El-Rihani v Sbeiti

On 14 May 2024, as Commercial List Duty Judge, I made the following orders:

These are my reasons for making those orders.

The plaintiff, Mr El-Rihani, was previously in business with the second defendant, Mr Hotait. Together, they ran a construction and property development business through several companies, including Sky Works NSW Pty Ltd.

In 2016, Mr El-Rihani and Mr Hotait decided to end their joint business and executed a “Deed of Separation” which required each to make contributions to a trust account for the benefit of Sky Works’ creditors.

Mr El-Rihani alleges that Mr Hotait refused to make the contributions required of him under the Deed of Separation.

On 14 March 2018, Mr El-Rihani commenced proceedings arising from those matters. The proceedings were commenced in this Court and later transferred to the Federal Court of Australia.

As at 5 June 2018, Bill.H Pty Limited owned a property in Maroubra. Mr Hotait was the sole director, secretary, and shareholder of Bill.H Pty Limited.

On 5 June 2018, Mr Hotait caused Bill.H Pty Limited to transfer the Maroubra property to the first defendant, Ms Amne Sbeiti. Ms Sbeiti is Mr Hotait’s wife. The consideration stated on the Transfer was $2 million. The evidence does not reveal whether Ms Sbeiti paid the consideration of $2 million.

On 26 September 2019, the Federal Court conducted a hearing to decide several separate questions arising from Mr Hotait’s defence of the proceedings commenced against him by Mr El-Rihani.

As at 8 October 2019, 25 Jersey Road Matraville Pty Ltd was the registered proprietor of property in Matraville. Mr Hotait was then one of two directors and was a 50% shareholder in that company, with the other 50% shareholder being, curiously, 25 Jersey Road Matraville Pty Limited itself.

On 8 October 2019, 25 Jersey Road Matraville Pty Ltd transferred the Matraville property to Ms Sbeiti. The consideration stated on the transfer of that property was $1,525,000. The evidence before me does not reveal whether Ms Sbeiti paid that consideration.

On 22 November 2019, Bill.H Pty Limited was deregistered.

On 30 June 2020, the Federal Court delivered its judgement. The Federal Court decided each of the separate questions against Mr Hotait.

On 27 September 2021, 25 Jersey Road Matraville Pty Ltd was deregistered.

On 6 June 2023, the Federal Court ordered Mr Hotait pay $2,073,343.93 into a nominated trust account by five instalments. Mr Hotait did not comply with that order.

On 22 December 2023, Mr Hotait affirmed an affidavit that suggests he no longer has assets to comply with the order.

On 5 April 2024, Mr El-Rihani commenced proceedings in this Court seeking preliminary discovery of all documents evidencing payment of consideration for the transfer of the Maroubra property and the Matraville property. [1]

On 26 April 2024, Peden J made final orders in those proceedings requiring Ms Sbeiti to give preliminary discovery documents evidencing payment of consideration for the transfer of the Maroubra property and the Matraville property in seven days. Relevantly, Peden J ordered:

Ms Sbeiti has not complied with those orders.

Mr Harker, who appeared for Mr El-Rihani, submitted that, but for the events I have described, Mr El-Rihani could have sought to enforce the Federal Court orders by:

Mr Harker submitted that the transfer of the two properties to Ms Sbeiti, and the subsequent deregistration of the two companies, effectively denies Mr El-Rihani the ability to do so.

In these proceedings, Mr El-Rihani:

Mr Harker submitted that that proposed claim under s 37A is “not unarguable nor bound to fail” and pointed to the timing of the transfers in the context of the progress of the Federal Court proceedings, and the fact that the transfers were made to Mr Hotait’s wife evidently leaving him without assets.

The matter was brought on before me urgently as the transfer of the Maroubra property was registered on 17 May 2018 and, arguably, the limitation period for Mr El-Rihani’s proposed claim under s 37A would expire six years later, on 17 May 2024; then only a few days away.

Mr El-Rihani has named the Australia Securities and Investments Commission (ASIC) as fifth defendant and served the application on ASIC in accordance with directions I made on 10 May 2024.

On 13 May 2024, ASIC wrote to Mr El-Rihani’s solicitors:

Section 601AH of the Corporations Act provides, relevantly:

The principles concerning a reinstatement application such as this were recently summarised by McGrath J in Yi Li v Australian Securities and Investments Commission, [2] as follows:

As Mr Harker submitted, the threshold in relation to such an application is low.

And as Brereton J said in In the matter of ERB International Pty Ltd (deregistered): [10]

I was satisfied that Mr El-Rihani is a “person aggrieved” for the purposes of s 206AH, and that the justice of the case required that an order be made reinstating the companies.

I should add that, at the hearing, Mr Hotait was present in person and Mr Calabria, solicitor, appeared for Ms Sbeiti. [11] Both said that they neither consented nor opposed the reinstatement orders being made. Neither pointed to any prejudice that might arise from an order for reinstatement beyond the prejudice that will inevitably be sustained by reason of having to defend Mr El-Rihani’s proposed claim.

It is for those reasons that I made the orders set out [1] above.

To be clear, nothing in this judgment should be taken as me expressing any view about the merits or otherwise of the claim that Mr El-Rihani proposes to bring under s 37A of the Conveyancing Act other than to say that the plaintiff had satisfied me that the claim is not unarguable nor bound to fail.