Ellestra Pty Ltd v Farmakis

1. [1]

   The plaintiff, Ellestra Pty Ltd (Ellestra), sues the defendant, Susan Farmakis (Ms Farmakis), for breach of trust. The proceedings were commenced on 7 December 2015 by statement of claim filed in the District Court of New South Wales. However, no allegation of breach of trust was made in that pleading. An amended statement of claim was filed in the District Court on 11 August 2016, in which Ellestra alleged breach of trust on the part of Ms Farmakis. By summons filed on 11 August 2016, Ellestra sought an order that the proceedings be transferred to the Supreme Court and an order to that effect was duly made. A further amended statement of claim was filed on 28 October 2016. Ellestra now relies on its second further amended statement of claim, which was filed on 8 September 2017 (the Statement of Claim).

2. [2]

   Ms Farmakis is a resident of Queensland and all of the conduct on her part about which complaint is made by Ellestra took place in Queensland. There may therefore have been a question as to the jurisdiction of this Court to entertain Ellestra’s claims. However, Ms Farmakis filed a defence to the Statement of Claim on 6 November 2017 (the Defence). By doing so, she must be taken to have voluntarily submitted to the jurisdiction of this Court.

The defendant’s involvement in the proceedings

1. [3]

   At the time when the Defence was filed, Ms Farmakis was represented by Sullivans Solicitors. On 9 November 2017, the proceedings were listed for directions before Registrar Walton, when Ms Farmakis was represented by a solicitor from that firm. Registrar Walton listed the matter for hearing on 23 and 24 April 2018.

2. [4]

   However, on 15 February 2018, Ms Farmakis’ solicitors filed a notice of ceasing to act, which stated that the last known address for Ms Farmakis was the address shown in the Defence, being an address in Broadbeach Waters, Queensland (the Broadbeach address). The property situated at the Broadbeach address is owned by Ms Farmakis. On 3 April 2018 and 17 April 2018, Ellestra’s solicitors wrote to Ms Farmakis at the Broadbeach address stating that the proceedings were listed for hearing on 23 and 24 April 2018. On 19 April 2018, Ellestra’s solicitor also located a person named Sue Farmakis on Facebook, who lists herself as Director and Owner at “IProperty & Investments”, and sent a message to that account stating that the proceedings were listed for hearing. A company search revealed that Ms Farmakis is the director and secretary of IProperty & Investments Pty Ltd, which is registered at the Broadbeach address.

3. [5]

   When the proceedings were called on for hearing on 23 April 2017, there was no appearance for Ms Farmakis. In light of the above, I am satisfied that Ms Farmakis was aware of the hearing. Accordingly, I continued with the hearing in her absence.

Ellestra’s Claims

1. [6]

   For present purposes, the allegations made in the Statement of Claim may be restated as follows:

2. [7]

   The Defence asserted that the sale price for nine apartments at Hope Island was $3,730,000 and that the purchase of the apartments required a 5% deposit. It asserted that Ms Farmakis did not know and did not admit that there was any requirement for a “security bond” and was not aware that at any time Ellestra or any third party was supplying a security bond or any funding finance on behalf of Mr Taylor. The Defence alleged that Ms Farmakis did not know that Mr Gatto was acting as Mr Taylor’s finance broker or that he was assisting Mr Taylor “to source funds” and that Ms Farmakis first had contact with Mr Gatto on 24 December 2009.

3. [8]

   The Defence also asserted that Ms Farmakis was informed by Mr Dona that he expected to receive monies in his trust account for the payment of the 5% deposit for the purchase of the apartments, and that Ms Farmakis requested Mr Dona provide her with a copy of the “trust receipt/transaction” once it was received. It then asserted that, on 24 November 2009, Ms Farmakis was informed by Mr Dona that he had received $250,000 into Robert Wehbe’s trust account.

4. [9]

   In response to the allegation that Ellestra authorised Robert Wehbe to transfer the sum of $250,000 to her, the Defence asserts that the sum was transferred into the Harmony Bank Account and that she first became aware that the transfer had taken place on 9 December 2009. The Defence asserts that, on that day, Mr Taylor informed Ms Farmakis that money had been transferred into the Harmony Bank Account and that she attended the Broadbeach Branch of ANZ with Mr Taylor at his request and made the withdrawals totalling $230,056, of which $3,000 was in cash, which she gave to Mr Taylor.

5. [10]

   Finally, the Defence raised the Limitation Act 1969 (NSW) (the Limitation Act) as an answer to the allegations of breach of trust. The Defence asserted that claims of breach of trust were first made more than six years after Ellestra’s alleged causes of action accrued. [2] It appears that the allegation of fraudulent breach of trust in the Statement of Claim was in anticipation of reliance on the Limitation Act. It would more logically have been raised in a reply.

The evidence

1. [11]

   In support of its claims, Ellestra relied on an affidavit sworn on 30 March 2017 by Mr Timmer and exhibits to that affidavit. Mr Timmer was the sole director of Ellestra. Ellestra also relied on an affidavit sworn on 5 April 2017 by Mr Gatto.

2. [12]

   While there was no appearance for Ms Farmakis, counsel for Ellestra tendered several paragraphs of an affidavit sworn by her on 26 May 2017. The balance of the affidavit was tendered as evidence of the case that Ms Farmakis intended to raise but not as evidence of the truth of the balance of the assertions made in the affidavit.

3. [13]

   The affidavit sworn by Ms Farmakis indicates that, in September 2009, she met Mr Taylor in Surfers Paradise. Mr Taylor told her that he had a family trust and was waiting for money to come into the trust. He said that, when those funds came in, he would like Ms Farmakis to hold some of the money “in case an opportunity arose” in Queensland, as he was often in Perth on business. When asked how much, Mr Taylor said $250,000. When asked why he needed the money in Queensland, Mr Taylor said that he needed “readily available funds” when he was on the Gold Coast. Ms Farmakis told him that he should speak with his solicitor.

4. [14]

   Ms Farmakis said that she told Mr Taylor that she needed something in writing to authorise her to hold his money. Mr Taylor then handwrote a document in the following terms:

5. [15]

   In his affidavit, Mr Gatto said that he had a meeting with Mr Taylor in late October 2009, in which Mr Taylor told him that he was “doing a deal” with Ms Farmakis involving the purchase of recently completed apartments at Hope Island valued at about $850,000 each, which he could acquire for a price of $420,000 each. Mr Taylor told Mr Gatto that, to secure the apartments, he needed to have “a security bond” “so the developer's bank knows the deal will go ahead”. Mr Taylor told Mr Gatto that that the “security bond” of $250,000 would stay in “the agent's trust account for four to six weeks under a put and call option” and that once put and call options were entered “the money will then go back”.

6. [16]

   Mr Gatto said that a couple of days later he contacted Ms Farmakis by telephone and told her that he was a finance broker arranging short term funds for Mr Taylor. Ms Farmakis told Mr Gatto that she was a real estate agent and had been working with Mr Taylor on several opportunities in the past. She said that she had managed to secure some properties that were “a great deal”. Mr Gatto said that the conversation then continued as follows:

7. [17]

   On 26 October 2009, Ms Farmakis sent an email to Mr Noel Dona, a solicitor employed by Robert Wehbe, in which she set out the terms and conditions on which apartments at Hope Island might be available for sale. After identifying several apartments and their purchase prices, the email said:

8. [18]

   In early November 2009, Mr Gatto told Mr Timmer that he had a client who required a short term loan of $250,000 to purchase apartments at Hope Island. When asked how secure the loan would be, Mr Gatto told Mr Timmer that it was not a loan but a “deposit bond”. When Mr Timmer asked what a deposit bond was, Mr Gatto told him that he would send an email explaining what a deposit bond was but that “it is very safe”. Mr Gatto said that his client had purchasers “lined up to purchase properties” and that the “bond” would remain with the vendor’s real estate agents until settlement.

9. [19]

   On 10 November 2009, Mr Gatto sent an email to Mr Timmer saying, relevantly, that his client had the opportunity to purchase nine recently completed apartments at Hope Island at a considerable discount of up to 50%. He said that, to secure the properties, there was a requirement for a “security bond of $250k”, which would stay in a trust account for between 4 to 6 weeks “for the purchase of the nine apartments under a put and call option”. The email then said as follows:

10. [20]

    During November 2009, Mr Gatto engaged in numerous communications with Ms Farmakis both by email and telephone, in the course of which Ms Farmakis asked him on several occasions whether Mr Taylor had “got the funds”. Mr Gatto said that, following a conversation with Mr Timmer, he had a further conversation with Ms Farmakis to the following effect:

11. [21]

    On 16 November 2009, Mr Dona sent an email to Ms Farmakis saying that he would have “the [monies] for the 5% deposit for these 9 properties” deposited into Robert Wehbe’s trust account within two days and that, upon receipt of the monies and the appropriate paperwork, his client would be ready to proceed with “these purchases”. He asked Ms Farmakis to arrange for “the 9 contracts, together with the Put and Call Options agreements” to be forwarded to his office as soon as possible.

12. [22]

    On 20 November 2009, Mr Gatto sent an email to Mr Timmer giving a brief definition of a “put and call option”. The email then said:

13. [23]

    At some time thereafter, Mr Timmer received a draft loan agreement between Ellestra and Mr Taylor relating to a proposed loan of $250,000. The draft was apparently prepared by Mr Dona. On 23 November 2009, Mr Gatto sent to Mr Timmer a revised draft of the proposed loan agreement. Mr Gatto said that he had revised the agreement by adding a provision that only Ellestra could authorise any request for release of funds.

14. [24]

    On 23 November 2009, Mr Timmer sent an email to Mr Dona asking for banking details for Robert Wehbe’s trust account and requesting confirmation that Robert Wehbe was expecting a deposit of $250,000 from Ellestra that day. The email said that the sum of $250,000 was to remain in Robert Wehbe’s trust account on behalf of Ellestra until further notice from Mr Timmer. Mr Dona responded later that day with details of Robert Wehbe’s trust account and confirming that “these monies” would remain in the trust account until Mr Timmer authorised the sum to be released pursuant to the agreement with “our client”. On the evening of 23 November 2009, Mr Timmer sent an email to Mr Dona attaching a National Australia Bank deposit receipt in the sum of $250,000. That was acknowledged by Mr Dona on the morning of 24 November 2009.

15. [25]

    On 24 November 2009, Mr Dona sent an email to Ms Farmakis attaching confirmation “that we have received $250,000 into our trust account”. The email also said “Please arrange for the sale contracts to be forwarded to my office ASAP”.

16. [26]

    Ms Farmakis responded to Mr Dona’s email saying that she had informed Mr Taylor the previous week that “the properties” were no longer available. Mr Dona replied saying that he had spoken with Mr Taylor who would talk to Ms Farmakis about “some other properties (still available?) in the complex”. Ms Farmakis responded that she had just received a call and was “sourcing equal properties to substitute the previous deal”.

17. [27]

    On 27 November 2009, Mr Dona spoke to Mr Timmer by telephone and asked for his bank account particulars “to transfer the loan funds back to you” because “the Hope Island deal is not going ahead”. Mr Timmer replied with details of a bank account, saying:

18. [28]

    During the period between 27 November 2009 and 6 December 2009, Mr Timmer spoke to Mr Dona by telephone in the course of which Mr Dona told him that “the borrower is still trying to negotiate to purchase another property. Hope Island has fallen through”. Mr Dona said that he was “holding the deposit bond”.

19. [29]

    On 7 December 2009, Mr Dona again sent to Mr Timmer a copy of the proposed loan agreement signed by Mr Taylor. Mr Dona’s email said:

20. [30]

    On 8 December 2009, in Mr Dona’s office, Mr Timmer signed an agreement with Mr Taylor (the Loan Agreement). The Loan Agreement was expressed to be between Ellestra as “the Investor”, Mr Taylor “atf TAYLOR FAMILY INVESTMENT TRUST” as “the Borrower” and Mr Taylor as “the Guarantor”. The Loan Agreement relevantly provided as follows:

21. [31]

    In the afternoon of 8 December 2009, pursuant to the authority given by Mr Timmer in his email of 7 December 2009, facsimile instructions were given to National Australia Bank to transfer $250,000 from Robert Wehbe’s trust account to “Sue Farmakis Realty Trust Account”. However, there was no account called “Sue Farmakis Realty Trust Account” and the sum of $250,000 was in fact transferred from Robert Wehbe’s trust account to the Harmony Bank Account.

22. [32]

    In the Defence, Ms Farmakis asserted that she did not know that the money from Robert Wehbe’s trust account had been transferred into the Harmony Bank Account until Mr Taylor informed her of that fact. On 9 December 2009, Ms Farmakis met with Mr Taylor at the Broadbeach branch of ANZ and made the following withdrawals and transfers from the Harmony Bank Account on his instructions:

23. [33]

    On 11 December 2009, Ms Farmakis sent an email to Mr Dona headed “Regarding deposit of $250,000” and saying as follows:

24. [34]

    From December 2009 to April 2010 Ms Farmakis met Mr Taylor at his request at the Broadbeach Branch of ANZ and made withdrawals in cash of sums of $6,000, $2,500, $1,500 and $3,000, which she handed to Mr Taylor. On 5 February 2010, Ms Farmakis transferred $10,000 to Mr Taylor.

25. [35]

    Curiously, the total of the amount distributed to Mr Taylor as shown on the bank statements in evidence is $253,056.00. There is no explanation why Ms Farmakis paid $3,056.00 more than was received into the Harmony Bank Account.

Contentions

1. [36]

   There is no evidence suggesting that the communications between Mr Gatto and Mr Timmer concerning the nature of the proposed “security bond” were passed on to Ms Farmakis. The only evidence capable of supporting a finding that Ms Farmakis received the sum of $250,000 knowing that that sum was to be retained in a trust account and was not to be paid out without the authority of Ellestra was the affidavit of Mr Gatto sworn on 5 April 2017. The material emanating from Ms Farmakis is consistent with her receiving the sum of $250,000 on the basis that the money belonged to Mr Taylor and that Mr Taylor was entitled to give directions for its disbursement. That, of course, was the impression that was intended to be created.

2. [37]

   However, as I have said, Ms Farmakis did not appear and gave no evidence to refute the evidence of Mr Gatto's affidavit. Mr Gatto’s evidence was that Ms Farmakis guaranteed that no funds would come out of “her trust account”, that that was a “key requirement for the funding”, that “the funds will never leave my trust account” and that “the money is not a deposit, it’s a security bond”.

3. [38]

   Section 140 of the Evidence Act 1995 (Cth) provides that, in a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities. Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account the nature of the cause of action or defence, the nature of the subject-matter of the proceeding and the gravity of the matters alleged.

4. [39]

   Thus, the ordinary standard of proof required of a party who bears the onus in civil litigation is proof on the balance of probabilities, even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what is sought to be proved. [3] Thus, clear or cogent or strict proof is necessary where a serious matter such as fraud is alleged. That is to say that it will be assumed that members of our society do not ordinarily engage in fraudulent or criminal conduct and a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct. [4]

5. [40]

   Ms Farmakis told Mr Gatto that the proposal needed “a security deposit to demonstrate that the deal is going ahead” so that the developer could go back to his bank and confirm that he could make payments on his loan. Thus, it appears that Ellestra was party to an arrangement whereby a developer would be put in a position where it was able to say to its bank that it had $250,000 in a trust account when in fact the money was never intended to belong to any person other than Ellestra. However, be that as it may, in the absence of any appearance from Ms Farmakis, the inference can be drawn that her evidence would not have assisted her case. [5] On that basis, I accept that conversations between Mr Gatto and Ms Farmakis occurred in the terms deposed to by Mr Gatto.

6. [41]

   While counsel for Ellestra conceded that the only “hard evidence” for Ellestra’s assertions was Mr Gatto’s affidavit, in addition to the evidence of Mr Gatto Ellestra also relied on a number of circumstances that it contended were “suspicious” and demonstrated that Ms Farmakis was aware of the involvement of a third party investor. However, in circumstances where Ms Farmakis did not appear and adduce any evidence to refute the evidence of Mr Gatto’s affidavit, it is not necessary to address those circumstances.

7. [42]

   It is clear enough that the sum of $250,000 was received on trust for someone. However, two questions arise. The first question is whether the cestui-que-trust was Ellestra or Mr Taylor. The second question is whether Harmony, rather than Ms Farmakis, received the sum of $250,000. If Harmony received the money and committed a breach of trust, Ms Farmakis may have participated in such a breach of trust. However, there is no allegation in the Statement of Claim of involvement by Ms Farmakis in a breach of trust by Harmony.

8. [43]

   The Loan Agreement evidences an agreement between Ellestra and Mr Taylor whereby Ellestra was to lend the sum of $250,000 to Mr Taylor. While it was a term of the proposed loan that the sum of $250,000 would not be released from Robert Wehbe’s trust account without Ellestra’s authority and was to be used only for the purpose of acquiring an unidentified property at Surfers Paradise, there was no express mention in the Loan Agreement of a trust. That is to say, if the sum was lent to Mr Taylor, it would become his money.

9. [44]

   However, the terms of the Loan Agreement must be considered in the light of the discussions between Mr Gatto and Ms Farmakis set out above. That is to say, the sum of $250,000 was to be paid into a trust account on the basis that no funds would be paid out of that account. The evidence of Mr Gatto as to his conversation with Ms Farmakis is not entirely clear as to the intended effect of the arrangement. The references to “security bond” are quite unclear. The intention appears to have been that it would be represented to a developer that the sum of $250,000 belonged to Mr Taylor in circumstances where it was never intended that Mr Taylor would acquire any beneficial interest in the sum.

10. [45]

    However, once the evidence of Mr Gatto is taken into account, it is clear enough that the mutual intention of Ellestra and Mr Taylor and the essence of their bargain, as communicated to Ms Farmakis on the occasions set out by Mr Gatto, was that the sum of $250,000 would not become part of the property of Mr Taylor, but would be used exclusively for representing to third parties, contrary to their intention, that the sum belonged to Mr Taylor. That had the consequence that, once their purpose had been achieved, the money was to be returned to Ellestra. Where money is transferred by one person to another with the intention that it should not become part of the assets of the transferee but should be used exclusively for a specific purpose, there will be implied, at least in the absence of evidence of a contrary intention, a stipulation that if the purpose fails, the money will be repaid and the arrangement will give rise to a relationship of a fiduciary character or trust. [6]

11. [46]

    In the circumstances, I consider that the sum of $250,000 was paid on the basis deposed to by Mr Gatto. That is to say, the sum was not to be paid out to anyone other than Ellestra. Ms Farmakis was aware of that arrangement.

12. [47]

    I am satisfied that, while the sum of $250,000 was credited to the Harmony Bank Account, the sum can fairly be regarded as having been received by Ms Farmakis. In her conversations with Mr Gatto, Mr Gatto stipulated that the so-called “security bond” was to be kept in her “trust account”. The instructions given to National Australia Bank were for the sum to be transferred to “Sue Farmakis Realty Trust Account”. Ms Farmakis did not have a trust account. While it is unclear how the sum was actually credited to the Harmony Bank Account, I consider that, in the absence of any evidence from Ms Farmakis other than an assertion that she did not know that the money had been credited to the Harmony Bank Account, the appropriate conclusion is that she was the recipient of the sum of $250,000. She received the sum on the basis that it would be held by her in a trust account until authority was given by Ellestra for it to be released. Her conduct in withdrawing a substantial part of the sum of $250,000 on 9 December 2009 and the balance thereafter was inconsistent with the terms upon which she received the sum.

13. [48]

    As I have said, Ms Farmakis raises s 48 of the Limitation Act by way of defence. Ellestra’s response is that the breach of trust was fraudulent. In those circumstances, the limitation period is 12 years. [7] The principal breach of the trust occurred on 9 December 2009. While the statement of claim filed in the District Court on 7 December 2015 made the same allegations as are made in the Statement of Claim concerning the receipt of the sum of $250,000 by Ms Farmakis and the payments on 9 December 2009 and between December 2009 and April 2010, there was no allegation of breach of trust. The cause of action asserted was dishonestly converting the sum of $250,000 to someone other than Ellestra and failure to exercise reasonable care in the handling of “third party money”.

14. [49]

    All of the facts that give rise to the relief now claimed by Ellestra were alleged in the original pleading. The remedy would be the same, namely, an order that Ms Farmakis pay to Ellestra the sum of $250,000. Whether the order is by way of payment of compensation for breach of trust or damages for conversion or negligence does not much matter. In any event, in the light of the findings that I have made on the basis of the unchallenged evidence of Mr Gatto, I consider that the breaches of trust that occurred were fraudulent, such that the claims by Ellestra are not barred by the Limitation Act.

Conclusion

1. [50]

   It follows from the conclusions that I have reached that Ellestra is entitled to relief against Ms Farmakis in respect of her breach of trust. I propose to direct Ellestra to bring in short minutes of orders to give effect to my conclusions.