Grawi v Stanbouli

The First Plaintiff, Nabil Grawi, and Second Plaintiff, Rajaa Grawi, are a married couple who were the previous registered proprietors as joint tenants of a house (the Property) in the western Sydney suburb of South Granville. The Defendant, Ahmad Stanbouli, succeeded them as registered proprietor of the Property in 2009. He is the First Plaintiff’s brother-in-law having married the First Plaintiff’s sister.

The parties were seemingly copacetic until this dispute. The Defendant married the First Plaintiff’s sister in September 1994 and the couple moved to Australia from Lebanon in November of that year. For a time after arriving in Australia they lived with the Plaintiffs in Lidcombe. The First Plaintiff was around that time the owner of a toy shop in Leichhardt Market Place which he transferred to the Defendant in 1995 for $80,000.

From September 2001 until 25 February 2009, the Plaintiffs were the registered proprietors of the Property as joint tenants. Arab Bank was granted an unregistered mortgage over the Property by the Plaintiffs when it was purchased.

The First Plaintiff was director of two companies. The first, Alpha Plastics Australia Pty Ltd, was a plastics manufacturing company which he ran with his brother and fellow director, Mohammed Grawi (Mohammed). The second company, Meucco Australia Import and Export Pty Ltd, manufactured boxes and containers from plastic. Those companies became insolvent in 2007 and 2008 respectively and on 25 February 2009 the First Plaintiff voluntarily filed for bankruptcy, whereupon his share in the Property vested in the trustee-in-bankruptcy. At that time, the Plaintiffs had defaulted on their mortgage and were concerned about the risk of Arab Bank taking possession of the Property and exercising its power of sale.

Mr Rodney Hamdan, an accountant engaged by the First Plaintiff between 2003–2014 and by the Defendant between 2003–2014, deposed in his affidavit that the First Plaintiff was “frantic and panicking” about the potential loss of the Property. He records the First Plaintiff saying words to the effect of “I will lose my house to the Bank, and my family will be on the street.” I accept his evidence.

The Plaintiffs contend that in August 2009, after the First Plaintiff had entered into bankruptcy, the parties had a conversation (the Pivotal Conversation) in the dining room of the Property and entered into an agreement (the Agreement) whereby the Defendant would purchase the Property and hold it for the benefit of the Plaintiffs until such time as the Plaintiffs wished to repurchase it from the Defendant. It is from this alleged agreement that the common intention constructive trust (the Trust), on which the Plaintiffs principally rely, is said to arise. The Defendant denies that the Pivotal Conversation occurred and therefore that the Agreement exists. He contends that he owns the Property legally and beneficially and has no obligation at law or in equity to retransfer it to the Plaintiffs.

The parties exchanged contracts on 7 September 2009 and settlement occurred on 20 October. The sale amount, $400,000, was sufficient to discharge Arab Bank’s mortgage over the Property. The Defendant paid stamp duty in the amount of $13,490.

On 22 October 2009, the First Plaintiff and the Defendant entered into a 6-month lease agreement (the Lease) whereby the First Plaintiff agreed to pay rent of $425 each week, payable fortnightly. The First Plaintiff and Defendant’s signatures were witnessed by Abraham Shami, the Defendant’s brother-in-law (who is seemingly not consanguineous with the Plaintiffs).

There is no dispute that the Plaintiffs did not pay a bond under the Lease, though the parties differ on the reason. The Plaintiffs claim that there was no need to pay the bond because the parties “did not intend that the [Lease] would have any legal effect”. Rather, the Defendant “wanted a lease to show his bank” despite knowing that the Plaintiffs were not renting due to the Agreement. In contrast, the Defendant claims that the First Plaintiff refused to pay the bond due to his impecuniosity.

The Defendant claims that it was around this time that the First Plaintiff asked if they could treat the Payments as mortgage instalments, a request the Defendant says he refused.

On 17 November 2009 the Second Plaintiff voluntarily entered into bankruptcy.

Around October 2010, Mohammed in his affidavit claims to have had a conversation with the Defendant at Leichhardt Market Place in which the Defendant allegedly told him “as you know, I purchased [the Property]. I have decided that I am not going to give it back to [the First Plaintiff].” When Mohammed indicated that this was contrary to his understanding of the Agreement, the Defendant allegedly said “I have changed my mind”. That same day, Mohammed allegedly informed the First Plaintiff of this conversation and prevented him from confronting the Defendant on the basis that the family could assist with resolving the matter. There is no evidence that anyone in the family was called upon to do so. The Defendant denies any such conversation with Mohammed.

The First Plaintiff claims that he confronted the Defendant about his intention to resile from the Agreement in 2011, at which point the Defendant told him he was not going to let the Plaintiffs buy the Property back, saying “as far as I’m concerned, you are my tenant. You should be happy you have a place to live.” The Defendant’s gave evidence of a similar conversation around that time in which he rebuffed the First Plaintiff’s request to buy the Property back. There is no indication of whether the First Plaintiff wanted to buy the Property at that time or in the future, but the latter is more likely as the First Plaintiff and his wife were undischarged bankrupts in 2011.

Little changed between 2011 and November 2023. The Plaintiffs made payments to the Defendant, most of which are recorded in bank deposit slips. Since there is a dispute between the parties as to the proper characterisation of those payments, which dispute is discussed below, I will for the time being neutrally refer to them as the Payments.

The Payment amounts were usually regular with any fluctuations being small and occasional. The Payments were $850/fortnight until around December 2014, when they increased to $1,000/fortnight, and then November 2022, when they increased to $1,100/fortnight, each time at the Defendant’s request. The accumulated amount of the Payments recorded as being paid by the Plaintiffs to the Defendant from the commencement of the Lease until 19 September 2024 was $353,596.09. The Defendant during that period declared the Payments as rental investment income for tax purposes. The Plaintiffs, during the same period, received payments from Centrelink, which Counsel for the Plaintiffs accepted meant it was “likely” that a copy of the Lease was provided to the Commonwealth as part of any application for financial assistance.

On 26 February 2012 the First Plaintiff was discharged from bankruptcy.

The Defendant’s evidence is that he began to feel that the Payments, which he regarded as rent, were below market value and in September 2023 he informed the Plaintiffs that they would have to leave the Property. The First Plaintiff claims that this conversation occurred in November 2023 but the difference is inconsequential.

The First Plaintiff claims that in February 2024 the Defendant again indicated that he wanted the Plaintiffs to leave the Property. The Plaintiffs were unsuccessful in finding alternative accommodation.

In late January 2024, the Plaintiffs received from the Defendant a formal notice of termination of the Lease, requiring them to vacate the Property by 30 June 2024 as well as a demand for $5,000 in rental arrears.

On 22 July 2024, the Defendant lodged an application in the New South Wales Civil and Administrative Tribunal (NCAT), seeking a termination order “to seize and repossess” the Property.

On 4 August 2024, the Plaintiffs lodged a caveat over the Property claiming an equitable interest in a constructive trust. This was the first time the Plaintiffs alleged that they had such interest.

As NCAT does not have jurisdiction to determine the issues arising from the Plaintiffs’ claims, the parties agreed to transfer the matter to this Court, which transfer NCAT ordered on 31 October 2024.

The Plaintiffs by their Amended Statement of Claim filed on 13 February 2025 seek the following relief:

The core of their claim is the Pivotal Conversation described above. Although the characterisation of the Plaintiff’s claims are fashioned in several different ways all such claims share the same factual substratum. For the Plaintiff to establish a foundation for their claim, I must be satisfied, on the requisite civil standard, that such a discussion took place. However, even if I accept that the Pivotal Conversation took place, the Defendant alleges laches as a bar to equity’s intervention.

The Plaintiffs principally rely upon evidence of the alleged discussion as well as subsequent conduct on their behalf which they contend is consistent with, and supports a finding that, the Agreement was reached. It is that Agreement which is said to inform the various forms of relief they presently seek.

The Defendant’s answer is simple. He denies that the Pivotal Conversation occurred. Rather, he says that he entered into a regular conveyance with the Plaintiffs whereby he purchased their former home for $400,000 and has charged and received rent from their continued occupation since that time. He testified that his then accountant, Mr Hamdan, advised him that it would be a good investment. Mr Hamdan confirmed this in his evidence. The Plaintiffs deny that the payments they made to the Defendant are properly characterised as ‘rent’ but, rather, were ‘mortgage instalments’.

I consider the issues in these proceedings to be as follows and I intend to deal with them in the following order:

One matter that complicates the Plaintiffs’ claim is the (uncontentious) fact that the First Plaintiff was an undischarged bankrupt at the time of both the Pivotal Conversation and the entry into the sale contract. Whilst the Second Plaintiff also became bankrupt in the months after the conveyance her bankruptcy is of little consequence to this case.

The First Plaintiff was unable to transfer his equitable interest in the Property to the Defendant because, pursuant to s 58 of the Bankruptcy Act 1966 (Cth), that interest had vested in his trustee-in-bankruptcy on 25 February 2009. The Plaintiffs attempt to circumvent this issue by claiming that the parties should be understood to have intended that the First Plaintiff’s equitable interest in the Property would be acquired after his discharge from bankruptcy and that the Agreement would otherwise serve no purpose.

As is set out above, the First Plaintiff’s trustee-in-bankruptcy consented to the sale. However, he did not consent to the nature of the sale contended by the Plaintiffs, that is, where the beneficial ownership of the Property remains held for the benefit of the Plaintiffs. I will address that matter further below when I deal with unclean hands at [110] below.

The Agreement upon which the Plaintiffs rely is set out the Amended Statement of Claim. As I have already stated, in order to succeed, the Plaintiffs must persuade the Court that the Agreement is established on the evidence. The pleaded terms are as follows:

The particulars confirm that terms (i) to (xii) of the Agreement were express while terms (xiii) and (xiv) were implied.

There are several observations to make at this point. First, the First Plaintiff was required to obtain the consent of his trustee-in-bankruptcy “to the sale”. However, the nature of the “sale” which actually occurred is unclear. There are at least three possibilities. It could be an orthodox sale of the Property by the Plaintiffs to the Defendant. It could alternatively be a transfer whereby the Defendant obtains not some form of beneficial interest in the Property but instead, receives only a right to a portion of any capital uplift in the Property over time as a beneficiary, alongside the Plaintiffs, under the Trust. The Defendant could, alternatively, only receive a contractual entitlement to claim a 50% share of capital gain enjoyed by the Property over time. The terms as pleaded do not distinguish between these possibilities.

Secondly, term (iv) of the pleaded Agreement is a joint acknowledgement that the market value of South Granville as at the date of the Agreement was “approximately $600,000”. At the same time, the Agreement states the actual market value “could later be determined”. The language of this term seems to fall short of an obligation for a valuation to occur, which is curious in circumstances where the parties, not themselves being licensed valuers, have little reason to be confident in their opinion of the market value of the Property.

Thirdly, term (vii) as pleaded is that the Defendant would “ultimately” hold the Property on trust for himself and the Plaintiffs. The temporal meaning of “ultimately” is unclear and unexplained. If it is intended to suggest that the Trust would spring forth at some time in the future, there is a troubling lack of clarity as to when this would occur and any event (objective or agreed) to which it might be tied. Whilst Counsel for the Plaintiff submitted that this would occur when the Plaintiffs were discharged from their respective bankruptcies, the Plaintiffs did not provide any evidence that this matter was ever discussed, nor is it pleaded as an implied term of the Agreement.

Fourthly, term (viii) states that the Defendant’s proportion of the Property, represented by his “bank refinance contribution”, would gradually diminish commensurate with the reduction of St George Bank’s mortgage principal attributable to the Plaintiffs’ payment of the Defendant’s mortgage instalments. This seems to require that the amount of money borrowed by the Defendant pursuant to the mortgage loan would reduce over time rather than remain static or increase. The absence of any provision concerning this is troubling in circumstances where the Defendant was able to (and did) redraw funds from the mortgage loan account for his benefit.

The criteria on which the Trust is said to subsist is:

The Defendant does not appear to have any entitlement to terminate the Trust and would be beholden to the Plaintiffs for an indeterminate period. However, even this is unclear because term (xi) of the Agreement refers to the potential sale of the Property to a third party as an additional circumstance in which the Trust would wind up even though this was not the subject of any evidence by the Plaintiffs. Specifically, it is unclear whether the Defendant, being the registered proprietor of the Property, is entitled to sell the Property or is restrained from doing so by the terms of the Trust.

These issues as to the operation and termination of the alleged Trust inform two matters. First, whether I accept that the pleaded Trust has been established on the evidence, and, secondly, whether I accept the plausibility of the Agreement ever having been reached.

For the Plaintiffs to succeed, I must feel an “actual persuasion” that the Pivotal Conversation took place. That satisfaction is “not… attained or established independently of the nature and consequence of the fact or facts to be proved” including the “seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding”: Helton v Allen (1940) 63 CLR 691; [1940] HCA 20 at 712.

The Pivotal Conversation is set forth by the First Plaintiff in his First Affidavit as follows:

Section 140 of the Evidence Act 1995 (NSW) contains the statutory successor of the rule in Briginshaw v Briginshaw (1938) 60 CLR 336. (Arthur) Emmett J in Warner v Hung, in the matter of Bellpac Pty Ltd (Receivers and Managers appointed) (In liquidation) (No 2) [2011] FCA 1123; 297 ALR 56 expanded on the notion of actual persuasion at [48]:

Evidence is to be preferred which is inherently probable in the circumstances or is given by a witness against their interest: Maria Saravinovksa v Krste (Chris) Saravinovski; Chris Saravinovski v George Saravinovski (No 6) [2016] NSWSC 964 (Kunc J) at [467].

Where it is available, I have placed great weight on objective evidence which is apt to cast light on the probabilities of the situation: Camden v McKenzie [2008] 1 Qd R 39; [2007] QCA 136 at [34] (Keane JA); State of New South Wales v Hunt (2014) 86 NSWLR 226; [2014] NSWCA 47 at [56] (Leeming JA, with whom Barrett and Tobias AJA agreed). Reliable contemporaneous documents are the most reliable source of evidence as to what occurred: Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [1999] HCA 15; (1999) 161 ALR 599 at [15]-[16]. In this case, the Agreement is wholly oral and there is not a single document referring to it.

In determining whether I am persuaded that the Pivotal Conversation occurred, I must consider the reliability and, if necessarily, the credibility of the parties, their post-contractual conduct and the objective plausibility of the alleged Agreement.

The reliability and/or credibility of the critical witnesses is of assistance in this matter even where there is no direct conflict between their testimony.

The two critical witnesses on the issue of the Pivotal Conversation were the First Plaintiff and the Defendant. Although each party called several other witnesses, they were either mostly recapitulating the critical witnesses’ evidence or their evidence concerned other issues that only arise if I find that the Pivotal Conversation occurred.

I pause here to note that, in assessing the demeanour and evidence of the witnesses, I have had regard to the possible effect of their limited ability to communicate in English. The Pivotal Conversation, though set out in English in various affidavits, took place in Arabic. During the hearing, all but one of the witnesses availed themselves of an Arabic interpreter. Most of the oral evidence given by the First Plaintiff and the Defendant were interpreted during the hearing.

In making the following findings, I have borne in mind the fallibility of memory, especially with the passage of time: Watson v Foxman (1995) 49 NSWLR 315 at 319. I have also limited my reliance on the witnesses’ presentation and had primary regard for the objective facts: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [30]–[31] (Gleeson CJ, Gummow and Kirby JJ); Goodrich Aerospace Pty Ltd v Arsic (2006) 66 NSWLR 186; [2006] NSWCA 187 at [27] (Ipp JA, with whom Mason P and Tobias JA agreed).

I found the First Plaintiff to be an unimpressive witness. His demeanour was defensive and he was often unresponsive to questions from Counsel for the Defendant during cross-examination. Overall, he was prone to peroration and often seemed to regard cross-examination as an opportunity to argue his case.

By comparison, the Defendant was an impressive witness. His answers in cross-examination were responsive and precise. I find him to be an honest witness who sought to assist the Court and was truthful about his recollections, or lack thereof, even when that honesty was adverse to his own interests..

For those reasons, I was considerably less impressed with the First Plaintiff’s evidence and generally prefer the Defendant’s where they are in conflict. However, I considered certain aspects of the First Plaintiff’s oral evidence to be implausible even without reference to the Defendant’s evidence. I shall address those implausibilities in greater detail below.

I have also mentioned Mr Hamdan. He was briefly cross-examined and was, in my view, an independent witness, having ceased to be the parties’ accountant (for whom he acted separately) many years ago. I accept his evidence.

The parties’ post-contractual conduct plays a significant role in my determination.

Consideration of post-contractual conduct and surrounding circumstances is permissible when the existence of an oral contract are in issue: County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [20] (per Spigelman CJ, Beazley and McColl JJA). The question is whether the conduct of the parties, viewed in the light of the surrounding circumstances, shows a tacit understanding or agreement: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 (Heydon JA). Ascertaining the existence and terms of an oral contract is a question of fact: Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; (2009) 261 ALR 382 at [90] (per Campbell JA, Allsop P and Basten JA agreeing).

The Plaintiffs submit that the parties’ post-contractual conduct was consistent with the terms of the Agreement. If true that would support a finding that the Pivotal Conversation occurred. It does not, however, get the Plaintiffs very far in circumstances where those same facts are also consistent with the Defendant’s narrative.

The issue of post-contractual conduct was largely raised with respect to the proper characterisation of the Payments. As set out above, the Plaintiffs characterise the Payments as ‘mortgage instalments’ while the Defendant characterises them as ‘rental payments’ made in accordance with the Lease.

There are numerous difficulties with the notion that the Payments should be regarded by the Court as mortgage instalments rather than rental payments. The first difficulty concerns the Lease. During cross-examination, the First Plaintiff accepted that it was his signature on the Lease. Although the Plaintiffs contend that the Lease was a sham, minimal explanation has been given as to why the Plaintiffs executed the Lease in the first place. Although the Second Plaintiff stated that the Lease was for the Defendant’s benefit, there is no indication of how it would have benefitted the Defendant. This is especially peculiar in circumstances where the parties agree that the Plaintiffs likely used the Lease to obtain Centrelink payments.

If, as the Plaintiffs contend, the Payments were not intended to be rental payments, then the execution of a lease would surely have been rebarbative to them. They would have been entering into a (written) contract which they knew contradicted a fundamental part of the Agreement into which they had entered only months earlier.

The second difficulty comes from the proposition that the ‘mortgage instalments’ were linked to and regulated by the mortgage. If that were the case, the Payments should have decreased over time commensurate with the mortgage being paid down. In reality, the Payments increased as the Defendant twice imposed increases in the Payments. That fact is incongruous with the asserted Pivotal Conversation and Agreement. The Defendant’s position, that what appear to be rental increases are simply rental increases, deepens that incongruity.

The third difficulty arises from the Plaintiffs’ submission that the mortgage loan taken out by the Defendant was an interest-only loan whereby the principal did not decrease over time. That submission is directly contradicted by loan statements for the account, which contain separate debits for interest and loan repayments. The Defendant’s wife (who managed the bank account) gave evidence during cross-examination that the mortgage loan was for one of both principal and interest, and I accept her evidence. Based on my reading of those loan statements and the evidence of the Defendant’s wife, I conclude that the mortgage was one of principal and interest.

Even absent that evidence, the suggestion that the mortgage was an interest-only loan is inconsistent with the Plaintiffs’ own alleged Agreement. They contend that the ‘mortgage instalments’ were intended to pay down the mortgage debt and so create equity in the Property which would ultimately be attributable to them when a reconveyance took place. It is not clear what the Plaintiffs would have been paying down if the mortgage had been for interest alone.

Fourthly, if, as the Plaintiffs contend, the Payments were intended to be paid by the Plaintiffs to the Defendant to reduce the mortgage, one would expect an ongoing dialogue between the parties concerning the state of the mortgage, in particular its incremental reduction, during the life of the Agreement. No such dialogue occurred.

The First Plaintiff’s evidence concerning this issue was quite eccentric. He deposed that the Defendant neither shared nor communicated the contents of the loan statements, mortgage loan agreement or the amounts to be paid for mortgage instalments. However, on his own version of events, at no point from 2009 to the present did the Plaintiffs take any efforts to obtain such information from the Defendant. The extent of their apparent incuriosity is evidenced by the fact that the Payments were made to the Defendant rather than directly to St George Bank.

It is passing strange that if they entered the Agreement the Plaintiffs would take no steps at all to inquire as to the state of the mortgage including the interest rates payable from time to time, particularly in circumstances where such interest rates flat fluctuated considerably between 2009 and 2024 (a matter of which I have taken judicial notice). Had the pleaded Agreement been reached, the Plaintiffs would have been vigilant as to:

On the Plaintiffs’ case, mortgage instalments were critical to the operation of the Agreement. However, nothing was said on that topic between the transfer of the Property and the Defendant’s commencement of proceedings in NCAT.

If I accepted the Plaintiffs’ version of events, the absence of any such dialogue between the parties would be inexplicable. Such an absence is consistent with the Defendant’s contention that the Payments were rental payments.

Fifthly, during cross-examination of the Plaintiffs, evidence emerged that they had obtained rental assistance payments from Centrelink. If the Plaintiffs wish to maintain that the lease was a sham and that the Payments were mortgage instalments, then it follows that they sought to perpetrate a fraud upon the public revenue in relying upon the Lease for Centrelink payments.

Paradoxically, in order for the Plaintiffs to succeed, they invite the Court to find that they engaged in discreditable conduct. Counsel for the Plaintiffs recognised this issue and advised the Court in closing submissions that the Plaintiffs undertook to notify the appropriate authorities and repay all money gained in reliance on the Lease. Such an undertaking, if not illusory, may assist the Plaintiffs in addressing how the Court should discharge the exercise of its discretion in relation to unclean hands (discussed below). It does not adequately address the fact that the Plaintiffs’ previous reliance on the Lease militates against a finding that it was a sham.

Sixthly, the Plaintiffs’ contention that the Payments were intended to discharge the mortgage raises the question as to what was to occur when the mortgage was discharged. This is especially vexing with respect to the Plaintiffs’ continued occupation of the Property. Under the Agreement, the Plaintiffs would presumably be entitled to continue their occupation of the Property without making further payments when the mortgage loan was paid off. The Defendant, as registered proprietor of the Property, would seemingly continue to pay all other costs associated with the Property despite earning no income from its occupation and having paid stamp duty upon its purchase. Why the Defendant would find such an arrangement palatable remains unexplained.

Seventhly, the Plaintiffs’ narrative requires me to accept that, despite each of the parties being legally represented when completing the 2009 transfer of the Property, they did not take the opportunity to enshrine the Agreement into some form of writing utilising their respective solicitors. This makes little sense, particularly as the pleaded Agreement is complex and would have needed highly skilled lawyers to notate its detailed provisions. Added to this is the fact that the Fist Plaintiff was minded to sign the Lease. This makes the absence of a document enshrining the Agreement more consistent with a finding that the Agreement was never formed.

The eighth matter which undermines the plausibility of the Plaintiffs’ version of events is their many years of inaction. As set out above, the parties are said to have entered into the Agreement in August 2009. In the years that went by, the Plaintiffs took no steps towards demanding the reconveyance of the Property to which they say they were entitled. Even in circumstances where the Plaintiffs did not seek to discover the state of the mortgage, one could have comfortably assumed that the mortgages would have been significantly paid down by, for example, 2020. Nevertheless, the Plaintiffs did nothing other than continue to pay (what I have found was) rent.

The Plaintiffs have offered little explanation as to when they intended to have the Property reconveyed. In cross-examination, the First Plaintiff indicated that, at the time the Agreement was made, the parties intended for the Agreement to continue for between one and two years. However, he retreated from that statement shortly thereafter, instead saying that they did not know. Even if he had maintained that position, an intended duration of one-to-two years would not have assisted the Plaintiffs in circumstances where that duration ended some 13 years ago. Further, it is likely that the First Plaintiff would have remained in bankruptcy during that timeframe. The Plaintiffs’ inability to afford a reconveyance while bankrupt perhaps explains why the First Plaintiff abruptly retreated from his initial evidence that a reconveyance would take place in one-to-two years.

Instead, this dispute first crystalised through the Defendant’s decision to terminate the Plaintiffs’ occupation of the Property. It was only after that event that there was any contention by the Plaintiffs that, through operation of an agreement formed around a dining room table some fifteen years ago, they were entitled to the reconveyance of the Property.

The absence of any such request that the Defendant reconvey the Property to the Plaintiffs militates against a finding that there was any agreement other than a landlord-tenant agreement between the Plaintiffs and the Defendant the latter of whom owned the Property, both legally and beneficially, purchasing it.

Ninthly, on the Plaintiffs’ own case, neither party informed Mr Hamdan, who was their accountant for much of the relevant time, of the Agreement, even for the purpose of exploring its possible financial implications.

Finally, if the pleaded Agreement came into existence, it would have made sense for the so-called ‘mortgage instalments’ to be paid directly by the Plaintiffs to the St George Bank and, also, to exert some control over the Defendant’s ability to redraw funds on the facility so as to ensure the principal was paid down as soon as possible. None of this was done. Rather, the Plaintiffs, on their own version of events:

Such conduct is inconsistent with the existence of the Agreement.

As stated above, I found the Defendant to be a thoughtful and deliberate man. I do not consider it likely that he would find a wholly oral agreement securing complex obligations concerning property to be satisfactory. My opinion here is reinforced by the fact that he (as well as the Plaintiffs) engaged legal representation in the sale of the Property and that he and his brother-in-law attended the Property to respectively sign and witness the Lease.

The Plaintiffs’ narrative, encompassing both the Pivotal Conversation and Agreement, is rife with implausibilities. First, on the Plaintiffs’ case, the Defendant, a man I found to be deliberate and thoughtful, was comfortable entering into an oral agreement arising from a conversation around a dinner table. This is especially implausible in circumstances where the Agreement as pleaded lacks a critical term being the duration of the Agreement. That Agreement as pleaded is also seemingly terminable solely at the Plaintiffs’ discretion without any time restriction.

Secondly (and related to the first matter), the Agreement was never set down in writing, either at the time it was formed or afterwards. The parties retained solicitors to transfer the Property. It is not clear why either party, and especially the Defendant, would be content to have their rights concerning the Property open to dispute due to the wholly oral nature of the contract.

Thirdly, on the Plaintiffs’ case, the Defendant was minded to enter into an agreement with them, one of whom was a bankrupt at the time of the Agreement and the other bankrupt shortly thereafter, to hold the Property on trust. In doing so, the Defendant supposedly reposed his trust in the Plaintiffs to pay mortgage instalments while he carried most of the risk in the event of default.

Fourthly, as has been discussed above, the Plaintiffs did nothing after the Defendant allegedly indicated an intention to resile from the Agreement.

Fifthly, the Plaintiffs, despite their conflict with the Defendant and continued financial difficulties, never attempted to terminate the Trust, even in 2024.

Sixthly, the Plaintiffs have not given any evidence of their present capacity to wind up the Trust and distribute its assets.

Seventhly, the Plaintiffs submit that the Payments were mortgage instalments, but were also unaware of the details of the mortgage and did not seek to correct their ignorance. In the absence of that knowledge, it is not plausible that the Payments can be attributable to an unknown mortgage.

Eighthly, the Payment amounts only changed twice despite interest rates fluctuating significantly between August 2009 and February 2024. There is no evidence beyond the First Plaintiff’s assertion that the Payments were in any way connected with interest rates as would be expected for mortgage instalments. Indeed, despite interest rate fluctuations, the Payments only increased over time. How this was so if interest rates and/or the bank loan decreased makes no sense.

Ninthly, there is no term in the pleaded Agreement concerning the effect of the death of one of the parties. Counsel for the Plaintiffs submitted that upon the death of one of the parties, as beneficiaries, their equitable interest would be a chose in action that would vest in the estate. Had the Defendant pre-deceased the Plaintiffs and the estate vested in beneficiaries other than the Defendant’s wife, their conscience would not be bound as the estate holding the Property as registered proprietor without notice of the Plaintiffs’ claim would defeat their prior equitable interest.

Counsel for the Plaintiffs submitted that my concerns regarding the Agreement’s general lack of commerciality should be tempered by the fact that the parties were not arm’s length commercial parties dealing on the open market. While the parties’ close familial relationship does go some way towards allaying my concerns, it does not go far enough. The Defendant required the First Plaintiff to sign a lease, which signifies to me that despite family ties, he was a person who required formality in his commercial dealings. The notion that he would accept a wholly oral contract concerning a complex land arrangement is implausible and I reject it.

For the reasons given above, I do not have an actual persuasion that the Pivotal Conversation occurred. I do not accept that First plaintiff’s evidence of the Pivotal Conversation. I do not find that the Lease was a sham or that the Plaintiffs perpetrated a fraud upon the Commonwealth. Instead, I prefer the alternative explanation that the Plaintiffs entered into the Lease and made rental payments to the Defendant for almost fifteen years while occupying the Property as tenants.

During the hearing, Counsel for the Plaintiffs accepted that the Pivotal Conversation is primifluous and their case could only have succeeded if I had found that it occurred. Since I have found that it did not occur, the claim must fail. However, that is not the end of the matter.

Even if I had accepted that the Pivotal Conversation occurred it would not necessarily follow that equity would enforce the Trust. This is for at least two reasons. First, the Plaintiffs contend that, owing to the First Plaintiff’s bankruptcy as at the date of the Pivotal Conversation, the Trust would only arise at some future point in time when the First Plaintiff was discharged from bankruptcy. This was not the subject of discussion among the parties. It is said to be implied but no such term has been pleaded and there is no obvious basis for such a term to be implied.

During the interregnum, it appears, and Counsel for the Plaintiffs conceded, that until the Plaintiffs were discharged from their respective bankruptcies, the Defendant would hold the Property legally and beneficially. I do not accept the notion that such a Trust would spring forth, being a species of right presumably held by the First Plaintiff’s trustee-in-bankruptcy and then emerge, like a butterfly from a chrysalis, at some future time.

Secondly, it is also uncontentious that after the Pivotal Conversation, the Second Plaintiff was made bankrupt. There is no evidence that this event, nor its foreshadowing, was discussed in the Pivotal Conversation. To incorporate it into the Agreement would seemingly require another unstated term, namely, that the Defendant would be required to hold both the First and Second Plaintiffs’ beneficial interests on trust upon their discharge from bankruptcy.

None of these complications were explored nor were they the subject of argument by the Plaintiffs as to precisely how this hypothetical and convoluted mechanism would work as a matter of fact or law in circumstances where bankruptcies can, due to the conduct of the bankrupt, be extended by a trustee sometimes for years. A bankrupt disposing of property without the consent of the trustee-in-bankruptcy, which is likely to have occurred here, is one such form of conduct.

A further issue arises from Hoyt’s Proprietary Ltd v Spencer (1919) 27 CLR 133; [1919] HCA 64, where Isaacs J wrote at 147–148 that:

There is no evidence that the contract for the sale of the Property in September 2009 made any mention of the Agreement which created the Trust, which was to crystallise at some time in the future.

The alleged Agreement would be inconsistent with the terms of the contract for sale of the Property. The contract for sale conveyed the title, both legal and beneficial, of the Property to the Defendant with the consent of the First Plaintiff’s trustee in bankruptcy. Although the Plaintiffs do not pursue these proceedings as a breach of contract (or to specifically perform it), the Trust is said to have been created through the Agreement. The Agreement would be inconsistent with the written contract for the sale of the Property.

Although this issue was not raised by the Defendant in his pleadings or submissions, I raised it with the parties during exchanges with Counsel during closing submissions. Counsel for the Plaintiffs did not submit that the Agreement could be treated as consistent with the terms of the contract for the sale of the Property and it is difficult to see how Counsel could have suggested otherwise. This is yet another reason why, had I accepted the Plaintiffs’ evidence as to the Pivotal Conversation, I would have nevertheless declined to make the declaration sought by the Plaintiffs as to do so would require equity to ignore, rather than follow, the law.

Even if I were satisfied that the Pivotal Conversation occurred and the further issues set out above were no obstacle to the Plaintiffs’ case the Defendant relied on the equitable ‘defence’ of laches as a bar to the Plaintiffs’ claim.

The elements of laches are knowledge of the wrong, delay, and unconscionable prejudice to the opponent caused by the delay: Crawley v Short [2009] NSWCA 410; (2009) 262 ALR 654 (Crawley) at [163] (Young JA, with whom Allsop P and Macfarlan JA agreed). For laches to bar an equitable claim, the plaintiff must possess “sufficient knowledge of the facts constituting the title to relief”: Twigg v Twigg [2022] NSWCA 68; (2022) 402 ALR 119; Orr v Ford (1989) 167 CLR 316; [1989] HCA 4 at 343. It is unclear precisely what constitutes “sufficient” knowledge. The Court of Appeal in Savage v Lunn [1998] NSWCA 203 endorsed the statement in Lord Blackburn’s speech in Erlanger v The New Sombrero Phosphate Company (1878) 3 App Cas 1218 at 1279 that the plaintiff must be shown to have “such notice or knowledge as to make it inequitable to lie by”. That statement “points to it being a question of fact and degree in each case to be taken together with all the facts of the particular case”: Crawley at [169].

The doctrine of laches has been specifically pleaded by the Defendant and I am satisfied that the Plaintiffs’ conduct invites a laches defence. The First Plaintiff and Mohammed both depose to a conversation that Mohammed allegedly had with the Defendant in which the Defendant indicated an intention to resile from the Agreement. They also both depose that Mohammed informed the First Plaintiff of this conversation.

The Plaintiffs’ degree of knowledge is, on their own case, increased as the First Plaintiff’s evidence is that in 2011 he confronted the Defendant about his intention to resile from the Agreement, in which the First Plaintiff asked “are you going to let me buy back the house?” to which the Defendant allegedly responded “no I’m not”. On their own evidence, the Plaintiffs were thus aware in 2011 at the latest that the Defendant had renounced any Agreement, yet they took no steps of any kind to seek to vindicate their rights under the Agreement. All the while the Defendant continued to pay money to St George Bank and any other costs associated with holding the Property starting from his payment of stamp duty.

The First Plaintiff in his evidence gave three reasons (the boundaries of which are permeable) for this inaction. First, he deposed that the Agreement was not in writing because he considered it to be “inappropriate” to ask for a written agreement. Instead, the First Plaintiff felt “[he] could trust [the Defendant] as a family member whom [the First Plaintiff] knew to be a religious man”. Secondly, in his Second Affidavit he deposed that his inaction was based on the Defendant’s relative “position of power” given the First Plaintiff’s belief that the agreement, not being in writing, was unenforceable. Finally, in cross-examination the First Plaintiff sought to characterise the Agreement as a “gentleman’s agreement”, meaning he took no action to enforce his rights because he regarded the Agreement to be a matter of honour not capable of legal enforcement. The second and third grounds have an obvious degree of overlap.

I do not accept the Plaintiffs’ explanation for those years of inaction. There is no evidence that the Plaintiffs took steps consistent with the existence of the alleged Agreement, gentleman’s or otherwise. They never communicated with the Defendant in relation to the amount remaining on the loan, the effect of interest rates on the Payments or when they would seek to have the Property reconveyed.

The First Plaintiff’s professed belief that the Agreement was unenforceable does not explain why he nevertheless did nothing. Even if he felt legal avenues were unavailable to him, there were other, less formal methods of seeking to resolve his difficulties. The First Plaintiff could have remonstrated with the Defendant personally. He could have sought the assistance of family members. The fact that he did not do so is perplexing in circumstances where:

In addition, on the Plaintiffs’ evidence, the Defendant’s religiosity is part of the reason they trusted the Defendant to uphold the Agreement and regarded it as “inappropriate” to request that the Agreement be in writing. It is surprising that no local religious authorities were asked to intervene.

The Plaintiffs’ silence and inaction exposes an incongruity at the heart of their case. They claim to have known since 2011 that the Defendant intended to resile from the Agreement and they felt they had no choice but to accept the Defendant’s characterisation of the Payments as rent. At the same time, they claim that they had always regarded the Payments as mortgage instalments and so were performing their obligations under the Agreement and are so entitled to a declaration recognising their proportionate interests in the Trust.

This is the very kind of conduct that enlivens laches. Were it necessary for me ultimately to decide the issue, I would have found that the Plaintiffs’ conduct was such that I would not have exercised my discretion to grant the declaratory and ancillary relief the Plaintiffs sought.

Although the doctrine of unclean hands was not pleaded by the Defendant, it is a matter I must, nevertheless, consider where I am required to exercise my discretion to grant equitable relief.

Had it been necessary for me to consider, I would have refused to exercise my discretion due to the Plaintiffs’ unclean hands. Such unclean hands arise from the nature of the Agreement and a failure to disclose, on the Plaintiffs’ case, its true nature to the First Plaintiff’s trustee-in-bankruptcy.

On the Plaintiffs’ case, the Agreement gave the transfer of the Property a hidden nature. Specifically, the true nature of the transaction was hidden from the First Plaintiff’s trustee-in-bankruptcy potentially to the detriment of the First Plaintiff’s creditors. It is difficult to see how this was not a transaction intended to defraud or defeat the First Plaintiff’s creditors. Even if it was not, the Court cannot turn a blind eye to a bankrupt hiding an asset from their trustee-in-bankruptcy.

By a Statement of Cross-Claim filed on 22 November 2024, the Defendants seek the following relief:

The parties agreed that the outcome of the Plaintiffs’ claim would largely determine the Cross-Claim.

As I have found that the Defendant was the registered proprietor of the Property and the Plaintiffs do not have any equitable interest, I will make the declaration sought in the Cross-Claim. It follows that I will also order the Plaintiffs to withdraw their caveat lodged in respect of the Property.

The Defendant seeks an order that the Plaintiffs pay an amount of $5,000 for unpaid rent accrued in 2019. The First Plaintiff did not deny being in arrears but was adamant in cross-examination that he had repaid $2,000 of that amount in August 2022. The Defendant acknowledged that he could not recall whether this was true but did not deny it either. I am satisfied that the First Plaintiff paid the Defendant the $2,000 in cash and will accordingly order that the Plaintiffs pay the unpaid rent but reduce the amount payable by $2,000.

The Defendant seeks an order for possession of the Property and leave to issue a writ of possession forthwith. However, it is not clear that I have the power to make such an order and will instead take a different course.

This issue was previously confronted by Justice Stevenson in Lawrence v Gunner; Gunner v Lawrence [2015] NSWSC 944 (Lawrence), a matter with several analogous features to this one. The defendant in Lawrence had commenced proceedings in the predecessor tribunal to NCAT seeking possession of a property under a residential tenancy agreement. The plaintiffs resisted that claim by asserting the existence of several agreements and the parties agreed to transfer the proceedings to the Supreme Court. His Honour concluded that there were no such agreements and dismissed the plaintiffs’ claim. Much of what follows is adopted from Stevenson J’s approach to this question in that decision and his Honour’s final orders, contained in Lawrence v Gunner; Gunner v Lawrence [2015] NSWSC 1229.

A landlord must not commence proceedings to obtain from their tenant possession of residential premises subject to a residential tenancy agreement: s 119 Residential Tenancies Act 2010 (NSW) (RTA). In Whiteford v Commonwealth of Australia (1995) 38 NSWLR 100 at 106, Kirby P (with whom Sheller JA agreed) held that the predecessor to s 119 RTA does not deny the Supreme Court from having jurisdiction to deal with such a matter when it has been commenced in the tribunal and subsequently transferred to the Supreme Court.

Even so, in considering this issue I must have regard for s 81 RTA, which sets out the circumstances in which a residential tenancy agreement terminates. Those circumstances are:

None of the circumstances contained in that provision provide for this Court to make an order terminating a residential tenancy agreement. That power resides in NCAT alone. I do not consider that it is open to this Court to make such an order.

Section 83 RTA provides that if the tribunal makes an order terminating a residential tenancy agreement, it must also make an order for possession of the land. This suggests a legislative contemplation that an order for possession may not be made unless an order for termination of the residential tenancy has already been made: Lawrence at [522].

I suggested during the hearing that, should I find that the Lease to have been a residential tenancy agreement I might be minded to make a declaration that the Defendant had validly terminated the Lease. While I have found that the Plaintiffs occupy the Property under a residential tenancy agreement, neither party made detailed oral or written submissions concerning whether the Defendant validly terminated the Lease.

I do not think that reconvening the parties or inviting Counsel to make submissions on the validity of the lease would give effect to the overriding purpose contained in s 56 of the Civil Procedure Act 2005 (NSW) (the CPA). In the circumstances, I consider that following these findings and reasons, the matter has narrowed so as to once again be a residential tenancy agreement within the jurisdiction of NCAT. I will therefore order that the proceedings transferred to this Court from NCAT on 31 October 2024 be remitted to NCAT for the purpose of determining whether the Lease was validly terminated and the making of any orders and making orders consequential to that determination. In taking that course, I have also had regard to the dictates of justice contained in s 58 CPA and consider that returning the matter to NCAT rather than dealing with it here will keep the parties’ costs proportionate to the nature of the matter as it now stands: s 60 CPA.

I make the following orders: