared to act as a bank to the Holzapfels or lend money to the – to the Holzapfel property trust, but that what I would do is get a loan from the – from a bank to the maximum extent possible, after freeholding or during that process, with the balance of the funds provided by equity, and that over time, the – with a suitable tenant, that should enable the – at the end of the time, the – I had faith in property values at my experience that with the growth of rents and – and [indistinct] all the funds back into repayments, that that could be a workable solution.
Again, I’ve got to ask you to focus very carefully on what you’ve said to him. Was that last bit something you said to him during this discussion or were you just explaining?‑‑‑More an explanation, I think.
All right. Well, I ask you to go back and exclude that. Do you remember anything else that was said during this meeting?‑‑‑Trevor, naturally, was interested in what was in it for him and I said that ‑ ‑ ‑
…Yes. Trevor asked me what was in it for him and I told him that after a suitable rate of return on investment for me that if there was any surplus after that then there could be a payment to him.
And what – did he make any response to that?‑‑‑No. He seemed satisfied with that.
Was that the end of that conversation?‑‑‑We spoke a while about the process and that I told him I’d get Paul Ring involved because he was our project manager and – to look at the feasibilities with this stage. I didn’t know any of the figures and the costs of freeholding and what was involved.
Did you, during this conversation, commit to acquiring a freehold – commit to Mr Holzapfel that you would acquire the freehold?‑‑‑No. I think it was at this stage – because I didn’t know the costs and what DNR might say the conversion price was, but Paul Ring would have to get all the information and then we’d look at it, but if it measured up then, yes, I’d be looking to proceed.”
- Mr Ham said that after that meeting, he spoke with Mr Ring (the project manager of SEPD) and asked him to see what was necessary to freehold the property.
- Mr Ham also gave evidence of a discussion shortly afterwards (also in April) when Mr Holzapfel was interested to know how long it would take to repay a bank debt. Mr Ham said that, using a return of 10 per cent, “with equity in the order of about 60 per cent with the outlays largely being paid by the tenant, so there were very few costs involved with interest rates of about eight per cent he’d expect the bank debt to be paid in about 10 years”. He also said that he “seem[ed] to recall” that he did some calculations on a piece of paper for “the first two years [or] something like that to show how a repayment program would go and the loan would come down”. He said that at that stage he did not know the freehold price. His “standard example” was to use a figure of $1 million, but that was also “in the order of what” the property was worth. He made reference to rent and expenses going up by inflation of three to four per cent and that “the compounding effect of repaying the loan would be that – at the end of about 10 years, it would be reduced to zero.”
- Mr Ham denied Mr Holzapfel’s assertion that, after the Allight lease had been entered into, he did a calculation for Mr Holzapfel based on the actual rental being paid. Mr Ham referred to an excel spreadsheet he had made of the calculation he said he would have performed if he had been asked to do a calculation based on Allight’s actual rental. It assumed a loan of $1.8 million which Mr Ham said comprised $900,000 freehold cost, $300,000 for the Suncorp Debt, $200,000 for accounting fees, $100,000 rental arrears on the leasehold and the $300,000 worth of improvements to be done to the property. It calculated 16 years being required to pay off the loan.
Mr Ham’s evidence in cross-examination
- Mr Ham gave evidence in cross-examination, that he was not prepared to do the freeholding in the name of the HPT because he “had paid out the Suncorp facility in excess of $300,000 and had my accounting fees of several hundred thousand dollars and I thought in those circumstances that the prospect of there being any real equity in the property … was fairly small and in addition to that, I didn't want to act as a bank. I – that wasn’t my role. I felt … my static goals were either acquisition of property and hold long term or … develop short term but not to act as a bank … that wasn’t … my strategy at all.”
- Mr Ham was cross-examined about his version of the alleged agreement in a series of questions concerning the instructions he provided to his solicitors about the agreement, and why the existence of the agreement was never referred to in correspondence (in late 2009 to 2010) prior to the commencement of proceedings. Mr Ham said that he provided his version of the agreement when he first engaged his solicitors. He stated that his instructions were that the agreement was that the property would be freeholded “using my own entity”. When it was put to him that that was different from his evidence-in-chief as to what was agreed, namely that he was “using my own entity and my own right”, Mr Ham responded saying that the distinction eluded him. When the matter was pressed Mr Ham said that he could not recall “the precise instructions” he gave his solicitors. That is, he could not recall the exact words, as opposed to the effect from his point of view.[10] Mr Ham agreed that the first instruction he gave to his solicitor, Mr Hancock, was that he had acquired the freehold through an entity he controlled and that he did not tell him that he was “acquiring the property in [his] own right”.
- Mr Ham was asked why his evidence was that the agreement occurred in March or April 2002, when the pleaded, and opened case was that the relevant conversations occurred in mid 2002. Mr Ham said that he was assisted by looking at documents in the course of preparation for trial, and noted that Mr Holzapfel had approached DNR in about March of 2002, and that Mr Ham had commissioned Mr Ring to look at leasing the property in late April 2002. When it was put to Mr Ham that he did not have a very good recollection of what was discussed with Mr Holzapfel, Mr Ham accepted that his “memory’s not exact”. Mr Ham agreed when challenged that his recollection was “not even not exact, it’s actually imprecise”.
- Mr Ham was cross-examined as to the difference between his evidence as opened (in accordance with the amendment on day 3 of the trial) that Mr Holzapfel told Mr Ham that he was satisfied with the proposal and that he had total trust and faith in Mr Ham and the evidence in fact given by Mr Ham that he “seemed satisfied”. Mr Ham agreed that he appreciated the distinction and that he could not say whether Mr Holzapfel told him he was satisfied or looked satisfied. He said he had a “broad recollection” of what had been said.
- Mr Ham was challenged about his contention (reflected in the amendment made on day 3) that he told Mr Holzapfel that he was “seeking a reasonable rate of return on investment”. Mr Ham said:
“For me to enter into that and acquire the property, before I would’ve considered any payment to Trevor, I would’ve wanted – I explained that the property had to give the property return out and we were hoping that – you know I was hoping that – these were unsaid words but I was hoping that the property value would increase so much that there would be, you know, a fair scope to make a payment to Trevor.”
- Mr Ham said that he believed that the matter of a rate of return was communicated at the very beginning of the conversation with Mr Holzapfel. Mr Ham gave the following evidence in cross-examination:
“… if it was at the very beginning of this conversation, you would have given those instructions to Mr Bland of counsel to plead that?‑‑‑The instructions to Mr Bland were – were somewhat limited and he followed a different course from subsequent counsel.
If it was true, you would have included it in your second amended defence and counterclaim, wouldn’t you?‑‑‑Mr Flanagan, as I’ve said before, I – I don’t write the defence and counterclaims. They’re written in somewhat of a foreign tongue to me. The reasons for writing them are at times somewhat obscure and when counsel proposed a submission – yes, it was run past me but I can’t remember an occasion when I have changed what has been written that counsel has prepared.
You had a very clear opportunity to put that conversation and that you were seeking a reasonable rate of return in your letter of the 7th of January 2010[11] which is signed by you, isn’t it?‑‑‑Yes, it is.
And you don’t mention a reasonable rate of return – that part of the conversation with Mr Holzapfel at all, do you?‑‑‑It’s not mentioned. No, that’s correct.”
- Mr Ham was cross-examined on the plea in the Defence that it was agreed that there would be a “gratuitous payment”. In that regard, he was also referred to his letter of 7 January 2010 in which he stated that he had told Mr Holzapfel “on more than one occasion over the years” that once the Fison Avenue property had been sold, he “would consider making a gratuitous payment to Trevor”. He accepted that he did not tell Mr Holzapfel in the course of the agreement that he would consider making a “gratuitous payment”, but claimed he told Mr Holzapfel that if everything went okay, there could be a payment for him. Mr Ham was questioned about the further statement in the letter of 7 January 2010 referring to needing to take into account “contributions by my business partner”:
“So when you’re setting out your version of events in this letter, which is a letter that is sent after you had been requested to give a full explanation, we are to understand are we, that the contributions by my business partner were not words that you said to Mr Holzapfel prior to February 2008. Correct?‑‑‑That’s correct.
So you never told him in April or March 2002 that you had a business partner?‑‑‑At that stage, I didn’t.
No. But you certainly didn’t tell him at any stage prior to February 2008 that you had a business partner involved in the freeholding?‑‑‑We had a – we took Russell Kempnich for a walk around – I introduced him as my business partner who’s involved in the freeholding but – but that was the only occasion.”
- Notwithstanding this evidence of introducing Mr Kempnich as his business partner who was helping him with the freeholding, Mr Ham ultimately gave evidence that at the February 2008 meeting the Holzapfels were:
“… saying that they didn’t know that Russell had been involved. And that was correct. I hadn’t told Trevor at any length of the structure of it – really didn’t think that he needed to know of the means that I’d used.”
- Mr Ham accepted that, although the letter of 7 January 2010 stated that the property was “put into the name of Canehire as trustee of [the FAUT]”, that trust did not appear on the title. Mr Ham initially denied, but later accepted, that he knew when Canehire came to freehold the property, the title to the property had to be held by Canehire.
- Mr Ham accepted that there was no written record or any note of an agreement with Mr Holzapfel that Canehire acquire the property in its own right. There were no minutes of any resolution by Canehire as trustee of the HPT that the freehold would be acquired by it as trustee of the FAUT.
- When cross-examined as to whether he knew that to deal with the property in the way that he did he needed the consent of the beneficiaries, Mr Ham responded that he thought he could rely on his arrangement with Mr Holzapfel. He gave the following evidence:
“Do we have to go through this, or are you just going to admit that you knew to deal with this property, in the way that you dealt with it, you needed the consent of the beneficiaries to what you were about to do which was clear self‑dealing?‑‑‑I thought I could rely on ‑ on Trevor's and my arrangement.
HER HONOUR: Sorry, what was that?‑‑‑I thought I could rely on the ‑ on the agreement between Trevor and myself.
Sorry, I'm not sure that you've answered the question. The question was that you knew you needed the consent of the beneficiaries?‑‑‑The answer to that, your Honour, is ‑ is that my understanding of it was that I ‑ I needed to have the agreement with Trevor, I ‑ I ‑ and my recollection as at March, April 2002 is that I didn't appreciate at that stage the need for the consent from other beneficiaries of the trust.
Thank you.
MR FLANAGAN: Just to make clear, your response to her Honour then was you didn't appreciate it in March, April 2002; is that what you're saying?‑‑‑Yes.
Which was after the transaction of 2000 ‑ 2000 transaction dealing with the deed of settlement, yes?‑‑‑Yes.
And it's after the advice, which I'll take you to, of Mr Astill to you in relation to that deed, yes?‑‑‑Yes.
It's after you, on your own evidence, explained the terms of that deed to Mr and Mrs Holzapfel, yes?‑‑‑Yes.
It's after that you noted that the signatures of the beneficiaries of the Happy Valley ‑ Happy Apple Trust had to be affixed to that deed of settlement, yes?‑‑‑Yes.
It's in circumstances where you knew that they had to be affixed to that deed of settlement because the beneficiaries were losing their beneficial interest in the Montego Bay vessel, which was to be transferred to you, that is Canehire in its own right, yes?‑‑‑Yes.
And that had all been explained to you by Mr Astill, yes?‑‑‑Yes.
You also knew, and he told you it was a vital document, that the beneficiaries had to inform themselves as to whether they should get independent legal advice or choose not to get independent legal advice. Do you recall that document?‑‑‑Yes.
You also knew how serious it was in terms of ensuring, through Mr Astill's good advices, of ensuring that the signatures of the beneficiaries were witnessed, yes?‑‑‑Yes” (emphasis added)
- Mr Ham also gave evidence about deciding not to follow advice given to him by Mr Astill in a letter of 12 September 2003 that he should first terminate the HPT with the consent of the beneficiaries if Canehire in its own right was to continue to hold the freehold:
“[The letter of 12 September 2003 explained] Canehire could continue to hold the freehold, but it would no longer be doing so as trustee of the Holzapfel Property Trust because that trust would have been terminated by consent with the beneficiaries. You received that advice from Mr Astill, didn't you?--- Yes.
You didn't take it, did you?--- No.
You didn't act upon it, did you?--- No.
You didn't seek the sanction of the court as the controlling mind of this particular trustee, did you?--- No.
No. And the only reason that you didn't do it, Mr Ham, is that
on your case you say, ‘I already had an agreement with
Mr Holzapfel’?--- Yes.
An agreement that you had not told Mr Fraser about,
correct?--- Correct.
An agreement you had not told Mr Astill about, correct?--- Correct.
What was not explained to Holzapfel
- Mr Ham also gave evidence in cross-examination as to what was not explained to Mr Holzapfel about the agreement on Mr Ham’s version of the agreement. He accepted that he did not explain to Mr Holzapfel that Canehire would not be exercising the HPT’s right to apply itself for the freeholding. Nor was it explained that Mr Holzapfel would lose all beneficial interest as a beneficiary of the HPT. Mr Ham accepted that he never explained any other alternatives to Mr Holzapfel in relation to how the property could be held or continued to be held for the benefit of the HPT rather than for Mr Ham’s own benefit. He agreed that “alternatives had however been given to [Mr Ham] or suggested to [him] by [his] lawyers”. In that regard, he accepted that one of the alternatives suggested by both Mr Astill and Mr Fraser QC was a deed of termination of the HPT which he knew required the consent of the beneficiaries. He also accepted that he knew “having gone through the process in 2000 in relation to the vessel, that it required the written consent of the beneficiaries by way of a deed”:
“You never put that alternative to Mr Holzapfel, did you?‑‑‑No.
No. You certainly never said to Mr Holzapfel or indeed any of the Holzapfels – or more importantly you never said to Mr Holzapfel that, ‘by agreeing with me in the terms I’m suggesting, that you’ll never have any right to share in any sale proceeds no matter how profitable the land becomes.’?‑‑‑That’s correct, Mr Flanagan.
That’s correct. Because on your case, it was in your absolute power and discretion as owner of the property – because that’s what you say you were?‑‑‑Yes.
Don’t you?‑‑‑Yes
As owner of the property through Cane Hire, it was in your absolute discretion whether you ever made any payments to Mr Trevor Holzapfel?‑‑‑Yes.
And the point is, Mr Ham, that was never explained in [that] way to Holzapfel by you?‑‑‑I would agree with that, Mr Flanagan.”
- Mr Ham accepted that bringing in a business partner who would share in the profit, would impact on any “gratuity” Mr Holzapfel might get. But Mr Ham said that he made a conscious decision not to tell Mr Holzapfel about his business partner because he “thought that the means of freeholding and financing it were a matter for [him] to obtain”. There was also this evidence:
“… you accept you did not tell that you were going to mortgage the property for your own purposes and Mr Kempnich’s own development purposes. You never told him that, did you?‑‑‑No. I did not.”
Assessment of Mr Ham’s evidence of the alleged agreement
- The plaintiff contended that when Mr Ham’s complete evidence about his version of the alleged agreement was considered, it was apparent that he had no meaningful recollection as to what was said during the relevant conversation he said gave rise to his version of the agreement. It is true, as the plaintiff submitted, that by his own evidence, aspects of Mr Ham’s memory of the conversation were “imprecise”. Mr Ham described himself as having a “broad recollection” of the conversation. Further, as the plaintiff submitted, Mr Ham was unable to give a consistent version of what he said he told Mr Holzapfel. His evidence as to the conversation constituting the agreement did not accord with the pleaded version, nor with how the conversation was opened on the first day of trial in Mr Ham’s presence. Mr Ham did not give evidence that the words “for my own benefit” were said to Mr Holzapfel (contrary to what was pleaded). Furthermore, although Mr Ham’s evidence was opened (and the Defence amended to plead) that Mr Holzapfel in fact said that he was satisfied with the proposal and told Mr Ham that he had total trust and faith in him, that was not Mr Ham’s actual evidence – but it was a distinction Mr Ham appreciated. On Mr Ham’s evidence, Mr Holzapfel did not say anything in response; the highest Mr Ham put it was that Mr Holzapfel “seemed satisfied with that”.
- Importantly, Mr Ham’s evidence was that he himself gave no commitment in the conversation that he claimed constituted the agreement to acquire the freehold. The plaintiff thus made the cogent point that, even on Mr Ham’s evidence, Mr Holzapfel said nothing to him to communicate his agreement to what was proposed, and what was in fact proposed (and what Mr Holzapfel “seemed satisfied with”) was a hypothetical situation to which Mr Ham had made no commitment. In those circumstances, the argument that the defendants failed to prove an agreement was reached as pleaded in para 13 of the Defence has considerable force.
- The plaintiff also submitted that Mr Ham’s version of the conversations was not put to Mr Holzapfel, which it was said highlighted that, even at that late point, Mr Ham had not settled on what evidence he intended to give about the conversations. Further, the versions of the conversations given by Mr Ham in his evidence were not put to Mr Holzapfel, nor was it suggested that Mr Holzapfel’s version of the conversation giving rise to the agreement was incorrect or false. The plaintiff submitted that the defendants were thus precluded from advancing the case that Mr Holzapfel’s version of the conversations is incorrect: Browne v Dunn (1893) 6 R 67. But in any event, the plaintiff argued that Mr Ham’s version was so inherently improbable that it should be rejected. I agree that the matters pointed to by the plaintiff in that regard, particularly when taken together, call into question the plausibility and credibility of Mr Ham’s evidence about the agreement. Indeed, those matters, to which I will now turn, when combined with other issues going to credibility addressed below, cause me to reject Mr Ham’s evidence as to the agreement reached with Mr Holzapfel.
Improbability of Mr Ham’s version of the agreement
- I agree with the plaintiff’s submissions that there are cogent arguments going to the improbability of Mr Ham’s version, which undermine his credibility. The matters raised by the plaintiff in that regard were that Mr Ham’s version:
(a)smacked of recent invention, given that he failed to mention it (and particularly the crucial aspect that it had been agreed that he acquire the property in his own right using one of his entities) in numerous communications with Mr Ganim, the solicitor then acting for the plaintiff;
(b)was inconsistent with Mr Ham’s failure to tell the beneficiaries about the agreement;
(c)was inconsistent with the evidence of Mr Astill;
(d)was inconsistent with Canehire’s acceptance of moneys from, and making of payments to, the Holzapfel family;
(e)did not compensate Mr Holzapfel for the improvements to the property;
(f)was inconsistent with dealings with Mr Holzapfel after the freeholding;
(g)did not sit well with what Mr Kempnich was not told about how Canehire came to control the property.
(a) Recent invention
- The plaintiff referred to the numerous occasions between 27 November 2009 and 7 May 2010, when Mr Ganim, in correspondence to Mr Ham or his solicitor, put all or part of the plaintiff’s present case as to its entitlement to the proceeds of the sale of the property on the basis that it was an asset of the HPT. It pointed out that on no occasion did Mr Ham or his solicitor respond by contesting those assertions and putting forward Mr Ham’s pleaded version. To appreciate the strength of the plaintiff’s submission, it is pertinent to refer in some detail to these communications.
- In Mr Ganim’s initial email to Mr Ham on 27 November 2009, he sought confirmation as to when funds received from the sale of the property would be distributed and copies of financial and tax records of the HPT. He stated, that “… Trevor does not seem to know what has been involved within the financial affairs of the Trust for some time” and sought advices with respect to the FAUT “as that appears to be a structure involving the Holzapfel interests and [Mr Holzapfel] can’t tell me anything about it”. A follow-up email was sent by Mr Ganim on 1 December 2009, to which Mr Ham responded that he had been caught at a “busy time” and that the queries would involve going through old papers but he would set aside time on the following day to respond.
- Mr Ganim replied by email dated 2 December 2009, setting out his instructions as follows:
“… My understanding is that you acted to protect Trevor’s assets (which constituted the trust property) at a time when he was financially embarrassed and I think things were further complicated by the fact that he was in divorce proceedings where property was an issue.
Trevor says that throughout that period, you safeguarded his assets and made payments to or for him via the trust and the trust property was eventually sold and they are the funds that apparently need to be distributed.
I am very conscious of the Family Court Order which implicates you and I absolutely accept that whatever needs to be done now with respect to distribution or otherwise must have regard to your obligations under that Order. This means that the wife’s solicitors will need to be informed of distributions, but if that is the case, then so be it.
Trevor was also quite concerned that some other party has claimed an interest in the trust asset/fund and he says he was told of this after the event. …”
- After follow-up emails on 4 and 8 December 2009, Mr Ganim sent an email dated 11 December 2009 to Mr Ham, in which he stated, inter alia:
“Given you would be aware of the final financial position, it would be appropriate for distribution of the funds to be effected prior to Christmas because Trevor is in need of the funds and, as I understand it, they have been available for some time. As I have previously explained, he cannot assist me with what the exact position with respect to the financial situation of the trust (sic), nor is he aware of the situation with respect to the unit trust I referred to previously which appears to be involved with his family affairs. Philip I need your full co-operation please, as the controlling director of the trustee of our client’s trust and its assets.”
- Following an email dated 15 December 2009, again chasing a response, Mr Ganim sent an email dated 23 December 2009 to Mr Ham enclosing a Deed which removed Canehire Pty Limited as trustee and appointed Themis as its replacement. A follow‑up email was sent on 24 December 2009, threatening to bring an application if the material previously requested was not made available by 8 January 2010.
- By letter dated 7 January 2010, from Mr Ham to Mr Ganim, Mr Ham provided an explanation as to the situation concerning the HPT, drafted by his solicitors after obtaining instructions from Mr Ham. It stated, inter alia:
“… As a preliminary comment, I haven’t carried out any professional work for Trevor since 2003, when I helped him prepare a statement of affairs for his debtor’s petition.
The Family Court order was made in proceedings brought by Judy as a result of Trevor’s falling into arrears with payments he agreed to make to her in a property settlement made in 2002. The order was made about a month before Trevor declared himself bankrupt and paragraph 8 relates to the boat. Trevor was discharged from his bankruptcy three years later.
Staying with the boat:-
By 2000, the Holzapfel business known as Myttons was in financial trouble. Suncorp called up about $300,000 owing under a number of facilities.
Canehire Pty Ltd in its own right was the only entity able to satisfy Suncorp, and after discussions with Trevor and Judy, I had Canehire assume a responsibility, in its own right, to meet this sum over a period of a year; and it paid off the Suncorp debt from its own funds.
As part of this arrangement, the boat – Montego Bay – was transferred to Canehire in its own right in November 2002 by one of the trusts in the Holzapfel Group, Meikleour Pty Ltd as trustee of the Happy Apple Trust (although the formal transfer didn’t take place until March 2003).
The position since the transfer has been that Canehire has remained owner of the vessel (and had paid annual insurance and registration fees) and Trevor has had custody and use of it (and has paid for fuel and maintenance). There is no agreement or arrangement with Trevor for the transfer of title to him, although that is something which has been discussed between us from time to time.
Canehire hasn’t given any notice to Judy or her lawyers under paragraph 8 of the order of June 2003 in relation to a transfer of the vessel.
Trevor has no involvement in the Fison Avenue Unit Trust, of which Canehire is the trustee.
The background to this trust is events in 2002 and earlier. The Myttons business was carried on on Crown leasehold land at Fison Avenue, Eagle Farm. The lease was in the name of Canehire as trustee of the Holzapfel Property Trust, and that was the case since a time in the early 1990’s. This might be what Trevor was thinking of when he told you of his assets being protected at a time when he was financially embarrassed – although putting the lease into the name of Canehire as trustee was really for the protection from the Holzapfel business which was carried out on the land. Neither Canehire nor I were involved in any asset protection measures for Trevor at the time of his separation, divorce and property settlement.
The financial problems of Myttons which I mentioned earlier did not go away after the arrangement with Suncorp. By 2002, all of the Holzapfel businesses were in poor shape. By then, the Holzapfel Property Trust had large carry forward losses.
As well, Trevor and Judy had separated, and they came to a property settlement agreement in the Family Court in July 2002. In addition, the Crown lease was about to expire and the government had made it clear that the lease would not be renewed. As far as the government was concerned, the land had to be freeholded or the lease allowed to run out. Freeholding was going to cost about $840,000 (plus GST), as well as paying lease arrears of about $72,000 and rates arrears of about $28,000. The Holzapfel businesses were in their death throes and the principal entity Myttons Pty Ltd was liquidated in June 2003 having been unable to pay its debts for over a year.
I didn’t think it made sense to have the land go back to the government as that would mean that the Holzapfel Property Trust would still have a debt of approximately $200,000 even if the boat was sold for say $300,000 and the proceeds applied against total debts.
With a business partner, I had the Fison Avenue Unit Trust established and it paid the arrears mentioned earlier and the freeholding fee, and the property was put into the name of Canehire as trustee of that trust. The Fison Avenue Unit Trust has also paid the Holzapfel Property Trust compensation for the improvements on the land.
The Fison Avenue Unit Trust met all of the costs associated with the freeholding of the land, and all of the costs of holding and improving the land since then. The property was tenanted from mid-2003 until mid-2008. Subsequently, while a replacement tenant was being looked for, an offer to purchase the property or approximately $4.4 million was received and accepted in October 2008. I notified Judy’s lawyers of the contract, in accordance with paragraph 6 of the order of June 2003.
I have told Trevor on more than one occasion over the years – and what might happen to the boat has also been part of these discussions – that once Fison Avenue property had been resold, I would consider making a gratuitous payment to Trevor, after taking into account Canehire’s payments to Suncorp and the costs relating to the freeholding, holding and disposal of Fison Avenue, including tax and contributions by my business partner, and the costs associated with the ownership of the boat.
I am still in the process of completing the financial accounts for the year ended 30 June 2009 and I expect to be able to forward relevant accounts to you by 20th January. However, there hasn’t been any distribution from the Holzapfel Property trust for many years as the trust has not had any income to distribute.
I am absolutely positive that Trevor resigned as appointor of the Holzapfel Property Trust prior to his bankruptcy. However I do not wish to be obstructive and Canehire Pty Ltd will resign as trustee (subject only to legal advice) and be succeeded by Themis Pty Ltd.
In view of the threatened legal action, I will (reluctantly) engage Russell and Company to provide further responses and documentation and request that you direct any further correspondence to them.” (emphasis added)
- What is striking about the letter is that although it went into considerable detail, it did not state the simple fact, later asserted by the defendants in their Defence, that there had been an agreement with Mr Holzapfel that Canehire freehold the property in its own right.
- Mr Ham was cross-examined about the delay in responding to Mr Ganim’s inquiries and the failure to communicate Mr Ham’s version:
“The letter from Mr Ganim [of 27 November 2009] actually called for a simple explanation, did it not?‑‑‑That is what he requested. Yes.
But why didn’t you respond on this very first occasion to say, ‘Mr Ganim, you’re wrong. This property was acquired by me in my own right through an entity that I control?‑‑‑I had received communication from a senior solicitor, and I thought it best to consider my reply and in due course take legal advice.
…
… But in any event, Mr Ham, on the 2nd of December 2009 when you replied to Mr Ganim you don’t give him any explanation along the lines of the alleged agreement you had with Mr Holzapfel, do you?‑‑‑I thought that was premature to do so until I’d had time to make an informed decision and informed reply.
What’s premature about it? You either have an agreement or you don’t have an agreement. What’s premature about it?‑‑‑What was premature – what I considered premature was that I wanted to make sure that when I replied to the letter – and I replied as completely as possible and as appropriate rather than in any fashion which was incomplete ‑ ‑ ‑
…
Why didn’t you just straight away say to Mr Ganim, ‘I appreciate your letter. But Trevor must know. And ask him about this, but I have an agreement with him.’ Yes?‑‑‑I explained that I – that actual thought did not occur to me.
Why not?‑‑‑Because I had – I wanted to discuss it and give some and background to Mr Hancock for him to provide me with some advice in reply.
Would you agree with me that by the 7th of January 2010 you had turned your mind to the issues raised in Mr Ganim’s letter?‑‑‑Yes.
And the letter that you sent to him on the 7th of January 2010 constituted, as best you could, a fulsome and truthful reply to him providing the explanation called for?‑‑‑I’d taken advice from Mr Hancock and we had agreed the terms of the letter. And I agreed with that.
But my question’s different. By the time you sent the letter on the 7th of January 2010 you had turned your mind to the issues raised in Mr Ganim’s letter. Yes?‑‑‑Yes.
And the letter that you sent back on the 7th of January 2010, you say with the benefit of legal advice, still constituted your best efforts at telling the truth about the true situation. Yes?‑‑‑It constituted the response which Mr Hancock and I had discussed and thought was appropriate at the time.
That’s as far as you’ll go?‑‑‑It was ‑ ‑ ‑
You won’t agree with my proposition that you tried to tell as accurately as possible the truth of the situation in your letter of the 7th of January. Will you agree with that proposition or not?‑‑‑I – I think I’ve answered the question, Mr Flanagan.
…
Now, he says in paragraph 3 [of the email of 2 December 2009], ‘Trevor says that throughout that period you safeguarded his assets and made payments to or for him via the trust, and the trust property was eventually sold, and they are the funds that apparently need to be distributed.’ You read that at the time?‑‑‑Yes. I did.
Now, on your pleaded case and on the evidence-in-chief that you gave to my learned friend, that proposition put forward is – or, would have been in your own mind upon reading it completely wrong. Yes?‑‑‑Yes.
Completely wrong because on your case the freehold of Fison Avenue was acquired in your own right?‑‑‑Yes.
Yes. Now, did you respond to this letter?‑‑‑I can’t remember if there was a short response, but the – a substantial was the letter of 7 January.
Are we to take it that your letter of 7th January 2010 sought to respond to both these pieces of correspondence?‑‑‑Yes.
…
Why is it that you were taking so long to respond to what was a request for an explanation?‑‑‑I didn’t consider the response to be a simple matter, and I needed to ensure that I was fully advised as to any reply before I did so.”
- In an email of 19 January 2010, Mr Ganim noted that he was still waiting for the financial documents promised, and that Mr Holzapfel did not seem to have anything with respect to the financial situation of the HPT. Mr Ganim also stated that:
“… it might be of assistance if you could provide an idea of the quantification of any gratuitous payment you may consider making in terms of that indicated in your letter. … I do have to say, however, that your synopsis of events as set out in your communication of 7 January 2010, differs very substantially from that which my client informed me was the case with respect to your company acting as trustee of his trust. He was always of the view in the discussions we had that Canehire continued to be the trustee of the Holzapfel Property Trust for the purposes of ownership (and subsequent sale) of the property.”
- Mr Ham’s evidence was that he resolved, on advice, not to suggest any quantum of a gratuitous payment and, notwithstanding that the Holzapfel view was clearly set out in the email of 19 January 2010, there was still no response explaining that an agreement had been reached that Canehire freehold the property in its own right, as the following cross‑examination evidence reveals:
“And your answer, as I understand your evidence, is that you were still taking [advice] in relation to this. Yes?‑‑‑Yes.
Yet there remained a very easy answer, did there not?‑‑‑No. I felt that by this stage we were getting deep into fishing expeditions and a prelude to litigation, and I wanted to make a very considered response.”
…
It goes on to say, ‘In the meantime, it might be of assistance if you could provide an idea of the quantification of any gratuitous payment you may consider making in terms of that indicated in your letter’. Now, at this stage, did you turn your mind to making any payment to Mr Holzapfel from the trust?‑‑‑I discussed this letter with Mr Hancock and I thought we made an appropriate response at the time.
No. My question’s a bit more specific. Did you give any consideration to making a payment to Mr Holzapfel?‑‑‑I’d considered the contents of this letter and everything that was in there and we resolved on – with advice, we resolved on a course of action which did not, at that stage, suggest the quantity of any payment.”
- Thereafter, in emails of 25 and 27 January 2010, Mr Ganim pressed for the financial statements promised by 20 January 2010. By email on 28 January 2010, Mr Ham advised that Mr Hancock had been briefed, and was awaiting further information from Mr Ham, but that he would endeavour to “finalise [his] side” by 5 February 2010. On 28 January 2010, Mr Ganim sent an email to Mr Ham, pointing out that he had been trying to get information for over two months:
“… Trevor has been asking for and desperately needs (he is living frugally off the charity of his children and that is not right, surely you accept) his money from the sale since it happened.
He knew nothing about another investor in the property until well after the alleged event and now he is being faced with being told the trust has had no interest in the property since 2003, a proposition he says is totally opposite to what you and he agreed with respect to what was to occur when you found the funds to freehold.
But more than that, all we want urgently are the historical records which have been kept on behalf of the Holzapfel Property Trust and you must have these as your company was the trustee, … The Holzapfel Property Trust records are for the new trustee and you have all you need to pass them over.”
- At this stage, Mr Ham was still corresponding with Mr Ganim directly, rather than though the solicitors he had engaged. He agreed that when he read that email of 28 January 2010 he knew that it represented the Holzapfel side of the story, but his cross-examination evidence as to why he did not answer setting out his version was as follows:
“When you read that, why didn’t you respond by saying that’s wrong, the agreement was the agreement as you’ve given in your evidence‑in‑chief, namely, ‘The agreement with Trevor Holzapfel would be that I would be purchasing this property in my own right?’ Why didn’t you respond to that in those terms?‑‑‑At that stage, I ‑ I was taking legal advice, and that wasn’t the course of action that we followed, or ‑ ‑ ‑
If you were taking legal advice, you would have instructed your solicitors to say, ‘That statement is not correct. What is the true situation is that that I’ve given in my evidence‑in‑chief yesterday’?‑‑‑That isn’t what we decided.
It’s not what you decided, but my suggestion is that’s what an ordinary, natural response to this email would have been, isn’t it?‑‑‑It wasn’t my response.
No. And the fact is you did not respond by putting what is your story now, correct?---Not at that time.”
…
Because I was meeting with Geoff Hancock, taking advice from him and considering the replies, and ‑ and we were of one mind in that area, and the replies that went back until I could gather the information and complete a ‑ an assessment of it, we didn’t want to be pushed into moving hastily or making short‑term replies.
This is a fundamental issue. That is the difference between the two parties here in this litigation, yes?‑‑‑What’s the other position, I’m sorry, Mr Flanagan?
There’s Mr Holzapfel’s version of what was agreed and your version of what was agreed, yes?‑‑‑Yes.
Fundamental to this case. You know that, don’t you?‑‑‑Yes.
That’s been explained to you, hasn’t it?‑‑‑Yes.
And you knew that the fundamental difference in the version being put forward by Mr Holzapfel with your version is that you were taking the property in your own right, yes?‑‑‑Yes.
But you never say that, do you, in the response to this letter? You never say ‑ ‑ ‑?‑‑‑No.”
- Mr Gamin made a further email request to Mr Ham for the HPT records on 4 February 2010 to which Mr Hancock responded on 8 February 2010 indicating that financial statements for the HPT would be provided to him the following day to be passed on to Mr Ganim. The financial statements for the HPT for the years ended 2001 to 30 June 2007 were provided on 12 February 2010. Thereafter, Mr Ganim sent an email on 25 February 2010, threatening an application would be brought if all the books and records were not provided.
- On 1 March 2010 Mr Ganim emailed Mr Hancock, reiterating that he required all the books and records relating to the HPT and a full explanation of the circumstances surrounding the transfer of the beneficial ownership of the property from the HPT to the interests of the trustee. Mr Ganim stated:
“… There has to be, as you would appreciate, documentation and communications very succinctly explaining to the beneficiaries, where circumstances exist that the sole valuable asset of the Trust is transferred beneficially to such interests.
Not only did our clients not know that was happening, indeed, Trevor Holzapfel (and the beneficiaries) believed at all times that the property remained beneficially owned by the Trust.
There are a myriad of what credibly can be described as anomalies in the history of this matter, especially when you compare that history with the conduct of Mr Ham (numerous conferences have been held with family members consistent with the property remaining beneficially owned by the HPT well after the date your client asserts beneficial ownership passed to the interests of himself and it seems, another party) …”
Mr Ganim also asked in that email that Mr Ham attend a conference to provide an explanation in respect of a number of matters that needed to be discussed including:
“Property ownership
- Canehire Pty Ltd atf The HPT held a leasehold interest in the property.
- The property was freeholded and the circumstances surrounding that reflect in our instructions which, we repeat, are totally contradictory to the circumstances that your client now asserts prevail.
- Canehire Pty Ltd has been consistent as the registered proprietor holding the legal title. Thus, on the face of the title, ownership has never passed, but, on your client’s advices, the beneficial interest has passed and did so in 2003 and somewhere along the line, a third party has achieved a 50% interest, without our clients knowing.
- Stamp duty and GST would have to have been paid. Evidence of that needs to be produced. As well, documentation would necessarily have to have been entered into where Canehire Pty Ltd atf the HPT agreed to transfer the beneficial ownership to Canehire Pty Ltd, where the latter structure excludes any interest of the HPT and is an entity owned and controlled by Mr Ham which acted in dual capacities, including, relevantly, as trustee of the HPT.
- As well, there were substantial improvements on the property which perhaps are reflected in a ‘rental’ being paid post transfer of the beneficial interest, again a situation none of our clients knew or know anything about, let alone having discussed it with the trustee.”
- In his email, Mr Ganim raised the concern that, subject to a full explanation, the circumstances led to “the inescapable conclusion that there has been serious self‑dealing by a fiduciary”. (The matter was again raised in an email of 5 March 2010). Mr Ham gave the following cross-examination evidence as to Mr Ganim’s email of 1 March 2010:
“You knew it called for an explanation, didn’t you?‑‑‑I’d discussed that with ‑ with Geoff Hancock, yes.
But, according to you, you’d already given instructions that there had been an agreement reached with Mr Holzapfel, hadn’t you?‑‑‑Yes.
Did you instruct Mr Hancock in responding to this letter to say, ‘Look, just point out to them the fact that there is no documents, but there was an oral agreement between myself and Mr Trevor Holzapfel’?‑‑‑I discussed it with Mr Hancock and ‑ and ‑ and I’m not sure of the timing of the reply, but ‑ but we agreed on ‑ on a reply.
Did you give any such instruction that he should reply to this letter by saying, ‘I have an agreement with Mr Holzapfel whereby this property was to be acquired in my own right’?‑‑‑No, I didn’t.”
- By an email of 12 March 2010, Mr Hancock advised Mr Ganim a response to the questions raised by him had been prepared, but was to be checked by his client. On 24 March 2010, Mr Ganim sent an email to Mr Hancock, in which he asserted, inter alia:
“… your client accepted the fiduciary obligations of the trustee, yet, as a qualified chartered accountant, says he kept no minutes or any records whatsoever (not even diary notes) of what he did when undertook that function via his company Canehire Pty Ltd. Certainly on issues of clear conflict, there is no evidence, either by way of written advices or diary notes, advising the beneficiaries of their legal rights especially in circumstances where the trustee or the director of the trustee, was receiving the benefit of trust assets, primarily by way of alleged transfer.”
- Mr Ganim indicated that, unless everything that Mr Ham and Canehire Pty Ltd held was provided, a complaint would be lodged with the Institute of Chartered Accountants.
- Mr Hancock responded by email on 25 March 2010:
“… We have your letter of 24 March, 2010. Continuing work commitments – in particular, the completion and lodgement of a number of income tax returns for clients of Mr Ham’s firm by 31 March, 2010 – mean that Canehire will not be able to complete a response to your previous questions before the end of March, and probably not until early in the week commencing 5 April.
However, prior to escalation of this matter as stated in your recent letter, Mr Ham would like to meet with Mr Trevor Holzapfel – just the two of them – on a ‘without prejudice’ basis with the objective of finalising the matter. Mr Ham would be able to make time available for such a meeting, which could run for a couple of hours, on 1 April – or on a later date which was convenient to both him and Mr Holzapfel.”
- By email dated 26 March 2010, Mr Ganim again chronicled the difficulty he had had obtaining documentation from Canehire and indicated that he had considered “very serious issues” had been raised which, absent a full and proper explanation, needed to be properly investigated “by the Institute of Chartered Accountants, the ASIC and the Police”. In the circumstances that pertained, Mr Ham’s evidence, in the following exchange, is difficult to fathom:
“… Did you then, having read that, give instructions to your solicitors to say, ‘Look, finally, let’s put this to rest, we had an agreement, tell them that we had an agreement in the way I’ve instructed you’? You didn’t do that, did you?‑‑‑By then, Mr Flanagan, I’d already told Mr Hancock about the agreement, and we formulated our response with ‑ with all the information we had in front of us.”
- As the plaintiff argued, it seems highly implausible, if Mr Ham had in fact reached an agreement as he contended, that that simple fact would not have been conveyed at some stage in response to the increasingly serious matters raised by Mr Ganim, including the need for informed consent and the threat to report Mr Ham to his professional institute, ASIC and the police. Mr Ham’s explanation as to why he did not himself or through his solicitors set out his version of the agreement verges on the absurd.
- The plaintiff also pointed to what happened when Canehire was served with an application for the delivery up of the HPT records and Mr Holzapfel’s supporting affidavit, which again set out his version of the agreement in accordance with his evidence. Rather than responding to that application, Canehire simply consented to the orders sought, including costs orders. It was submitted that, if there had indeed been an agreement as Mr Ham alleged, it could not reasonably be accepted that Mr Ham on advice from his solicitor deliberately chose not to convey that crucial fact in response to the application.
(b) Mr Ham’s version is inconsistent with his failure to tell the beneficiaries about the agreement
- But this was not the only conduct which the plaintiff submitted sat uncomfortably with Mr Ham’s version of the agreement. The plaintiff argued that Mr Ham’s version of the agreement was also inconsistent with his failure (until the meeting in February 2008) to inform the beneficiaries in the course of contact with them that they had no interest in the property, even when he could reasonably have been expected to have done so. I agree with those submissions.
- Failure to mention the agreement during communications with Todd
- The plaintiff referred to evidence of various conversations and e‑mail correspondence between Todd and Mr Ham from 2002. Todd gave evidence about the continuing interest of the HPT in the Fison Avenue property, and his discussions and e-mail correspondence with Mr Ham about that. These included an email on 29 April 2002 in relation to the development of a property at Runaway Bay and a proposal that the profits “be paid (after commission to the financier) to Canehire or a related entity to reduce any existing borrowings it has lent to the family”. In an email to Mr Ham on 22 August 2002, Todd spoke about alternatives for “debt servicing”. There was a series of emails from Todd to Mr Ham concerning various options regarding rental opportunities for the property. Mr Ham sent an email to Todd on 16 September 2002 in which he stated he “would like to catch up this week” with Mr Holzapfel and Todd in regard to agenda items which included “Freeholding 319”. This was at a time when, on Mr Ham’s version, there was already an agreement that Canehire freehold in its own right.[12] There was also an undated email from Todd to Mr Ham (which Todd thought was sent around October 2002) in which Todd stated:
“I thought it a relevant time to get a clear understanding of how future ownership will be determined. I am probably complicating a simple Philip Ham answer, but here goes. It’s not clear in my head, so I thought it best to ask.
As I see it, PH [Ham] has perhaps $400-$600 K invested (probably a bad choice of describing words!) here with the Metway debt and professional fees rolled into one. That leaves Trev with a sausage roll and a warm cup of tea, if you consider the saleable value adding the conversion to freehold costs. What was Trevors investment here??
Assuming 5 to 10 years pass, with the bank debt being reduced and/or paid out, where are we then?? When does PH get a return from all the pain and suffering?
My main objective is to understand Trevor’s retirement position in the years ahead. As I said, he gave away far to [sic] much this year and I am concerned as to how to plan for the years ahead.”
- Mr Ham did not respond to that email. His evidence was that he had an agreement with Mr Holzapfel that Canehire obtain the property in its own right and that he read Todd’s email as Mr Holzapfel not “having had a discussion with Todd” about the agreement with Mr Ham and “left it at that”. Thereafter, on 25 November 2002, Todd forwarded to Mr Ham a proposal from King and Co regarding Allight tenanting the premises for $170,000 per annum plus GST. The plaintiff argued that no reasonable person in Mr Ham’s position receiving that email could have thought anything other than that Todd was corresponding with Mr Ham as a beneficiary of the HPT, which had a continuing beneficial interest in the property.
- It was submitted that if Mr Ham had truly made the agreement claimed, then there was no plausible reason why he would continue to correspond with Todd in the manner in which he did, and continue to meet with both Todd and Mr Holzapfel about the freeholding of the property as he did. It was contended Mr Ham’s explanations for why he did not respond to Todd, asserting what he now says is the true position, should be rejected. Indeed, having regard to how close the Holzapfel family was with Mr Ham (Todd was godfather to Mr Ham’s daughter), the fact that Mr Ham did not say anything to him about the alleged agreement at this time leads to the inescapable conclusion that Mr Ham’s version of the agreement is fiction.
- It was also contended that Mr Ham’s reaction when confronted by Todd’s long and trenchantly expressed email of 19 October 2008, outlining the plaintiff’s position as to the acquisition of the freehold was revealing. The email stated, inter alia:
“… Dad has advised you have accepted an offer to sell the property … Be the property sold or held, I am writing to request an equitable solution to this long running saga be concluded on an urgent basis (while at least any money is of some use to him). Put bluntly – I hope he gets a chunk of money and doesn't get screwed. Furthermore, the transfer of the boat also has reference to a final settlement and is a major pressure point in Trevor’s mind (which effects his ability to think transparently about the below issues – which is handy for you – but he is just living in denial in the event you are not intending to do the right thing by not tackling the issues head on).
…
I note that several meetings between yourself, Trevor and Simone have taken place…over the last 12 months that have so far failed to deliver any practical answers as to what is happening with Trevor’s money (but for some regular surprises and inconsistencies as to how the ‘deal’ is now being treated/viewed form your side – ‘your side’ now including other investors/stake holders). Even with the proposed sale days away Trevor has no idea what’s in it for him???
…on the basis neither Trevor or Simone can get any credible answers or commitments whatsoever, I have formed grave concerns for your intentions. Are you going to run off with the money or propose a grossly unfair settlement amount? …
… a significant surprise came in the form of an explanation from you earlier in the year as to how the above property’s ownership was structured (with another investor ‘Russell’ now in the mix). Whilst Trevor’s memory and record keeping are poor at the best of time (again handy for you), this was a bombshell. This situation had never been discussed in any meetings I personally participated when it was all going bad – the concept always being the property could be transferred back to Holzapfel control on the basis the capital growth was significant enough to fund the repayment of whatever was owed (which was a loan owing to the Commonwealth Bank probably in the order of say $2mil). As a side point, it is unclear where the rent income has gone from the tenant of 5 years (and how it was to be treated) – any accounts are always purposely impossible to interpret nor have you ever provided a detailed briefing/explanation of same. Apparently the rules have changed as Trevor’s ability to take control of the property had matured. Despite the fact that no written agreement between the parties (or at least that I have been told about or have a copy of) exists – unbelievable with reference to your potential conflict of interest in this matter and what I would hope is some professional responsibility you are meant to maintain to your client (especially in the event that a dispute arises) – the famous ‘Russell’ is/was apparently now owed a significant chunk of any sale proceeds on the basis he agrees it is an appropriate time to sell the property … I am furthermore guessing Trevor’s money in the property has been exposed (by way of consolidated security) to other investments and development activities you have undertaken over the years without his specific knowledge or his financial gain from such activities … As above described, given your professional responsibilities to Trevor as a client, and the lack of written documentation as to how the finance/relationship was meant to work (which again I should have seen coming in the event you are not going to do the right thing), a reasonable person would have to suggest you have placed (or are in the process of) your interests ahead of Trevor’s. … I note also your failure to respond to issues such as producing accounts …
Given your ultimate control over everything associated with Trevors affairs, the property itself, financial statements for all related entities throughout this period including loan accounts and the like, taxation treatment with reference to the property itself and other critical issues associated with how this whole mess came about, I hope Trevor gets a fair deal. Leaving aside the latest claim that ‘accounts will be generated’ to determine the final position …
If you are misunderstood in your sincere treatment of Trevors interest that’s a shame (given the various justifications you can roll out including family court matters and mortgagee in possession status etc etc etc), however I maintain any reasonable person on the sidelines would be mortified as to the current circumstances, recent inconsistencies and the ‘in limbo’ nature of Trevors only asset.”
- Mr Ham’s cross examination evidence as to his response was that he considered that “a simple communication was very much to the point”. That response was to tell Todd not to contact him again; it did not, consistently with Mr Ham’s previous responses, extend to stating the simple fact of Mr Ham’s position that he had acted with Mr Holzapfel’s agreement.
- Inconsistent with the meetings in 2007 and 2008
- The plaintiff also pointed to the evidence of Mr Ham’s dealings with Simone in 2007 and 2008. At the 2007 meeting, Mr Ham gave to Simone and Mr Holzapfel a three page document (exhibit 4) which Simone said Mr Ham explained showed “simply transactions in and out of the account that had occurred”. That document was an account which was said to demonstrate the balance of the HPT’s loan from the FAUT in respect of the acquisition of the freehold of the property, the receipt of rent, the property expenses, and the other payments in and out of the account for the benefit of the beneficiaries, or Ms Bright. The plaintiff submitted that the problem now for Mr Ham was that, on his case, the HPT did not borrow from the FAUT to acquire the property, hence there could be no reason as to the purported loan balances in the document. The plaintiff argued that, if the HPT had no interest in the property, as Mr Ham asserted, he would simply have provided a reconciliation of the amounts paid into and out of Canehire in 2003 and onwards, showing no funds remained. The real explanation, it was submitted, as to why the document was provided, was to satisfy legitimate enquiries from beneficiaries of the HPT as to the status of the HPT asset.
- The plaintiff also argued that the evidence of Simone and Mr Holzapfel as to the February 2008 meeting was compelling in revealing the implausibility of Mr Ham’s version of the agreement. Mr Ham accepted it was the first time Mr Ham told the Holzapfels of the FAUT and the interest of Mr Kempnich.[13] The plaintiff pointed to evidence Mr Holzapfel and Simone gave evidence of being variously “stunned”, “shocked” or “visibly upset” at being told this. Mr Ham also accepted that they were both “stunned” at what he had told them. Yet, as the plaintiff submitted, even on Mr Ham’s own evidence (supported by Simone’s contemporaneous notes) Mr Ham made no statement to Mr Holzapfel that he had in fact agreed in 2002 to Mr Ham acquiring the property in his own right. In cross‑examination, Mr Ham’s evidence was that Mr Holzapfel’s surprise was as to the involvement of Mr Kempnich, and disagreed that it was directed to Mr Ham’s assertion that the property was his, not the Holzapfels or the HPT’s. I am unable to accept that evidence.
- I also note that Mr Ham accepted that at the meeting the Holzapfels were trying to understand why the debt on the property was some $2.5 million “in line with the spreadsheets [he] had previously produced” and at which they “expressed some surprise”. Mr Ham said that he “attempted to give them an explanation of the fact that there had been the debt incurred and this had been a projected balance”. At the time, he had the impression that he may “not have been particularly effective in explaining that”. Mr Ham accepted that at no stage did he explain that the loan had increased because additional loan moneys had been obtained for Mr Ham’s own investment interests.
- Mr Ham’s version does not sit well with the evidence that he chose (as Mr Holzapfel recorded in his facsimile letter of 28 October 2008) to contact Mr Holzapfel when the contract of sale was executed to obtain his consent to the sale. Nor did Mr Ham respond, asserting his version, when Mr Holzapfel asked in that letter that no funds from the sale be distributed to any party until a resolution had been reached on the matters raised in the email. This was so even though Mr Holzapfel prefaced the request with the statement, “This transaction started with 2 parties namely Canehire and Holzapfel Family now we after 5 years suddenly have three parties”. Instead, Mr Ham responded by stating that no funds would be distributed “to unitholders” until 30 June 2009. Mr Ham failed to respond to Mr Holzapfel’s letter of 18 September 2009, maintaining he did not receive it. However, I note that it was not suggested to Mr Holzapfel that that facsimile was not sent.
(c) Mr Ham’s version was inconsistent with Mr Astill’s evidence
- It was submitted that Mr Ham’s version of the agreement was inconsistent with Mr Astill’s evidence as to Mr Ham’s conduct in 2002 and 2003. The plaintiff submitted that, even without turning to Mr Fraser QC’s advice obtained in September 2003, Mr Astill’s evidence was clear that Mr Ham was well aware that he could not lawfully cause Canehire to freehold the property in its own right or for the benefit of the FAUT, without transferring the interest of the HPT in the property, paying stamp duty on that transfer, and obtaining the consent of the beneficiaries. The plaintiff pointed to Mr Ham’s file note of 7 November 2002, which confirmed that he had calculated the stamp duty payable on a transfer of the right to freehold the property from the HPT in line with Mr Astill’s advice.
- Mr Ham’s initial evidence was he had consulted Mr Fraser QC to “address any further issues” that might arise out of the Family Court proceedings. He agreed that the reason he sought advice was that the entity that held the property (that is whether it was notionally within the SEPD or still held by Canehire as trustee for the HPT), was an “unresolved issue” in his mind. He wanted to “resolve uncertainties” as to Canehire’s actions going forward. Mr Ham said he could not recall whether it was said at the conference with Mr Fraser QC that, if he was to deal with the assets of the HPT for his benefit, he would need to obtain the informed consent of the beneficiaries. But he agreed that he knew this at the time anyway and that he had “already been told that by Mr Astill”.
- The opinion provided by Mr Fraser QC stated (as the first sentence recorded) that it concerned his being briefed to advise Canehire in relation to its obligations as trustee for the HPT, in respect of the property if it were sold. The first six pages set out certain factual background matters. Thereafter, the advice addressed various legal matters. It informed Mr Ham that he should be concerned as to his position as director of the trustee of the HPT, and also expressly advised him to obtain the consent of the beneficiaries. Mr Ham’s evidence was that he did not read the advice beyond the first six pages or so. Bearing in mind Mr Ham’s own evidence that he had been concerned to obtain legal advice as to Canehire’s position, and that he thereafter attended upon a Queen’s Counsel for that purpose, it stretches credulity to accept that, when Mr Ham received a written advice (albeit one that he claimed he did not ask for in writing) he did not read the advice at all beyond the first six pages. That is particularly so, given Mr Ham’s evidence that he saw that it was “addressing Canehire and its obligation as trustee”. His explanation as to why he only read the pages concerning the factual background and did not read on is unconvincing and cannot be accepted. He said it was because, according to him, those pages contained some factual errors. One of those matters was that there was no mention of the FAUT “as [he] would have insisted there had been”. But Mr Ham did not give evidence that he told Mr Fraser QC about the existence of the FAUT or that it was the beneficial owner of the property. Nor did he tell Mr Fraser QC or Mr Astill about the agreement he asserted he had reached with Mr Holzapfel.
(d)Mr Ham’s version is inconsistent with Canehire’s acceptance of moneys from, and making of payments to, the Holzapfel family – exhibit 4
- The plaintiff argued in respect of exhibit 4 that there was no sensible reason why Mr Ham would accept payments from the Holzapfel family into the account of Canehire as trustee of the FAUT, and make payments to the Holzapfels from that same account if the Holzapfels had no further interest in the property. The Holzapfels’ explanation for those transactions was straightforward. Whenever money was received by them, they contributed it to Canehire to reduce the debt on the Fison Avenue property. Payments from Canehire were from rent received. This, it was argued, was consistent with the manner in which Mr Ham accounted for it in exhibit 4.
- Mr Ham’s evidence was that he prepared exhibit 4 to show Mr Holzapfel the prospects of any payment that might as a result of the final resolution of Fison Avenue. The document was used to project forward the value of the total debt on the property and what the value of the property was because at that stage there was no other valuation. A number of such documents were produced over time. Originally the document would have been prepared without the 30 June 2005 column or the bank rate of 30 June 2005. These columns were inserted later. He did not keep the original document. Mr Ham said that he expects that he would have created the document in the second half of the 2004 year, probably towards December. Mr Ham said that he discussed these documents with Mr Holzapfel as a basis of projecting forward the total debt that was still on the property to determine if there was any likelihood of a surplus. He thought that he produced a number of these documents over the period, at least one a year. Mr Ham’s explanation, given by reference to exhibit 9 (a document he produced long after exhibit 4) did not seek to explain why any of these transactions were accounted for in the manner that they were. It is also difficult to understand why such documents would be produced, when Mr Ham failed to advise the Holzapfels of the pertinent fact that the debt over the property was increasing because the property was being used as security for Mr Ham’s own property development interests, given that that would impact on any “gratuity”.
(e) Mr Ham’s version does not compensate Mr Holzapfel for the improvements
- The plaintiff argued that Mr Ham’s version of the agreement failed to deal with the significant windfall Canehire received from the initial purchase price paid for the Crown lease of $250,000 and the improvements on the land paid for by Mr Holzapfel from his own superannuation and his other entities. These were valued at $550,000 at the time the property was sold by Canehire, based on the invoice raised by Mr Ham (which was not paid) to record an expense in the books of the FAUT for the improvements. The plaintiff submitted, and I agree, that it made no sense that Mr Holzapfel would simply give this amount to Mr Ham without any entitlement to participate in any future realisation of the property, but simply on a possibility of a gratuity.
- Mr Ham gave the following evidence about the improvements:
“And finally, tell me, you never dealt with him in terms of the improvements that he had paid for through the Holzapfel – that the Holzapfel family had paid for on that property, had you?‑‑‑I never dealt with the improvements.
You never agreed – in the course of this conversation that you say happened, you never raised with him what would happen with the improvements that Mr Holzapfel had paid for?‑‑‑No.”
- Mr Ham accepted that the statement in his letter of 7 January 2010, that the FAUT had paid the HPT “compensation for the improvements on the land”, suggested that the FAUT had actually paid for the improvements. Mr Ham said that what he meant by that statement was “there have been entries through the loan account to reflect that.” The “compensation” was by means of an invoice which largely eliminated the debt owing to the HPT by the FAUT. That no money was ever paid to the Holzapfels for the improvements, further accentuates the implausibility of Mr Ham’s version, when one also considers the other benefits received by Mr Ham through Canehire (eg securing the unsecured accounting and Suncorp debts).
(f)Dealings with Mr Holzapfel after the freeholding
- A further difficulty with Mr Ham’s version concerns the manner in which Mr Ham dealt with Mr Holzapfel after the alleged agreement. Mr Holzapfel’s evidence was that in a meeting with Mr Ham, Mr Ham wrote out for him on a piece of paper how long it would take to pay off the property once the property was to be leased to Allight and that this occurred after the lease was entered into. On the other hand, Mr Ham said that in about April 2002, he gave Mr Holzapfel a spreadsheet which he referred to as his “standard example”.[14]
- The plaintiff submitted that, even if Mr Ham’s version of that evidence is accepted, there is no reasonable explanation as to its purpose. If Mr Holzapfel had agreed to allow Canehire to freehold the property in its own right, there was no reason to discuss a hypothetical situation as to when the property would pay down the debt.
- Mr Ham’s evidence was that he did the calculation because Mr Holzapfel had an “interest” in the property referring to the possible “gratuitous payment” and that he told Mr Holzapfel “that if the property performed in the way that long-term property holds can do, then there would be payment to him.” But that explanation is difficult to accept when one bears in mind that Mr Ham also permitted the debt over the property to be increased for purposes entirely to do with SEPD’s interests and involved his partner, Mr Kempnich. Both of those matters impacted on what Mr Holzapfel could receive as a “gratuity,” yet he was never told of those developments by Mr Ham.
(g)What Mr Kempnich was not told
- The plaintiff submitted, one might accept a measure of disinterest by Mr Kempnich as to certain aspects of the transaction, but it seems that Mr Ham did not enlighten Mr Kempnich as to how Canehire came to control the property. Mr Ham had very limited knowledge of that. It was submitted that the inference that Mr Ham deliberately failed to convey to Mr Kempnich the true basis on which the property was freeholded by Canehire was suggested by the fact that Mr Ham granted to Mr Kempnich indemnities in respect of these proceedings. There is weight in the argument that, if Mr Ham had a legitimate basis for Canehire, as trustee of the FAUT, being entitled to the freehold, there would have been no reason for not being open as to the true nature of Canehire’s activities as trustee of the HPT, and its entitlement to purchase the freehold.
Defendants’ submissions as to the conflicting versions of the agreement
- The defendants submitted that there were three areas of difference in respect of the competing versions that favoured Mr Ham’s version. The three areas identified were: (a) evidence relating to the question of who held the beneficial interest; (b) how the Ham Debts (being the outstanding accounting fees and debt arising from Canehire discharging Suncorp Debts) would be paid, and (c) the nature of the payment to be made out of the property and what was said to be Mr Holzapfel’s expectation of a lump sum payment.
- Nothing in these submissions alters my view of the damaging nature of the inconsistencies raised by the plaintiff in respect of Mr Ham’s version of the agreement.
(a) Evidence as to beneficial ownership
- In arguing that the evidence supported Mr Ham’s version as to who was to have the beneficial interest in the freeholding, the defendants relied on evidence concerning (i) the “transferring back” of the property, (ii) the change in control post freeholding, (iii) the Family Court proceedings to enforce the property settlement and (iv) the cessation of payments to Ms Bright.
(i)Transfer required if Canehire held property in its own right
- The defendants argued that one consequence of the differing versions was that, if the property was held on trust for the HPT, no transfer back to the HPT would be required at any stage after the freeholding. Thus, when cross-examined about whether, at the time the agreement was entered into, Mr Holzapfel asked Mr Ham if the property could be transferred back, Mr Holzapfel’s response was, “seeing it was owned by the trust I can’t sort of comprehend that that conversation would have ever come into play”.
- The defendants argued, however, that notwithstanding that response, Mr Holzapfel, Simone and Todd understood at all times, from the end of 2002, that Canehire held the property in its own right. The defendants argued that this was established by evidence of various statements made in 2008 concerning a “transferring back” of the property. In that regard, the defendants relied on Simone’s note of the February 2008 meeting:
“SMH opened discussion about transferring the asset to Holzapfel Family as per intention that had been discussed on a number of occasions. … SMH questioned PRH regarding the amount required to transfer the property. … SMH advised that this is unacceptable as an outcome. Advises that TWH has always had the expectation that the property is held beneficially for him by PRH and that transfer to TWH entities/trust will occur after 10 years of leasing with debt at that date to also be subscribed back to TWH and his entities/trusts.”
- It was contended that Simone’s note made it “plain that her understanding was that Canehire held the Property in its own right; so that, if the Property was to be held by the Holzapfel family, the Property needed to be ‘transferred’ either to Trevor or the Trust”. That submission cannot be accepted. On the contrary, the quoted passage referred to “the expectation” that the property was held “beneficially” for Mr Holzapfel by Mr Ham and is thus inconsistent with an understanding that Canehire owned the property beneficially. Moreover, Simone’s evidence as to the purpose of the February 2008 meeting was that it was to “chart a pathway to return the asset to the family, which had always been the intention” and that she understood the property was to be transferred from “whatever trust Mr Ham had it in”. The context of the meeting was that the Holzapfel family “thought that [they] might be in a position to return control of the property back” to the family.
- Reliance was also placed on the following cross-examination of Mr Holzapfel concerning the February 2008 meeting:
“You talked during that meeting about the property being transferred back to you?--- That’s what we went for the meeting for. That’s exactly what I said to you earlier. You asked me the question why I went there, now you’re saying we discussed it being transferred back. Exactly. That’s why we went there.
That’s the language you used with – in your conversation with Mr Ham on this day. That we want to talk to you about transferring the property back to us?--- Correct.
So you knew it was somewhere and it had to be transferred back to you?--- It was---
Didn’t you?--- We – yeah. It was from Canehire back to the Holzapfel Property Trust.”
- I do not consider that that evidence establishes that Mr Holzapfel understood that Canehire held the property in its own right and not on trust for the HPT. It must be considered in the context of Mr Holzapfel’s other evidence; that he and Simone went to the meeting for the purpose of discussing “tak[ing] possession of the property in the name of the Holzapfel family”, his statement that the intention was to refinance the loan from Canehire to the Holzapfel family and his shock at being told that that was “impossible” because “we did not own the property”. Nor, in those circumstances, does the reference there to transferring the property in the letter of 28 October 2008 assist the defendants.
- The defendants also referred to the statement in the email from Todd to Mr Ham dated 19 October 2008 of the “concept always being the property could be transferred back to Holzapfel control”. Again, the email does not support the defendants’ submission that Todd also understood that Canehire held the property in its own right; rather it points to the opposite. As the plaintiff argued, the evidence of Mr Holzapfel, Todd and Simone as to transferring back the property in 2008, should be understood as referring to a transfer of control and not as revealing an awareness that Canehire and not the HPT was the beneficial owner. Indeed, Simone’s express evidence was that she understood that the beneficial interest remained with her father.
(ii)The change of control after freeholding
- The defendants argued that Mr Ham’s version of the agreement was corroborated by the change in who controlled the property after the freeholding, in that it went from Mr Holzapfel to Mr Ham. The defendants argued that was different from the situation pre-freeholding. Mr Holzapfel accepted that, before 2002, he controlled the property. For example, Mr Ham had no control over or input into such matters as the decision to acquire the initial Crown lease or negotiate its acquisition or to make improvements before the property was freeholded. The course of correspondence between Canehire and the DNR from 1997 to 2002 showed that, until 2002, Mr Holzapfel exercised his control over the property by negotiating with the DNR for Canehire’s acquisition of the freehold over the property.
- The defendants submitted that as at 2002, Mr Holzapfel “relinquished” all control over the Fison Avenue property. This was said to be evident from the following:
(a)Mr Holzapfel ceased to have any communication with the DNR or any other State agency about Canehire’s acquisition of the Fison Avenue property.
(b)Mr Holzapfel accepted that he reached an agreement with Mr Ham that, “while the debt was being paid off it would be Mr Ham who would be in control of the property and making decisions about it”.
(c)From the end of 2002, the Holzapfels were aware that, if Canehire acquired the freehold to the Fison Avenue property, Mr Ham, and not Mr Holzapfel, would “control” the property. Thus, in an email from Mr Ham to Todd dated 23 August 2002, Mr Ham stated:
“There is no point in considering having you as a tenant unless you can demonstrate an ability to pay the rent thereby underpinning the debt. I would not raise the finance unless I can satisfy myself servicing is possible; … The final alternative is of course not to freehold.”
(d)Mr Ham, and not Mr Holzapfel, controlled the process by which improvements were made to the property, and the process by which the property was rented out. SEPD’s employee Paul Ring conducted the negotiations with the property consultants who were trying to identify a tenant. Mr Ham made the decisions in relation to the tenanting of the property. Canehire outlayed capital in order to make improvements to the property, with Mr Ham and Mr Kempnich determining the improvements to be made to the property before it was leased out. Mr Astill understood that he needed to take instructions from Mr Ham and Mr Kempnich in relation to the lease.
- Although the defendants relied on this evidence as indicating that the Holzapfels relinquished their equitable interest in the property, I do not consider that the alteration in management of the property after it was freeholded is necessarily inconsistent with the plaintiff’s case. Consistently with Mr Holzapfel evidence, it reflected that there was a change in who took responsibility for the financing and preservation of the property.
- The defendants also referred to Mr Holzapfel’s Family Court evidence about his involvement with the management of the property after it was freeholded, which was that he was not “consulted about what’s going to happen with the property.” I have dealt with Mr Holzapfel’s evidence in the Family Court below and do not consider it assists the defendants in the manner put forward. Additionally, the defendants contended that, while Todd continued to have involvement with the negotiations with Allight for the lease, he did so in his role as outgoing tenant (ie Myttons Qld) and he understood that he had an obligation to pay rent to Mr Ham. Todd understood that Mr Ham made the final decisions about the property, the improvements being made to it and the terms of the lease with Allight, as evidenced by a fax from Todd to Mr Ham on 25 November 2002. I have already indicated that his involvement ought to be seen differently and as indicative of his having an ongoing interest in the property. Finally, reliance was also placed on Simone’s evidence that “Mr Ham had undertaken to manage the process for my father, and however he did that was his determination and that it was to be provided back to the control of my father”. As I have stated elsewhere, I do not consider that that evidence supports the defendants.
(iii)Family Court evidence
- The defendants also relied on evidence which Mr Holzapfel gave in the Family Court in May and June 2003; in particular the following evidence:
“a.Do you have an interest in Canehire or its assets?--- No, I don’t.”
b.“Are you sure you’ve got no interest in Canehire?--- I have no interest in Canehire.”[15]
- The defendants also relied on the italicised extracts below of Mr Holzapfel’s evidence given on 5 June 2003:
“So if the property was sold for more than you currently consider it’s worth, then there would be a surplus for you, wouldn’t there?---That would be the case, yes but that’s not what’s expected.
…
It’s [Canehire’s] keeping the property safe for you, isn’t it?--- No, not at all. It’s all gone.
…
How do you think you’re going to pay back $1,727,000 to Mr Ham?---Well, the only way it can be paid is probably the sale of the property eventually if it’s---
Yes, so that’s where it’s going to come from, the sale of the property. But hold on, you say the property doesn't belong to you any more?--- Well, that’s true.
…
The land is still held by Canehire’s trustee of the Holzapfel Family Trust?--- I’m not sure who owns it now.
… You’ve told us that the only way you will repay the money you owe to Mr Ham is if the land is sold and there’s money left over, haven’t you? You’ve told us that?---That’s the only way that Phil is going to ever get his money back.
No, that’s the only way you’re going to repay the money?---All right. Okay. If that’s what you want to put.
No, you admitted you owe him 1.727 million?---Correct.
Right. The only way you can repay that is if the land is sold. You’ve told us that. That’s right, isn’t it?---Mm.
…
[If the property is sold at 2.145 net profit] Mr Ham gets back his 1.7 million and there’s $400,000 left over, right, on a hypothetical price of 2.195 million. That $400,000 goes to you, doesn't it, the Holzapfel Family Trust …”--- Not as far as I’m concerned.
Property Trust?--- I’ve relinquished all …”
…
So, [Mr Ham] gets back his - the money is paid to Suncorp Metway. He gets back his accounting fees, he gets back his compound interest and you get what’s left over on top. That’s correct, isn’t it?---If that be the case, yes.
That is the case though, isn’t it? That’s the deal?---There’s no deal.
Mr Holzapfel---?---There is no deal.
What do you mean by---?---I don’t know what you - I don’t know what ---
… you’re looking for.
Stop?---There’s no deal.
Just stop. You said if that be the case?---Yes.
What do you mean by that? Is that if we get a surplus left over?---I would presume that that would happen but I---
…There’s no deal. There’s no deal.
If there’s a surplus left over you will have whatever the surplus is, correct-correct?---If you say so, yes.
It’s not what I say, Mr Holzapfel---?---I don’t know---
---you’ve just told me - you’ve just told me that - I asked you if there’s a surplus left over will you get - you said I presume that that’s the case?---But don’t know.
…
REGISTRAR: The trust gets back a surplus.
MR COUPER: The trust gets back the surplus. That’s the situation, isn’t it?---I would presume so, yes. …”
- The defendants argued that when this evidence was put to Mr Holzapfel in cross‑examination in these present proceedings, he did not deny that his understanding at the time he gave the Family Court evidence was that Canehire held the property in its own right. Indeed, he confirmed that at that time he understood that the HPT held no interest in the property and that his interest was “all gone”. The defendants emphasised Mr Holzapfel’s use of the word “relinquish” to describe what had happened to his interest in the property. Mr Holzapfel’s evidence was that by referring to relinquish he meant that “it’s all gone”. As regards Mr Holzapfel’s explanation that his understanding had since altered because he had later obtained legal advice that “a trust could not disappear”, it is true that the plaintiff adduced no evidence from any solicitor or other legal advisor that such advice was given. However, Mr Holzapfel also emphasised in cross-examination, that he had stated on three occasions in the course of his Family Court evidence that, if the property was sold and all debts were paid, the moneys left over would return to “me or us or the trust”. He also explained his evidence in the Family Court proceedings of there being “no deal” about getting back surplus, on the basis that “there was never any discussion about ever even selling the properties”, and in those circumstances that it was all “hypothetical”.
- The defendants seek to make something of the fact that Mr Holzapfel was present when evidence was given in the Family Court by Mr Ham that Canehire held the property “in its own right” and not on trust for the HPT, and that at the conclusion of those proceedings, the two men discussed the experience of giving evidence. Yet Mr Holzapfel did not, at any stage, tell Mr Ham that he disagreed with the evidence that Mr Ham had given.
- The evidence given by Mr Ham that is particularly relied upon by the defendants is italicised in the extract below. But it is instructive to place that evidence in the context of the evidence that preceded and followed it, which is also extracted below:
“… the last time we were here I asked you … :
On what basis do you have the right to take the leasehold buildings?
…
And your reply was:
Canehire exercised a right to freehold the land in November last year without which freeholding all improvements would forfeit to the Crown.
…
The Holzapfel Group could not convert that, could not convert it to freehold.
…
… Canehire exercised a right to freehold the land, but that could only have been as the trustee of the Holzapfel Property trust, couldn’t
it?---I’m not sure.
…
Well, Canehire only had an interest in the land as the trustee of the Holzapfel Property Trust, didn’t it?---I believe Canehire could exercise its right as mortgagee.
… Has Canehire ever exercised its right as mortgagee?---I believe that’s what occurred then.
Well, did it conduct a sale, did it advertise a sale as a mortgagee in possession?---There’s been no sale.
So Canehire was trustee of the Gold Coast - sorry, the Holzapfel Property Trust, wasn’t it?---Yes.
And then it became - you’re saying Canehire then became owner of the land in its own right?---I believe that to be the case.
Well, you must know, you’re Canehire?---I believe that to be the case.
So well that was the case or it wasn’t the case? You’re the only person who knows because you - let’s go back. Are you a director and shareholder in Canehire?---Yes.
Are you the sole director and shareholder in Canehire?---I’m the sole director.
…
So did you decided (sic) that Canehire would take over this property?---Yes.
What did you say to the beneficiaries of the trust when you went to do this? Did you give any notice to the beneficiaries of the trust of what you were doing?---I certainly discussed this in a fair measure of detail with Trevor Holzapfel.
Did you give written notice to the trust or the beneficiaries that the trustee of the trust was going to take the property over itself?---I can’t recall.
…
MR COUPER: Did Canehire do anything formally involving the lease of the property to change its interest from Canehire as trustee of the Holzapfel Property Trust to Canehire in some other role?---I would have to ask my solicitors that.
Well, you’re the director of Canehire, you must have known?---There are a lot of documents that need to be gone through in all this. I’d have to ascertain the legal position from my solicitors.
…
MR COUPER: Thank you. You understand that Canehire was a trustee in relation to the Holzapfel property Trust?---Yes.
And therefore it owed duties to the trust and its beneficiaries?---Yes.
And you can’t point me to any documentation where Canehire told the trust or its beneficiaries that it was no longer acting as trustee of its trust, it was acting for somebody else in respect of the property, is that right?---That’s correct.
…
When was the last time that you consulted for Holzapfels in relation to the property at 319 Fison Avenue?---What do you mean by consult in relation to the property?
Discuss with them its leasing, its freeholding, its future?---Its leasing perhaps four months ago. But I’m not certain as to that. Quite some time ago.
…
And you agree that that note says - has comments on it in respect of selling the property, valuation of the property, freeholding the property?---Yes.
Right. Now, in August 2002 were you still discussing these matters with Todd Holzapfel?---Possibly, I don’t recall.
…
Now, it’s clear from that e-mail, isn’t it, that Todd was still negotiating with you in respect of leasing the property and freeholding the property and selling the property?---Not so much negotiating with me, he was negotiating with an agent.
…
And down the bottom of the page he talks about debt servicing?---Mm.
The debt - was the debt to be borrowed to freehold the land, wasn’t it?---and - and to do any other work that was required, yes.
Yes. So he was consulting with you at that stage in relation to getting a tenant in the property to make the property viable so moneys could be borrowed to freehold the property?---Yes, correct.”
- When the comments by Mr Ham are placed in context, it can be seen that Mr Ham’s evidence was that he believed that Canehire became the owner of the freehold in its own right, because he believed that Canehire had exercised its right as mortgagee. It was not disputed that Canehire made demand in April 2001 on the HPT and Myttons Qld.
- Mr Ham gave evidence-in-chief in the present proceedings about his evidence extracted above. He said that, in relation to whether Canehire had exercised the right as mortgagee, “it was unclear” to him at the time, but that he “now [knew] that it did not”. Mr Ham did not explain why it was “unclear” to him at the time he gave the evidence.
- Mr Holzapfel’s evidence that everything had been lost is not inconsistent with Mr Ham’s evidence that he believed that Canehire had exercised its right as mortgagee and had taken over the property and become the owner in its own right. In the circumstances, the evidence given by Mr Ham and Mr Holzapfel in the Family Court does not have the persuasive effect claimed by the defendants.
(iv)Payments to Ms Bright ceasing
- Nor do I consider that the evidence of Mr Holzapfel’s reaction when the payments to Ms Bright were stopped in 2006 advances matters in the defendants’ favour as they contend. Mr Holzapfel’s evidence was that he objected strongly because “that’s what we were using for our funds to live on”. Mr Ham’s evidence was that he explained to Mr Holzapfel that “there were no more funds available to make those payments” and that the payments had come from one of the Holzapfel entities, Northgate Retail. But by the same token, Mr Ham did not state that Mr Holzapfel could not expect any money from the rental of the Fison Avenue property because the property was not owned beneficially by the HPT.
(b) As to how the Ham debts would be repaid
- The defendants contended that Mr Ham’s version of the agreement made sense in terms of how the debts owing to him would be repaid, whereas Mr Holzapfel’s version did not. They pointed to evidence that, by mid 2002, Mr Holzapfel and his companies owed Ham & Partners accountancy fees of $211,544.60, in addition to owing Canehire approximately $300,000 in respect of the Suncorp debt, by virtue of the Deed of Settlement. The defendants submitted that, whilst the Holzapfels and their companies had no resources available to repay Mr Ham the outstanding debts, nevertheless, they were concerned to identify a way in which those debts could be repaid.
- The defendants argued that, given that Mr Holzapfel and his entities had previously and recently failed to adhere to the arrangements that Canehire had made with them for the payment of debts, it was not credible that Mr Ham would have agreed for Canehire to apply its own funds for the use of the Holzapfel entities. The defendants submitted that Mr Holzapfel’s version of the agreement made no commercial sense, because the HPT and its beneficiaries did not reduce the debt owed to Mr Ham, but more than doubled it, from $500,000 to an amount of $1.3 million until bank finance was obtained. Additionally, the HPT did not offer Mr Ham any security for the additional debt, nor provide “any consideration for him extending a line of credit to a failing group of companies with no security”.
- But those submissions overlook the fact that Mr Ham was, under Mr Holzapfel’s version, obtaining the advantage of having accountancy fees and the Suncorp Debts secured by a mortgage over the Fison Avenue property, even though those debts were not owed by the HPT but by other entities, and would otherwise have been unlikely to have been paid at all. Moreover, the funds were being provided in circumstances where a bank valuation of $1.6 million had been obtained and a potential tenant had been identified.
- The defendants also contended that there was no evidence that Mr Holzapfel had at any time in 2002, or prior to Canehire acquiring the freehold, taken any steps to investigate the feasibility of a bank loaning Canehire funds sufficient to freehold the property and repay the Ham debts. However, Mr Holzapfel’s evidence was that he did not have to “go outside looking for funding” because of the offer made by Mr Ham. He said he did not need to investigate any other funding possibility because Mr Ham came up with a solution. Whilst it was put to Mr Holzapfel that he was incorrect about Mr Ham being the one who came up with the solution, that in fact accorded with what was initially pleaded by the defendants. It was also consistent with the tenor of Mr Ham’s letter of 7 January 2010, where he stated, “I didn’t think it made sense to have the land go back to the Government as that would mean that the Holzapfel Property Trust would still have a debt of approximately $200,000 even if the boat was sold for say $300,000 and the proceeds applied against total debts”.
- Furthermore, if Mr Ham’s motivation in becoming involved in the funding of the freeholding was that he would be able to recover the Ham debts, it is curious that he poured cold water on whether an offer to buy the property for $1.63 million should be taken up. Todd sent an email to Mr Ham on 30 November 2002, indicating that he had a written offer for $1.63 million vacant possession, which would after commission result in $1.6 million net. Rather than pursuing that option and thereby extracting himself from the financial burdens arising from the Ham debts (even if the offer to freehold had already been taken up), Mr Ham’s response was that, “As with all things we should be flexible when it comes to offers” and that he “would like to see more details of the offer, including the period in which the contract is conditional and the deposit”. (It is pertinent to bear in mind the evidence of Mr Kempnich that, by this stage, he and Mr Ham had agreed that they had an opportunity to purchase and freehold a “well-positioned commercial industrial property”.) Also Mr Ham did not indicate to Todd that Canehire had already accepted the offer to freehold and that it had done so in its own right, and that the HPT was no longer the beneficial owner. Instead Mr Ham’s response to Todd was, as mentioned, that “we should be flexible”.
- The defendants argued (by way of highlighting the unlikelihood of Mr Holzapfel’s version of the agreement) that it was not explained how a borrowing in the order of $1.8 million ($900,000 for the freeholding and arrears of rental, the Ham debts of $500,000 and improvements of up to $400,000) on security worth about $1.6 million would be possible. But Mr Holzapfel’s evidence was that the agreement involved discussions that a loan in the vicinity of $1.3 million would be obtained (with the improvements to be repaid over time by the tenant). And, even on Mr Ham’s version, the improvements were to be amortised in rent. Nor does the submission concerning exhibit 7, which was a reconstruction by Mr Ham as to a loan of $1.8 million taking 16 years to repay the debt, assist. Neither Mr Ham nor Mr Holzapfel gave evidence of an analysis being made at the time in the terms or in respect of the quantum of debt referred to in that document. As to Mr Holzapfel’s evidence (which the defendants criticised) about the trust “inheriting” the rent, he explained that the agreement was that the rent would be used to pay interest, and only then, be available for the family.
(c) Mr Holzapfel’s expectation of a lump sum payment
- Under the defendants’ version, the only member of the Holzapfel family who stood to profit from the agreement was Mr Holzapfel and it was left to Mr Ham to determine, at his discretion, the amount that would be paid to him. The defendants submitted that the discretionary nature of any payment to Mr Holzapfel was consistent with Mr Holzapfel’s evidence in the Family Court proceedings, in particular his reference to there being “no deal” when asked as to what would occur in the event of a sale. As mentioned, Mr Holzapfel clarified that his evidence in the Family Court proceedings that there was “no deal” was made in the context that any sale was at that stage hypothetical.
- The defendants also sought to argue that Mr Ham’s version was consistent with the contemporaneous evidence of the Holzapfels in 2008, in that, in the many communications between them and Mr Ham around 2008, none made any contention that the trust or Mr Holzapfel had any entitlement to all of the net proceeds of sale. Rather, it was argued that those communications revealed that their understanding was that Mr Holzapfel should receive a lump sum payment to be calculated at Mr Ham’s discretion. By way of illustration, the defendants referred to Simone’s notes of the 4 February 2008, where it was recorded that:
“SMH requests approximate amounts that PRH thinks will be distributed:
•Couldn’t be certain as to the distribution to TWH other than that PRH and Russell would get $1m each and bank debt would be discharged.”
- Likewise, reference was made to Mr Holzapfel’s faxed letter to Mr Ham dated 28 October 2008 where it was stated: “I believe in your mind you have decided the amount I am going to receive without consultation and my agreement which disappoints me greatly. You have not told me of an amount despite various opportunities to do so”.
- Reference was also made in this context to Todd’s letter sent on 19 October 2008. It was argued that Todd did not assert that Mr Holzapfel had any entitlement to receive from Canehire the net proceeds of the sale of the property, nor did he identify any formula that Mr Ham should use to calculate “Trevor’s money”. Instead, he referred to his “hope” that Mr Holzapfel would receive “a chunk of money” from the sale, the quantification of which was at Mr Ham’s discretion. However, it must be observed that the email of 19 October 2008 was written, as the introductory remarks noted, in the context of a fait accompli, Mr Ham having already accepted an offer for the property, and Todd writing to request an “equitable solution to this long running saga”. Mr Holzapfel’s evidence, consistently with Todd’s and Simone’s, was that the long-term intention was that the property would be his retirement fund (“feed and water” him). Mr Ham accepted that had been told that.
- The defendants submitted that, if the Holzapfels believed that Mr Ham had agreed that Canehire would acquire the freehold on a trust for the HPT, they would have understood that Mr Holzapfel could control the disposition of the entire net proceeds of sale, although it was a discretionary trust, because Mr Holzapfel was in complete control (by virtue of cls 2.1 and 27 of the Trust Deed). These submissions overlook that Mr Holzapfel’s evidence was that he was unaware that he remained the appointor under the Trust Deed. His mistaken appreciation as to that is perhaps understandable, given that Mr Ham in his correspondence to Mr Ganim also appeared to be under that misapprehension.
Other matters raised by the defendants
- The defendants made detailed submissions as to the application of the rebuttable presumption of advancement referred to in Calverley v Green (1985) 155 CLR 242 as evidencing that Canehire purchased the freehold as trustee of the FAUT. The defendants relied on evidence of Mr Ham and Mr Kempnich that the moneys utilised by Canehire were the subject of loans by them or entities associated with them, which were repaid when the first mortgage with the CBA was taken out and the funds were advanced. The defendants relied on Mr Ham’s evidence as to his intention to acquire the freehold by Canehire for the benefit of the FAUT, as evidence that Canehire as a matter of law acquired the property for the benefit of that trust. Mr Ham only considered that the FAUT was the owner “because it was the trust behind the acquirer of the freehold”, not because it had borrowed or provided money.
- The plaintiff pointed to the circularity of the argument - an intention to commit a breach of trust cannot legitimise it. And as to the intention of Mr Kempnich, its relevance is further diminished given that Mr Ham clearly did not tell him about the circumstances in which Canehire came to be in a position to acquire the right to purchase the freehold. None of these matters detract from the fact that Mr Ham’s own evidence was that he was aware that he needed the consent of the beneficiaries to acquire the freehold, and as I find below, he was aware, because of his agreement with Mr Holzapfel, that the freehold was to be acquired on a trust for the HPT. What arrangement or representations he made to Mr Kempnich as to the basis of Canehire’s entitlement to acquire the freehold on any other basis is irrelevant.
Credibility of the witnesses
The Holzapfels
- In addition to rejecting the submissions made above by the defendants, I do not consider that the matters raised by the defendants in submissions attacking the Holzapfels’ credit are compelling. I have addressed the submissions made by the defendants as to Mr Holzapfel’s Family Court evidence. Another matter raised by the defendants in questioning Mr Holzapfel’s credibility was that, while he could not recall the details of the earlier meeting in October 2007, he was “clear and resolute” in his recollection of the February 2008 meeting. It is perhaps not surprising that he had a clear recollection of the second meeting, which he described as “major”, because that was when he first learnt of the FAUT and Mr Kempnich. Mr Holzapfel’s credibility was further criticised on the basis that he mistakenly believed that the “Montego Bay” was taken as security by Canehire rather than being absolutely assigned, but as the plaintiff pointed out, such a mistake was understandable given that on Mr Ham’s own case the vessel was only to be sold as a last resort and Mr Ham always expected to return it to the Holzapfel family when Suncorp Debts had been paid. There were other criticisms going to credit but none of them, in my view, were of any great consequence.
- I also found Simone to be a credible witness. Likewise I found Mr Astill’s evidence reliable. Notwithstanding the criticisms of Todd’s credibility, particularly in relation to his evidence of the number of times he tried to obtain information unsuccessfully from Mr Ham, I found his evidence also reliable on significant issues.
- Mr Holzapfel’s evidence-in-chief as to his version of the agreement was largely consistent with the evidence he gave in cross-examination. In cross-examination, the defendants’ newly pleaded case was put to Mr Holzapfel and rejected by him on critical issues, consistently with the evidence Mr Ham actually gave. Mr Holzapfel’s version also accorded with his evidence as to the February 2008 meeting, which was also consistent with Simone’s evidence. The evidence as a whole, including the matters dealt with above concerning the respective submissions advanced by the parties, supported Mr Holzapfel’s version over Mr Ham’s version.
Mr Ham
- As already outlined, there are important matters relating to Mr Ham’s evidence which undermine his credibility and cause me to reject his evidence. In addition to the fact that the defendants’ pleaded case underwent a number of amendments, including during the trial, Mr Ham’s actual evidence did not even then accord with aspects of the pleaded case. His evidence also did not accord with the version he gave in the letter of 7 January 2010, which failed to make any reference to there having been an agreement with Mr Holzapfel that Canehire freehold the property in its own right. Nor did his evidence accord with his Family Court evidence. It would have been a simple and pertinent matter on the occasion of his evidence in that Court to have made it clear that the HPT had no beneficial interest in the Fison Avenue property because Canehire held the property in its own right pursuant to an agreement with Mr Holzapfel (not as mortgagee, as he gave evidence in that Court).
- It is also incomprehensible, if Mr Ham’s version is true, that he would fail to mention the agreement or for that matter the FAUT in the meeting with Mr Astill and Mr Fraser QC.[16] There were multiple other occasions including in the course of the correspondence with Mr Ganim when one would reasonably have expected Mr Ham to have stated the simple fact that the property had been acquired by Canehire in its own right, pursuant to an agreement with Mr Holzapfel, if that version truly reflected the agreement reached with Mr Holzapfel.
- Of course, if the agreement as to the acquisition of the freehold was not as Mr Ham contended, then there would be good reason for Mr Ham not disclosing, the now pleaded version of the agreement, including during Mr Ham’s Family Court evidence.
- As I have stated, I do not accept that Mr Holzapfel was introduced to Mr Kempnich, as the latter maintained. Mr Kempnich’s recollection that he was introduced to the Holzapfels by Mr Ham was only given once it was put to him that that happened in a leading question by the defendants’ senior counsel. The plaintiff submitted that one can assume that Mr Ham gave instructions to his counsel to put to Mr Kempnich that he had been introduced by Mr Ham as his business partner to both Todd and Mr Holzapfel at the Fison Avenue property. But ultimately, Mr Ham did not give that same evidence himself. The plaintiff submitted, and I accept, that this sequence was “entirely disingenuous” and also reflected adversely on the credit of Mr Ham.
- In support of Mr Ham’s credibility, the defendants submitted that his version was consistent with his evidence that he did not want to be a banker to the Holzapfels and consistent with the approach taken in 2000 when the “Montego Bay” was transferred absolutely to Mr Ham. The difficulty with that submission is that the approach taken in 2000 can hardly be seen as a template. Unlike the meticulous attention to documentation adopted in relation to the acquisition of a trust asset in 2000, there was not a single document or even a note recording Mr Ham’s version of the agreement. There were no minutes in the books of records of the FAUT or of the HPT of any resolution reflecting his version. And if Mr Ham was concerned not to be the Holzapfels’ banker, it is curious, as already mentioned, that he poured cold water on the $1.6 million offer which, although coming immediately after acceptance of the offer to freehold, would have been an easy “out” in terms of ongoing financial risk.
- As for the defendants’ submission that the evidence that Mr Ham initially contemplated a transfer from Canehire to Coolanpart reflected his acting openly and honestly on his understanding that the HPT was to have no interest in the freehold, it is to be noted that that was not proceeded with, because of stamp duty implications, and because the DNR advised that only Canehire could acquire the freehold. And although Canehire was Mr Ham’s shelf company, apart from its role as trustee of the HPT, it was not an entity of Mr Ham’s that, like SEPD, was involved in property development, and there was no evidence of Canehire being involved in other corporate activities, once it took on the role of trustee for the HPT. Mr Ham conceded that he “knew specifically that title to the freehold had to be held by Canehire” - the use of that entity to freehold the property meant that there were no further difficulties raised by the DNR. Upon the acquisition of the freehold by Canehire, it was not recorded on the title as holding the property as trustee for the FAUT, consistently with Mr Ham’s memo of 18 November 2002 specifying that should not occur.
Findings
- I find that Mr Ham did not tell Mr Holzapfel that Canehire would not be exercising the entitlement that he knew rested in Canehire on behalf of the HPT to apply for the freehold of the property. He did not tell Mr Holzapfel and it was not agreed that the freehold would be taken by Canehire in its own right. He did not inform Mr Holzapfel that he would involve a partner, who would be entitled to receive a share, let alone 50 per cent, of the net proceeds of sale before any payment to the HPT. Mr Holzapfel was not told of Mr Kempnich before 2008.
- None of the alternatives that Mr Ham’s lawyers had discussed were suggested to Mr Holzapfel. Mr Ham did not tell Mr Holzapfel that he and the beneficiaries would lose all beneficial interest in the property and that the beneficiaries would have no right to share in the sale proceeds of the property no matter how profitable. Mr Ham made no statement to Mr Holzapfel and there was no agreement to the effect that Mr Ham would consider making a gratuitous payment as the defendants contended. Mr Ham did not tell Mr Holzapfel that the debt on the property would be increased for Mr Ham’s and Mr Kempnich’s own benefit, which would also affect the net amount ultimately received from any sale.
- In short, Mr Ham kept Mr Holzapfel in the dark about the manner in which he was dealing with the property. He did not explain the nature of the additional borrowings or provide updated valuations as they came to hand. To do so would have risked alerting Mr Holzapfel to the fact that the Fison Avenue property was being used as security to advance the property development interests of Mr Ham and his partner Mr Kempnich, about whom Mr Ham accepted he deliberately failed to inform Mr Holzapfel. Mr Ham only revealed that the HPT had no beneficial interest in the property and made the disclosure about Mr Kempnich when Mr Holzapfel and Simone confronted Mr Ham, in February 2008, armed with an agenda of issues and determined on resuming control by taking over the loan over the property.
- I find that the agreement between Mr Holzapfel and Mr Ham as to the acquisition of the freehold was, as Mr Holzapfel stated in his evidence (which accorded with the plaintiff’s pleaded case), that the freehold was to be acquired on trust for the HPT. Mr Ham well knew, as he accepted in giving evidence, that he could not acquire the freehold except on trust for the HPT, unless he had the consent of the beneficiaries. According to Mr Ham, he acquired the freehold on trust for the FAUT because he believed he could rely on the agreement he said he had with Mr Holzapfel. In truth, there was no agreement as claimed by Mr Ham, as he well knew in 2002.
- I find that Mr Ham knew in 2002 that the terms of the agreement with Mr Holzapfel were that the freehold was to be acquired on trust for the HPT. That remained the position in 2008 when the Fison Avenue property was sold, prior to which he sought the consent of Mr Holzapfel, which was refused, and 2009 when the proceeds were distributed. When the proceeds were distributed to parties other than the beneficiaries of the HPT, Mr Ham was fully aware that he was acting contrary to what had been expressly agreed in 2002. There was nothing that transpired between 2002 and 2009 that altered the position as to his knowledge that the agreement reached with Mr Holzapfel was that the freehold was to be obtained on an express trust for the HPT.
- It goes without saying that, in relation to the issue of whether Mr Holzapfel disclaimed any interest in the Fison Avenue property (raised in para 51 of the Defence pleadings and the Agreed Statement of Issues), I do not consider that there is any basis on the evidence for such a finding.
The issue of the consent of the beneficiaries
- As stated, I find that Mr Holzapfel did not consent to Canehire obtaining the freehold in its own right, nor did any of the other beneficiaries. Mr Ham became aware that Mr Holzapfel did not consent, as he was expressly advised of that.
Breach of duty
- The breach of trust pleaded by the plaintiff is the payment by Canehire of the proceeds derived by it from the sale of the property to entities or persons other than the beneficiaries, in contravention of its duties under an express trust. I find that proved and that Canehire acted in breach of its fiduciary duty and breach of trust by paying away the profits derived from the sale of the property.
- Mr Ham was at the relevant times the directing mind and will of Canehire and was knowingly concerned in the breach of duty and trust committed by Canehire and therefore liable to compensate the plaintiff in equity in accordance with the principles in Barnes v Addy (1874) 9 Ch App 244 and Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373.
Personal conscious bad faith?
- The plaintiff contended that the breach of trust by Canehire was committed in personal conscious bad faith so that it was unable to rely on cl 24(b) of the Trust Deed: para 41A(b) Statement of Claim. The application of that clause to excuse any breach by Canehire was also raised in the Agreed Statement of Issues.
- Clause 24(b) excludes liability for “any breach of duty or trust” unless the breach “shall be proved to have been committed, given or omitted in personal conscious bad faith, by the Trustee”.
- The defendants submitted that the authorities establish that a trust deed is capable of excluding a trustee’s liability for any breach of fiduciary duty, except for “actual fraud”, which was not present in this case. The defendants referred to Plan B Trustees Ltd v Parker [No 2] [2013] WASC 216 where Edelman J explained at [232]:
“…It is not possible to exclude liability for actual fraud or dishonesty, which has been described as part of an irreducible core of the trust obligation. However, courts have given effect to clauses in trust deeds such as a clause which excludes liability for: ‘any breach of duty or trust whatsoever - on the part of the Trustee or its legal or other advisers or generally unless it shall be provided to have been committed made or omitted in personal conscious fraudulent bad faith by the Trustee charged to be so liable.’”
- The defendants also relied on Wilden v Green (2009) 38 WAR 429, where the Court considered a clause of a trust deed that excused any breach of duty or trust, except occurring in “personal conscious fraudulent bad faith” and held at [162]:
“Bad faith connotes conscious wrongdoing that is knowingly or recklessly inconsistent with the interests of the beneficiaries.”
- Both parties referred to Armitage v Nurse [1998] Ch 241 and the dicta of Millett LJ (with whom Hutchison and Hirst LJJ agreed) at 251, that the clause there before the Court, “… exempts the trustee from liability for loss or damage to the trust property no matter how indolent, imprudent, lacking in diligence, negligent or wilful he may have been, so long as he has not acted dishonestly”. The clause in question provided:
“No trustee shall be liable for any loss or damage which may happen to Paula’s fund or any part thereof or the income thereof at any time or from any cause whatsoever unless such loss or damage shall be caused by his own actual fraud …”
- The defendants thus contended that “personal conscious bad faith” required actual conscious dishonesty, not merely acting in the interests of the trustee, before the trustee would be liable. Liability for innocent breaches of fiduciary duty and trust were able to be exempted by cl 24(b).
- The plaintiff accepted that “personal conscious bad faith” meant dishonesty and referred to the following passage at 251 in Millett LJ’s judgment:
“By consciously acting beyond their powers (as, for example, by making an investment which they know to be unauthorised) the trustees may deliberately commit a breach of trust; but if they do so in good faith and in the honest belief that they are acting in the interest of the beneficiaries their conduct is not fraudulent.
…
The expression ‘actual fraud’ in clause 15 is not used to describe the common law tort of deceit. As the judge appreciated it simply means dishonesty. I accept the formulation put forward by Mr Hill on behalf of the respondents which (as I have slightly modified it) is that it
‘connotes at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not.’
It is the duty of a trustee to manage the trust property and deal with it in the interests of the beneficiaries. If he acts in a way which he does not honestly believe is in their interests then he is acting dishonestly. It does not matter whether he stands or thinks he stands to gain personally from his actions. A trustee who acts with the intention of benefiting persons who are not the objects of the trust is not the less dishonest because he does not intend to benefit himself.
In my judgment clause 15 exempts the trustee from liability for loss or damage to the trust property no matter how indolent, imprudent, lacking in diligence, negligent or willful he may have been, so long as he has not acted dishonestly.” (emphasis added)
- The plaintiff argued that, in treating the profits from the sale of the Fison Avenue property as the property of the FAUT, and paying the proceeds of sale to the FAUT or at the direction of its unit holders, Mr Ham did not honestly believe he was acting in the interests of the beneficiaries of the HPT or in accordance with the terms of an agreement reached with Mr Holzapfel. Nor could any such position have been “reasonable”. Rather, the breach of trust was contumelious, in the sense that it was the design of Mr Ham since 2002 to receive a personal gain from his use of the Trust property, in circumstances where such receipt would constitute a breach of trust, which could only be excused by receiving the fully informed consent to the design, from each of the beneficiaries of the HPT. It was the plaintiff’s case that Mr Ham knew at all times that he was not permitted to treat the property at Fison Avenue, or the proceeds there from, as Canehire’s in its own right, without the fully informed consent of the beneficiaries of the HPT.
- The defendants contended at [213] of its written submissions, that the court should find that Canehire’s acquisition of the freehold to the property in its own right, as well as its decision not to distribute the proceeds from the sale of the property to the beneficiaries of the HPT, were decisions that were not made in “personal conscious bad faith”. This was because those decisions were made in accordance with an agreement reached between Mr Ham and Mr Holzapfel, on behalf of himself and all beneficiaries of the HPT. The defendants argued that the evidence indicated that Mr Ham, on behalf of Canehire, honestly believed that Canehire was acting in accordance with the terms of an agreement that he had reached with Mr Holzapfel when he decided to acquire the property on behalf of Canehire in its own right, and when he decided not to distribute to the beneficiaries of the HPT the proceeds from the sale of the property. Canehire’s decision to act in accordance with the terms of that agreement was reasonable, and cannot be said to have been made in “personal conscious bad faith”.
- The defendants also argued that the rule in Browne v Dunn (1893) 6 R 67 precluded the plaintiff from making any submission that Canehire acted in “personal conscious bad faith”. It was said that it was never put to Mr Ham that his decision not to distribute to the beneficiaries of the Trust the proceeds from the sale of the property was made in “personal conscious bad faith”. That is, with a conscious awareness that what it was doing was wrong.
- In support of its submissions, the defendants referred to the following allegations put to Mr Ham:
“Why didn’t you go through the same process, Mr Ham, when you were dealing with the Holzapfel Property Trust property at Fison Avenue? Why not go through the same process?---At the time I thought I could rely on - on the agreement I had with Trevor.
Who told you that?---That was my - my reliance, that was my conclusion.
That was your conclusion, was it? So in spite of that entire transaction where you dealt with the beneficial interest in the boat for the Holzapfel - Apple - sorry, for the Happy Apple Trust, you thought you could get away with dealing with a property, two acres of property at Eagle Farm, by merely having an oral, unnoted conversation with Mr Trevor Holzapfel, and no one else; is that what you’re truly telling this court?---Yes.
You know that to be nonsense, don’t you?---No, that’s not correct.”
- I cannot accept the answers given by Mr Ham in the extract above. As I have found, the claimed basis for Mr Ham acting as he did (of an alleged agreement as asserted by him) did not exist. He was well aware of that. Nor do I consider that the evidence indicates an innocent honest and reasonable misunderstanding.
- Nor does it assist the defendants to argue that regard should be had to the context of the alleged agreement. It is true that the Crown lease was due to expire on 31 December 2002, and that it had been made clear to Canehire that it would not be renewed. And Mr Holzapfel agreed, it was a “disastrous” outcome for the freehold over the property not to be acquired. Canehire as trustee for the HPT would receive no compensation or other payment for the improvements that had been made on the property before 2002. But the other matters which the defendants submit must be considered as part of the context in effect require an acceptance of their case, which I am unable to do; that is, that Mr Ham was willing to provide the finance for Canehire’s acquisition of the freehold over the property but only if one of Mr Ham’s entities acquired that freehold.
- I am satisfied that Mr Ham, as the controlling mind of Canehire, was consciously acting dishonestly in paying away the proceeds of sale. He had actual knowledge that the proceeds lawfully belonged to the beneficiaries of the HPT (knowing full well the terms of the agreement with Mr Holzapfel were that the freehold was to be acquired for the HPT), that Mr Holzapfel had not consented to Canehire distributing the proceeds to any other party, and that he was acting contrary to the express trust constituted by the agreement in so doing. There is more than sufficient evidence to support that conclusion, including evidence already outlined that, unlike what occurred in 2000, that there was not a single document or note to substantiate Mr Ham’s version of the agreement and his memo that the FAUT not be disclosed on the title once Canehire acquired the freehold.
The application of s 76 of the Trusts Act
- In the circumstances, it follows that s 76 of the Trusts Act 1973, which was raised in para [40] of the Defence and in the Agreed Statement of Issues, has no application to relieve Canehire from any personal liability for its breach of trust. That provision requires consideration as to whether Canehire “acted honestly and reasonably, and ought fairly to be excused for the breach of trust”: see Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 and Congregation of the Religious Sisters of Charity of Australia v Attorney-General (Queensland) [2011] QSC 100. It is clear from what I have already said that I am unable to accept that Canehire acted honestly and reasonably and ought fairly to be excused for its breach of trust.
- I note that the issue of cl 20 of the trust deed was raised in para 29 of the Defence and in the Agreed Statement of Issues, but no submissions were made in respect of that provision. And in any event, given my findings, that clause would not assist the defendants.
Quantum of equitable compensation
- The plaintiff claims by way of equitable compensation $3,811,878 including simple interest from 30 October 2008 to 12 August 2013, or alternatively $4,063,621 including compound interest from 30 October 2008 to 12 August 2013.
- These figures are based on the calculations contained in the report dated 26 August 2013 (exhibit 17) provided by Mr Box, who was the only forensic expert called. Mr Box arrived at the figures in his report after considering the document compiled by the defendants’ solicitors (exhibit 18), which critiqued a previous report provided by Mr Box. In his calculations, Mr Box took into account the accounting fees and Suncorp Debts. Mr Box also considered the compilation of figures by Mr Ham entitled Summary of the Box Report of 26 August 2013 (exhibit 16). Those figures are referred to in the schedule annexed to the defendants’ submissions.
- Beyond an amount of $50 (which the defendants accepted as immaterial), there was no dispute as to the accuracy of the reconstruction of the financial accounts of Canehire as trustee of the HPT undertaken by Mr Box. In his reconciliation, Mr Box adopted the actual bank interest paid by Canehire. The report of 26 August 2013 included concessions made by Mr Box in light of exhibit 18.[17] To the extent that Mr Box refused to make adjustments, he gave the basis for not doing so.
- The defendants claim that, if an order to pay equitable compensation is made, they should be entitled to retain sums set out in exhibit 16 as calculated by Mr Ham. In particular, it was argued that any calculation of the plaintiff’s loss should make adjustments for:
(a)some of the outlays Canehire incurred in respect of the property not being recovered from Allight Pty Ltd,[18]
(b)accountancy expenses of $34,054 that the FAUT incurred,[19]
(c)an allowance for skill and expertise that provides Canehire a 12 per cent reasonable return on the property.[20]
Outlays
- In his reconstruction of the accounts, Mr Box adhered to the assumption that outgoings equalled income. He said he was not provided with any documentation that would cause him to alter that assumption. The assumption was based on the terms of the lease, which provided that the tenant was responsible for outgoings. In those circumstances, I do not consider that any allowance contended for by the defendants, based on the undocumented and vague evidence of Mr Ham, is appropriate.
Accountancy fees
- Mr Ham’s exhibit 16 calculations contained an entry for reimbursement of the sum of $34,054 for accountancy fees. The defendants submitted that exhibit 15 related to accounting invoices that Mr Ham’s firm rendered for accounting services in relation to the ownership and management of the property amounting to $37,459.44, whereas the profit and loss statements showed accounting expenses of $50,088.72. The invoices in question concerned invoices which on their face were from Ham & Partners to Canehire as trustee of the FAUT. No documentation was provided as to whether the invoices had been paid by Canehire as trustee of the FAUT, nor what the invoices related to and whether they ought properly to be accounted for as fees owing by the HPT rather than the FAUT. In those circumstances, Mr Box refused to make any allowance for the $34,054. I agree that no reimbursement in respect of that amount should be allowed.
Capital Gains Tax
- Exhibit 16 also included an entry concerning an allowance being made “for capital gains tax at 23.25%”. The plaintiff submitted that there was no evidence that Canehire as trustee of the FAUT paid capital gains tax in relation to the sale and if so what amount. Further, it is also to be noted that the decision to sell was made by Canehire, against the express wishes of Mr Holzapfel. In the circumstances, it is not appropriate to make any adjustment for this item.
Reasonable rate of return
- The defendants submitted that since equity does not award remedies to punish the defaulting fiduciary,[21] the Court may make an allowance for Canehire’s skill and expertise.[22] In exhibit 16, the defendants contended for an allowance of $1,650,349 in relation to Canehire’s skill and expertise in relation to the freeholding of the property at a reasonable rate of return starting at 12 per cent, based on Mr Ham’s evidence that a return of 12 per cent was the reasonable rate of return that, on a property like the Fison Avenue property, an investor would have expected at the end of 2002. I do not consider that Mr Ham’s expertise was established such that that evidence could be relied upon. But in any event, as the plaintiff submitted, it would be inequitable to make any deduction for a claim for a reasonable rate of return, where there was no agreement for a reasonable rate of return, where Mr Ham was able to secure what were unsecured debts for $211,000 and $300,000, and have the benefit by way of absolute assignment of the “Montego Bay”, and where he gained the use of improvements already on the property and used the property as security to obtain finance for his own purposes.
50/50 Split with Russell Kempnich
- The defendants argued for a reduction by 50 per cent of the amount awarded by way of equitable compensation to take into account the entry made in exhibit 16: “Less one half share to Terraford Pty Ltd atf the Russell Kempnich Family Trust.” The involvement of Mr Kempnich and his entitlement to half of the profits was not part of any agreement between Mr Ham and Mr Holzapfel. There can be no basis for any such deduction.
Developer’s risk
- The defendants argue that allowance should be made for an amount representing the risk attending Canehire’s acquisition of the Fison Avenue property, being: (a) approximately $155,000 in respect of the acquisition of the freehold risk, and (b) at least a further $155,000 in respect of the risk of Mr Ham providing a personal guarantee in an unlimited amount in respect of the loan from the CBA of $1 million plus all interest and amounts payable for discounts, costs, charges and expenses.
- The first figure is taken from the valuation report of Bristow & Associates dated 10 February 2012, which sought to value the property as at 29 November 2002 and discussed an allowance of $155,000 for a developer’s risk being about 10 per cent of the value of the property. It appears to be referable to the risk of having difficulty renting the property. The Bristow report did not in the market commentary at para 5.3 or valuation considerations at para 5.5, have regard to information that ought to have been available that Allight had been identified as a likely long term tenant at the time the decision to freehold had been made. Further, as the plaintiff submitted, any developer’s risk must be offset by the fact that the transaction protected Canehire from other risk. As mentioned, Mr Ham secured for himself otherwise unsecured debts for the accountancy fees and the moneys he had paid to Suncorp.
- As to the risk to which Mr Ham was exposed in providing a guarantee, Mr Ham knew that the CBA loan and mortgage proceeded on the basis of it requiring a valuation of not less than $1.6 million, and the risk in relation to the loan was diminished by securing a long term tenant. It is also to be recalled that any risk was shared with Mr Kempnich, who it seems had the actual funds required to ensure mezzanine financing. Moreover, it would be inequitable to make any allowance for Canehire, as a fiduciary, and Mr Ham as a person knowingly involved in the fiduciary’s breach of trust, in paying away the proceeds of sale. And, by the time Canehire dealt with the proceeds of sale, any risk which I consider was fairly marginal in relation to those funds had dissipated, with the property being sold at a very large profit.
- In view of what has been outlined, I am satisfied that the calculations made by Mr Box in his report are accurate and appropriately reflect the quantum that should be allowed. I now turn to the matter of interest.
Simple or compound interest?
- The plaintiff submitted that the court should exercise its discretion to award compound interest rather than simple interest. The plaintiff’s compound interest calculations were based on the Registrar’s interest rate at yearly rest, which rate was not challenged.
- The plaintiff relied on the evidence that the proceeds of sale were ultimately used by Mr Ham and his partner Mr Kempnich in their property development business and submitted that the discretion to grant compound interest be exercised on the basis that the proceeds from the breach of trust were used commercially by Canehire through its controlling mind, Mr Ham. An additional basis was that there was a dishonest breach of trust. The plaintiff submitted that, in the circumstances of the breach of trust that occurred, which deprived the HPT of sale proceeds that could have been invested for its benefit, compound interest was the appropriate award, not to punish the trustee but to compensate according to equitable principles.
- The defendants argued that evidence that Mr Ham and Mr Kempnich, through Meikleour Pty Ltd and Terraford Pty Ltd, reinvested the proceeds of sale in their own business was not a sufficient basis for Canehire being ordered to pay compound interest. Meikleour and Terraford were not parties to the proceeding and there was no evidence that Canehire made any use of the proceeds of sale. In addition, it was submitted that the conduct of the beneficiaries has been “such as to make it inequitable” to order compound interest. Referring to the proposition stated in Warman International Ltd v Dwyer (1995) 182 CLR 544 that “a plaintiff may not stand by and permit the defendant to make profits and then claim entitlement to those profits” and the court’s adoption of dicta in Clegg v Edmondson (1857) 8 De G M&G 787 at 814, it was submitted that between 2002 and 2008 the beneficiaries “play[ed] a game in which [they] alone risk[ed] nothing” and showed themselves to be unwilling “to participate in possible loss as well as profit”. In those circumstances, it was said that the court would be slow to award compound interest rather than simple interest in favour of the plaintiff, who stood by while the fiduciary shouldered the risk of the investment.
- The discretion to grant compound interest is not exercised by way of punishment, but in accordance with the restitutional principles identified in Maguire v Makaronis (1997) 188 CLR 449. The relevant authorities and principles as to the discretion were recently analysed in Herrod v Johnston [2013] 2 Qd R 102 by Muir JA at [40] to [50]. Compound interest may be awarded where a trustee has employed the trust funds in trade or speculation for his own commercial benefit but also in other cases where the circumstances warrant such interest such as cases of fraud, gross breach of trust or serious misconduct.
- As I have stated, the proceeds of sale of the property were distributed by Canehire in breach of the express trust and duty arising as a result of the agreement between Mr Ham and Mr Holzapfel. Mr Ham, as the controlling mind of Canehire, distributed the proceeds of sale through the FAUT for his and Kempnich’s own development business purposes, having sold the property against the express wishes of Mr Holzapfel. The observations of Muir JA in Herrod v Johnston at [42] are apposite: “Where, as is the case here, specific restitution of the trust property is not possible, ‘Then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed’”: see Maguire v Makaronis at 470.
- As to the risk involved, that has been addressed above. As to the defendants’ argument that the beneficiaries failed to move to reassert their claim to the property, I note that the cessation of payments to Ms Bright in 2006 prompted Mr Holzapfel to confront Mr Ham and was the catalyst for the meeting in 2008 at which the Holzapfels attempted to understand what was occurring in respect of the property. Not long thereafter, Mr Ganim became involved and his difficulty in obtaining information and documentation has been chronicled and led to proceedings being issued. In the circumstances, I do not accept that there has been any conduct by the beneficiaries that would render an award of compound interest inequitable.
- Accordingly, I consider that compound interest should be awarded.
The defendants’ counterclaim
- The defendants’ counterclaim should be dismissed. The plaintiff is entitled to equitable interest in line with Mr Box’s revised figures adopted above. As is apparent, I entirely reject the contentions that he disclaimed any interest in the property or that Mr Holzapfel authorised the acquisition of the Fison Avenue property by Canehire in its own right or for the FAUT. There is also no basis for an order pursuant to s 77 of the Trusts Act. I do not accept that there was any conduct by Mr Holzapfel that would justify an order impounding any part of the trust fund. Nor is there any basis for the declaration sought that Mr Holzapfel indemnify the defendants for their liability.
Order
- The defendants are ordered to pay equitable compensation in the amount of $4,063,621 including compound interest from 30 October 2008 to 12 August 2013. I shall hear further submissions as to interest in respect of the period thereafter.
- I shall also hear the parties as to the formal order to be made and as to costs.
Footnotes
[1] Mr Holzapfel’s wife, Judith, ceased to be a beneficiary in July 2002 pursuant to a Family Court property settlement agreement: see Consent Order of the Family Court of Australia dated 10 July 2002, “Terms of Settlement”.
[2] He resigned in 1999 when he discovered that it had failed to pay a tax debt.
[3] In a file note of 18 November 2002, Mr Ham recorded that “Canehire will hold property in own right but ATF U/T but not disclosed on title”.
[4] He said this occurred in early 2003 but accepted in cross-examination may have been mid 2002.
[5] This did not reflect the pleaded case that it was agreed that Mr Ham could proceed to acquire the freehold for his own benefit.
[6] This was not the pleaded case which was that agreement was reached in the discussions pleaded.
[7] As explained below, what was put to Mr Holzapfel in that regard was not the evidence that Mr Ham gave.
[8] This is consistent with Mr Ham’s evidence. And the advice from Mr Fraser QC made no reference to any consent having been obtained or Mr Ham’s version of the agreement.
[9] This opening reflected to some extent the additional amendments made to para 13 of the defence on day 3 of the trial.
[10] Mr Ham’s cross-examination evidence as to why his version of the agreement was not contained in any of the responses to the plaintiff’s solicitors’ correspondence is detailed below.
[11] The letter is set out at para [120].
[12] The email to Todd was sent just after Mr Ham’s email of 13 September 2002 to Mr Astill requesting advice about the freeholding, asking, “Can we have the property where it is (Canehire acts as trustee for the HPT) or should we transfer the leasehold to Canehire in its own right or to another shelf coy?”.
[13] This was notwithstanding the cross‑examination of both Mr Holzapfel and Todd as to an alleged conversation with Mr Kempnich at the property which, on Mr Ham’s own evidence, did not occur.
[14] A version of which he reproduced for the trial: ex 7.
[15] Strictly speaking, of course, Mr Holzapfel did not have an interest in the trustee company, but in the HPT.
[16] As previously stated, Mr Ham’s evidence of having only read the first six pages of Mr Fraser QC’s written advice, is entirely implausible and also reflects poorly on Mr Ham’s credibility.
[17] Mr Box made an adjustment for previously incorrectly assuming that the “Montego Bay” constituted an asset of the HPT. Mr Box also proceeded on the basis that no moneys from the estate of Mr Holzapfel’s mother had been paid to Canehire.
[18] Referable to the entry entitled “Add Outgoings Adjustment” in exhibit 16.
[19] Referable to the entry entitled “Add Accountancy Fees - FAUT” in exhibit 16.
[20] Referable to the entry “Reasonable Return to FAUT capitalised monthly” in exhibit 16.
[21] Mavaddat v Lee (2007) 34 WAR 67 at [128] citing Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 109.
[22] Warman International v Dwyer (1995) 182 CLR 544 at [35].