Nawal Azzi Khattar v Khattar Investments Pty Ltd

The Court has before it a claim for interlocutory relief by the plaintiff, Nawal Azzi Khattar, against the defendant, Khattar Investments Pty Ltd, made by notice of motion filed in court on 8 May 2018.

The application was heard in the duty list on the afternoon of 24 May 2018. There was little time available for the parties to explore some of the detail that arises from the underlying facts, which is a matter which will be reflected in the conclusions that I reach below, concerning the proper way for the Court to deal with the application.

The substantive relief sought by the plaintiff in her notice of motion was:

By her summons, also filed in court on 8 May 2018, the plaintiff claimed the following relief:

At the hearing, counsel for the plaintiff proffered an alternative form of order to that sought in her notice of motion. The material change was that, instead of asking for an interlocutory order that the defendant retain 15% of the net proceeds of sale of the Land (as defined), she asked for the following order:

The plaintiff was the wife of the late George Khattar. George Khattar was one of a number of brothers of Peter Khattar. Peter Khattar is the sole director of the defendant. Apparently, the plaintiff and the surviving brothers of George Khattar hold the shares in the defendant. The defendant is the trustee of the Khattar Family Trust, which was created by a deed dated 5 August 2013.

The trust deed was not in evidence. The application was conducted on the basis that Peter Khattar, as the sole director of the defendant, controls the exercise of the defendant's discretion as trustee concerning the distribution of the income and capital of the trust. It is said that Peter Khattar is the only individual named as a beneficiary, but all of his family members are also discretionary beneficiaries. I understand that the plaintiff is a discretionary beneficiary to whom distributions could be made.

The dispute arises out of a project implemented by the defendant to develop a substantial apartment complex at 23-25 John Street, Lidcombe (the John Street Project).

The plaintiff claims that she made an oral agreement with Peter Khattar on behalf of the defendant to personally guarantee a substantial loan facility taken out by the defendant, by which she undertook a personal liability for an amount of $5 million, in return for which Peter promised that she would share equally with Peter and the other four living brothers in the family in the proceeds of the John Street Project, except that Peter Khattar, as the brother with the carriage of the John Street Project would get an extra 10%. On that basis the plaintiff calculates her share in the proceeds of the John Street Project at 15%.

The plaintiff's claim is to a share of the proceeds from the realisation of the John Street Project measured in money terms. Notwithstanding that her preferred interlocutory order is that the defendant be ordered to retain 6 of the unsold units or the proceeds of sale of those units, the plaintiff does not make a claim to a proprietary interest in the property upon which the John Street Project is being constructed. If she had made such a claim, as her alleged arrangement with the defendant was entirely oral, it may have been void or unenforceable by operation of s 23C or 54A of the Conveyancing Act 1919 (NSW). Her claim does not face that hurdle, because it is of the nature that the Court of Appeal recognised in Thompson v White [2006] NSWCA 350 does not require to be created or evidenced in writing. It is not a claim for an interest in land, but rather is a claim for an interest in the money represented by the net proceeds of the successful implementation of the John Street Project.

Recognising that her entitlement to the interlocutory relief that she seeks may be diminished by the fact that she does not seek to protect a proprietary interest, the plaintiff put her claim to interlocutory relief on two bases. They were: (1) it was a term of the oral agreement between her and Peter Khattar on behalf of the defendant that upon the conclusion of the John Street Project her share would be paid to her and not invested in a new development project to be implemented by Peter Khattar or some company controlled by him, so that the injunction would protect a negative stipulation; and (2), by parity of reasoning with the circumstances in which the Court makes freezing orders, the orders sought should be made in order to protect the plaintiff because Peter Khattar has a definite intention to deploy the plaintiff's share of the proceeds from the John Street Project as security for his next development project, which risks putting the plaintiff's share beyond the reach of the Court if the plaintiff is successful in the proceedings.

The Court was told that 80 units are being built in the implementation of the John Street Project. About 50 of those units are the subject of contracts of sale, and completion of those contracts is due to occur in about 5 weeks. Thirty units remain unsold, but as would be expected, the defendant desires to procure contracts for the sale of all of the remaining units as soon as possible.

The plaintiff set out her version of the conversations that she says occurred with or in the presence of Peter Khattar in her affidavit sworn 4 May 2018. Peter Khattar responded in his affidavit sworn on 21 May 2018.

It will be sufficient for me to set out the primary aspects of the conversations relied upon by the plaintiff, and the evidence of Peter Khattar and his brother Joseph in response.

The plaintiff said that in around October 2015 she received a call from Peter Khattar about the settlement of a contract that the defendant had entered into to buy the John Street property. She said in par 9 that she had a conversation with Peter Khattar that included:

The plaintiff relied primarily on her assertion that Peter Khattar told her that she and the brothers would all be taking equal shares, except 10% extra for Peter.

In par 5 of Peter Khattar's 21 May 2018 affidavit in response, Peter accepted that he probably did telephone the plaintiff to ask her to provide a guarantee, but he does not recall the conversation. He gave reasons why he does not think that the conversation was as described by the plaintiff, essentially because it was never his intention to commit himself to providing his brothers or the plaintiff with equal shares in the proceeds of the John Street Project. The point the plaintiff relied upon is the fact that Peter Khattar did not specifically deny the conversation as deposed to by the plaintiff. Furthermore, Peter said in his affidavit: "I was more concerned with sharing the assets with her children".

Next, in par 13 of her affidavit, the plaintiff recounted a conversation that she says happened on around 30 October 2015 with Peter and another brother, Joseph Khattar. She said that the following conversation occurred:

That this conversation occurred is denied by Peter, and also by Joseph Khattar in his affidavit sworn 21 May 2013, in which Joseph said: "I do not believe that conversation in the terms set out in her affidavit". Joseph said that he did not have any discussion with Peter Khattar about being given 15% of the proceeds of the Project, although he did say that he expected that Peter would share some of the proceeds with his brothers, but that would be a matter for his choice.

The plaintiff gave evidence at par 15 that at about the same time during a conversation with her, Peter Khattar said in relation to Peter's expressed intention to share the proceeds of the Project with his sisters, nieces and nephews: "They are only beneficiaries in relation to my share. I am free to do whatever I want with my share". The plaintiff claims that Peter's reference to dealing with his share implicitly accepted that the plaintiff was also entitled to a share. This conversation is denied by Peter Khattar.

The plaintiff said that, at the meeting at which she signed the guarantee for the defendant's borrowings, she told Peter Khattar that she did not want to sign the guarantee, but he implored her to do so. She said at par 22 that the following conversation occurred after she had kept rebuffing Peter's requests:

The plaintiff said that the reference to Vaughan Street was a reference to a potential development at Vaughan Street and Kerr's Road Lidcombe (Vaughan Street Project), on land owned by members of the Khattar family, including the plaintiff. I will return to consider the Vaughan Street Project further below.

The plaintiff first relied upon this discussion as further evidence of the oral agreement that she alleges whereby she would be given a share in the proceeds of the John Street Project.

She also relies upon it as the basis of her claim that the defendant made a negative pledge that the plaintiff's share in the proceeds of the John Street Project would not be applied in order to fund the Vaughan Street Project.

Peter Khattar's version of this conversation was different, and is set out in par 11 of his affidavit in the following terms:

Although Peter's version of the conversation was not the same as that given by the plaintiff, she relies upon the fact that on two occasions he said "I'm going to give you some money out of this (it)". Thus, according to the plaintiff, there is no question that the plaintiff was promised a share of the proceeds from the John Street Project. Even on the defendant's case, the only issue is what the amount of the share was.

The plaintiff, in par 27 of her affidavit, relies upon a statement that she says that Peter Khattar made to her in March 2017, when he said: "I am going to put the units in John Street in the children's names. I am going to do that for all the other brothers' children as well." The plaintiff responded by saying that she did not want the money, and wanted the children to have the units. The plaintiff relied upon the fact that this conversation was not denied by Peter Khattar, and also that Peter's use of the word "units" (plural) meant that she was at least entitled to 2 of the units.

Finally, the plaintiff gave evidence, in par 29 of her affidavit, that on 22 August 2017, she received a call from Peter Khattar, who said as a result of the plaintiff's refusal to sign documents to facilitate the Vaughan Street Project: "Given you are refusing to sign for Vaughan Street, you are not going to get anything from John Street".

There was no contest between the parties concerning the principles to be applied by the Court in deciding whether to grant an interlocutory injunction in favour of the plaintiff, and indeed given the limited time available there were no submissions concerning those principles. I will proceed upon the basis that the principles applied in determining the issue are as described by Gummow and Hayne JJ in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; [2006] HCA 46 (footnotes omitted):

The defendant in submissions sought to characterise the plaintiff’s case as being a weak one. In my view, however, the evidence given by the plaintiff is sufficient to establish a justification for the Court to grant an appropriate interlocutory injunction in her favour. The present is a good example of the type of case where, as a result of the fact that the witnesses’ evidence concerning the substance of conversations has not been challenged, and there is no basis for assessing the credibility of the individual witnesses, the Court should proceed upon the basis that there remains a substantial likelihood that the version of the conversations given by the plaintiff will be accepted by the trial court. So, it should be said, may the version given by the defendant’s witnesses be accepted. While it is true that Joseph Khattar corroborated Peter Khattar’s denial of important aspects of the plaintiff’s evidence, Joseph may have had an interest in supporting his brother’s case. Peter Khattar himself gave evidence that he was not close to the plaintiff, and it is legitimate for the Court to wonder why the plaintiff would have subjected herself to the personal risk involved in guaranteeing a $5 million loan to the defendant, if she was not promised some significant quid pro quo. To make that observation is not to express a view favourable to the plaintiff’s evidence ultimately being accepted, but it supports a conclusion that there is a sufficient likelihood that the plaintiff’s case will succeed at trial to justify the Court in moving to the next step in deciding whether an interlocutory injunction should issue.

There may be scope for debate as to how the particular conversations deposed to could support aspects of the relief claimed by the plaintiff, particularly in relation to the creation of a trust. However, at this stage the plaintiff has not yet filed a statement of claim, and there may be scope for refinement of how the plaintiff finally puts her claim. There was no real debate in submissions concerning how the plaintiff’s evidence might establish each aspect of the relief claimed by her.

The defendant submitted that the plaintiff’s claim was no more than a money claim, and that there was no reason to believe that the defendant would be unable to meet any judgment ultimately delivered by the Court in the plaintiff’s favour.

It is not appropriate at this stage to try in any definitive way to determine the nature of the plaintiff’s rights that may be found to exist if her version of the various conversations is accepted.

It may be observed that the language that the plaintiff attributes to Peter Khattar does not readily lend itself to the creation of a trust. However, it may be capable of supporting a conclusion that Peter promised the plaintiff, in return for her giving the guarantee, to pay her a sum of money calculated as a proportion of the net profit earned from the John Street Project and to do so from the particular fund generated. I appreciate that at present the plaintiff has not formulated her claim in specifically that manner although it may be that the claim in par 3 of the summons would support such a claim.

In Jackson v Richards [2005] NSWSC 630; (2005) 12 BPR 23,091, White J (as he then was) said the following about the circumstances in which an equitable charge may be created over a fund expected to be received by the chargor:

If the version of events alleged by the plaintiff is otherwise accepted, it may be that the claim made in par 2 of the summons, to the effect that the defendant is obliged to exercise its powers under the Trust Deed, so as to distribute to the plaintiff 15% of the net proceeds of the John Street Project, conforms most naturally to the background facts and circumstances. The plaintiff was clearly aware that the project was being carried out by the defendant in its capacity as trustee, and that the trust was a discretionary trust. That was the source of the plaintiff’s concern, because in principle it left Peter Khattar, as the sole director of the defendant, with a discretion as to how he would distribute the net proceeds amongst all eligible beneficiaries. In that context it can well be understood that the plaintiff may have refused to give the guarantee until she was first assured that Peter would exercise the defendant’s discretion in a way that would lead to the plaintiff receiving her agreed share of the money.

If the plaintiff only succeeds on the contract claim the subject of par 3 of the summons, there is in my view sufficient ground, based upon the evidence given by the plaintiff of her conversation with Peter Khattar discussed at [21] above, at an interlocutory level to find that there is a negative stipulation: Doherty v Allman (1878) 3 App Cas 709 at 719-20.

In the absence of any ability to make considered findings of fact, it is premature to analyse the precise nature of the right the plaintiff claims in respect of a share in the net proceeds of the John Street Project. I do not accept that at this stage it is warranted to classify that claim as a mere money claim.

The defendant accepted that it wished to be free to deploy the part of the net proceeds of the John Street Project at least as security for the money necessary to be borrowed to undertake the Vaughan Street Project. It relied upon a letter dated 18 December 2017 from the St George Bank to Peter Khattar at Stella Developments Pty Ltd. The letter did not constitute a formal offer by the bank, but rather was described as “Indicative Terms and Conditions”. The total amount of the facility limit was $49,861,000. The proposed borrower is not identified. It is not clear whether the defendant or Stella Developments Pty Ltd, or some other company controlled by Peter Khattar will be the borrower. The security offered includes: “First registered real property mortgage over the property known as 23-25 John St, Lidcombe NSW 2141”. A guarantee by, and a first registered general security agreement over the assets and undertaking of the defendant, as trustee for The John Street Unit Trust, were offered. Guarantees and indemnities were to be provided by Joseph, Peter, Raymond, Robert and Tony Khattar.

The letter states that the indicative terms and conditions were valid for 30 days.

The plaintiff pointed out that, over the medium term, the contracts that are already in place for the sale of units in the John Street Project will be completed and in due course all of the other units are expected to be sold. In the relatively near future, the John Street Project will cease to exist as a separate property that will be available to secure any borrowing for the Vaughan Street Project. To that extent, the detail contained in the St George Bank letter will require revision.

There was no evidence that if the borrower for the Vaughan Street Project was unable to offer as security the 6 units that the plaintiff wishes to have excluded from any security, or the net proceeds of the sale of those units, the ability of Peter Khattar, or some company controlled by him, to borrow the money necessary to implement the Vaughan Street Project will be jeopardised.

An issue arose out of the fact that, apparently, the plaintiff and Raymond Khattar have an undivided share in a number of properties that form part of the land upon which it is proposed to conduct the Vaughan Street Project, and they have declined to consent to those properties being deployed for the purposes of the Project. The plaintiff submitted that, consequently, there was no certainty that the Vaughan Street Project would ever go ahead. The defendant responded by relying upon proceedings in this Court (an amended summons was filed on 8 May 2018) in which the plaintiffs are Tony, Peter, Robert and Joseph Khattar. The defendants are the plaintiff in these proceedings and Raymond Khattar. An order is sought for the appointment of trustees for the sale of the relevant properties under s 66G of the Conveyancing Act. The object of the plaintiffs to those proceedings is to acquire the interests of the defendants in the relevant properties, in order to complete the acquisition of the suite of properties necessary to carry out the Vaughan Street Project. The plaintiff submitted that the plaintiffs in those proceedings may be outbid in respect of the sale of the properties, even if they succeed in obtaining an order under s 66G. Accordingly, so the plaintiff submits, it is not even clear now that the Vaughan Street Project will ever go ahead.

In principle, the plaintiff’s submission may be correct, in the sense that funding may not be obtained, or some other party may purchase the interests of the plaintiff and Raymond in the relevant properties necessary to implement the Vaughan Street Project. I regard this consideration to be immaterial to the resolution of the present dispute. The real issue is whether the granting of any interlocutory injunction sought by the plaintiff will be likely to have the effect of preventing Peter Khattar, or the defendant, or some other company associated with Peter, from being able to proceed with the Vaughan Street Project, with the result that the development profit will be jeopardised of a magnitude that is so far greater than the risk of loss to the plaintiff, if the interlocutory injunction is not granted, that on the balance of convenience it should not be granted.

Although Peter Khattar, by whatever corporate vehicle, is not yet assured of being able to implement the Vaughan Street Project, it is his committed intention to do so. If the interlocutory injunction sought by the plaintiff is not granted, it is probable that Peter will at the least commit the net proceeds of the John Street Project in its entirety to secure the borrowing necessary to implement that project. It must also remain a possibility that he will apply those proceeds in whole or in part to defray the costs of the project. Substantial development projects are inherently risky, and there must be a real though unmeasurable risk that, if the project does go ahead, and fails, any part of the net proceeds of the John Street Project that the plaintiff ultimately proves she is entitled to will be lost, so that the plaintiff will be deprived of the fruits of her victory.

Subject to the qualifications that I will consider below, I am of the view that the balance of convenience favours the granting by the Court of an appropriately worded interlocutory injunction in favour of the plaintiff.

In so far as the plaintiff reinforces her claim for the interlocutory relief sought by relying upon the principles that regulate the making of freezing orders by the Court, I am satisfied that while Peter Khattar, and thus the defendant, does not have any positive intention to frustrate any judgment of this Court, he does intend to put the part of the proceeds of the John Street Project claimed by the plaintiff at risk by offering it as security for the borrowings necessary to implement the Vaughan Street Project, or alternatively to apply those proceeds, if necessary, to partially defray the costs of the later project. In principle, proof of a positive intention to frustrate any judgment is not required to support the granting of a freezing order: National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 169 CLR 271; [1990] HCA 10 per Mason CJ and Brennan and Deane JJ at 277. Their Honours cited in support Jackson v Sterling Industries Ltd (1987) 162 CLR 612; [1987] HCA 23 at 623, where Deane J said (footnotes omitted):

As it is sufficient that it be established with the requisite degree of confidence that the relevant assets are at risk of being “disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that the plaintiff, if [she] gets judgment, will not be able to get it satisfied”, I am reinforced in my judgment that an interlocutory order should be made in favour of the plaintiff in appropriate terms.

In his 21 May 2018 affidavit, at pars 28 to 31, Peter Khattar explained why he had not had enough time to provide exact figures of what he expects to be the net proceeds of the John Street Project. It appears probable that Peter has not yet had time to account for all probable costs, which if true will tend to artificially increase the apparent net proceeds. In my view the defendant should be given an opportunity, if it wishes to do so, to provide a more thorough estimate of the probable net proceeds of the project, supported by appropriate documentation to be prepared in conjunction with the defendant’s accountant (see par 29 of the affidavit).

In the meantime, the plaintiff will be protected by the undertaking to the Court given by the defendant by its counsel at the end of the hearing on 24 May 2018, continuing the undertaking given to the Court on 11 May 2018 up until the Court makes orders disposing of the plaintiff’s application, upon its notice of motion filed 8 May 2018. The substance of that undertaking was that the defendant would not further encumber its assets, other than to secure debts or obligations incurred for the purpose of developing or selling the John Street Project.

The reality of the defendant’s position appears to be that it must first complete the John Street Project (which Peter Khattar expected at the time he swore his affidavit would be about 5 weeks), it must register the relevant plan, complete the existing contracts of sale, and then find buyers for the remaining units. In the meantime Peter and his brothers will pursue the s 66G application against the plaintiff and Raymond, and if that application is successful, the brothers or some company associated with one or more of them will seek to acquire the interest in the Vaughan Street property owned by the plaintiff and Raymond. In the meantime, it is probable that the relevant party will continue to arrange for finance to implement the Vaughan Street Project, whether on the terms of the letter written by the St George Bank discussed above, or varied terms.

The point of these observations is that the time when Peter Khattar, or the defendant, or some company associated with them, or perhaps other Khattar brothers as well, will be in a final position to raise finance for the Vaughan Street Project may be some time off. The requirements for obtaining that finance cannot now be predicted with any precision. Accordingly, in my view, the just approach will involve the formulation of the interlocutory orders to be made by the Court on terms that give the defendant leave to apply, if it should be advised to do so, on the basis that the continuation of the orders will in fact prevent or seriously jeopardise the implementation of the proposed Vaughan Street Project.

It goes without saying that the defendant, or any other associated party, involved in seeking finance for the Vaughan Street Project, will have to be scrupulous in taking steps to avoid any financier insisting on the part of the net proceeds of the John Street Project claimed by the plaintiff being offered as security for any borrowing to fund that project, or being utilised in its implementation. However, the future cannot be known, and if there was a real risk that the continuation of the interlocutory order would jeopardise the realisation of a very substantial profit from the implementation of the Vaughan Street Project, that might change the equation involved in assessing the balance of convenience, compared to how it appears now on the basis of the facts known to the Court.

In any event, the plaintiff will be required to give the usual undertaking as to damages before the Court makes the proposed interlocutory orders, and it may not be in the plaintiff’s interests for the interlocutory orders to continue (rather than some less-risky alternative orders) if there is a significant probability that the effect will be to prevent the Vaughan Street Project occurring.

In relation to the alternative form of interlocutory orders sought by the plaintiff (involving a requirement for the retention of 6 of the unsold units free from encumbrances, or alternatively the net proceeds of their sale), I do not think that orders in that form could be made except with the consent of the defendant. The claim made by the plaintiff in her summons is in relation to 15% of the net proceeds of the John Street Project, and strictly it is the protection of that fund to which the plaintiff may be entitled if she succeeds at the final hearing of her claim.

The appropriate order for costs of the interlocutory hearing is that those costs be the parties’ costs in the cause: see His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v The Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 142.

I will publish these reasons for judgment and give the parties an opportunity to discuss the appropriate short minutes of order to give effect to the reasons. The parties should advise my associate within 7 days what their progress has been.

As this matter is in the Real Property List, I will make appropriate directions for the future conduct of the proceedings if the parties can agree to those directions, or alternatively the short minutes of order should provide for the matter to be listed in the Real Property List on an appropriate Friday in the near future.