Supreme Court New South Wales Medium Neutral Citation: JKAM Investments Pty Ltd ACN 159 084 018 v Damien [2021] NSWSC 70 Hearing dates: 15, 16, 17, 18 & 19 July 2019, 12 & 27 September 2019, 28 October 2019, 18 December 2019, 12 February 2020 Date of orders: 19 February 2021 Decision date: 19 February 2021 Jurisdiction: Equity Before: Slattery J Decision: See paragraph [433]. Catchwords: CONTRACTS – development of land – defendant is the registered proprietor of a property used for commercial purposes as a gymnasium and offices – property leased but in need of further development – land is mortgaged to financial institution – defendant unable to fund further construction works on the property – plaintiff takes a lease over the property and enters into a deed by which the plaintiff would fund construction works on the property and then acquire the property pursuant to a contract for sale – disagreement arises between the plaintiff and the defendant about the interpretation of the development deed – the plaintiff and the defendant each refuse to pay the monthly mortgage payments to the defendant's mortgagee, the mortgagee enters into possession and sells the property – the plaintiff alleges defendant has breached the development deed, an associated mortgage and the lease – whether the defendant is in breach as alleged. MISLEADING AND DECEPTIVE CONDUCT – plaintiff claims defendant made a series of misleading and deceptive statements inducing the plaintiff to enter into a lease, a development deed, a contract for sale of land and a mortgage – the plaintiff alleges that the defendant stated that the defendant was not in default to its first mortgagee and that there were no other prior encumbrances over the property – the plaintiff further alleges that the defendant represented that his residential property would be included in the grant of a mortgage to the plaintiff – the executed version of the mortgage omitted the residential property – whether the defendant made these and other related statements – whether these and other related statements were false or misleading – whether these and other related statements induced the plaintiff to enter into the development deed – where the plaintiff claims that the defendant did not disclose knowledge of prior encumbrances and a deed with the first mortgagee – whether the circumstances were such that the defendant had a reasonable expectation of disclosure of that knowledge to the plaintiff. ESTOPPEL – issue estoppel – former adjudication by this Court in separate proceedings between the same parties – finality of decisions – scope of issue estoppel – question as to whether the parties are bound by findings in the Court's previous determination of the priority between equitable interests – whether the plaintiff can contend for inconsistent findings in support of its claim for misleading and deceptive conduct against the defendant – whether the findings in the previous determination are fundamental to the conclusion – issue estoppel found to be binding. Legislation Cited: Australian Securities and Investment Commission Act 2001, ss 12BB, 12DA, 12DC, 12GF Civil Procedure Act 2005, s 100 Competition and Consumer Act 2010, Schedule 2 (Australian Consumer Law), ss 4, 13, 18, 30, 236, 237 Conveyancing Act 1919, ss 12, 120 Fair Trading Act 1987, ss 28, 32 Real Property Act 1900, s 59 Cases Cited: 70 Pitt Street Sydney Pty Ltd v McGurk [2004] NSWSC 413 Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No. 3) (2006) 67 NSWLR 341 Addenbrooke Pty Ltd (ACN 055 973 576) v Duncan and Others (No 2) (2017) 348 ALR 1 Blair & Perpetual Trustee Co Ltd v Curran (Adams' Will) (1939) 62 CLR 464 Browne v Flower [1911] 1 Ch 219 Burrell v R (2008) 238 CLR 218 Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952 Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd [2015] NSWSC 272 Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd [2016] NSWSC 1607 Clayton v Bant (2020) 385 ALR 41 Cohen v Tannar [1900] 2 QB 609 Damien v JKAM Investments Pty Ltd [2015] NSWCA 368 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Dennett v Atherton (1872) LR 7 QB 316 Double Bay Newspapers Pty Ltd & Anors v AW Holdings Pty Ltd [1996] 42 NSWLR 409 Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd [1972] 128 CLR 529 Grosvenor Hotel Co v Hamilton [1894] 2 QB 836 Harrison Ainslie & Co v Lord Muncaster [1891] 2 QB 680 In the matter of JKAM Investments Pty Ltd [2015] NSWSC 2032 In the matter of JKAM Investments Pty Ltd [2016] NSWSC 1955 JKAM Investments Pty Ltd v Damien [2017] NSWSC 1182 Jones v Dunkel (1959) 101 CLR 298 Kelly v Rogers [1892] 1 QB 910 Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] FCA 400 Lam v Ausintel Investments Aust Pty Ltd (1990) 97 FLR 458 Laurinda Pty Ltd v Capalaba Shopping Centre Pty Ltd (1989) 166 CLR 623 Line v Stephenson (1838) 132 ER 1075 Marginson v Blackburn Borough Council [1939] 1 All ER 273 Mason v Clarke (1955) AC 778 Merrill v Frame (1812) 128 ER 357 Miller & Associates Insurance Broking Pty Ltd (CAN 089 245 465) v BMW Australia Finance Ltd (CAN 007 101 715) (2010) 241 CLR 357 Miller v Emcer Products Ltd (1956) Ch 304 Moyston v The West Coal and Iron Company Ltd (1876) 1 CPD 145 Nash v Palmer (1816) 105 ER 1088 New Brunswick Railway Company v British & French Trust Corporation Ltd (1939) AC 1 Nia v Phuong (1993) 6 BPR 13 Peech v Best [1931] 1 KB 1 Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25 Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 Rogers v R (1994) 181 CLR 251 Sanderson v Berwick-upon-Tweed Corporation (1834) 13 Q.B.D 547 Stanley v Hayes (1842) 3 QB 105 Warman International Ltd v Dwyer (1995) 182 CLR 544 Texts Cited: B. Edgeworth, Butt's Land Law (7th ed, 2017, Thomson Reuters) S. Bower and K. R. Handley, Res Judicata (5th ed, 2019, LexisNexis Category: Principal judgment Parties: Plaintiff/Cross-Defendant: JKAM Investments Pty Ltd ACN 159 084 018 Defendant/Cross-Claimant: Karl Damien Representation: Counsel: Plaintiff/Cross-Defendant: P. Blackburn-Hart SC; L. Katsinas Defendant/Cross-Claimant: C. Stomo Solicitors: Plaintiff/Cross-Defendant: Kirco Jakimoski, JK Solicitors Defendant/Cross-Claimant: Patrick John Duffy, Duffy Law Group File Number(s): 2015/276373 Publication restriction: No Judgment 1. In 2012 Mr Karl Damien, the defendant, was the registered proprietor of land in Camden ("the Camden property") and in Denham Court ("the Denham Court property"). A gymnasium business and related businesses operated from the Camden property from until a 2016 mortgagee sale by the National Australia Bank ("the NAB"). The Denham Court property is Mr Damien's private residence. 2. Commencing in about 2011/2012, Mr Damien engaged builders, Champion Homes Sales Pty Limited ("Champion") and later Architectural Collections Pty Limited ("Architectural Collections") to undertake construction works on the Camden property. Architectural Collections was a company associated with Mr Joseph Elia. Mr Damien accrued substantial debts to both builders. Architectural Collections assigned Mr Damien's debt to it to the plaintiff, JKAM Investments Pty Limited ("JKAM"), another company associated with Mr Joseph Elia. JKAM gave Mr Damien notice of the assignment of the debt. In July 2012 JKAM itself commenced building work on the Camden property. 3. Between September and December 2012, JKAM and Mr Damien entered into four transactions in relation to the Camden property. The combined effect of these transactions was to stabilise Mr Damien's first mortgage debt to the NAB, to secure the payment of Mr Damien's construction-related debts to JKAM, to develop the Camden property into a sports centre and gymnasium and to allow JKAM the opportunity, over time, to lease and then acquire the Camden property for itself. These four transactions were: 1. A lease by Mr Damien as lessor to JKAM as lessee dated 1 September 2012 ("the lease"); 2. A deed dated 10 December 2012 between JKAM and Mr Damien ("the deed"); 3. A contract for sale of the Camden property dated 21 December 2012 from Mr Damien as vendor to JKAM as purchaser ("the contract for sale"); and 4. A mortgage of the Camden property from Mr Damien as mortgagor to JKAM as mortgagee dated 21 December 2012 ("the JKAM mortgage"). 1. Mr Elia represented JKAM in negotiations for these four transactions and throughout subsequent events. His brother, Mr Johni Elia, was also an actor from time to time on behalf of JKAM and Architectural Collections. For convenience, these reasons will generally refer to Mr Joseph Elia as "Mr Elia", and occasionally as "Joe Elia". But to distinguish him from his brother, Mr Johni Elia, the latter will always be referred to by his full name. 2. Mr Damien represented himself in the negotiations, assisted at times by an associate, Mr Dean Alcorn, who holds qualifications in law and economics. Mr Elia and JKAM were not separately legally represented in the negotiations. 3. JKAM raises two kinds of issue in these proceedings. First, JKAM sues Mr Damien for damages for alleged breach of the terms of the September 2012 lease and the JKAM mortgage. JKAM alleges Mr Damien breached the covenant of quiet enjoyment in the September 2012 lease. The principal alleged breach being the NAB's dispossession of JKAM and its exercise of its power of sale. JKAM further alleges Mr Damien breached the JKAM mortgage by permitting the lodgement of caveats on the Camden property by persons other than JKAM. Mr Damien contests these allegations. 4. Second, it alleges that Mr Damien engaged in a range of misleading and deceptive conduct, causing JKAM to enter into the four transactions. That alleged misleading and deceptive conduct related to a range of matters including the extent of Mr Damien's debt and security obligations to the NAB, to Champion and to another company Hotray Pty Limited ("Hotray"). JKAM alleges that this misleading and deceptive conduct resulted in it suffering financial detriment, including the NAB's exercise of its power of sale under its first mortgage over the Camden property. 5. The proceedings were heard on 10 May 2019, 28 June 2019, 15, 16, 17, 18 & 19 July 2019, 12 & 27 September 2019, 28 October 2019, 18 December 2019, and 12 February 2020. The proceedings were conducted for the plaintiff/cross-defendant by Mr P. Blackburn-Hart SC and Mr L. Katsinas of counsel instructed by JK Solicitors. Mr C. Stomo of counsel appeared for the defendant/cross-claimant instructed by Duffy Law Group. The Prior Proceedings 1. Fact-finding in this proceeding is complicated by judicial findings in prior proceedings between the same parties. It is further complicated by the voluminous materials that the parties have extracted from those prior proceedings. Since these parties entered into the four transactions in 2012, this Court has given judgment in aspects of their disputes about the Camden property on at least seven occasions. The parties have also engaged in other interlocutory contests. For convenience of reference, JKAM's Further Amended Statement of Claim in these proceedings uses a shorthand description for a number of these earlier judgments. These reasons adopt JKAM's referencing system for describing these prior judgments. 2. In Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952 ("the priorities judgment"), Darke J determined the relative priority of five equitable interests over the Camden property. His Honour found that on the following dates the following parties acquired the following valid equitable interests in the Camden property. Darke J also found that they all took priority according to the respective date of acquisition of the interest concerned, there being no postponing conduct by the interests created earlier in time. 1. Champion acquired an equitable charge on 4 April 2012 pursuant to a letter of acknowledgement of debt provided by Mr Damien; 2. JKAM acquired an interest as an equitable lessee on 1 September 2012, when it entered into the lease with Mr Damien; 3. Hotray acquired an interest as an equitable mortgagee on 10 December 2012, when it entered into a mortgage with Mr Damien; 4. JKAM acquired an interest as an equitable mortgagee on 21 December 2012, when it entered into the JKAM mortgage with Mr Damien; and 5. JKAM acquired an interest as a purchaser under the contract for sale of the Camden property on 21 December 2012, when it entered into that contract with Mr Damien. 1. The priorities judgment determined that the Champion equitable charge and the Hotray equitable mortgage were valid and took priority over JKAM's equitable interests under the JKAM mortgage and as purchaser in the contract for sale. At one stage in these proceedings JKAM sought to put in issue the validity of the Champion equitable charge and the Hotray equitable mortgage. But Mr Damien and JKAM were both parties to the proceedings resulting in the priorities judgment and are bound by it. JKAM complains in these proceedings that neither the Champion equitable charge nor the Hotray equitable mortgage were disclosed to it before it entered the four transactions. 2. In Champion Holmes Sales Pty Ltd v JKAM Investments [2015] NSWSC 272 ("the set off judgment"), Rein J determined that Mr Damien was liable to JKAM for $549,000 on JKAM's Cross-Claim, that amount being $528,000 on the debt assigned to it by Architectural Collections plus $21,000 for additional works that JKAM had executed at the Camden property. But Rein J also found that JKAM owed Damien $411,000 on account of JKAM's responsibility under the December 2012 deed for mortgage repayments and other outgoings on the Camden property. Rein J set off these two amounts and entered judgment in favour of JKAM for $138,000. An appeal from that decision was dismissed: Damien v JKAM Investments Pty Ltd [2015] NSWCA 368 (Gleeson, Simpson JJA, Tobias AJA). 3. Several related disputes were dealt with in the Corporations List. In the matter of JKAM Investments Pty Ltd [2015] NSWSC 2032, Black J declined to set aside a statutory demand by Champion preliminary to winding up JKAM. In the later decision In the matter of JKAM Investments Pty Ltd [2016] NSWSC 1955, Brereton J found that JKAM had not established its solvency in answer to Champion's statutory demand and adjourned the proceedings to give it an opportunity to do so. 4. In May 2015, with the consent of Mr Damien as registered proprietor, and JKAM as the occupier, the NAB obtained orders for possession of the Camden property in separate proceedings brought by it ("the possession judgment"). 5. Kunc J dealt with two later aspects of the proceedings. In Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd [2016] NSWSC 1607 ("the estoppel judgment"), Kunc J ordered the payment out of Court to Champion of the sum of $365,319.82 being the balance of the proceeds of sale of the Camden property that the NAB paid into Court after its exercise of its power of sale. In the priorities judgment, Darke J held that Champion had priority over all other competing equitable interests. No funds now remain in Court of the sale of the Camden property. They have been fully distributed. And in JKAM Investments Pty Ltd v Damien [2017] NSWSC 1182, Kunc J adjourned the hearing of the present proceedings to accommodate an application by JKAM to amend the Statement of Claim. Overview and Introduction to the Issues 1. Fact-finding in this case is best approached with an overview of the issues now in dispute, starting with JKAM's breach of lease and mortgage claims followed by claims of misleading and deceptive conduct. 2. Breach of the Lease. Mr Damien's lease of the Camden property to JKAM commenced on 1 September 2012 for a term of 15 years terminating on 31 August 2027 with an option to renew for a further five years. Under the lease, clause 9.1, the lessor covenanted to give JKAM as lessee quiet enjoyment and possession of the Camden property for the term of the lease, whilst observing the terms of the lease. JKAM says it complied with the terms of the lease whilst it was in possession of the Camden property. 3. JKAM contends that, in breach of the lease, clause 9.1, on or about 23 May 2015 Mr Damien deprived JKAM of its quiet enjoyment of the property. The NAB as first registered mortgagee of the property obtained an order for possession of the Camden property on 13 May 2015, dispossessing JKAM on 23 May 2015, thereby causing JKAM to suffer loss and damage. 4. Breach of the JKAM Mortgage. Mr Damien granted the JKAM mortgage over the Camden property on 21 December 2012. Under the JKAM mortgage, clause 3.1 Mr Damien mortgaged the Camden property (defined as "the Secured Property" under the JKAM mortgage) as security for the performance of Mr Damien's obligations to JKAM, including to secure payment of what the mortgage defined as the "construction works amount", which was a sum of $528,000. 5. Under the JKAM mortgage, clause 6.15, the mortgagor, Mr Damien, was required to ensure that a caveat was not lodged by any party other than JKAM on the Secured Property, as defined. 6. JKAM alleges that Mr Damien breached clause 6.15 of the JKAM mortgage by permitting, or acquiescing in, the lodgement of caveats over the Camden property by other parties including one by Champion on 27 September 2013, thereby causing loss and damage to JKAM due to its consequent inability to deal with the Camden property or to realise any part of it as security for Mr Damien's obligations to JKAM. 7. Mr Damien contests many of JKAM's allegations. The resolution of much of that contest depended on the credibility of the two parties, Mr Elia and Mr Damien. The Court took contemporaneous notes of its credibility assessments of both these witnesses. 8. The Denham Court Misleading Conduct. JKAM claims that prior to its entry into the four transactions that Mr Damien, and Mr Alcorn on his behalf, represented to JKAM, and agreed with JKAM, that Mr Damien would grant JKAM a mortgage over both the Camden property and the Denham Court property. 9. JKAM alleges that contrary to Mr Damien's representations and in breach of their agreement that Mr Damien, or Mr Alcorn on his behalf, omitted any reference to the mortgage over the Denham Court property from the final form of the mortgage executed on 21 December 2012. JKAM and its principal, Mr Elia, contend that earlier drafts of the mortgage had all included the Denham Court property as part of the secured property and that he was unaware of its omission in the executed version. 10. JKAM's case is that Mr Elia executed the mortgage on its behalf in the mistaken belief it covered both properties. JKAM says Mr Damien induced this mistake by silence in omitting the Denham Court property from the final draft of the mortgage without alerting Mr Elia to the omission. In the Further Amended Statement of Claim this conduct is referred to as Silence Conduct One. JKAM says that as a result of this conduct it entered the mortgage holding inadequate security. 11. The Prior Encumbrances Misleading Conduct. JKAM next alleges Mr Damien did not disclose two existing encumbrances over the Camden property before JKAM's entry into the four transactions in late 2012. Prior to the four transactions, Champion had created an equitable charge. And prior to three of the four transactions Hotray had created an equitable mortgage. 12. Champion, which had commenced building works on the Camden property prior to the work of Architectural Collections, held an equitable charge over the Camden property dated 4 April 2012, securing Mr Damien's obligations to it of $586,334 for unpaid building work. Champion's charge was held valid by Kunc J in Champion Home Sales Pty Ltd v JKAM Investments Pty Ltd [2016] NSWSC 1607. As a result of the priorities judgment, Champion's equitable charge had priority over all other equitable interests in the Camden property, other than the first registered mortgage to the NAB. 13. Hotray's equitable interest in the Camden property was created by an unregistered mortgage securing a sum of $300,000 plus interest that Mr Damien was said to then owe Hotray. The Hotray mortgage was executed together with a related deed on 10 December 2012. 14. Neither the Champion charge nor the Hotray mortgage were caveated on the title to the Camden property before December 2012. A caveat in respect of the Hotray mortgage was first recorded on the title to the Camden property on or about 18 December 2012. This caveat preceded only the JKAM mortgage and the contract for sale, which were both executed on 21 December 2012. Champion did not lodge a caveat claiming this equitable charge until much later, on 30 September 2013. But Darke J found that, as JKAM did not search the register before its entry into the December 2012 transactions, Champion's failure to lodge a caveat earlier was not postponing conduct. 15. JKAM alleges Mr Damien engaged in misleading conduct by silence in not disclosing to JKAM: (a) the Champion charge nor the Hotray mortgage prior to the execution of the lease on 1 September 2012 and the deed on 10 December 2012; and (b) the Champion charge nor the Hotray mortgage prior to the execution of the contract for sale and the JKAM mortgage on 21 December 2012. This conduct related to these prior encumbrances is variously referred to in the Further Amended Statement of Claim as Silence Conduct Two and Silence Conduct Three. 16. The NAB Loan Facility Misleading Conduct. Before the four transactions, Mr Damien had executed a deed of forbearance ("forbearance deed") with the NAB on 27 August 2012. The forbearance deed restricted Mr Damien from further encumbering or selling the Camden property, in exchange for the NAB not exercising its rights upon Mr Damien's first mortgage default to the NAB. 17. JKAM alleges Mr Damien did not disclose the existence of the forbearance deed prior to any of the four transactions. JKAM alleges that three related non-disclosures on Mr Damien's part induced JKAM to enter the four transactions in late 2012. JKAM alleges that neither Mr Damien nor Mr Alcorn disclosed to JKAM: (1) the existence of the forbearance deed; (2) that Mr Damien was in default to the NAB under the loan facility secured by the NAB mortgage; and (3) that entry into the four transactions with JKAM would place Mr Damien in default to the NAB under the forbearance deed. This conduct related to the NAB is variously referred to in the Further Amended Statement of Claim as Silence Conduct Four, Silence Conduct Five and Silence Conduct Six. 18. The No Debts to Champion Misleading Conduct. JKAM also alleges that Mr Damien engaged in earlier positive conduct between December 2011 and March 2012 that was misleading and deceptive. JKAM alleges that between those dates Mr Damien, both orally and by implication, represented to JKAM that Mr Damien did not owe any money to Champion and that the Camden property was not burdened with any security obligation to Champion for debts owing to Champion for construction works. 19. The Plus Fitness Lease Registration Misleading Conduct. The final positive misleading conduct alleged related to the leasing status of the Camden property. JKAM alleges that in December 2011 Mr Damien orally represented to JKAM that Mr Damien had leased the Camden property to Plus Fitness under a lease recognised by the NAB, thereby also impliedly representing to JKAM that Mr Damien was in a position, without likely opposition from the NAB, to register any lease that Mr Damien might grant in the future to companies incorporated by Mr Elia, such as JKAM. 20. Implied Representations and Reliance. JKAM alleges that the above misleading conduct related in part to present matters and in part to future matters, and that the conduct constituted continuing representations up to the time of entry into the four transactions. To the extent that the representations were as to future matters, JKAM alleges there were no reasonable grounds for making them: Competition and Consumer Act 2010, Schedule 2 (Australian Consumer Law), s 4 and Australian Securities and Investment Commission Act 2001 ("the ASIC Act"), s 12BB. 21. JKAM also alleges that the misleading conduct already described also conveyed a series of false implied representations. These implied representations were said to be the following: "The Misleading Conduct conveyed also false implied representations (Implied Conduct) that: a. Mr Damien had a present and ongoing capacity to enter the Instruments or complete the Contract of Sale by November 2013 without the burden of either or both of the Competing Interests. b. Mr Damien had a present and ongoing capacity to enter the Instruments concerning the Property on the terms he did without being in breach of the obligations in the instruments. c. Mr Damien had not engaged in conduct of the type which had created the Competing Interests. d. Mr Damien had not been in default of his obligations to the NAB prior to the creation of any of the Instruments and will not be in default of his obligations with the NAB by virtue of creating or performing the Instruments. e. There were no burdensome or severe legal obligations existing with the NAB first registered mortgagee such as those which had existed in the Forbearance Deed and which would affect the entry and or performance of the Instruments. f. Mr Damien was able to enter the Instruments without breaching his obligations to the NAB as the first registered mortgagee. g. JKAM could rely on the Camden Property and the Denham Property as providing security in the event the sale of the Camden Property did not complete and a payment of at least $528,000 was to be made as a debt payable to JKAM. h. JKAM would be the second mortgagee regarding the Denham Property and the Camden Property with only NAB taking priority to JKAM with a caveatable proprietary interest. i. No other entity was provided an undisclosed security interest (in particular a mortgage or money security) over the Camden Property or the Denham Property which would have priority over the security to be given to JKAM over the Camden Property and the Denham Property as a second mortgagee. j. Mr Damien will and JKAM will be able to successfully challenge proprietary money interests that might be asserted in the future over the Camden Property and or the Denham Property to have priority over JKAM's second mortgage, as they did not exist. k. JKAM's security would be as a second mortgagee second only to the NAB as first registered mortgagee. l. JKAM will be able to resort to the Denham Property or the Camden Property for the purposes of enforcing its security. m. Mr Damien will not burden the Denham Property or the Camden Property with any new caveatable interests without the consent of JKAM or will promptly act to issue lapsing notices for any caveats filed on the Camden Property and the Denham Property asserting any interest other than that of a first registered mortgagee or JKAM's interests." 1. JKAM alleges that in reliance upon the alleged misleading conduct it did the following: (1) it entered into the four transactions; (2) it registered caveats over the Camden property on and from 21 December 2012; (3) it engaged in litigation challenging the priority asserted by the Champion charge and the Hotray mortgage; (4) it continued, to its detriment, the development of the Camden property up to the value of $528,000, when the actual value of the development works exceeded that amount; and (5) it pursued the goal of acquiring the Camden property after its development. 2. Prejudice JKAM Allegedly Suffered. JKAM alleges that the misleading conduct closed off a number of options that had formerly been available to it and thereby caused it prejudice. JKAM first says that it could not register the lease, as the NAB would not consent to registration based on the NAB's rights under the forbearance deed. 3. As to the contract for sale, JKAM says its completion was commercially feasible between September and November 2013 and that JKAM was during that period ready, willing and able to complete the contract. But JKAM says completion became impossible at the specified purchase price of $2,081,000, because that amount could not satisfy the combined financial obligations that the NAB, Champion and Hotray were claiming. 4. JKAM says that in litigation it challenged the competing interests of Champion and Hotray in the Camden property, leading to the priorities judgment. JKAM did so by unsuccessfully asserting the priority of the lease, the JKAM mortgage and the contract for sale over these other securities. 5. JKAM says that the misleading conduct also prevented the enforcement of its security beyond the set off judgment amount of $138,000 against the Denham Court property, the estoppel judgment having allowed the release of the $365,319.82 in funds to Champion, which had been paid into Court by the NAB in accordance with the priorities judgment. 6. JKAM says that the sale of the Camden property did not result in payment to it (or the provision of new security to it for the payment) of its full entitlement under the set off judgment. 7. JKAM says that by reason of the combined effect of the priorities judgment, the possession judgment, the estoppel judgment and the misleading conduct, JKAM has suffered loss and damage by the loss of the benefit of the security that the JKAM mortgage would otherwise have provided to JKAM in respect of the Camden property and the Denham Court property. 8. JKAM says that the set off judgment is presently not secured against the Camden property; the judgment is interlocutory and not final; and the costs ordered against JKAM through the priorities judgment, together with JKAM's own costs regarding the priorities judgment, are not presently secured against the Camden property. 9. The Court notes that an Amended Statement of Cross-Claim was also filed by Mr Damien on 16 October 2017. This Amended Cross-Claim alleged breaches of the September 2012 lease and the December 2012 deed. But at the hearing on 16 July 2019, Mr Stomo told the Court his client had abandoned this claim. No formal notice of discontinuance has yet been filed. The directions at the end of these reasons require a notice of discontinuance to be filed within 28 days. 10. The Court further notes that a persistent feature of the parties' submissions in these proceedings is to advance contentions that go beyond the pleadings. The Court has decided the case on the basis of the pleadings; not on the basis of these broader contentions. Credibility Issues 1. Mr Elia. Mr Elia is an astute businessman. He is intelligent, determined and streetwise. He is used to surveying and assessing any commercial landscape confronting him. In the courtroom he well understood the implications of questions asked of him. He was combative, arguing points with his questioner. He consciously tried to answer all questions to the best advantage of his case. To avoid giving potentially embarrassing answers, he was prepared to deflect questions, to answer different questions from the one he was asked, and to raise other issues to take the questioner away to another topic. 2. He was not a witness in whom the Court could always place confidence where he perceived his self-interest was at stake. Some of his answers did not accord with reasonable business practice, which threw doubt upon their reliability. But substantial parts of what he says can nevertheless be accepted as being a more probable account of events than Mr Damien's version. 3. Mr Elia's answers at times conveniently denied familiarity with documents which had been in his possession. The Court does not accept that Mr Elia did not read these documents. He was adept at quickly absorbing the contents of documents given to him in the courtroom. He was well across the detail of most of the voluminous documents in the case. He could quote the main contents of many of them by heart. He knew the precise differences between them, occasionally correcting counsel when the wrong document was mentioned. 4. Mr Karl Damien. Like Mr Elia, Mr Damien had a thorough understanding of business and commercial matters. Mr Damien was a consciously cautious witness, who gave limited evidence to ensure he did not get caught out in cross-examination by giving away too much detail. He hedged his answers to avoid getting trapped with testimony he could not later avoid. 5. When Mr Damien decided it was convenient, he did not answer questions. He claimed not to remember what happened or he deflected the question to avoid any difficulties he perceived in his case from answers. He too could at times give a reliable account of events. But the Court does not find him to be a witness whose testimony can always be accepted. 6. In deciding between the conflicting testimony of both these witnesses, context and the objective probabilities are an important aid to fact-finding. 7. The following is a narrative of the relevant history. This narrative represents the Court's findings on the matters covered, except to the extent that the context indicates that only the parties' allegations are being recorded. For reasons of economy, this narrative does not always include reference to versions of the facts that have been rejected. JKAM Deals with Mr Damien – 2011 to 2013 1. Mr Damien acquired the Camden property in about 2003 in partnership with two others. They funded the acquisition with borrowings secured by the first mortgage to a financial institution. By 2007 he and his business partner Mr Aaron Bell were co-owners of this commercial property. In late 2009 or early 2010, when the property was untenanted, Mr Damien and Mr Bell reached an agreement with a gym and fitness provider, Fitness First, to lease the property on the basis that Fitness First undertook its refurbishment during the lease and Fitness First's refurbishment costs would be covered by the lessors. Fitness First had not yet commenced occupation. But it had an unregistered lease. 2. The lessors engaged Champion, a construction company, to complete the refurbishment and building works. Soon afterwards Mr Damien bought out Mr Bell's joint interest in the property. Mr Damien refinanced the first mortgage with the NAB into his own name and increased the borrowings. But Mr Damien's overall debt burden became too high, and he ran into financial trouble and was unable to pay Champion. 3. In response to this situation, Champion ceased building work on the site in July 2011 with Mr Damien owing money to it, and the building work only partly complete. Mr Damien partly blamed Champion for this outcome, accusing it of underestimating the costs of construction and contributing to his predicament. 4. Caught in a financial squeeze, Mr Damien needed a creative financial solution. Mr Chris Haddad, a mutual friend of both Mr Damien and Mr Elia, introduced them in late 2011. Mr Haddad, who worked in real estate/finance, had some familiarity with Mr Damien's situation and thought that Mr Elia might be able to provide a solution for him. 5. They first met when Mr Elia undertook a site inspection at the Camden property in December 2011 with a work colleague, Mr Hicham Baydoun. The site was close to another development site that Mr Elia was looking at in Harrington Street, Elderslie. Mr Elia observed at the Camden property that the whole interior of the building and much of the exterior required completion. The unfinished building featured incomplete concrete and drainage works, unfinished timber stud frames on the walls, bare metal frame ceilings, incomplete plumbing works, untiled bathroom areas and an absence of electrical wiring. Mr Elia concluded there was still much work to do before the building work at the site would be completed. 6. Mr Damien explained to Mr Elia that he was trying to complete the building works himself, but the building costs were inflating quickly, well beyond his initial estimates. Mr Damien says he told Mr Elia that he still owed Champion a substantial sum, and that he was looking for a more reasonably priced builder. Mr Elia said he would look at the plans and consider giving a quote. 7. This is Mr Damien's version of the pair's early conversations in about March of 2012 and the Court accepts that it is close to what happened but that it is not fully accurate. Mr Damien undoubtedly explained what work had to be done. Mr Elia undoubtedly agreed to look at the plans and see if he would quote for completing the construction work on the property. 8. But Mr Damien did not confess to Mr Elia that he owed Champion a substantial sum. He was not that open with Mr Elia about what had happened with the prior builder, Champion. Mr Elia could work out for himself, simply from the state of the building and the fact that the builder had left mid-project, that there must have been a serious dispute between Mr Damien and Champion. The parties each take extreme positions on the question of Mr Damien's disclosure to Mr Elia about his debt to Champion. Mr Damien says he told Mr Elia he owed Champion a substantial sum. Mr Elia says that Mr Damien told him he did not owe Champion any money. 9. The Court does not find either of these versions probable. If Mr Damien had said he still owed Champion a substantial sum, this would have invited further inquiry from Mr Elia about how much was admitted to being owed and whether Mr Damien had offered security for what was outstanding. Equally, a negative answer by Mr Damien to a question from Mr Elia "do you owe Champion any money?" was likely to generate a further inquiry for Mr Elia about how the dispute with Champion had been resolved. 10. But neither of these conversations unfolded between the parties. Moreover, the Court was not persuaded that either witness could give proper context to such conversations. 11. That leaves the Court to work out what, if anything, was said about Mr Damien owing money to Champion. In the Court's view, it is far more probable that Mr Damien told Mr Elia that there was an ongoing dispute between Champion about how much was owing and that he, Mr Damien, believed that because of Champion's poor performance and abandonment of the works, that his dispute with Champion was likely to be resolved. Such a version better explains Mr Elia's general willingness to put enquiry about Champion aside in his discussions with Mr Damien without accepting the improbable statement that Champion had been fully paid. 12. Agreement did not come quickly. Mr Elia spoke further with Mr Haddad to acquire more information about the development of the Camden property and considered his options. Mr Haddad appeared to assume the role of an intermediary between Mr Elia and Mr Damien in this part of the negotiations. Mr Haddad did not give evidence. 13. In late March 2012, Mr Damien met Mr Elia at the site and they looked at the plans again together and examined what work still had to be done. By then Mr Damien had negotiated an informal lease with Plus Fitness, which appeared to be ready to go into occupation once the gym was complete. Mr Damien told Mr Elia that his aim was to complete the building work and to try and have a lease to Plus Fitness registered when he had approval from his bank. Mr Elia says that Mr Haddad obtained from Mr Damien some information about Mr Damien's mortgage debt to the NAB. These negotiations ultimately led to a disputed meeting between Mr Damien and Mr Elia at Mr Damien's office in Prestons in mid-April 2012. The Meeting at Prestons – 3 April 2012 1. On either 3 or 12 April 2012, Mr Elia attended a meeting at Mr Damien's office in the suburb of Prestons, which is approximately 40 kilometres from Sydney's CBD. Mr Elia says the meeting took place on 3 April. Mr Damien puts it at 12 April. Because of the surrounding correspondence, Mr Elia is likely to be correct and the date was probably 3 April. There was only one meeting between the two of them at Prestons in the first half of April 2012. Much of what happened during the meeting is in contest. 2. Mr Damien's evidence about the meeting is quite simple. He says that Mr Elia came around to discuss the work that Mr Damien wanted completed at the Camden property. He says that there was no quotation at the time for the works to complete and that he did not have any idea what the cost of the work was going to be. He says the meeting was brief. The Court accepts this simple account of the conversation. 3. Mr Elia says that he arrived at Mr Damien's Prestons office after lunch. In preliminary discussions Mr Elia pointed out that the construction work remaining was extensive and that he understood that Mr Damien could not get further funding from the NAB to pay for the construction works. Mr Elia says that he raised with Mr Damien the issue of obtaining further security from Mr Damien as a condition of his involvement in the project, pointing out that from his enquiries at that time the property had negative equity: $1,626,000 was owed to the NAB and the current incomplete state of works at the property and a recent valuation meant that it was probably worth only about $850,000. He says he explained that it was "too risky for me to come in and complete the building works without security of our monies that is being invested into your property". 4. Mr Elia says that he asked what are the "other securities that you can provide?" Mr Elia recounts that this question then led to the following conversation between them: Mr Damien: "Yes I do, I own a house in Denham Court." Mr Elia: "Do you have a mortgage on the property?" Mr Damien: "Yes, to Adelaide Bank." Mr Elia: "How much is mortgaged on Denham Court?" Mr Damien: "I owe about $1,250,000 to Adelaide Bank." Mr Elia: "Do you know what the value of the house is at the moment?" Mr Damien: "About $1,950,000; it's a large home on 11,000 sq/m of land." Mr Elia: "The only way that I can move forward with the construction works at the gym is to have security by way of second mortgage over the Camden and Denham Court properties. On my calculation is the current equity in the Camden property is a negative equity of approximately $776,000. There seems to be some equity in your home; do you have a bank statement for the Denham Court property?" Mr Damien: "Yes, let me look through my files, yes here it is." 1. The Court accepts Mr Elia's evidence that the Denham Court property was discussed at this time and in these terms. Mr Elia further says that Mr Damien handed him a copy of an Australian Mortgage Options bank statement for the Denham Court property for the period between 1 July 2011 and 31 December 2011. He observed that it was in Mr Damien's name and it recorded the address of the Denham Court property. 2. Such a document passed between the parties and a conversation to this effect about the Denham Court property is the best explanation for its passage. Mr Elia did request security over the Denham Court property as early as April 2012. There was by April 2012 a loose understanding that it might become available as security. This conclusion is further supported by emails between Mr Damien, Mr Haddad and Mr Elia on 13 February 2012 that show that Mr Elia received from Mr Damien a copy of a rates notice for the Denham Court property. But as will be seen, Mr Damien eventually talked Mr Elia out of insisting on this additional security. 3. Mr Elia says the conversation then proceeded to discuss the possibility of him purchasing the property. Mr Damien says that Mr Elia's possible purchase of the Camden property was not raised until later. But Mr Elia says that it came up on 3 April 2012 as follows, as if it had been previously discussed. But there is no evidence that the Court accepts that the subject of a purchase had been discussed before this, making Mr Elia's version of this part of the conversation improbable: Mr Damien: "Okay Joe. It is agreed, we have an agreement. I will provide you security over the Camden and Denham Court properties by way of registered second mortgage to secure the payment of all building works undertaken at the gym." Mr Elia: "Karl, regarding the purchase of the property, I am interested and want to proceed but will need to sort out our finances for the purchase. In the meantime, I will start preparing myself to start construction work on site and speak to my lawyer regarding the second mortgage securities, could you please confirm for me that the tenant, Australian Fitness Management Pty Ltd still wants to proceed with the lease as I noticed after reading the agreement for lease that the lessors works would be completed by 1 October 2010." Mr Damien: "Joe, I really appreciate you helping me out on the property, maybe we can to smother projects in the future together." Mr Elia: "Hopefully this is the start of something good, let us get this project completed first for you, thank you for time today." 1. If this conversation took place it is to be expected that Mr Elia would have done as he promised and spoken to his lawyer and taken steps to begin preparing second mortgage securities for both the Camden property and the Denham Court property. But there is no evidence of Mr Elia communicating with a lawyer or beginning to arrange a second mortgage security over the Denham Court property through a lawyer. 2. Mr Elia faces another difficulty in reconciling his subsequent conduct with his version of this part of this conversation. He says that after the conversation "I commenced work on the property on Mr Damien's oral agreement to provide registered second mortgages over the Camden and Denham Court properties, while formal documentations were to be prepared by Mr Damien". Mr Elia was not the kind of person who would have undertaken work on the Camden property whilst leaving hanging a promise to him that he would receive a registered second mortgage over another property. If such an agreement had been made at this meeting, he is very likely to have followed it up quickly as a precondition for their further financial arrangements, which he did not. 3. Mr Elia's account of his conclusion from this conversation is odd for another reason. He seems to take away from this conversation that "formal documentations" were to be prepared by Mr Damien. It is true that it was Mr Damien, not Mr Elia, who had Mr Alcorn's assistance. But nowhere in Mr Elia's version of the conversation did Mr Damien commit to preparing the documentation. And as Mr Damien was the proposed mortgagor he was not the logical candidate to do so. Mr Elia was a sufficiently astute businessman to know that as the proposed mortgagee, he should prepare the "documentations". 4. Apart from the Court's overall doubts about Mr Elia's credibility, these gaps and impracticalities in Mr Elia's account cast doubt upon his version of this part of this conversation and the Court does not accept it. 5. But it is probable that the Denham Court property was discussed in some form at about this time in the context of one of Mr Elia's companies undertaking construction work on the site. As was indicated above, Mr Elia obtained an Australian Mortgage Options bank statement over Mr Damien's Denham Court property. The Court accepts Mr Elia's version to the extent that he raised the subject of the Denham Court property becoming a second mortgage security, but the Court does not accept that he secured such a commitment from Mr Damien in April 2012. 6. Mr Damien denies having any conversations like those Mr Elia describes. He says that Mr Elia came around to his Prestons office to discuss the work Mr Damien wanted completed at the Camden property. He says that no quotation to complete the remaining building works had been agreed at that stage. Mr Damien says the meeting was brief. This is likely to be correct. There is no evidence of any agreement as to the price of the works based around a quotation at that stage. It is therefore unlikely that Mr Elia would have given a firm commitment to proceed, or that in exchange Mr Damien would have promised Denham Court as security. It was too early for either commitment. 7. But Mr Damien came away from this meeting with the optimistic impression that he now had a builder to complete the gym and who might perhaps even purchase the property. Putting the best face on these discussions he advised the NAB of that by mid-April 2012. 8. In one other respect Mr Elia's version of this conversation is to be accepted. Mr Elia says that Mr Damien said to him that the NAB had valued the property in 2010 at $2,850,000 on a projected on-completion basis. Thus, Mr Elia was thereby given some indication, apart from his own intuition about property values, as to what the property could be worth, were it to be completed. Champion Takes a Charge – 4 April 2012 1. The day after this meeting at Prestons, Mr Damien met with Mr Steve Malesev, the principal of Champion, to discuss the amount outstanding on the building contract, which Mr Damien and a company associated with Mr Bell made with Champion on 15 December 2010. At that time, some $542,652.82 was outstanding on this building contract. As Darke J found in the priorities judgment (at [21]), Mr Malasev had Mr Damien sign a letter of acknowledgement of debt on that day which charged the Camden property as security for that debt and "entitled [Champion] to lodge a caveat over [the Camden property] as security for the abovementioned debt". Mr Damien and Mr Malasev agreed in this acknowledgment that the outstanding debt would be paid out by the sale or refinance of the Camden property. 2. Although Mr Malasev was sufficiently concerned about Mr Damien's ability to pay for the building work that he had Mr Damien execute this letter of acknowledgement of debt, Champion did not lodge a caveat based on the security created by this document until September 2013. Mr Elia Floats a Proposal to Purchase the Camden Property – April/May 2012 1. Mr Damien and Mr Elia had several telephone conversations in April/May 2012. They were mainly trying to agree upon quotations for the construction work. But Mr Elia sensed a business opportunity for himself. During one of these conversations, according to Mr Damien, Mr Elia raised the idea of purchasing the Camden property from Mr Damien, in a structure like the one the parties ultimately used. 2. The Court accepts Mr Damien's evidence on this. Mr Elia wanted the construction work finished before he purchased. Mr Damien wanted a quotation so he could try and get the finance to complete the work and agree to a contract. The Court accepts that a conversation of the following type took place: Mr Elia: "I have been giving this some consideration and I am wondering if you are interested in selling the property." Mr Damien: "I suppose if the price is right there is no reason why I cannot sell the property. Why… Are you interested?" Mr Elia: "Yes, but the construction work needs to be finished first." Mr Damien: "When you provide me with a quotation. And I can get the finance to complete the work, we can agree to a contract." Mr Elia: "I was thinking of entering an agreement at present and the value of the work to be built into the contract price." Mr Damien: "If you have a proposal please just put it to me and we can work on it." Mr Elia: "OK… I will do that." Mr Damien: "It is also important that if you do want to purchase the property it has to be done before the end of the year, and sooner rather than later as I am having problems with NAB and they are threatening to foreclose on the property. I also still owe money to the previous builder Champion Homes and I need to pay them soon or they might take action on the property." Mr Elia: "I understand the situation." 1. It is probable that Mr Elia raised the idea of the purchase at this time. It is equally probable that Mr Damien pointed out some of his various financial obligations in order to progress what looked like being a more complicated proposal than he had originally envisaged for the property. 2. It is central to Mr Damien's case that he pointed out the urgency of that situation from his perspective, the pressure from the NAB, and the unpaid builder, Champion. It is central to Mr Elia's case that he was unaware of these existing obligations. Mr Elia was aware that Mr Damien was receiving demands from the NAB and he was aware Mr Damien had a dispute with Champion. His sense of that pressure on Mr Damien was one of the reasons Mr Elia perceived a financial opportunity here for himself. A Meeting on 30 May 2012? 1. Mr Elia says he had another meeting with Mr Damien near his office on 30 May 2012. Mr Elia's version of this conversation contains some statements that are convenient to his case that the Court does not accept that he made. Mr Elia says that he and Mr Damien had the following exchange: Mr Elia: "It was hard for me to decide whether to do the construction works and wait until the property is complete to be paid, even though you have agreed to provide security for payment over the Denham Court property our funds are tied up on the Camden property or to purchase the Harrington Street, Elderslie property with current funds available and own it outright and then obtain construction finance for the construction works." Mr Damien: "I can see that you have a lot of experience and knowledge in construction, I am doing some stuff overseas on roadworks in Bangladesh and other countries are you interested in working overseas?" Mr Elia: "At this present time, I am really busy here and do not need to look overseas for work, thanks for the offer." 1. This conversation is improbable. Although it refers to an existing agreement to provide security over the Denham Court property, nothing had happened for six weeks to progress this alleged consensus, and there is no contextual conversation that follows-up the mention of the agreement about the Denham Court property. Had it been mentioned, it is to be expected that there would have been some discussion about the timing of the preparation of the second mortgage documentation. 2. And Mr Elia's mention of the purchase of the Elderslie property in this context is also improbable. It was of no interest to Mr Damien. There was no reason for Mr Elia to raise it. 3. Mr Elia's account then has the conversation finishing with Mr Damien inquiring about Mr Elia's "thoughts about the purchase" which is said to generate the following conversation, which the Court accepts probably occurred: Mr Elia: "Yes, I spoke to my finance broker who advised me that the bank will not lend on a building that is not complete and without an occupation certificate, even though there is a tenant that has signed a 10 year lease, the construction works still need to be completed first." Mr Damien: "How long do you think the construction works will take to finish?" Mr Elia: "The work at the gym is substantial and extensive, 6 to 9 months to complete, if all goes well in the construction." Mr Damien: "The mortgage on the property is costing me money, I am keen to sell the property and can't wait." Mr Elia: "Let me go away and think about it and get back to you, I will need some time to work a solution that could work for me and you." Mr Damien: "I look forward to hearing back from you." 1. The reference to the NAB mortgage "costing me money" is the kind of thing that Mr Damien is likely to have said. He did disclose to Mr Elia the pressure from the NAB on him to meet his first mortgage commitments and that that pressure was driving his interest in selling the property to Mr Elia. A Conversation on 13 July 2012? 1. Mr Elia says that he met Mr Damien again at Mr Damien's Prestons office on 13 July 2012. Mr Elia says that the purpose of this meeting was to discuss various matters; including the construction work on the property, the sale of the property, and the formalities for the registered second mortgages over the Camden property and the Denham Court property to secure the construction works. Mr Elia says the following conversation took place between them. The Court accepts that substantial parts of it took place. Mr Elia: "You said previously, champion just stopped the building works." Mr Damien: "Yes, they had troubles building." Mr Elia: "Do you have a contract with them?" Mr Damien: "Yes, I do?" Mr Elia: "Why don't you sue him [Champion] for breaching the building contract?" Mr Damien: "I can't, I have known Steve Malesev Director of Champion for around 25 years and is a personal friend of mine and business partner, I do all the kitchens for the homes that Champion build and it is my main source of income, I can't believe Champion just stopped the construction of the property, and if I knew he was going to do this to me, I would of sold the building in the rundown state it was in 2010 in an as is condition, as the building was worth around $1,800,000 and the debt on the property to the bank was around $1,050,000." Mr Elia: "Do you owe Champion any money?" Mr Damien: "No." Mr Elia: "Are you in default with the NAB Mortgage for the Camden property?" Mr Damien: "No." Mr Elia: "Are you in default with the Denham Court Mortgage?" Mr Damien: "No." Mr Elia: "Do you have any details of the contractors that worked at the gym?" Mr Damien: "I might have, I will need to look through my file for the property." Mr Elia: "Are there any outstanding matters regarding the property I should know?" Mr Damien: "No." Mr Elia: "Do you owe money to anyone that could affect your financial situation?" Mr Damien: "I owe a lot of money to my granite guy who does the stone benchtops for superior kitchens, but that is for superior and further my credit rating is clean, I always pay my bills." Mr Elia: "Have you made any agreements with anyone regarding the Camden property?" Mr Damien: "The only agreements I have was with Chris Haddad who acts on Mr behalf, to find a purchaser for the property. I agreed to pay him $75,000 on settlement of the property, if he finds me a purchaser, that is it." Mr Elia: "Karl, the only way I can agree to do a deal for the purchase of the property is to have settlement of the Contract for Sale delayed until after we finish construction works on the property with an OC ("Occupation Certificate") issued for occupancy, obviously the tenant will need to execute the 10 year lease", my financier has agreed to provide the funding on completion of the building works to purchase the property. Have you had a chance to contact the tenant regarding the lease?" Mr Damien: "Joe, the tenant has terminated the Agreement to Lease as I have taken too long to complete the refurbishment, but if you buy the property they will enter into a new lease with you directly." Mr Elia: "My past experience in subletting commercial properties is that I would need to have a head lease with you for the whole property and consented by the First Registered Mortgagee, then I could sublease the property to the tenant." Mr Damien: "Yes, that would work." Mr Elia: "This is the only way I know it will work." Mr Damien: "I will agree to lease the whole property to you and I will ensure to have the lease registered on title, do we have an agreement that?" Mr Elia: "Yes, we have an agreement to lease the property and what about the sale of the property?" Mr Damien: "The agreement to sell the property would have the following terms being $2,081,000 is the purchase price with an extended settlement date to be after the date of the occupation certificate is issued, with your lease to be included in the contract for sale as a going concern." Mr Elia: "The commission of $75,000 for the sale to Mr Hadad is included in the purchase price." Mr Damien: "Yes, I will pay that to Mr Hadad at settlement." Mr Elia: "We will be purchasing the property from you for investment purposes, so instead of investing our monies into purchasing the Harrington St, Elderslie property, we will complete the construction works on the property secured by the Second Mortgage over Denham Court and Camden properties, I agree to your proposal and agreement, we have a deal." 1. At first impression, there is an improbable naiveté to parts of this conversation that is not consistent with Mr Elia's commercial experience. Why would he ask these questions about Mr Damien owing Champion money, about the default to the NAB, about default on the Denham Court mortgage or about any other "outstanding matters regarding the property I should know" and then accept the answers at face value? If Mr Elia thought that the questions were important enough to ask, then they were also worthy of being confirmed in some reliable way, through lawyers or by means of objective evidence. 2. Mr Elia had only met Mr Damien in December the previous year through Mr Haddad. Mr Damien had not by then done much that would engender trust in Mr Elia. To a streetwise actor such as Mr Elia, Mr Damien could be seen as another property developer in need of money. 3. But the relationship was more complex than this. The Court accepts Mr Elia's account that a relationship of some trust had developed on his part in Mr Damien and Mr Alcorn by about this time. Mr Elia was dealing with Mr Damien through a mutual friend, Mr Haddad. Mr Damien had appeared to be relatively open about his financial problems. Mr Elia developed some personal affinity with Mr Damien. Over six months of satisfactory discussions and an attractive commercial proposition engendered greater trust in Mr Elia. 4. The Court accepts Mr Elia's evidence that such a relationship existed. The objective facts support the inference that it did. A remarkable feature of the transactions in December 2012 is that Mr Elia did not engage his own lawyer to act on behalf of JKAM in respect of the December 2012 deed, the contract for sale or the JKAM mortgage that month. Mr Elia, on behalf of JKAM, took the unusual step as the mortgagee of the JKAM mortgage to permit a lawyer associated with the mortgagor to draft the mortgage. Mr Elia was well experienced in commercial matters to know that as mortgagee he was entitled to stipulate the terms of the mortgage that he wanted for JKAM. But he was prepared to acquiesce in a course of dealings in which Mr Alcorn drafted the September 2012 lease and all the other documents in December 2012. This would not have happened without Mr Elia reposing significant levels of trust in Mr Damien and Mr Alcorn. And the trust went so far as Mr Elia not only taking drafts from Mr Alcorn, but being prepared to execute them without double checking them with separate lawyers. 5. Thus, what was said in this conversation needs to be judged in that background, which makes more likely conversations which may at first appear improbable. But the Court does not accept that all of this conversation took place in the way that Mr Elia says it did. 6. In the Court's view it is unlikely that Mr Damien lied directly to Mr Elia in this conversation. It is probable that Mr Elia asked Mr Damien whether he owed Champion any money. It is also likely, in the Court's view, that Mr Damien simply fudged his answer by saying there was a dispute but it is likely that Mr Damien emphasised his relationship with the director, Mr Malasev, and indicated that it was likely the dispute would be resolved. 7. It is also unlikely that Mr Elia asked a direct question of Mr Damien as to whether he was "in default with the NAB". Mr Elia already knew that the NAB were putting pressure on Mr Damien to sell, and that Mr Damien was probably in default to the NAB. Mr Elia did not have to ask. But the Court infers that Mr Elia probably did ask Mr Damien about the subject of his relationship with the NAB. This was of interest to Mr Elia, who had the objective of ascertaining whether the NAB was content with Mr Damien's dealing with Mr Elia. And Mr Damien did not indicate to Mr Elia there was anything to worry about. 8. These findings about Mr Elia's knowledge of Mr Damien's default to the NAB reduce much of the significance of another related dispute between the parties about whether Mr Elia saw an email chain (sent to him on 13 July 2012) that revealed Mr Damien's then financial position in default to the NAB. Mr Elia says he did not pay much attention to the email. This can be accepted because Mr Elia was working by then on the assumption of Mr Damien's probable default to the NAB. 9. The Court accepts that on 13 July 2012 Mr Elia did ask the three broad questions about "any outstanding matters regarding the property I should know?", "do you owe money to anyone that could affect your financial situation?" and whether Mr Damien had "made any agreements with anyone regarding the Camden property". These were general precautionary questions which, even without legal advice and dealing with someone he thought he could trust, Mr Elia decided he should ask. Subject to what is said here, the Court also accepts that Mr Damien gave Mr Elia the answers that Mr Elia says he did in this conversation. 10. In the Court's view, these questions were broad enough to signal to Mr Damien that Mr Elia was interested to know (a) whether there were any encumbrances over the Camden property, which had financial significance for the commitment that Mr Elia was proposing to make through JKAM, and (b) whether there was any difficulty expressed by the NAB with Mr Damien's proposed transactions with Mr Elia. Mr Damien must have understood from the nature of Mr Elia's questions that these matters were presently of interest to Mr Elia and would continue to be of interest to him right up until he entered transactions with Mr Damien. 11. Another marker of Mr Elia's trust in Mr Damien is that when he accepted these answers at face value, he did not check them through lawyers or by searching the register and did not return to the subject to ask the questions again at any time before entering the final group of transactions in December 2012. 12. A security interest such as the Champion charge was a relevant "outstanding matters regarding the property" that Mr Elia needed to know about. Mr Damien's answer "No" could perhaps be justified in his own mind because a direct question had not been asked of him. But that question combined with the following question about owing money "that could affect your financial situation" called for Mr Damien to declare the Champion charge and the amount that was due on it. That he did not respond openly in this way was misleading and was not corrected before Mr Elia entered all four transactions. 13. The same logic called for Mr Damien later to declare the forbearance deed and the Hotray mortgage when they came into existence. 14. Finally, it is unlikely that the Elderslie property was mentioned in this conversation. This is not information that Mr Elia needed to share with Mr Damien. It is not obvious why Mr Damien needed to know about Mr Elia's decisions in relation to the Elderslie property. 15. Email correspondence directly after 13 July 2012 throws light on what was discussed that day. On 15 July 2012, Mr Elia emailed Mr Damien thanking him for the lunch on the previous Friday, saying: "Thanks for your lunch on Friday, as per our discussions please find attached proposal for repurchase of [the Camden property]. Should the conditions be agreed we will be able to sign the contract and move asap this coming week. Look forward to hearing from you." 1. Attached to this email was a document which had been put together by Mr Elia consequent upon the discussion on 13 July 2012. It reflects an early, less developed form of the transaction that ultimately devolved between them. Only parts of it are relevant to the present issues. The document had a sub-heading, "Conditions of Exchange of Contract by way of construction works to complete the project at [the Camden property]". The relevant parts of the document are as follows: "1. The agreed sale price being $1.68 million owed to the National Bank with (current bank statement with amount owing to be provided) 2. $300,000 will be paid to KARL DAMIEN on settlement. 3. All relevant council rates, water rate costs and all relevant certification fees, costs related to [DA No.], final occupation certificate inspections are to be paid by Karl Damien. 4. Karl Damien has confirmed that the monthly payments to service the property loan has been paid up to the 31/12/2012 to the national bank. 5. The agreed terms of the exchange of contract being that if the tenancy for the whole building is not fully tenanted by the end of the year, Karl Damien has agreed to release the purchaser from all contractual obligations in relation to the exchange of contract and will pay the sum of $ 480,000 plus gst being for the construction works completed at [the Camden property]. … 8. Karl Damien has granted and allowed the purchaser to borrow and obtain a second mortgage on the property owned by him [the Denham Court property]. 9. Karl Damien has granted the purchaser to borrow and obtain a second mortgage on the property known as [the Camden property]. … 15. Karl Damien will permit the purchaser to make all necessary enquires to the purchaser in relation to [the Denham Court property] and [the Camden property]. 16. Karl Damien permits the purchase make enquires to the local council and relevant services departments in relation to [the Camden property]." 1. At the end of Mr Elia's version of the conversation on 13 July 2012, he claims that he said that completion of the construction works on the Camden property would be "secured by the second mortgage over the Denham Court and Camden properties, I agree to your proposal and agreement, we have a deal". The discussion concerning the Denham Court property was not that definitive. Mr Elia's email to Mr Damien on 15 July describes his attached document as "attached proposal" and that looking ahead he says "should the conditions be agreed we will be able to sign the contract". This indicates that Mr Damien probably did not give his full assent to the proposal at the meeting on 13 July. In the Court's view, a better construction of what happened at this meeting in relation to the Denham Court property is that Mr Elia asked for security over the Denham Court property and Mr Damien said that he would consider it. 2. Mr Damien replied on 18 July 2012, giving his more up-to-date understanding of their then consensus. But it was a consensus that had very different elements from the agreements ultimately made between these parties at this time. Mr Damien contemplated the sale of the Camden property to Mr Elia's interests with the exchange of contracts within three weeks "by say 3 August 2012" with a settlement date on "say 19 October 2012". On settlement of the sale he was stipulating for the purchaser to pay him an extra $400,000. He also proposed the following if the transaction did not proceed: "11. In the event that the building is not fully tenanted by 19 October 2012 then the purchaser has the right to rescind the contract and walk away 12. That decision must be made by 26 October 2012 13. In the event that the purchaser decides to rescind the contract and walk away then Karl Damien will pay the purchaser $480,000 plus GST for the building works completed at the property 14. In order to secure that payment I will grant to the purchaser a mortgage over the properties at [the Camden property] and [the Denham Court property] Let me know if you are happy with the above, or if you need to change anything." 1. By about 18 July 2012, it can be accepted that there was a general consensus that if a contemplated sale transaction of the Camden property which would probably be completed by the end of October did not go ahead, that the Denham Court property could be used as backup security to secure the repayment of building work invested in the Camden property. 2. At that stage, both parties were uncertain as to the relative timing of completion of the construction work and the consummation of their other arrangements, so recourse to additional security was part of their consensus. But as the parties' negotiations developed and building work started, Mr Damien's position on this changed. The NAB Acts, the Narellan Sale and the Forbearance Deed – July/August 2012 1. Mr Damien owned a childcare centre at Narellan which was also security for the NAB facility. The NAB was pressing him for repayment of some of the money he owed the bank on the NAB facility. The bank required him to sell the childcare centre. The NAB withheld $200,000 from the childcare centre sale proceeds to pay down the arrears on the NAB facility and to provide a fund to meet future interest payments. 2. But Mr Damien's financial position with the NAB continued to deteriorate. The bank wanted more certainty about the timing of the sale of the Camden property. It was prepared to allow Mr Damien a degree of control over the sale, provided the sale took place within the timeframe and structure dictated by the NAB. The NAB required him to enter a forbearance deed. 3. Contents of the forbearance deed. On 27 August 2012, Mr Damien signed the forbearance deed with the NAB. The deed recited that the NAB would provide a financial accommodation to Mr Damien under a loan facility originally offered in August 2011 and that the facility was secured over the Camden property and another property at Narellan. The forbearance deed recorded that the facility was in default and that as a result the NAB had issued notices pursuant to the facility and under the securities the NAB held with its facility. 4. The forbearance deed recorded that the Narellan property had been sold and an amount equal to six months payments due on the facility had been paid from the proceeds of sale into a term deposit. The NAB agreed upon the terms of the forbearance deed to forbear from taking further enforcement action. 5. Under the forbearance deed, Mr Damien acknowledged and agreed that the facility and the securities were in default, and that the facility, the securities and certain guarantees were valid and enforceable. And the securities, as at 10 August 2012, secured an Amount Owing of $1,706,183.55 (clause 3). Subject to compliance with the forbearance deed, the NAB agreed, "to forbear from taking any action to enforce its rights arising out of the facility and securities until the Settlement Date [namely, 31 December 2012]" (clause 4). 6. Mr Damien was required to maintain interest payments falling due under the facility in order to comply with the forbearance deed, and the NAB was authorised to draw upon a term deposit to meet interest payments up until the Settlement Date (clause 5). And the borrower and guarantors were required to pay the Amount Owing on the Settlement Date (clause 5). 7. The forbearance deed regulated the sale of the remaining secured property, the Camden property. In any such sale, the forbearance deed required Mr Damien and the guarantors to obtain the NAB's prior consent to the sale before the exchange of contracts and to ensure any contract for sale was unconditional (clause 6). The guarantors under the forbearance deed were two companies associated with Mr Damien that have not otherwise featured in these proceedings. The forbearance deed closely controlled the sale of the secured property in the following other ways: providing the NAB with the agency agreement and marketing strategy; providing fortnightly updates on sale progress; providing the NAB with a copy of the contract for sale; regulating the deposit and terms and conditions of the sale; and requiring on settlement that the NAB receive the full sale proceeds to reduce the amount owing (clause 6). 8. Other standard provisions in the forbearance deed required maintenance of the secured property (clause 7), the consequences of default (clause 8), the NAB's non-waiver of rights (clause 9), and the release of rights of the borrower (clause 10). Finally, the parties were obliged that each of them, "must keep confidential the terms of this document and any information which either of them may provide to the other", except as required by law, if the information is in the public domain or with the prior written consent of the party providing the information (clause 13). The forbearance deed made time of the essence (clause 15.6). 9. Whilst Mr Damien is unlikely to have been particularly sensitive to the obligations of confidentiality that clause 13 imposed on him, it is another reason making it unlikely that Mr Damien was open with Mr Elia about the existence of the forbearance deed. 10. Disclosure of the forbearance deed. Mr Damien says that he was an open book with Mr Elia about the forbearance deed, telling Mr Elia that he had signed the forbearance deed with the bank and that he needed to pay out the NAB by the end of that year. Mr Damien says the following conversation took place between them about the forbearance deed: Mr Damien: "It is really important that settlement takes place by the end of the year (2010) because now I have signed the forbearance deed, if I don't pay out NAB by the end of the year, NAB can force me to sell the property." Mr Elia: "Yes, I understand, we will settle by the end of year." 1. Mr Elia denies any such conversation took place. The resolution of the contest about this conversation depends in part upon the credibility of the parties to it and in part upon the objective probabilities. It was in Mr Damien's commercial interests to keep his bargaining cards close to his chest and not to disclose to Mr Elia how much the NAB was pressing him. It was equally in Mr Elia's commercial interests to find out as much as he could during negotiations about Mr Damien's financial position. As the Court has already observed, both were commercially astute individuals who would have taken advantage of whatever information was available to each about the other. 2. The Court accepts Mr Elia's evidence that this conversation did not take place. Mr Damien was never as open as this with Mr Elia about the NAB. His subsequent conduct concealing the Hotray mortgage showed his willingness to keep information from Mr Elia when he chose. The same habit was evident with the forbearance deed. 3. For Mr Damien to have mentioned the forbearance deed to Mr Elia would have immediately invited Mr Elia to request a copy of it. Mr Elia could read commercial documents well enough. Mr Damien would readily have appreciated that once Mr Elia had access to the forbearance deed he would be able to determine whether the contract for sale was inconsistent with it, whether the contract for sale was likely to be acceptable to the NAB, and whether the NAB would proceed to exercise its power of sale. For Mr Damien the safer course was not to mention the forbearance deed at all, so in the Court's view he kept it to himself. 4. But it was impossible for Mr Damien to conceal from Mr Elia all the financial pressures upon him. Mr Damien was keen to negotiate within the timeframe the bank had placed on him. He knew that he could not afford to miss the forbearance deed's settlement date at the end of 2012. 5. Mr Elia was likely to have picked up some of the urgency driving Mr Damien once the forbearance deed had been signed. It is probable that whether or not Mr Damien specifically mentioned the forbearance deed in conversation, Mr Elia is likely to have discerned Mr Damien's need to have a deal done by the end of 2012. The late December timing of three of the four disputed transactions between the two men, the December 2012 deed, the contract for sale and the JKAM mortgage, would have tended to convey to a counterparty such as Mr Elia that Mr Damien was keen to conclude transactions with him before the end of 2012. 6. Mr Damien says, and the Court accepts that in August 2012 he passed the detail of his negotiations with Mr Elia over to Mr Alcorn to prepare documentation on his behalf. Mr Damien says that more communications occurred directly between Mr Alcorn and Mr Elia than between himself and Mr Elia. The email record from this time confirms frequent communications between Mr Alcorn and Mr Elia, in which Mr Alcorn is drafting transaction documents for the parties. 7. At one stage about this time the parties discussed the purchaser not being Mr Elia but his wife, Mrs Teresa Elia. But that structure was abandoned in the discussions and JKAM became Mr Damien's counterparty. The Lease to JKAM of 1 September 2012 1. Mr Damien leased the Camden property to JKAM for 15 years commencing on 1 September 2012. The September 2012 lease was witnessed by Mr Alcorn on behalf of the lessor, Mr Damien. Mr Elia's brother, Mr Johni Elia signed it as the Secretary of JKAM. 2. Few of the terms of the September 2012 lease to JKAM were controversial. The detailed terms are not included in these reasons. After an initial 15-year term, the lease afforded JKAM a further option to renew for five years, giving a total potential term of 20 years. The lease provided for an initial annual rent of $385,000 per annum, being $32,083.34 monthly in advance, inclusive of GST (clause 4 and Appendix item 1). The rent was reviewable annually in accordance with a formula provided for under the lease (clause 22 and Appendix Item 5). The December 2012 deed, clause 2(d) and (k) amended JKAM's rental obligation to the amounts payable by the lessor to the NAB and other outgoings. 3. Mr Damien's lease to JKAM commenced on 1 September 2012. The lessor covenanted for quiet enjoyment in the following terms: "9.1 The Lessor covenants that the Lessee paying the rent hereby reserved and observing and performing the covenants, conditions and restrictions in its part herein contained shall and may peaceably hold and enjoy the Premises during the term without any interruption by the Lessor or by an person rightfully claiming through, under or in trust for its subject always to the rights, powers and remedies of and reservations to the Lessor." 1. The lease contained covenants in relation to assignments and sub-leasing. The lessee, JKAM, covenanted not to assign the lease without the prior consent of the lessor (clause 10). But JKAM was entitled to grant sub-leases without the need to obtain consent of the lessor (clause 11). JKAM sublet the premises to several tenants. 2. The lease provided for the service of notices (clause 17). Any notice required to be "served, delivered or given" under the lease was able to be given by any of the means mentioned in Conveyancing Act 1919, s 120 (clause 17.1). Any notice, other document or writing served on or given by the lessor under the lease was valid and effectual "if served or given under the hand of the lessor… or by the solicitor for the lessor or by the managing agent" (clause 17.2). 3. In final submissions, JKAM alleged a breach of clause 21.3 of the lease, which provides as follows: "21.3 The Lessor shall notify the Lessee in writing of the amount payable by the Lessee pursuant to this Clause and shall specify the manner of payment and the amount to be paid by the Lessee in accordance with this Clause. The amount so specified shall be deemed to be rent due and payable on the next calendar date for the payment of rent or within fourteen (14) days from the date of notification whichever is the earliest". 1. The lease to JKAM was not registered but was executed in registrable form. The parties were in contest about which of them was responsible for registration of the lease. 2. The NAB ultimately declined to give its consent to the registration of the lease. Mr Damien says that the NAB's refusal was a factor leading to the negotiation of the December 2012 deed. 3. JKAM occupied the Camden property from 1 September 2012 until the NAB took possession in May 2015. JKAM executed building work on the property after 1 September 2012. That building work is valued in the December 2012 deed at $480,000 plus GST (and is defined as "the construction works amount"). 4. According to Mr Damien, Mr Elia began dragging his feet about the time the lease was signed. Mr Damien says that in about August/September 2012 he had the following conversation with Mr Elia: Mr Elia: "I have been served with a bankruptcy notice and I might go bankrupt. I can't raise the finance and JKAM will be unable to settle by the end of the year. Can we delay settlement for at least 12 months? We will also not be able to complete construction until sometime next year." Mr Damien: "You should have told me you are having financial problems before you started working. I would not have agreed for you to work on the property if I knew this. I will try to set the forbearance deed aside and get the lease registered." 1. Mr Damien says that as a result of this conversation the terms of their agreement, which until then had been relatively informal, were altered and were ultimately reflected in the December 2012 deed, followed by the contract for sale and the JKAM mortgage. The Court does not accept that this conversation occurred or that Mr Damien told Mr Elia about the forbearance deed at this time. The Draft Deed – 11 September 2012 1. On Friday 7 September 2012, Mr Elia, Mr Damien and Mr Alcorn met at Mr Damien's office in Prestons to discuss the terms of JKAM's potential purchase of the Camden property and their recent tenancy arrangements. What was discussed on this occasion can be inferred from the contents of the draft deed which Mr Alcorn sent to Mr Damien shortly afterwards. 2. On 11 September 2012, Mr Alcorn sent to Mr Damien the first draft of what, after various iterations, ultimately became the 10 December 2012 deed ("the draft deed"). His covering email said to Mr Damien "Draft Deed after Friday's Discussion with Mr Elia. Please send it on to him for comment ASAP". Mr Damien did so a few hours later, with a covering message to Mr Elia: "Hi Joe [Mr Elia], attached please find final draft to the Gym Contract as discussed". 3. The draft deed was different in several ways from the final executed December 2012 deed. The most controversial of these differences was that the draft deed (clause 2(h)) provided for the grant of a second mortgage security to JKAM over the Denham Court property, whereas the final deed did not. Clause 3 of the two deeds was identical. The text of clause 2 of the draft deed was as follows: "AGREEMENT BETWEEN DAMIEN & JKAM Damien and JKAM agree that: (a) the Contract for the Sale of Land between Damien & Karen Therese Elia is null and void and of no legal effect whatsoever, (b) Damien will sell the Property to JKAM or its nominee for a price of $2,081,000.00 plus GST if applicable (''Sale Price"), (c) in the event that completion is not effected by 31 December 2012 then Damien will refinance the Property and discharge the current mortgage to National Australia Bank, (d) in the event that JKAM or its nominee is unable to complete the purchase of the Property on or before 31 December 2014 then the Property will be sold and any monies over and above $2,081,000 plus any agents commission, legal fees on sale and normal adjustments will be paid to JKAM or its nominee, (e) pending Completion or Refinance of the Property Damien will be responsible for all outgoings after which JKAM will be responsible including but not limited to mortgage repayments, council rates, water rates and land tax, (f) Damien will be responsible for making good the car park area and JKAM will be responsible for all of the works to enable occupation of the improvements on the Property, (g) In the event that the Improvements on the Property are not fully tenanted by 31 December 2012 then JKAM may in its sole discretion elect not to proceed with the purchase of the Property and Damien will pay to JKAM for the construction works the sum of $480,000 plus GST if applicable ("Construction Works Amount"), and (h) to secure payment of the Construction Works Amount Damien agrees to grant to JKAM a second mortgage over the Property at [Denham Court] provided however it is agreed that the second mortgage over the property at [Denham Court] will be discharged on before 31 December 2012." 1. This draft was less detailed than the final version signed on 10 December 2012. The final version focussed more closely on the relationship between the existing lease between Mr Damien and JKAM and the proposed sale. Both sides contemplated at this earlier time that they may not be able to complete the sale and purchase of the Camden property. They also contemplated that the second mortgage over the Denham Court property would secure the construction works amount and would be discharged by 31 December 2012. This reflected the general consensus that had been reached after the meeting on 13 July 2012 that the Denham Court property could be used as additional security for repayment of the construction investment if the rest of the deal did not proceed. The date of 3 December 2012 was also the deadline for JKAM to elect not to proceed if the Camden property was not fully tenanted. But if JKAM elected not to proceed, the second mortgage over the Denham Court property was important to secure JKAM's reimbursement for its construction investment in the property. 2. The parties disagree as to how the proposed second mortgage over the Denham Court property was omitted from the final form of the deed executed on 10 December 2012. Mr Damien says that a new consensus developed to delete the Denham Court property from the final deed. Mr Elia says that the final form of the deed was only emailed to him a few minutes before it was due to be signed. He says he was not aware that the Denham Court mortgage had been deleted from the final form of the deed when he executed it. Registration of the Lease and Dealing with the NAB – October/November 2012 1. As earlier indicated, the December 2012 deed modified the 1 September 2012 lease so the lease payments would not commence until 1 January 2013 and would be limited to the value of the mortgage payments to the NAB (the December 2012 deed, clauses 2(d) and (k)). This reflected a growing realisation between the parties that meeting Mr Damien's obligations to the NAB was a critical factor in the stability of their transactions. 2. In the first week of November 2012, Mr Alcorn forwarded a draft of the December 2012 deed to Mr Elia. On 7 November 2012, Mr Damien forwarded a copy of the executed September 2012 lease to the NAB to obtain its consent to registration. 3. But the NAB did not consent immediately. On 14 November 2012, the NAB indicated that it required "a better understanding of the transaction before we can consider your request". The NAB appeared at that stage not to know of the other commercial arrangements between these parties and it had concerns about Mr Damien's financial capability. 4. Mr Damien's response to the NAB on 14 November 2012 indicated that the settlement of the purchase was unlikely to proceed by year's end. This would soon be reflected in the December 2012 deed. 5. The NAB did not give consent to the registration of the lease. It had declined its consent by the time of the contract for sale on 21 December 2012. This explains what became special condition 12.1 of the contract for sale by which Mr Damien "agrees to obtain the consent of the [NAB] in order to register the head lease attached to this contract". 6. The NAB's refusal to consent to the lease later led to attempts to refinance the Camden property with a financier that would consent to registration of the lease. Moreover, the NAB was unlikely to have consented without an occupation certificate, which could not be issued then because work on the premises was still six months away from completion. 7. On 23 November 2012, Mr Damien wrote to the NAB. The forbearance deed settlement date of 31 December 2012 was imminent. In his 23 November 2012 letter, Mr Damien stressed his longstanding relationship with the NAB since 2006, his and his company's general compliance with banking facilities, the resolution of recent issues, the fact that he had sold his childcare centre at Narellan at a loss to ensure that the NAB's loans were pre-paid, his improving financial position and the pre-leasing of part of the Camden property. Mr Damien's email also explained to the NAB that Champion had stopped construction work at the Camden property because they had underestimated the refurbishment costs but that the issue between Mr Damien and Champion had been resolved. This is the kind of downplaying of the dispute with Champion that Mr Damien was also directing at Mr Elia. 8. The same day, 23 November 2012, Mr Alcorn emailed Mr Elia another version of the draft deed being proposed for execution. This draft did not refer to the Denham Court property. This fact passed unremarked at the time by Mr Elia, who is likely to have read the draft. Indeed, he suggested changes to the draft to delete the payment of $300,000 to Mr Damien, a provision that was included in the final deed. 9. With this background, Mr Damien requested the NAB to consent to the lease to JKAM. Letters such as this show that Mr Damien was then focussed on the state of his banking relationship with the NAB. But his letter did not persuade the NAB to consent to the lease. The Executed Deed – 10 December 2012 1. Mr Joe Elia met Mr Damien at Mr Damien's Prestons office on the morning of 10 December 2012 to finalise the December 2012 deed. But how the December 2012 deed came to be signed on behalf of JKAM on 10 December presents something of a puzzle. Mr Johni Elia, not Mr Joe Elia, signed the December 2012 deed on behalf of JKAM. Mr Alcorn witnessed Mr Damien's signature on the December 2012 deed. Neither Mr Johni Elia nor Mr Alcorn gave evidence in these proceedings. 2. Mr Joe Elia's affidavit evidence in these proceedings about the course of events on the morning of 10 December was vague. As Mr Johni Elia signed the December 2012 deed, Mr Joe Elia must have taken it away from Mr Damien's Prestons office for Mr Johni Elia's signature and returned it later to Mr Alcorn after signature. An email from Mr Alcorn to Mr Damien of 13 December 2012 seeking "the exchanged deed back from you" indicates that Mr Joe Elia returned the December 2012 deed after that date. 3. The best fit for the evidence about the order and course of events that morning is recorded in Darke J's findings in the priorities judgment (at [51]), which were as follows: "51 Joseph Elia was, for some reason, late to the meeting. He did not arrive until about 11:00am. As a consequence, only the documents as between Mr Damien and Hotray were executed at the meeting. By the time Joseph Elia arrived, Mr Alcorn had left. He gave evidence that he took the documents which were to be executed by JKAM with him. Nevertheless, the Deed between Mr Damien and JKAM was executed later on 10 December 2012 when Joseph Elia arrived at Mr Damien's office. The Deed as executed appears to be in the same form as the draft sent earlier in the day to Joseph Elia, apart from an additional clause 3(q) which was in handwriting. Joseph Elia said in cross- examination that the handwritten clause was inserted by Mr Alcorn on 21 December 2012. I do not accept that suggestion, which was not contained in any of Joseph Elia's affidavits, and was not put to Mr Alcorn." 1. The December 2012 deed, as executed on 10 December, differed from the 11 September draft deed mainly in clause 2. The full text of clauses 2, 3, 3.1 and 3.2 of the executed deed provided as follows: "2. AGREEMENT BETWEEN DAMIEN & JKAM Damien and JKAM agree that: (a) the Contract for the Sale of Land between Damien & Karen Therese Elia is null and void and of no legal effect whatsoever, (b) Damien will sell the Property to JKAM or its nominee for a price of $2,081,000.00 plus GST if applicable ("Sale Price"), (c) up to and including 31 December 2012 Damien will be responsible for all mortgage repayments and outgoings for the Property including but not limited to council rates, water rates and land tax, (d) on and from 1 January 2013 JKAM will be responsible for all mortgage repayments and outgoings for the Property including but not limited to council rates, water rates, land tax, building insurance for full replacement value and public liability insurance for not less than $20m, (e) JKAM will indemnify Damien for any loss Damien suffers as a result of a breach of clause 2(d) by JKAM, (f) to secure the indemnity referred to in clause 2(e) JKAM will grant a mortgage of the lease between Damien and JKAM over the Property ("Lease"), (g) Damien will be responsible for making good the car park area and JKAM will be responsible for all other works to enable occupation of the improvements on the Property, (h) the value of the construction works undertaken by JKAM at the Property is $480,000.00 plus GST if applicable ("Construction Works Amount"), (i) to secure payment of the Construction Works Amount Damien agrees to grant to JKAM a second mortgage over the Property, (j) the Sale Price includes a payment to Damien of $300,000.00 which if not paid by 31 December 2012 will accrue interest at the rate of 10% per annum to be paid on completion and secured by the security referred to in clauses 2(f), (k) notwithstanding anything contained in the Lease to the contrary, the monthly payments to Damien pursuant to the Lease are limited to the amounts payable to the financier secured over the Property (currently NAB) as well as the outgoings referred to clause 2(d), (l) Damien will sublease from JKAM the upstairs office area accessible from the external stairs, (m) JKAM may make any alterations or additions to the Property, subject to approval by the local Council, to assist in securing any potential tenants to occupy or lease the Property, (n) Damien will not refinance or seek to raise additional funds secured over the Property without the written consent of JKAM, which such consent must not be unreasonably withheld, (o) Damien will permit JKAM to advertise the Property for lease and for sale, and (p) in the event that the Property is sold any moneys over and above $2,081,000 plus any agents commission, legal fees on sale, normal adjustments as well as any adjustments pursuant to the terms of this document will be paid to JKAM or its nominee. (q) notwithstanding anything contained in the Contract referred to in Clause 2(b) JKAM will pay Damien $2,081,000.00 plus GST on settlement. 3. RELATIONSHIP OF PARTIES 3.1 Relationship Neither this document nor any agreement referred to in this document nor the activities of the Parties shall, nor is it intended that any of the foregoing: (a) result in the creation of a partnership or other relationship whereby any of the Parties shall be held responsible or liable for any indebtedness or other financial liability of any other Party, either jointly or otherwise; permit the sharing of profits; authorise any person referred to above to pledge the credit of any other Party; impair the individual status of any Party; or create any trust between the Parties; or (b) create or result in the creation of any relationship between the Parties. 3.2 Parties to act in good faith Each Party agrees with each other Party to act in good faith in all its activities and dealings with the other parties and otherwise to perform its obligations implied as well as expressed under the terms of this document." 1. Clause 2(q) was handwritten by the parties into the text of the executed deed on 10 December. The remaining clauses of the 10 December 2012 deed did not feature in the parties' submissions. 2. The Commercial Sense of the December 2012 Deed. The commercial bargain the parties reached in the December 2012 deed may be briefly summarised. JKAM was to complete the works at the Camden property for an agreed consideration of $528,000 (being $480,000 plus GST of $48,000). The defendant would then sell the property to the plaintiff for $2.081 million. Settlement of the sale would occur on 29 November 2013 or, at JKAM's option, at a deferred date up to 29 November 2015. 3. From 1 January 2013 until settlement, JKAM would be responsible to pay rent to Mr Damien which would be equal to the mortgage liability Mr Damien had to the NAB and other outgoings on the property. At settlement, the liability to the NAB would be discharged, which was expected to be approximately $1.68 million. The balance of the settlement funds would be paid to Mr Damien with a proviso that if $300,000 was paid to him on or before December 2012 it would be accounted for as part of the $2.081 million. And if the sale did not proceed, Mr Damien would be liable for the agreed construction costs of $528,000 as a debt due to JKAM secured over the Camden property. 4. The commercial sense of the deal was that JKAM paying the rent to Mr Damien to meet Mr Damien's mortgage obligation to the NAB would stabilise that liability at a known figure of $1.68 million, despite delays to settlement. At settlement, the mortgage to the NAB would be discharged and $300,000 or a little more would be available to pay to Mr Damien. 5. JKAM's willingness to undertake the finishing of the construction work meant that if the sale to JKAM did not go ahead, and the property was sold to a third party, that JKAM would nevertheless get the benefit of any higher purchase price that Mr Damien obtained over $2.081 million: December 2012 deed, clause 2(p). 6. But the mathematics of the transaction were difficult. In the later contract for sale (clause 13.1), the $528,000 agreed value of construction costs was treated as the deposit "already paid". If at settlement that deposit and the $300,000 to be paid to Mr Damien were to be deducted, the net amount available would be $1,253,000 (being $2,081,000 less $528,000 less $300,000). This would not have been sufficient to discharge the then outstanding amount of about $1,680,000 to the NAB. 7. To avoid this undesirable outcome, the parties agreed on clause 2(q) on 10 December, which required $2,081,000 (plus GST) to be paid on settlement. This really had the effect of eliminating the use of the $528,000 as a deposit. 8. This meant that $528,000 would be added to the value of the property. Although it would not formally be added to the purchase price, it would nevertheless be an outlay of JKAM on top of the $2.081 million. Thus, the effective purchase price became $2.609 million ($2.081 million plus $528,000). This presumably represented a commercial estimate as to the probable growth in value of the property upon completion of the construction works. 9. JKAM contended before Rein J that the $528,000 for the works would be deducted from the contract price. But this is not anywhere reflected in the documents the parties signed on 10 December and would probably have made the contract commercially unworkable, as Mr Damien would have not been able to satisfy the mortgage debt. 10. The December 2012 deed, clause 2(h) caused a subsequent controversy. In the set off judgment, Rein J rejected an argument that this clause created a direct debtor-creditor liability for $480,000 between Mr Damien and JKAM. Instead, Rein J found Mr Damien was originally liable to Champion for this sum of $480,000 and that Champion had validly assigned the debt to JKAM. 11. Omitting the Denham Court property. Mr Damien gave instructions to Mr Alcorn to leave the Denham Court property out of the December 2012 deed and it was omitted from the final version that Mr Elia signed on 10 December. Mr Damien's evidence about how it came to be left out is somewhat confused: he is unsure whether he gave these instructions to Mr Alcorn just prior to 10 December or just prior to the two transactions on 21 December. 12. In summary, Mr Damien's account is that the before the day of signing Mr Elia said to Mr Damien "what about Denham Court?" Mr Damien said he replied "the building is now worth over $3 million, you do not need security from Denham Court anymore". And again Mr Damien says that he said to Mr Elia "you have the security, you will be signing the contract, technically it's going to be your building, not mine and I am the one who needs security for the $300,000…that I am getting on settlement". Mr Damien said that he was not sure whether this conversation happened on 10 December or 21 December because "there was three different documents signed on those two dates". But whichever date it was, Mr Damien was quite clear in his account in evidence that he had instructed Mr Alcorn to take the Denham Court property out of the draft and Mr Elia was aware that this had occurred. 13. This conversation probably occurred on 10 December and the topic was mentioned again on 21 December. It is unlikely that the conversation occurred for the first time on 21 December. By that time Mr Joe Elia had the signed December 2012 deed (already omitting the Denham Court property) in his possession for 11 days. The Court accepts that Mr Joe Elia is someone who "reads everything", as Mr Damien described him. So, he would have realised long before 21 December that the Denham Court property had been left out of the JKAM mortgage. 14. In final submissions, JKAM seized upon admissions by Mr Damien that he instructed Mr Alcorn to leave the Denham Court property out of the December 2012 deed without Mr Elia's knowledge. But although that may be so, when the evidence is read as a whole, it shows Mr Elia was aware of the omission of the Denham Court property before he actually signed the document. So, he was not misled at execution. 15. This was an important issue to both Mr Elia and Mr Damien and was a matter discussed between both men on several occasions. The Court accepts Mr Damien's recollection that the omission of the Denham Court property was discussed face-to-face on 21 December, as Mr Damien said "I recall Mr Elia was sitting opposite my desk and I remember him raising it and I explained it to him and he was happy". 16. But because Mr Elia was, as Mr Damien described, "a very astute businessman. He reads everything" it is probable that a similar conversation occurred on 10 December. Mr Damien must have given the initial instructions to Mr Alcorn for the omission from the December deed on or shortly before 10 December. 17. The Court accepts the central thrust of Mr Damien's account that Mr Elia wanted the Denham Court property left in as security for the construction loan, but that Mr Damien insisted that as building work was getting underway and the building was probably then worth over $3 million, that Denham Court was no longer needed to provide security for a construction debt of $528,000 owed to JKAM. According to Mr Damien's argument at the time, there was over $1 million in equity in the building after deduction of the NAB debt. In the Court's view, Mr Elia accepted this financial logic and ultimately dropped his request for the inclusion of the Denham Court property as part of the security. Although he did not give up trying to see if Mr Damien was prepared to change his mind on the subject. 18. But the fact that Mr Elia was persuaded by the logic of $1 million equity to drop the Denham Court property makes it more improbable that he would have consented to the JKAM mortgage taking priority after the Hotray mortgage. As will be seen in the next sections, but for an issue-estoppel the Court does not accept Mr Damien's account that Mr Damien disclosed the creation of the Hotray mortgage over the Camden property to Mr Elia at the time that it was created. According to Mr Damien, Mr Elia "was extremely sympathetic towards my financial position". Mr Damien says he told Mr Elia that Mr Alcorn wanted the Hotray mortgage and that Mr Elia said to him (Mr Damien), "it is the money you owe him; I do not care, it is your $300,000". The Court does not accept Mr Elia said this to Mr Damien. There was no discussion between the two of them about the Hotray mortgage on 10 December, or any time before 21 December. Issue-Estoppel for the Priorities and Set Off Judgments 1. In the next section of these reasons, the Court examines the circumstances of the execution of the Hotray mortgage. But the Court's present reasoning on that subject is constrained by an issue-estoppel. So it is first necessary to explain how the issue-estoppel applies in these proceedings. 2. This case is complicated by the multiplicity of proceedings between these parties. The parties have at times rather indiscriminately referred to evidence and findings in the priorities proceedings and the set off proceedings, as if the Court could draw upon them directly. But the Court has had primary regard in these proceedings to the affidavit evidence adduced from the principals, Mr Elia and Mr Damien, upon which they were cross-examined, rather than transcripts of evidence in earlier proceedings. 3. Both parties at different times called in aid findings which had been made in these two prior proceedings that were said to create estoppels. The Court required the parties to cite these findings with precision. They were supplied to the Court and became Exhibit D. It is necessary to decide whether any parts of these two previous judgments create issue-estoppels and in what respects. 4. The Court's findings in this case differ from those in the previous proceedings. The differences are mainly in relation to supplementary matters which are referred to in this judgment that are not referred to in the previous judgments. It is necessary for the Court to assess the extent to which it is bound in its reasoning by the previous judgments. The parties referred to the previous judgments in their pleadings, but did not plead particular issue-estoppels. Notwithstanding that, res judicata issue-estoppels were raised in final submissions. 5. The applicable law may be shortly stated. Two main public interest policies support the doctrine of res judicata. The first is the interest of the community in determining disputes and the finality and conclusiveness of judicial decisions. The second is the interest of the individual in being protected from repeated suits and prosecutions for the same cause: Rogers v R (1994) 181 CLR 251 at 265–273; (1994) 123 ALR 417; (1994) 68 ALJR 688; [1994] HCA 42, New Brunswick Railway Company v British & French Trust Corporation Ltd (1939) AC 1 at 19–2; [1938] 4 All ER 747; (1938) 160 LT 137, Burrell v R (2008) 238 CLR 218 at [15] and [20]; (2008) 248 ALR 428; (2008) 82 ALJR 1221; (2008) 186 A Crim R 354; [2008] HCA 34, Clayton v Bant (2020) 385 ALR 41; [2020] HCA 44. 6. A party setting up a res judicata as an issue-estoppel against an opponent's claim or defence, or as a foundation of that party's own case, must establish the constituent elements of the issue-estoppel based on the features of the earlier and later decisions. These constituent elements are the following: the earlier decision was judicial, and formally pronounced; the earlier tribunal had jurisdiction over the parties and the subject matter; the earlier decision was final and given on the merits; the earlier decision determined a question raised in the later litigation; and the parties are the same, or their privies, in both proceedings or the earlier decision was in rem: Marginson v Blackburn Borough Council [1939] 1 All ER 273 at 438; (1939) 2 KB 426; (1939) 108 LJKB 563, see also S. Bower and K. R. Handley, Res Judicata (5th ed, 2019, LexisNexis) ("Handley") at [1.02]. 7. All but one of the constituent elements of an issue-estoppel are present in this case. Both earlier judgments were judicial decisions of this Court which were pronounced. This Court had jurisdiction over the parties and the subject matter. And the decisions were final and given on the merits. Moreover, the parties to both decisions are the same. In the priorities judgment, two proceedings were heard together. Champion brought the first proceeding against JKAM and Mr Damien. Hotray brought the second proceedings against JKAM and Mr Damien. In the second proceedings, Mr Damien brought a second Cross-Claim against JKAM. The requirement of the same parties to a proceedings was satisfied. 8. A judicial decision can operate as a res judicata estoppel, or it may constitute a merger of the cause of action sued upon. If an action succeeds, the cause of action which is sued upon merges in the judgment and is extinguished: Blair & Perpetual Trustee Co Ltd v Curran (Adams' Will) (1939) 62 CLR 464 at 532 per Dixon J; (1939) 13 ALJR 131; [1939] HCA 23 ("Blair v Curran"). A second cause of action cannot be brought on that cause of action, because it no longer exists: Handley at [1.04]. 9. Whether a cause of action fails or succeeds, a judicial decision may also create an issue-estoppel on some question of fact or law that was necessarily decided as part of its legal foundation which prevents that question being re-litigated in proceedings on a different cause of action: Blair v Curran at 531 per Dixon J, and Handley at [1.05]. The question here does not involve the merger of a cause of action. Rather, it is whether there was issue-estoppel on some question of fact or law that was necessarily decided as part of the legal foundation of the previous decisions. 10. The parties here did not dispute that the causes of action which were being propounded and defended in the priorities proceedings and in the set off proceedings were quite different from the causes of action at issue in the present proceedings. The priorities proceedings concerned the relative priority of these equitable interests and whether any interest holder had engaged in postponing conduct. The present proceedings concern claims for misleading and deceptive conduct and in contract. 11. Three aspects of these two prior determinations are relevant: (1) the outcome or result of the two prior decisions, (2) the interpretation of the documents which were executed between the parties and which were construed in the two prior decisions and are being construed in this judgment, and (3) the findings of fact in the two previous decisions. It is only the last of these that cause any real controversy between these parties. 12. As to aspect (1), no party in these proceedings sought to alter the orders or the outcome of either the priorities judgment or the set off judgment. Indeed, the Further Amended Statement of Claim and Defence were pleaded accepting the outcomes of both proceedings. 13. As to aspect (2), the Court's construction of relevant terms of the September 2012 lease, the December 2012 Deed, the contract for sale and the JKAM mortgage in these proceedings is not in conflict with the construction of those same documents in the two earlier proceedings. 14. As to aspect (3), in one important respect the findings of fact of Darke J in the priorities judgment in relation to the disclosure of the Hotray mortgage to Mr Elia precludes the possibility of different findings in this judgment. But first the legal reason that an issue-estoppel arises in this matter must be explained. 15. Determinations which found an issue-estoppel may be determinations of law, fact or mixed fact and law: Jones v Lewis (1919) 1 KB 328; 344-345 and Handley at [8.04]. For example, an issue-estoppel can apply to the proper construction of a will or other instrument. Blair v Curran itself is an example of the application of doctrines of issue-estoppel to the construction of a will which had led to orders in previous proceedings; that construction was held to be binding in later proceedings. 16. Issue-estoppel only arises from the fundamental issues determined in the earlier proceedings and which form the basis of the judgment in the earlier proceedings. Determining in later proceedings what those issues are may be a matter of some difficulty as Dixon J explained in Blair v Curran at 531–533: "A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be demanded or be restrained or that right be declared. The distinction between res judicata and issue-estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order. Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue­ estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived. But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order. In the phraseology of Coleridge J in R v Inhabitants of the Township of Hartington Middle Quarter (1855) 4 E & B 780; 199 ER 288 at 293, the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous. In the phraseology of Lord Shaw, "a fact fundamental to the decision arrived at" in the former proceedings and "the legal quality of the fact "must be taken as finally and conclusively established (Hoystead v. Commissioner of Taxation (1926) AC 155). But matters of law or fact which are subsidiary or collateral are not covered by the estoppel. Findings, however deliberate and formal, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion. Decisions upon matters of law which amount to no more than steps in a process of reasoning tending to establish or support the proposition upon which the rights depend do not estop the parties if the same matters of law arise in subsequent litigation. The difficulty in the actual application of these conceptions is to distinguish the matters fundamental or cardinal to the prior decision or judgment, decree or order or necessarily involved in it as its legal justification or foundation from matters which even though actually raised and decided as being in the circumstances of the case the determining considerations, yet are not in point of law the essential foundation or groundwork of the judgment, decree or order." 1. The parties here have proceeded on the basis that Champion, JKAM and Hotray all acquired the equitable interests that they claimed in the priorities proceedings, and none of them sought to disturb that conclusion. And no party sought to disturb the outcome of the set off judgment. 2. However, some incidental findings in the priorities judgment relating to the conduct of Mr Alcorn on behalf of Hotray need to be considered. The findings are that Mr Alcorn disclosed the Hotray mortgage to Mr Elia before Mr Elia executed the contract for sale and the JKAM mortgage. The question is whether the parties and this Court are now bound by those determinations as issue-estoppels. The relevant passages of Darke J's reasons are found at [108] – [113] of the priorities judgment as follows: "108 There was also no challenge to Mr Alcorn's affidavit evidence that at the meeting at Mr Damien's office on 21 December 2012 Joseph Elia enquired of Mr Alcorn about "your documents" and, in response, Mr Alcorn said that they had been signed on 10 December 2012 and he had already lodged a caveat to protect his mortgage. I have some disquiet about that evidence. In particular, I do not think that Joseph Elia would have asked about Mr Alcorn's documents in circumstances where (as I have found) Mr Alcorn said nothing to Joseph Elia about an intention to take security over the Property. Nevertheless, it was part of JKAM's postponing conduct case that Mr Alcorn did not inform JKAM on 21 December 2012 about the interest Hotray had taken some eleven days earlier. Accordingly, the adducing of evidence in rebuttal, and a direct challenge to Mr Alcorn in the witness box, was to be expected. In their absence, I accept, with some hesitation, that on 21 December 2012 Mr Alcorn did say something to Joseph Elia to the effect that he (Mr Alcorn) had taken security over the Property and lodged a caveat. 109 In my view, JKAM has failed to establish that any conduct of Hotray would, in all the circumstances, be regarded as postponing conduct justifying a conclusion that it would be inequitable for Hotray to maintain its priority. I agree that Hotray took advantage of Joseph Elia's failure to attend as arranged on 10 December 2012. It did so by proceeding with the execution of its documents. Hotray could have delayed that process so that all of the documents would be executed on the one occasion as envisaged. Had that occurred, it is likely, as conceded by Mr Alcorn, that JKAM would have acquired its interests before Hotray acquired its interest. 110 However, there was no agreement or arrangement between the parties to the effect that the interests be acquired in any particular order. Indeed, JKAM was not told that Mr Alcorn, or any company associated with him, was intending to take security over the Property. JKAM may thus be taken to have been proceeding unaware of the taking of any such interest. It was proceeding independently of whatever agreements existed as between Mr Damien and Mr Alcorn. 111 JKAM had been told that Mr Damien owed a considerable amount of money to Mr Alcorn, but it appears that, once again, JKAM made no enquiry about Mr Alcorn's position, including whether he claimed or intended to claim any interest in the Property. According to Joseph Elia, he was content to rely upon the "accuracy and integrity of all legal documents concerning the property" as prepared and presented to him by Mr Alcorn who he understood to be Mr Damien's lawyer. However, in cross-examination, he conceded that he knew that Mr Alcorn was advising Mr Damien and not JKAM, and there was evidence that JKAM had its own legal advisers available to it, namely, Bayside Solicitors of Ramsgate and (by 21 December 2012) J K Solicitors of Bexley North. 112 In these circumstances, Hotray's conduct in proceeding without delay with the execution of its documents on 10 December 2012 does not strike me as amounting to sharp practice. It should be noted that it was not put to Mr Alcorn in cross-examination that his conduct was of that character. 113 In addition, for the reasons given earlier, I accept that JKAM was told on 21 December 2012 that Mr Alcorn had taken security over the Property and lodged a caveat. I therefore do not accept JKAM's submission that it proceeded to take its interests in ignorance of the existence of an interest claimed by Mr Alcorn or a company associated with him. It is not surprising that JKAM would proceed regardless given that it had carried out a great deal of construction work for the financially distressed Mr Damien, for which it had not been paid, and the transaction offered means by which recompense for the work might be obtained, and the opportunity to acquire a good investment." 1. Hotray conducted a case before Darke J that Mr Alcorn had informed Mr Elia on several occasions between September and November 2012 that he, Mr Alcorn, was owed "considerable money by Mr Damien". But whilst accepting this evidence Darke J nevertheless rejected Mr Alcorn's evidence that Mr Alcorn had said to Mr Elia during this period that Hotray was to be given security for the debt owed to him by Mr Damien. Then the passage cited above appears in Darke J's priorities judgment at any time before 21 December: priorities judgment at [103] – [107]. 2. Darke J's priorities judgment then deals (at [114] – [118]) with whether or not Hotray took its interest in the Camden property with notice of an interest being held by JKAM as a mortgagee. This issue was based on the email Mr Damien sent to Mr Elia on 18 July 2012, an email which was undoubtedly prepared with input from Mr Alcorn, the principal of Hotray. But Darke J did not find as a result of this email correspondence that Hotray took its interest with notice of any interest held by JKAM as mortgagee. Darke J then concluded (at [119]): "119 My conclusions that neither Champion nor Hotray was guilty of postponing conduct, and that Hotray did not take its interest with notice of an interest held by JKAM as a mortgagee, mean that priority in relation to the various equitable interests described at [85] above is to be determined by the order in which the interests were created." 1. The question is whether the parties to these proceedings are bound by Darke J's conclusion at [113] that JKAM was told on 21 December 2012 that Mr Alcorn [Hotray] had taken security over the Camden property and lodged a caveat. That finding would be fatal to JKAM's misleading and deceptive conduct case against Mr Damien relating to the Hotray mortgage. If Mr Damien was aware of the Hotray caveat (and therefore the JKAM mortgage) before he signed the contract for sale on 21 December, he was not misled by Hotray's silence. The course of events would then show Mr Elia was prepared to proceed, notwithstanding that Hotray's interest would have priority over the interests he was creating through the contract for sale and the JKAM mortgage. 2. That in turn raises the question whether Darke J's findings in the priorities judgment are matters that must necessarily be established as the legal foundation or justification of Darke J's conclusions. To put it another way, and to use the language of Blair v Curran, whether they are "legally indispensable to the conclusion". 3. In the Court's view, Darke J's findings do operate as an issue-estoppel, because they are legally indispensable to his conclusions. In the priorities proceedings, to determine the respective priorities of the interests of Hotray, JKAM and Mr Damien, it was essential to determine if Hotray engaged in postponing conduct in relation to JKAM. If Hotray had kept JKAM in ignorance of the Hotray caveat before JKAM signed the contract for sale and the JKAM mortgage, it could be concluded that Hotray was guilty of postponing conduct. But Darke J found that Hotray had revealed this information to JKAM and that Hotray was therefore not guilty of postponing conduct. It was therefore essential to his Honour's reasons for decision. That finding is now binding as an issue-estoppel. 4. That then has an effect on the prior encumbrance misleading conduct case, so far as it relates to the Hotray mortgage, but not relating to the Champion charge. 5. Darke J's findings in the priorities judgment did not create any obstacles for the case that JKAM now seeks to conduct against Mr Damien in relation to the prior encumbrance misleading conduct relating to the Champion charge, or in relation to the NAB loan facility misleading conduct. Darke J's findings, that Champion remained silent as to its rights over the Camden property and its failure to lodge a caveat, did not in the circumstances of this case amount to postponing conduct: priorities judgment at [96] – [98]. Those findings do not impair JKAM's ability to contend that Mr Damien misled it in relation to the Champion charge. 6. In case this judgment should go on appeal, and the conclusion that an issue-estoppel arises out of the priorities judgment at [113] is overturned, it is important for the Court to make its own findings absent an applicable issue-estoppel. So these reasons take that course and show that, but for the applicable issue-estoppel, the prior encumbrance misleading and deceptive conduct with respect to the Hotray mortgage would have been made out. That is dealt with in the next section, as if the issue-estoppel did not apply. The Hotray Mortgage – 10 December to 21 December 2012 1. On the same day that the deed was signed, 10 December 2012, Mr Alcorn executed a deed and a mortgage to Hotray over the Camden property ("the Hotray mortgage") without Mr Elia's knowledge. According to Darke J's findings (at [51]) Mr Alcorn executed these documents in the two hour period during which Mr Joe Elia was late for the meeting. On 18 December 2012, Mr Damien executed the Hotray mortgage as counterparty and the same day Hotray lodged a caveat against the Camden property ("the Hotray caveat"). Mr Damien's alleged non-disclosure of JKAM's simultaneous transaction with Hotray is central to part of JKAM's misleading and deceptive conduct case. 2. Mr Alcorn was the sole director and secretary of Hotray in December 2012, and was the signatory on behalf of Hotray on 10 December 2012. Mr Alcorn's business, advisory and legal services had been provided to Mr Damien through Hotray for several years. Mr Alcorn was not the beneficial owner of the shares in Hotray. The identity of the beneficial owner of the shares in Hotray is not clear on the evidence. Mr Damien did not go to any lengths to establish that his dealings with Hotray were at arm's length. No explanation has been given in these proceedings as to why Mr Alcorn drew up these two documents and obtained these securities for Hotray over the Camden property at this precise time, which was financially advantageous to Mr Damien, rather than at some other time. 3. In the priorities proceedings before Darke J, to which Mr Damien was not a party, an explanation was given that Mr Alcorn was becoming concerned in December 2012 that Mr Damien might not pay him money that was outstanding, which as at 10 December 2012 Darke J found to be $270,000. But Mr Alcorn has not given evidence in these proceedings and the Court would not accept such an explanation in these proceedings. 4. If the issue-estoppel does not apply, the Court would accept Mr Elia's evidence in these proceedings that he was unaware of either the Champion charge or the Hotray mortgage before he executed the JKAM mortgage or the contract for sale on 21 December 2012. Had he been aware of the Hotray caveat filed on 18 December, it is likely that a person of his financial sophistication would have immediately reacted to this information. He would have quickly appreciated that he would later have to compete with the interest that Hotray was creating in the Camden property. He would have raised this surprising new information with Mr Damien on 21 December. But he did not, from which the Court infers both that Mr Elia was then unaware of the Hotray mortgage, and that Mr Damien was aware that Mr Elia was unaware of the Hotray mortgage. 5. Although Mr Elia was financially sophisticated and able to look after his material interests at a business level, he was not legally sophisticated. He sufficiently trusted Mr Damien that he was prepared to go along with Mr Alcorn preparing for both sides all the legal documents that Mr Elia signed on 20 and 21 December 2012. Mr Damien and Mr Alcorn must have recognised that Mr Elia was placing a considerable degree of trust in them and that in these circumstances Mr Elia expected that they were not creating anything or concealing anything which would work to his substantial financial disadvantage. The Hotray mortgage and the December 2012 deed were sufficiently complex documents that they must have been in preparation for a number of days before 10 December. During this period it must have been clear to both Mr Alcorn and Mr Damien that Mr Elia (a) continued to be ignorant of the Hotray transactions and (b) was not asking questions about the possible creation of other securities over the Camden property, because he trusted them. 6. Mr Alcorn sent the final form of the deed that was executed on 10 December 2012 to Mr Elia at 8:56 AM that very day. This was two hours before Mr Elia attended to collect the deed for execution on behalf of JKAM. Unlike the omission of information about the Hotray mortgage, the absence of any reference to a security over the Denham Court property was discernible to any reader of the deed. Mr Alcorn's email invited attention to the final draft, saying, "further draft deed for consideration attached". 7. Before the JKAM mortgage and the contract for sale, the December 2012 deed was in Mr Elia's hands for 11 days, from 10 December 2012 to 21 December 2012. He had ample time to read the document and discover that reference to security over the Denham Court property was absent and to raise the issue with Mr Damien, if the absence of the Denham Court property was contrary to Mr Elia's expectations. He did not raise the issue with Mr Damien, although he did read transaction documents given to him. The Court infers its absence was not contrary to Mr Elia's expectations. 8. Mr Elia's trust in Mr Alcorn and Mr Damien and his lack of enquiry about the Hotray mortgage continued right up until Mr Damien executed the Hotray mortgage as counterparty on 18 December 2012. That trust continued right through the period Mr Elia received the draft JKAM mortgage and contract for sale documents on 19 December 2012 from Mr Alcorn and up until on behalf of JKAM Mr Elia entered into the transactions on 21 December 2012. 9. The same day the Hotray caveat was lodged, Mr Elia had a conversation with Mr Alcorn about the contract for sale and about the preparation of caveats to protect JKAM's interests in the Camden property, as lessee, as purchaser under the contract for sale and under the JKAM mortgage. Here Mr Alcorn was preparing documents to protect JKAM's interests. Mr Elia was entitled to expect Mr Alcorn and Mr Damien were not creating other documents which were harming JKAM's interests. 10. Mr Elia did not ask Mr Damien or Mr Alcorn about the Hotray caveat between 18 and 21 December 2012. They must both have appreciated from Mr Elia's silence on the subject that he was unaware the Hotray caveat had been filed. They knew him sufficiently well that if he had been aware of the caveat, he would have raised it with them. The JKAM Mortgage and the Contract for Sale – 21 December 2012 1. On 21 December 2012 Mr Elia attended Mr Damien's offices in Preston to execute the JKAM mortgage and the contract for sale of the Camden property from Mr Damien to JKAM and to receive caveats protecting JKAM's interests in the JKAM mortgage, the contract for sale and the lease. The JKAM mortgage and the contract for sale were executed. Their relevant terms are recorded in this section of these reasons. 2. There was strong disagreement between the parties about what passed between them in relation to the caveats at this morning meeting, at which three persons were present, Mr Damien, Mr Elia and Mr Alcorn. His absence was not explained. He was acting in the role of Mr Damien's advisor and was clearly in Mr Damien's camp. Mr Elia submitted that a Jones v Dunkel (1959) 101 CLR 298; [1959] ALR 367; (1959) 32 ALJR 395 inference should be drawn against Mr Damien because of his unexplained absence. Mr Alcorn's absence allows the Court to infer that his evidence would not have assisted Mr Damien's case. Events at this meeting are discussed in the next section of these reasons. 3. The 10 December 2012 deed (clause 2(i)) contemplated that the parties would enter a mortgage to secure Mr Damien's obligations to JKAM to pay for the construction works, which were then only partially complete. The parties signed the JKAM mortgage on 21 December 2012 with Mr Damien as mortgagor and JKAM as mortgagee. Mr Alcorn witnessed Mr Damien's signature on the JKAM mortgage. 4. Under the terms of the 2012 mortgage, the mortgagor covenanted that he "mortgages to the mortgagee all the mortgagor's estate and interest in the [Camden property] upon terms incorporated into Annexure A" to the Mortgage. New South Wales Stamp Duty was paid on the Mortgage in respect of a mortgaged amount of $526,300.50. 5. A limited number of the provisions of Annexure A became relevant to the parties' submissions in the proceedings. These are set out below: "1. INTERPRETATION 1.1 Definitions 'Agreement' means the agreement between the Mortgagor and the Mortgagee dated on or about the date of this document. 'Encumbrance' means any interest in or right over property and anything which would at any time prevent, restrict or delay the registration of any interest in or dealing with the property. It includes a Security Interest. 'Finance Document' means the Agreement and this Mortgage. 'Obligations' means all liabilities and obligations of the Mortgagor to the Mortgagee under or by reason of any Finance Document and, without limiting the generality of the foregoing, includes any liabilities or obligations which: (a) are liquidated or unliquidated; (b) are present, prospective or contingent; (c) are in existence before or come into existence upon or after the date of this Deed; (d) relate to the payment of money or the performance or omission of any act; (e) sound in damages only; or (f) accrue as a result of any Event of Default, 'Permitted Encumbrace' means: (a) any prior registered dealing; or (b) an Encumbrance which has been approved by the Mortgagee (including the Security Interests created by this document); or 'Secured Money' means all money the payment of which from time to time forms part of the Obligations. 'Secured Property' means the land described on the front page of the cover sheet of this document and any Improvements. 'Security' means any document or transaction which reserves or creates a Security Interest. 2. CONSIDERATION The Mortgagor enters into this document for valuable consideration from the Mortgagee and receipt of the consideration is acknowledged. 3. MORTGAGE AND DISCHARGE 3.1 Mortgage The Mortgagor as beneficial owner mortgages the Secured Property (and to the extent permitted by law, any Licences granted to the Mortgagor in respect of the Secured Property or any business conducted on the Secured Property) to the Mortgagee to secure the performance of its Obligations and the payment by it of the Secured Money. 4. PAYMENT OF SECURED MONEY 4.1 Place, manner and time of payment The Mortgagor, subject to clause 7.2, must pay the Secured Money to the Mortgagee in accordance with any agreement which obliges the Mortgagor to pay it and in the absence of agreement: (a) on demand and at a place and in a manner reasonably required by the Mortgagee; (b) by 11.00 am local time in the place where payment is to be made; and (c) in immediately available funds and without set-off, counter claim, condition or, unless required by law, deduction or withholding. 5. INTEREST 5.1 Interest The Mortgagor must pay interest on that part of the Secured Money which is from time to time owing by the Mortgagor to the Mortgagee. 5.2 Rate (a) Interest must be paid in accordance with any agreement requiring interest to be paid on the Secured Money. 6. GENERAL OBLIGATIONS 6.1 Satisfaction of Obligations The Mortgagor must satisfy, or procure the satisfaction of, its Obligations and will pay the Secured Money in the manner provided in this document or in any Finance Documents. 6.2 Prohibited dealings (a) The Mortgagor must not except with the consent of the Mortgagee: (i) sell, agree to sell, give any option to purchase, transfer, lease, agree to lease, otherwise dispose of or deal with the Secured Property or cause or permit any person to acquire any interest (except a Permitted Encumbrance) in: (A) the Secured Property; (B) the Rents; or (C) any rights or benefits relating to the Secured Property (including rights to air space, plot ratio, floor space ratio or other similar ratio); … (iii) part with possession of the Secured Property, give a licence to use or occupy the Secured Property or consent to the subletting of the Secured Property; 6.3 No other secured indebtedness The Mortgagor must not incur any debt or monetary obligation (whether actual or contingent) to a holder (other than the Mortgagee) of a Security Interest over the Secured Property to the payment of which is secured by that Security Interest. 6.15 Caveats The Mortgagor must ensure that a caveat is not lodged in respect of the Secured Property." 1. The JKAM mortgage, clause 7 provides powers that the mortgagee may exercise upon default. The JKAM mortgage, clause 7.2 allows for the acceleration of the principal sum by notice from the mortgagee. The following further clauses in the 21 December 2012 mortgage were relevant to submissions made by the parties: "12. PRESERVATION OF MORTGAGEE'S RIGHTS 12.1 Continuing security This document is a continuing security for the whole of the Secured Money and is not limited to any transaction or other thing. 12.2 Primary obligations The Mortgagor's obligation to pay the Secured Money is a primary obligation and the Mortgagee is not obliged to proceed against or enforce any other right against any person or property or demand payment from any OTHER person before making a demand for payment by the Mortgagor of the Secured Money. 12.3 Preservation of Mortgagor's obligations The Mortgagor's obligations and the Mortgagee's rights under this document will not be affected by anything which but for this clause 12.3 might abrogate, prejudice or limit them or the effectiveness of this document. 13 COSTS AND EXPENSES 13.1 Interpretation A reference to 'costs and expenses' in this document includes legal costs and expenses on a full indemnity basis. 13.2 Nature The Mortgagor must pay and if paid by the Mortgagee reimburse to the Mortgagee: (a) the Mortgagee's costs and expenses in relation to: (i) the exercise or attempted exercise or the preservation of any rights of the Mortgagee under the Finance Documents; (ii) the occurrence of any Event of Default or Potential Event of Default; and (iii) the lodgement or removal of any Encumbrance by any person; and 14 INDEMNITIES 14.1 Nature The Mortgagor indemnifies the Mortgagee on demand against any liability, loss, cost or expense caused or contributed to by: (a) any failure of the Mortgagor to comply with any obligation under any Finance Document; (b) any Event of Default; (c) the exercise or attempted exercise of any right by the Mortgagee, a Receiver or an Attorney under any Finance Document; or (d) any act by the Mortgagee in reliance on any communication purporting to be from the Mortgagor or to be given on behalf of the Mortgagor. 16 ATTORNEY 16.1 Appointment The Mortgagor irrevocably appoints the Mortgagee the Mortgagor's attorney with the power: (a) at any time to: (i) do everything which in the Attorney's reasonable opinion is necessary or expedient to enable the exercise of any right of the Mortgagee in relation to this document; (ii) complete the Finance Documents to which it is a party; and (iii) appoint substitutes and otherwise delegate its powers (including this power of delegation); and" 1. At the same meeting at Prestons Mr Elia signed the contract for sale of the Camden property on behalf of JKAM as purchaser. Mr Damien was named as vendor under the contract for sale. The consideration expressed for the purchase was $2,081,000 with a deposit of $208,100, leaving a balance due at completion of $1,872,900. 2. The Camden property was described in the contract for sale as a "commercial building". Mr Alcorn is described in the contract for sale as being "In House Legal Services" at "Beneficial Marketing Pty Limited", an entity associated with Mr Damien. Mr Alcorn was also described in the contract for sale as the vendor's representative. 3. The contract for sale was in the form of the 2005 Edition of the Law Society and the Real Estate Institute contract for the sale of real property. A few of the special conditions of the contract for sale were adverted to in the parties' submissions. These are set out below: "4. Completion 4.1 Subject to special condition 11.1 and unless this Contract has in the meantime been rescinded, completion of this Contract shall take place on or before 29 November 2013 ('Completion Date'). 11. Extension of the Completion Date 11.1 The Purchaser has the right at his own discretion to extent the Completion Date by up to 2 years from the 29 November 2013 by written notification served upon the Vendor or the Vendors Solicitors not later than two weeks before the expiry of the Completion Date being the 29 November 2013. 12. Registration of the Head Lease attached to this Contract 12.1 The Vendor (Lessor) agrees to obtain the consent of the mortgagee in order to register the Head Lease attached to this Contract for the sale of the land as soon as possible and until the Head Lease is registered on title the Purchase (Lessee) is not obliged to pay any rent and outgoings under the terms of the Head Lease. If there are any inconsistencies between the terms of the special conditions and the attached Head Lease then the terms of the special conditions will prevail. The Vendor (Lessor) agrees to be liable for all the payments under the terms of the Head Lease and keep the Purchaser (Lessee) indemnified until the Head Lease is registered on title. 13. Deposit 13.1 The Vendor acknowledges that the Purchaser has already paid the Deposit in the value of $528,000.00 which has been used towards the improvements on the site." 1. Although the execution of the JKAM mortgage and the contract for sale on the morning of 21 December 2012 are not controversial, the circumstances of Mr Damien's provision of caveats to Mr Elia were strongly contested. The Caveats and the Meeting at Prestons – 21 December 2012 1. Before Mr Elia arrived at Mr Damien's office at Prestons, Mr Elia emailed Mr Damien and Mr Alcorn at 8.51am stating "please find attached amended special conditions of the contract of sale" and "I require the following caveats to be prepared". Mr Elia's email required three caveats to record JKAM's equitable interests in the Camden property created by three instruments, the JKAM mortgage, the contract for sale and the lease. These were numbered as requests 1, 3 and 4 in the email. These three caveats were given to Mr Elia at the meeting that morning. He lodged them the same day and they were noted on the title of the Camden property. 2. But Mr Elia's 8.51am email asked for two other caveats (items 2 and 5) that he did not receive at the subsequent meeting, namely: "2. Caveat for $528k Construction ('Facts') to be used, the owner Karl Damien consents/Acknowledges the investment in $528 in site improvements for [the Camden property]. … 5. Previously discussed and agreed however due to the current circumstances a Caveat on [the Denham Court property] ('instrument') to be used facts owner consents/acknowledges in investments of $528 k to property owned by Karl Damien [the Camden property] where property at [the Denham Court property] is used as security". 1. Before signing off, Mr Elia wrote in the email, "I will see you at your office this morning". He arrived at Mr Damien's Prestons office late after sending this email. 2. The language of items 2 and 5 is legally obscure and ungrammatical. Item 2 clearly enough seeks to eliminate any dispute that Mr Damien owed a debt of $528,000 to JKAM in respect of the construction work done on the Camden property and that this would be the subject of a caveat, presumably over the Camden property. In item 2 the value of $528,000 of construction work done (which had been agreed in the December 2012 deed, clause 2(h)) is curiously described as "Facts", a word which reappears in item 5, as a shorthand description of the value of the construction works at the Camden property. 3. On one interpretation item 5 seeks to record a prior agreement that a caveat could be placed on the Denham Court property to add to the security for Mr Damien's obligations to JKAM for the improvements to the Camden property. An odd feature of item 5 is that it seeks to explain why the caveat is required: "[p]reviously discussed and agreed however due to the current circumstances a caveat…". This suggests that the subject had been discussed previously but the caveat is only being asked for now. Items 1 to 4 do not contain an explanation. The fact that Mr Elia thought he needed to put in an explanation despite saying that it was "previously discussed and agreed" raises a suspicion that the request for this caveat had not in fact been so recently discussed that Mr Elia could assume that Mr Damien understood why it was required without this additional explanation on his part. The reference Mr Elia was making to a previous agreement was to the consensus after the 13 July 2012 meeting and the 11 September draft deed. But the transactions looked different now. 4. Approximately 15 minutes later at 9:05 AM Mr Elia sent the email on to Architectural Collections. Why that was done is not explained in the evidence. But it may have been to reassure someone at Architectural Collections that all of these caveats had been requested. Based on this 8.51am email Mr Elia says that he went into the meeting having requested, and therefore expecting, a form of caveat signed by Mr Damien to be given to him confirming the agreed security over the Denham Court property. 5. Despite requesting five caveats before the 21 December 2012 meeting, Mr Elia left with only three caveats over the Camden property, on which Mr Damien's consent was endorsed. The first caveat claimed an interest as mortgagee pursuant to the JKAM mortgage. The second claimed an interest as purchaser from Mr Damien under JKAM's contract for the sale of land. And the third claimed an interest as lessee under the 1 September 2012 lease. Mr Johni Elia's statutory declaration on behalf of JKAM on each of these caveats claiming the equitable interest is dated 21 December 2012. This was likely to have been declared after the caveats were given to Mr Joe Elia and before they were lodged for registration. 6. It is not surprising that Mr Elia was not given the caveat described in Item 2 in his 8.51am email. The request for this caveat was superfluous. The $528,000 construction costs were secured by the JKAM mortgage which was the subject of one of the three caveats Mr Elia was given. It is likely that in conversation at Prestons on 21 December Mr Elia quickly realised he did not need this caveat in addition to the three he was offered. 7. Mr Elia could hardly have misunderstood that his request for five caveats had not been met and that only three had been given to him. After dealing with the Item 2 caveat, he must have been aware that a caveat over the Denham Court property was missing. He acknowledged this in cross-examination. He recounted the following conversation with Mr Alcorn in his affidavit as an explanation for what happened: Mr Alcorn: "I have prepared the caveats here for the lease, Mortgage and Contract for sale of land." Mr Elia: "Ok, let's see. I observed reading the caveats that here was a caveat missing for the Denham Court property. Dean where is the caveat for the Denham Court property, I emailed you this morning confirming the documents to be provided by you in this morning's meeting." Mr Alcorn: "I was already on the road when I read your email, I forgot to do this one, I will prepare it for you asap." Mr Elia: "Ok, I will attend to the registration of these caveats at LPI today." 1. When Mr Elia was asked in oral evidence why he did not insist on the caveat over the Denham Court property on 21 December, when it must have been apparent it was missing, he also explained that other events had overtaken him and he was diverted. But the question is whether he had the conversation described above or he was diverted, or whether he accepted on 21 December that he did not need additional security over the Denham Court property. 2. In the Court's view, the last of these is the case. Mr Elia is not a man to sleep on his rights. He is acutely conscious of his entitlements. He then trusted Mr Damien far more then than he does now. But he would always have been alert to getting what he expected. He was cautious enough to ask before the meeting for a range of documents to protect his financial interests as fully as possible, including to record his security over the Denham Court property. He is astute enough for it to be likely that he followed up that request at the meeting and to have scrutinised the documents he received on the day. In the Court's view, he took away from the meeting all that he knew Mr Damien was willing to give him; and that did not include a caveat over the Denham Court property. 3. In the Court's view, once Mr Elia appreciated at the meeting, as he must have, that the Denham Court caveat was missing he did not press to be given the caveats referred to in items 2 or 5 of his email that morning. 4. The Court does not accept Mr Elia had the conversation with Mr Damien on this occasion to which Mr Elia deposes in his affidavit. The Court does not accept Mr Elia ever followed up Mr Alcorn's promise to prepare a caveat "asap". Mr Elia did not press for a caveat over the Denham Court property that morning. This is fundamentally inconsistent with his case: that he thought that the JKAM mortgage included the Denham Court property and that JKAM had Mr Damien's agreement to place a caveat on the title to the property. He did not credibly explain this inconsistency in his conduct that day. 5. The same day Mr Elia lodged for registration all the caveats that he had received. He did so at Land and Property information (LPI) in the Sydney CBD. He agreed that he was concerned to have the caveats lodged "as quickly as possible". He understood that the reason for that was so that he would have their immediate benefit to protect JKAM's security. The LPI office was 40 minutes away by road to the city from Mr Damien's office. Mr Elia drove into the city to lodge the documents. He accepted he could have given the caveats to his solicitor but he decided to lodge them himself. His demonstrated awareness of the need to lodge caveats quickly strengthens the inferences to be drawn from his subsequent failure to pursue a caveat over the Denham Court property. 6. After 21 December 2012, Mr Elia did not follow up the allegedly missing caveat. This is odd, especially as according to Mr Elia, Mr Alcorn had said "I will prepare it for you asap". Mr Elia made no written demands for it either to Mr Damien or Mr Alcorn. When asked why he did not try to get the missing caveat into his hands to lodge it, Mr Elia said "I followed up with Mr Alcorn on a couple of occasions". Mr Elia says that he was put off, or as he put it "deferred", by Mr Alcorn. He says he was "getting excuses" from Mr Alcorn but was preoccupied by completing the construction works. 7. The Court is not persuaded Mr Elia became pre-occupied. Mr Elia had access to a solicitor if he needed one. If he was too busy, it was possible for him to ask his solicitor to follow-up the missing caveat. This was not a difficult task, if there was agreement for it to be provided. But Mr Elia accepted in cross-examination that he did not even raise this issue with his own solicitor for action. 8. Mr Elia says he relied upon Mr Alcorn's undertaking of 21 December to prepare a document in respect of JKAM's interest in the Denham Court's property. The Court finds that no such undertaking was given, so there could have been no reliance upon it by Mr Elia. 9. Other features of the evidence make it all the more remarkable that Mr Elia did not raise the absence of a caveat over the Denham Court property. According to Mr Elia, Mr Damien and Mr Alcorn had expressly promised him that he was going to receive a signed caveat over the Denham Court property. From Mr Elia's perspective on and after 21 December 2012 Mr Damien and Mr Alcorn must have broken that promise without explanation. But although he must have appreciated at the time that that they had reneged on their promise, he ultimately gave the unsatisfactory explanation that "I didn't think of that at the time". 10. By the time the matter came to Court Mr Elia viewed what Mr Damien had done in omitting the Denham Court property from the mortgage security as tantamount to an act of fraud. Had he been a victim of such a fraud he would have been very angry. It is therefore all the more surprising that he did not follow it up with some correspondence complaining about the omission of the Denham Court property from the table of security in the JKAM mortgage and asking for the caveat recording that part of the security over the Denham Court property. 11. JKAM did not need Mr Damien's consent to file a caveat over the Denham Court property claiming an interest as an equitable mortgage. If he thought he had been cheated out of what had been agreed, he had the commercial knowledge to file a caveat for JKAM on his own initiative. But he did not do so. The Court does not accept that Mr Elia thought soon after 21 December 2012 that Mr Damien had reneged on a promise. 12. This conclusion is independently supported by Mr Damien's commercial astuteness. He was already in default to the NAB, which did not have a mortgage over the Camden property. He had a keen intuition for financial risks and financial opportunity. He would have been very reluctant to grant JKAM a mortgage over his domestic residence. 13. There are other reasons to reject the claim that the Denham Court property was agreed to be included as security in the JKAM mortgage or to be the subject of a caveat. The first draft of what became the December 2012 deed, which Mr Alcorn forwarded to JKAM on 11 September 2012, included both properties as proposed security. But the 11 September 2012 draft deed, clause 2(h) provided that the mortgage over the Denham Court property was to be discharged by 31 December 2012. Given such a consensus at that earlier time, there would seem to be little basis in December 2013 to create the Denham Court mortgage, so close to the date when it had previously been indicated that it would expire anyway. 14. The 11 September 2012 draft deed, clause 2(h) clearly stated that the proposed second mortgage over the Denham Court property was "to secure payment of the construction works amount" and that it "will be discharged on or before 31 December 2012". Mr Elia said that when he received the 11 September 2012 draft deed, he explained to Mr Alcorn that he was "not taking the mortgage for seven days or 10 days or whatever it…. because the property I knew at that time was nowhere near complete. The purpose of this second mortgage is to secure the construction works". 15. But this implies that Mr Elia insisted to Mr Alcorn that the 31 December 2012 cut-off date was wrong and that he stipulated for this second mortgage over the Denham Court property to continue for a longer period. But when pressed upon the matter, all Mr Elia could say was "whether I've had discussions with Mr Alcorn or not, I don't recall". At best, Mr Elia could only speculate. In response to further questioning in cross-examination he just asked back another question on the subject, saying, "I would not relinquish a security interest for a property I haven't even finished building. Why would I do that?" If Mr Elia insisted on the inclusion of the Denham Court mortgage to Mr Alcorn, then he was not successful. 16. No correspondence was exchanged between Mr Elia and Mr Alcorn nor between Mr Elia and Mr Damien preparing an actual second mortgage that included the Denham Court property as security nor was any caveat prepared for the Denham Court property. 17. The December 2012 deed does not specify that JKAM was taking a mortgage over the Denham Court property. The December 2012 deed was signed by the then director of JKAM and Mr Johni Elia, Mr Elia's brother. In December 2012 the two brothers resided together in Summer Hill. Mr Johni Elia was not cross-examined in these proceedings. But in the voluminous material in evidence in these proceedings, Mr Johni Elia gives an account of the execution of the December 2012 deed. In this account he says: he spoke to his brother, Joseph, before signing the document, he read the document and was satisfied that it was consistent with the agreement between JKAM and Mr Damien at that time. He believed he spoke to his lawyer before signing the deed. 18. Mr Elia made admissions in the proceedings before Darke J about the execution of the JKAM mortgage which were tendered against him in these proceedings. Mr Elia agreed that the mortgage documents executed on 21 December were "prepared and executed in accordance with [his] instructions". He agreed that all the terms contained within that documentation were agreed. But he had a curious explanation, which he elaborated before Darke J, about the course of the negotiations about the deed between September and December 2012. He explained: "We started off with an initial agreement and then gradually it just shrunk and shrunk and shrunk to the point where the deed which was executed on 10 December 2012 is ultimately the agreement which was agreed upon by the parties". 1. Mr Elia was pressed further in cross-examination before Darke J what he meant by "shrunk and shrunk" and he said: "Originally there was supposed to be a mortgage on Mr Damien's personal home in the initial transaction that ultimately was removed at the end, in the final transaction. There was a bit of as you would say mediation on a transaction that was suitable for both parties." 1. Mr Elia explained, and the Court accepts, that when he used the expression "was removed at the end in the final transaction", he was referring to the deed that he executed on 10 December, removing the Denham Court property. But then, somewhat discreditably, he sought to distance himself from this answer by attempting to characterise the "final transaction" as the settlement of the contract for sale of land on 29 November 2013. But the Court does not accept this gloss on the previous answer. And Mr Elia's conduct after 21 December 2012 is consistent with the Court's interpretation of his evidence. 2. In the Court's view, Mr Elia accepted on the morning of 21 December 2012 that the Denham Court property was not to be part of the JKAM mortgage security and would not be subject to a caveat for JKAM's benefit. 3. The other relevant issue for the events on 21 December is whether the prior encumbrances to Champion and Hotray were disclosed to Mr Elia. The Champion charge was not disclosed. But for the issue-estoppel arising out of the priorities judgment (at [13]), this Court would find on the evidence before it that neither Mr Alcorn nor Mr Damien disclosed the existence of the Hotray mortgage to Mr Elia. Disclosure of such surprising information on the day is likely to have produced a memorable reaction on Mr Elia's part but there was no such reaction, from which the Court infers there was no disclosure. 4. There was no recorded reaction when Mr Elia found out in due course about the Hotray mortgage and caveat. But this was down the track. Nor was there any protest when he discovered the Champion charge. All of these discoveries were during a time of existing conflict between the parties and gained no special prominence. 5. But because of the issue-estoppel, the Court will nevertheless conclude that disclosure did occur that day. This finding is not any implied criticism of Darke J's finding on the same subject. Darke J and I have been presented with quite different evidence on which to make findings. The Standoff – After 31 December 2012 1. The regime in the December 2012 deed was clear: Mr Damien was responsible for all mortgage repayments and outgoings for the Camden property up to and including 31 December 2012. JKAM was responsible for them from 1 January 2013. 2. But from January 2013 JKAM did not make any mortgage payments and maintained that it was not obligated to do so. To justify this course JKAM relied upon clause 12.1 of the contract for sale. It contended that it was not obliged to pay any rent or outgoings under the terms of the lease and that in the event of inconsistency between the lease and the special conditions that the special conditions would prevail. 3. But clause 12.1 does not assist JKAM. Clause 12.1 absolves JKAM from liability to pay rent and outgoings under the lease until the lease is registered. But JKAM's responsibility for mortgage payments arises under the December 2012 deed, clause 2(d) and is not affected by clause 12.1 and Rein J so found in the set off judgment at [27]. Mr Damien Attempts to Refinance with St George Bank – March to September 2013 1. From January/February 2013, Mr Elia was aware that Mr Damien was in default to the NAB. Neither JKAM nor Mr Damien were paying the NAB. Both sides realised that the early 2013 mortgage payments stand-off had to be resolved soon or the NAB would be likely to intervene. Mr Damien says that Mr Elia introduced him to a finance broker, Mr Louie Alam, with a view to Mr Damien attempting to refinance the NAB loan. The situation was becoming urgent. Mr Damien says that he had the following conversation with Mr Elia in about March 2013: Mr Damien: "I intend to refinance the NAB loan. I need to borrow the money you owe me in relation to the mortgage. I also need to repay Champion Homes, and Dean Alcorn money. I need to borrow about $2.2 million. Mr Elia: "Can you increase the loan by an additional $200,000, because I owe the Rebels [a bikie club] a fair bit of money and I need to pay them back." 1. The Court does not have confidence in Mr Damien and does not accept that this conversation took place. Rather the Court accepts Mr Elia's evidence on this point to the effect that that he was initially unaware of Mr Damien's attempts to refinance with St George Bank. As will be seen below, the correspondence at the time is more consistent with Mr Elia being initially unaware of Mr Damien's attempts to refinance the NAB facility. 2. Construction work on the Camden property was brought to completion by May 2013. Camden Council issued JKAM with an occupation certificate in June 2013. 3. At the same time Mr Damien attempted through St George Bank to refinance his existing first mortgage finance from the NAB, which was due to be paid out on 9 August 2013. To support this proposed refinancing the recently renovated and refurbished building on the Camden property was valued on 4 June 2013 at $3.83 million by Herron Todd White for St George Bank. The valuation was based on the subtenancies that JKAM had in place. The rental from these subtenancies was substantial. JKAM received $408,616 in rent from its subtenants during the year ending 30 June 2014. 4. On 18 July 2013, St George Bank offered a bill acceptance and discount facility to Mr Damien limited to $2.4 million, to refinance the NAB facility. But the refinance did not proceed. The NAB ultimately commenced action to repossess the property. 5. A term of the St George Bank facility offered on 18 July (clause 2.5) required "all existing caveats to be removed [from the Camden property] prior to settlement". Mr Damien makes a case: that JKAM refused to remove its caveats from the title to the Camden property; and that as this term of the refinancing could not be satisfied, the financing did not proceed. Mr Damien's case is that JKAM's refusal to remove the caveats blocked the St George Bank refinancing and led to Mr Damien's default to the NAB and inability to complete the contract for sale. 6. The Court does not accept this account of events. As will be seen below, the contemporaneous communications supports the conclusion that St George Bank declined to proceed with the refinancing because of Mr Damien's misleading conduct. 7. In late July/early August 2013 further steps were taken to advance the refinancing. On 24 July 2013 the NAB provided Mr Damien with discharge authorities for completion. On 9 August 2013 NAB gave Mr Damien a payout figure of $1,827,256.06. The payout figure was not just for the Camden property but included a payout of several motor vehicle leases. But the refinance was not completed that day. 8. But a side issue arose as to whether Mr Elia demanded money as the price of removing the JKAM caveats over the property to facilitate the refinancing. The Court accepts that a text message was sent from Mr Elia's telephone on 1 August 2013 to Mr Damien as follows: "Hi Karl, Please confirm this morning whether or not we will receive 320K from settlement if this is not the case then there is no need to refinance, please advise that as a matter of urgency. Regards…" 1. The proper inference to be drawn from this text message is that once Mr Elia found out about the refinancing he wanted $320,000 from the refinancing as the price for JKAM's consent to facilitate settlement. But long before Mr Elia reached the point of refusing to remove the caveats, St George Bank had withdrawn the finance. 2. By approximately the last week of August 2013, JKAM was alleging that serious problems had emerged with Mr Damien's application to refinance with St George Bank. On 25 August 2013 JKAM informed St George Bank that in support of his financing application Mr Damien had provided St George Bank with false leases. These leases JKAM alleged were between Mr Damien and the tenants in the Camden property. But Mr Elia said to St George Bank that the leases for these tenants were subleases from JKAM. According to JKAM (and denied by Mr Damien), Mr Damien appears not to have disclosed to St George Bank the September 2012 lease to JKAM, the December 2012 deed, the contract for sale and the JKAM mortgage. 3. Mr Elia submits in these proceedings that Mr Damien's conduct was inconsistent with clause 2.6 of the St George Bank's refinance offer, which required all leases over the property to be registered and vetted by a St George Bank solicitor. JKAM submits that Mr Damien wanted to conceal from St George Bank that JKAM was taking a head lease and JKAM was sub-leasing to the various individual tenants rather than Mr Damien leasing to them directly. St George Bank was sufficiently disturbed by this controversy, whatever be the true situation, that it declined to refinance Mr Damien's facilities with the NAB. 4. The NAB's facility had by now expired. No refinance arrangements were in place. Mr Damien was in default. NAB was looking to its remedies. 5. On 11 September 2013 Mr Christopher Haddad lodged a caveat over the Camden property. He claimed an "equitable interest pursuant to an option fee paid in regards to option to purchase the land and commission payable". This presents as a claim for agent's commission secured over the property. Mr Haddad was an associate of Mr Damien. 6. Mr Elia decided to contact the NAB directly. JKAM wanted to reduce the risk of NAB acting on Mr Damien's default. On 11 September 2013, Mr Elia wrote to Ms Karyn Wright, the manager for Mr Damien's account at the NAB, to introduce himself to her. He expressed concern that the NAB was in the course of repossessing the Camden property from Mr Damien because of his mortgage default. This appears to have been the first direct contact that Mr Elia (Mr Johni Elia in this communication) made with Ms Wright. Mr Johni Elia was not the driving force behind JKAM. His brother Joseph was. The Court infers that Mr Joseph Elia either drafted or approved this kind of correspondence with Mr Johni Elia's name. 7. Mr Johni Elia pointed out to the NAB that Mr Damien had not fulfilled his contractual obligations under the contract for sale, clause 12.1, to register the 1 September 2012 lease. Mr Johni Elia told the NAB in this email that JKAM had provided a second mortgage to Mr Damien. He enclosed a copy of the contract for sale and the lease. He also enclosed the caveats both for the September 2012 lease and the JKAM mortgage. The email concluded with JKAM requesting information about whether Mr Damien was in default to the NAB: "We would appreciate whether the National Australia Bank could advise as to the current situation with the property and whether the current mortgage account between the vendor: Damien has been paid up to date and that there are no possession order[s] being undertaken." 1. But the NAB was not prepared to provide this information about its customer. Ms Wright responded to Mr Johni Elia's email on 13 September 2013, as follows: "As you are aware due to its privacy obligations NAB is unable to advise if Mr Damien is in default of his obligations to NAB. NAB was not previously aware of the existence of the contract for sale. NAB has now written to Mr Damien in this regard, and has forwarded to him a copy your email dated 13 September 2013. Are you in a position to settle for the purchase now, and if so, what amount will you be providing on settlement?" 1. Mr Joe Elia in the name of Mr Johni Elia continued to press NAB for more information. On 13 September 2013, he wrote to the NAB, "we understand and appreciate the restrictions on the privacy laws". He then confirmed, "we will be proceeding with the contract for sale for settlement on 29 November 2013". He pointed out to the NAB that under the special conditions of the contract for sale (clause 11.1), the purchaser has the right at its own discretion to extend the completion date by up to two years from 29 November 2013. He foreshadowed that if Mr Damien was in default to the NAB, and the NAB was proposing to exercise its rights over the Camden property, a situation may arise where settlement of the contract for sale might be "brought forward". 2. NAB wanted to know more about what JKAM might do if Mr Damien's default continued. On 16 September 2013, Ms Wright sought copies of the contract for sale with JKAM and the occupancy certificate over the property. 3. On 19 September 2013, the NAB issued a formal demand to Mr Damien. NAB said, "as you are aware your loan to NAB is presently in default. NAB will now be taking immediate action to enforce the facility". The formal letter of demand cited as the actionable default under the NAB facility Mr Damien's entry into the contract for sale. The NAB foreshadowed that it would immediately seek to enforce the facility and associated security. 4. JKAM was now aware Mr Damien's refinance arrangements had fallen through. JKAM's focus shifted to pressing forward to complete the contract for sale and attempting to overcome emerging obstacles to its completion. Attempts to Complete the Contract for Sale – September/October 2013 1. On 24 September 2013 Champion finally lodged a caveat over the Camden property. Champion claimed in the caveat that it was the chargee under the April 2012 acknowledgement of debt by Mr Damien in the sum of $506,334. 2. JKAM pressed on to complete the contract for sale. On 30 September 2013 it advised NAB that it would be ready to settle the contract for sale within the next 3 to 4 weeks. JKAM updated the NAB on 1 October 2013 that settlement funds would be available to it in three weeks. JKAM's letter of that date records that Mr Damien was by then proposing to delay settlement of the contract for sale beyond the agreed date of 29 November 2013, as he was not in a position to settle. 3. NAB was not able to give JKAM the payout figure on its facility with Mr Damien. But the NAB did pass on JKAM's correspondence to it, to Mr Damien together with a payout figure as at 31 October 2013. 4. On 2 and 4 October 2013 JKAM told Mr Alcorn that it would soon be ready to settle the contract for sale and requested the NAB's payout figures from him. JKAM accused Mr Damien of being in breach of the contract for sale, clause 12.1 which required Mr Damien to obtain the NAB's consent to the registration of the lease. JKAM then wrote to the NAB to inform the NAB of its correspondence with Mr Damien. On 4 October 2013 the NAB gave a payout figure of $1,823,999.57 to Mr Damien, told JKAM that it had done so, and requested JKAM to keep it updated with the course of events concerning the contract for sale. 5. On 5 October 2013 JKAM wrote to the NAB accusing Mr Damien of engaging a real estate agent (Mr Jean Karam of the Quest Realty Group) to attempt to sell the Camden property to a party other than JKAM, in breach of the contract for sale. On 6 October 2013 JKAM wrote directly to Mr Damien and Mr Alcorn accusing them of misleading and deceptive conduct in attempting to sell the property twice. The letter accuses Mr Damien of engaging Mr Karam to sell the Camden property for a higher price than it was being sold to JKAM under the contract for sale. The letter concluded by demanding that settlement of the contract for sale "be brought forward as we are now in the position to settle in the coming weeks". 6. On 10 October 2013 the NAB issued a final 'Default/Demand' notice under Mr Damien's facilities with it, alleging Mr Damien was in default under the facility and demanding a total amount owing of $1,800,963.04. 7. JKAM continued to press towards a settlement on 29 November 2013. On 17 October 2013 JKAM wrote to the NAB declaring that it was ready to settle the contract for sale and stating: "In order to proceed with settlement Mr Damien is required to provide withdrawal of all caveats currently on title, as none of these caveats were on title on exchange of contract of sale. Mr Damien will be advised that we are now in a position to settle the contract of sale." 1. This was not true of course: the Hotray caveat had been lodged on 18 December 2012, just before the contract for sale was signed. 2. The NAB communicated to Mr Damien on 18 October 2013 that JKAM had indicated it was able to finalise the sale. On 21 October 2013 JKAM's lawyers, JK Solicitors, wrote to Mr Damien's lawyers professing they were "ready willing and able to complete the contract" and providing a form of transfer for Mr Damien's execution before settlement. JK Solicitors added: "We have also been advised by our incoming mortgagee that a number of caveats have been registered on title which is worrying for our client. Please confirm that all the caveats registered on title will be withdrawn on settlement and will not delay or postpone the settlement." 1. This period is notable for the lack of correspondence back to JKAM from Mr Damien or from Mr Alcorn on Mr Damien's behalf. JKAM continued to correspond with both Mr Damien and the NAB. On 22 October 2013 the NAB informed JKAM and that it had forwarded a mortgage discharge authority to Mr Damien but emphasised again that it could only provide a payout figure to Mr Damien's representatives. The NAB Appoints a Receiver – Late October 2013 1. On 29 October 2013 the NAB appointed a receiver to the Camden property pursuant to its powers under its first mortgage. It should be inferred from the correspondence being sent to NAB in September and October 2013 that the NAB had lost confidence that it would be paid out if it left Mr Damien in charge of the sale of the Camden property. Mr Damien's alternative sale efforts ceased at this time. 2. Despite the appointment of the receiver, JKAM continued to assert its readiness to settle the contract for sale. On 21 November 2013, JK Solicitors, the solicitors for JKAM, wrote to K & L Gates, the lawyers for the NAB, declaring JKAM's readiness and willingness to settle and requesting that the NAB consent to completion of the contract for sale, as a mortgagee exercising its power of sale. 3. On 28 November 2013 JK Solicitors wrote to Mr Alcorn, saying "we note that the matter pursuant to the contract is to settle tomorrow on the 29 November 2013" and complaining of the lack of communication back from Mr Damien. Once again JK Solicitors declared that JKAM was ready willing and able to settle and sought urgent cheque directions in anticipation of settlement. 4. Settlement did not take place on 29 November 2013. JKAM alleges that Mr Damien neglected or refused to complete the contract for sale in breach of clause 4.1 which required completion on 29 November 2013. The contract for sale, clause 5.1 entitles either party to serve a notice to complete on any other party after 29 November 2013. JKAM's Contests with the NAB, Hotray and Champion - 2014 1. JKAM did not immediately commence proceedings for specific performance of the contract for sale. Instead, during the next 12 months JKAM was preoccupied with resolving priorities contests with Hotray and Champion and issues with the NAB in relation to possession of the Camden property. 2. As to the possession issues with NAB, on 10 July 2014, the NAB commenced proceedings against both JKAM and Mr Damien in the possession list in this Court. On 1 August 2014, Mr Damien consented to judgment for possession in favour of the NAB. The NAB did not require JKAM to vacate the Camden property until 22 May 2015 after which the NAB took possession. JKAM claims that its loss of possession and loss of rents from sub-tenants is a breach of the covenant of quiet enjoyment in the lease. 3. Before seeking specific performance of the contract for sale of the Camden property, JKAM needed to ascertain whether the Champion and Hotray caveats were required to be paid out at settlement. On 17 December 2013 JKAM issued lapsing notices in respect of both caveats and Mr Haddad's caveat. Champion and Hotray commenced proceedings against JKAM in January 2014 seeking extensions of their caveats and claiming final relief declaring the validity of their claimed interests. 4. Both Hotray and Champion sought priority over JKAM's mortgage. Hotray's claim was based on the security documents executed on 10 and 18 December 2012, shortly before the contract for sale; its caveat having been filed on 18 December 2012. Champion's claim was based on its building contract with Damien dated 15 December 2010 and an acknowledgement of debt of 4 April 2012; its caveat having been filed on 24 September 2013. 5. Darke J heard the priorities proceedings on 4, 5 and 6 June 2014 and gave judgment on 18 July 2014, upholding against JKAM the prior interests of both Champion and Hotray. Contract for Sale Terminated and the NAB Takes Possession – March to May 2015 1. No mortgage payments on the NAB's mortgage over the Camden property had been made since January 2013. Significant arrears to the NAB accumulated. Throughout 2014, the NAB was threatening to take possession. 2. The proceedings before Rein J that led to the set off judgment were heard on 11 and 12 March 2015. His Honour gave judgment on 20 March 2015. In the meantime, Mr Damien's then lawyers, Cambridge Lawyers wrote a handwritten letter to JKAM on 11 March 2015, terminating the contract for sale. 3. Among other issues the set off judgment found JKAM was liable to indemnify Mr Damien in an amount of $411,000 under the December 2012 deed, clause 2(d) on account of the unpaid mortgage payments to the NAB and other outgoings on the Camden property. Rein J rejected JKAM's arguments that the contract of sale, clause 12.1 relieved it of its obligations under the December 2012 deed to make mortgage payments to the NAB. His Honour found (at [29] of the set off judgment) that there "is nothing to indicate that the operation of clause 2(d) has been suspended and JKAM has agreed to indemnify Damien for the amount paid to the NAB." 4. His Honour rejected JKAM's argument that Mr Damien's failure to register the lease affected the parties' relative responsibility for the mortgage payments to the NAB. His Honour also rejected JKAM's further argument that JKAM's liability to indemnify Mr Damien should cease at a point in time prior to March 2015 when Mr Damien failed to provide a payout figure to JKAM. The result of Rein J's set off judgment was that JKAM's liability to indemnify Mr Damien under the December 2012 deed continued. But up to that point of time the liability against which Mr Damien was to be indemnified by JKAM was agreed at $411,000. And that figure was set off against Mr Damien's liability to JKAM of $549,000 to produce the net judgment for JKAM at that time of $138,000. 5. In evidence in these proceedings Mr Damien points out that additional interest on the mortgage to the NAB accrued after the set off judgment. He annexes bank statements to his affidavit of 16 August 2018, for example, showing the following interest accruing to him on the NAB mortgage on 4 April 2013 of $13,498.14 and on 6 May 2013 of $14,593.82 and on 4 June 2013 of $13,076.94. But these interest accruals precede the set off judgment. JKAM claims that interest accrued on the amount of the set off judgment of $138,000 after the set off judgment. The status of such further claims by JKAM in these proceedings and their total quantum is still unclear. The Court will make directions for JKAM to quantify those claims. But they may not be very great as the Camden property was sold only 11 months after the set off judgment. 6. After Rein J's set off judgment, on 26 March 2015 JK Solicitors on behalf of JKAM gave notice to each of Champion and Hotray that JKAM was seeking a decree of specific performance of the contract for sale. The letter explained that the NAB was then requesting $2.4 million to pay out the bank's first mortgage. JKAM's lawyers indicated in these letters that JKAM was prepared to meet the sum required by the NAB from its own resources, if Mr Damien was not able to do so. JKAM's lawyers then contended that there was no equity in the property after the payment of the debt to the NAB and that therefore Hotray and Champion had no entitlement to maintain a caveat because the land the subject of the mortgage would have been sold for a price which will be completely payable to the first mortgagee: 70 Pitt Street Sydney Pty Ltd v McGurk [2004] NSWSC 413. A similar letter was sent to another caveator. No agreement to this course was forthcoming from the caveators. 7. But JKAM's argument on this issue was not valid. When exercising its power of sale, the NAB was not bound by the contract for sale JKAM had signed with Mr Damien on 21 December 2012. What sale price the NAB might achieve in the exercise of its power of sale was still an unknown factor. Moreover, when exercising its power of sale, the NAB was entitled to transfer the Camden property free of all charges subsequent to the first mortgage: Real Property Act 1900, s 59. 8. Eventually, the NAB's patience ran out. It took possession of the Camden property in May 2015. Mr Damien blames this outcome on JKAM's refusal to make the mortgage payments required of it under the December 2012 deed. JKAM commenced these proceedings by Statement of Claim on 21 September 2015. On 18 February 2016 the NAB's receivers sold the Camden property by private treaty. 9. These reasons now deal first with JKAM's allegations of breach of the JKAM mortgage and breach of the lease, followed by JKAM's misleading and deceptive conduct claims. This will deal with the principal disputes in the proceedings. If the parties desire the Court to decide other matters then liberty to apply has been reserved. Analysis of JKAM's Claims Breach of the JKAM Mortgage 1. JKAM pursues two kinds of claim based on the terms of the mortgage. The first is a claim for declaratory relief, that certain costs and expenses incurred by JKAM are recoverable under the JKAM mortgage on an indemnity basis. The second is a contention that Mr Damien breached clause 6.15 of the lease, when Champion and Hotray lodged caveats over the Camden property. 2. (1) Indemnity under the JKAM mortgage. JKAM seeks declarations that the principal outstanding and various classes of costs and expenditure are part of the Secured Money under the JKAM mortgage and therefore recoverable on an indemnity basis pursuant to that mortgage. These classes of costs and expenditure are the following: 1. The principal sum of $138,000; 2. Interest on the principal sum as it became due and payable; 3. The costs of these proceedings; 4. The costs ordered against JKAM in the priorities judgment; 5. JKAM's own legal expenses in relation to the priorities judgment; and 6. Other legal costs said to be covered by the JKAM mortgage. 1. In the Further Amended Statement of Claim, JKAM claims damages for breach of the JKAM mortgage, an order for an inquiry as to damages and an order that Mr Damien pay the damages ascertained in the inquiry. No part of this claim seeks access to the proceeds of sale of the Camden property. These proceeds have been fully distributed, first to the NAB and then by Court order to Champion. Rather, JKAM now seeks an (unsecured) indemnity against Mr Damien for as much of JKAM's costs and expenditure as may be recoverable under the terms of the mortgage. 2. As to classes (1) and (2) of the costs and expenditure claimed, relief should be given. Mr Damien owes JKAM $138,000 as a result of the set off judgment. For the reasons which follow, that sum is also the part of the Secured Money under the JKAM mortgage. 3. The JKAM mortgage mortgages the Camden property as "the Secured Property" to secure Mr Damien's performance of "its Obligations and the payment by it of the Secured Money" (clause 3.1). The definition of "Secured Money" refers back to the definition of "Obligations", which encompass "all liabilities and obligations of the Mortgagor to the Mortgagee under or by reason of any Finance Document". And "Finance Document" is defined to mean "the Agreement and this Mortgage". 4. The "Agreement" is defined as the agreement between JKAM and Mr Damien "dated on or about the date of this document". This is a reference to the December 2012 deed executed some 11 days earlier. The December 2012 deed itself cross-refers in sub-clauses 2(h) and (i) to the creation of the JKAM mortgage to secure construction costs of $528,000 that are agreed to be owing to JKAM. The "Secured Money" therefore means the principal sum of $138,000, which is the balance of the $528,000 due as a result of the set off judgment. 5. The Secured Money becomes due in accordance with an agreement obliging the mortgagor to pay the Secured Money, namely here the December 2012 deed: the JKAM mortgage, clause 4.1. Otherwise, it is due on demand: the JKAM mortgage, clause 4.1. The principal sum was also due as a result of the set off judgment in March 2015. And it has been demanded, at least by service of the Statement of Claim in these proceedings. 6. Interest on the principal sum is payable under the JKAM mortgage, the rate being as agreed: the JKAM mortgage, clauses 5.1 and 5.2. The parties' submissions do not address the calculation of the quantum of interest and it is not clear to the Court what agreement is the source of the claim for interest. The December 2012 deed does not provide for the accrual of interest generally. It only provides for interest at 10% on the payment to Mr Damien of $300,000. In default of an agreed rate, the Court will make an order for interest up to judgment under Civil Procedure Act 2005, s 100. Directions will be made for the parties to calculate interest on the principal sum under the JKAM mortgage, less any interest already ordered to be paid by the set off judgment. 7. As to class (3) of the costs and expenditure claimed, relief should also be given. The costs of these proceedings are part of the "Secured Moneys" secured under the JKAM mortgage. They fall within the definition of "Obligations", because they accrue as a result of an "event of default". The term "event of default" is not defined in the JKAM mortgage but the term clearly enough encompasses Mr Damien's failure to pay the principal sum of $138,000. It was necessary for JKAM to commence these proceedings to (a) establish that the $138,000 due and unpaid after the set off judgment was Secured Money, (b) recover additional interest not recoverable under the set off judgment, and (c) to recover other mortgagee's costs on an indemnity basis under the JKAM mortgage. 8. The Obligations means "all liabilities of the Mortgagor to the Mortgagee…under or by reason of a Finance Document". The December 2012 deed is a Finance Document within the meaning of that term in the JKAM mortgage. Many of the issues in these proceedings involve determining Mr Damien's liabilities to JKAM under the December 2012 deed. The JKAM mortgage, clause 14.1(c) provides a comprehensive indemnity to JKAM for all its costs of these proceedings. That indemnity applies here because the costs of these proceedings are a "cost and expense" that is "caused or contributed to" by (c) the "exercise or attempted exercise of" a right by the Mortgagee [JKAM] "under any Finance Document", namely the December 2012 deed and the JKAM mortgage itself. 9. The issues in these proceedings, and therefore their costs, are wider than JKAM establishing that the balance of construction costs of $138,000 due after the set off judgment is secured under the JKAM mortgage. An important part of these proceedings concerns the proper interpretation of and then the exercise of rights under the December 2012 deed, a Finance Document, in the context of Mr Damien's default to the NAB, and the loss of JKAM's mortgage security by reason of the NAB's repossession and sale of the Camden property and the establishing of Champion's and Hotray's prior equitable securities. 10. These issues of the proper interpretation of and the exercise of rights under the December 2012 deed arise in the following way. The December 2012 deed, clause 2(d) stated that "JKAM will be responsible for all mortgage repayments" on and from 1 January 2013. JKAM argues that Mr Damien remained primarily liable to make payments to the NAB independently of JKAM, as he was the mortgagor, not JKAM. JKAM argues that because Mr Damien did not make payments to the NAB after 1 January 2013, JKAM was also entitled not to make such payments, and that the financial consequences of the default to the NAB therefore lay with Mr Damien, not JKAM. This contest is a step in JKAM's exercise of rights under the December 2012 deed. 11. As to classes (4) and (5) of the costs and expenditure claimed, relief should also be granted. Both the costs orders made against JKAM in the priorities judgment and JKAM's own costs in contesting the proceedings leading to the priorities judgment are "Secured Money" under the JKAM mortgage. These costs qualify as Secured Money because JKAM had to contest the priorities judgment proceedings to ascertain the relative priority of the interest created under the JKAM mortgage with the other competing equitable claims of Champion and Hotray before JKAM could recover the Secured Money. The costs of the set off proceedings probably also qualify as Secured Money on the same basis. The parties will be directed to attempt to agree upon these costs, or they will be referred for assessment. 12. Mr Damien argued that the costs now sought to be recovered under the JKAM mortgage on an indemnity basis did not result from JKAM attempting to enforce its rights under the JKAM mortgage. The submission was that the priorities judgment essentially affected third parties only. But this is not correct. Once Champion and Hotray intervened, the principal sum due on the mortgage could not be recovered from a limited pool of Secured Money until their priority claims were resolved. 13. As to class (6) of the costs and expenditure claimed, no other costs have as yet been identified. A direction will be made that any particulars of those costs should be provided. 14. (2) Breach of the JKAM mortgage, clause 6.15. JKAM also contends that Champion and Hotray's lodgement of caveats was a direct contravention by Mr Damien of the JKAM mortgage, clause 6.15, which required the mortgagor to "ensure that a caveat is not lodged in respect of the secured property". JKAM's contention is that Mr Damien failed to so "ensure". The allegation is in substance that Mr Damien was knowingly concerned in the lodgement of those caveats on the title of the Camden property. JKAM's pleaded case in paragraph 36 of the Further Amended Statement of Claim is that Mr Damien "allowed, permitted and/or acquiesced to the lodgement of caveats by other parties in respect of the Camden property, including by Champion Home Sales on 27 September 2013…" 15. The case put in final submissions was also wider than a complaint about the lodgement of these two caveats. It included allegations that additional caveats were lodged by Mr Haddad and WKA Legal Pty Ltd. The Haddad and WKA Legal caveats were not expressly pleaded as a breach of clause 6.15 in the Further Amended Statement of Claim and only feature in final submissions. They do not represent a part of the case that Mr Damien expected to meet and the Court will not consider them further. 16. JKAM contends that the lodgement of the Champion and Hotray caveats prevented the plaintiff from completing the contract for sale. This is said to follow from the fact that the purchase price to be paid under the contract for sale ($2,081,000) was not sufficient to discharge the combined indebtedness of (a) the mortgage to NAB (being a payout of $1,827,256.06 as at 9 August 2013), and (b) the security interests evidenced by the caveats ($542,652.82 for Champion and $270,000 for Hotray). This insufficiency is said to arise, quite apart from making the additional $300,000 payment to Mr Damien required by the December 2012 deed, clause 2(j). 17. JKAM's argument of a breach of clause 6.15 sounding in damages is not persuasive. But first, clause 6.15 must be construed. 18. Construing Clause 6.15. Clause 6.15 does not present the usual contest thrown up by covenants against subsequent encumbrances. Such covenants are generally considered in the context of a dispute about the relative priority of the interests of a first and second mortgagee. The presence of a clause in a first mortgage prohibiting subsequent encumbrances may not prevent the grant of a second mortgage but an injunction may be granted to restrain registration of a second mortgage if the second mortgagee had actual or constructive notice of the restrictive clause in the first mortgage: Nia v Phuong (1993) 6 BPR 13,141; (1993) NSW ConvR 55-671. 19. The Court could discover no authority that considered the present problem: an action for damages by a mortgagee against the mortgagor, for the mortgagor lodging a caveat in respect of an encumbrance in breach of such a restrictive clause. Ordinarily there would be no loss suffered by the mortgagee, if the caveat related to a subsequently created encumbrance. Here the situation is different. JKAM says that the Champion charge and the Hotray mortgage caused it loss, because they had priority over JKAM's mortgage resulting in JKAM's subsequent inability to settle the contract for sale. 20. The obligation in clause 6.15 that "the mortgagor must ensure [emphasis added]" can only apply (a) if the mortgagor was aware of the potential caveatable interests; and (b) implicitly the mortgagor must have some capability of influencing the decision of a third party to lodge the caveat. For example, the mortgagor must have some notice of the potential for lodgement of a caveat before clause 6.15 would require preventative action on the mortgagor's part and some identifiable means of taking effective preventative action. The burden of proof of these two matters lies on the party alleging breach; in this case that is JKAM. 21. Clause 6.15 is instructive for what it does not say. It does not require the mortgagor to go looking for potential caveatable interests. Nor does it require the mortgagor to indemnify the mortgagee for any interests that happen to become the subject of a caveat after the date of the JKAM mortgage. 22. Breach of Clause 6.15 – Analysis. JKAM's claim of a breach of clause 6.15 principally fails on the ground that JKAM has not proved any such breach caused any loss to it. There are two causation issues. 23. As to the first causation issue, a premise of JKAM's argument is that the Champion charge and the Hotray mortgage prevented settlement of Mr Damien's sale of the Camden property under the contract for sale to JKAM. The argument runs that if Mr Damien had not permitted (or encouraged) the lodging of the Champion and Hotray caveats, the contract for sale would have completed. But the narrative of the parties' interactions with the NAB make clear that the contract did not complete for a different reason: the NAB had determined to exercise its power of sale, a right it had under the first mortgage. And it was prepared to ignore all subsequent encumbrancers including JKAM, Champion and Hotray. No payments were made to the NAB after January 2013 and Mr Damien remained in continuing default to the NAB, which eventually exercised its power of sale. 24. There is no evidence adduced in JKAM's case that the NAB was prepared to agree to the completion of the contract for sale if the Champion and Hotray caveats were removed. The correspondence did not require the NAB to address that issue at any stage. Instead, the NAB moved to exercise its power of sale, which it was entitled to do free of JKAM's equitable interest as a purchaser under the contract for sale. The history clearly shows this. At no stage, for example, did the NAB entertain the possibility of consenting to the completion of the contract for sale, if Mr Damien and JKAM could solve the issues of the Champion charge and the Hotray mortgage between them. 25. JKAM often asserts in affidavits and submissions that these two prior encumbrances prevented completion. Mr Elia undoubtedly thought that Mr Damien finding the money to pay out Champion and Hotray was an impediment to completion. But that is not why completion did not occur. Completion of the contract for sale did not occur because it was not compatible with the NAB's plans to exercise its power of sale. It does not matter what would have happened if the NAB had not exercised its power of sale. 26. And JKAM's own conduct after January 2013, not Mr Damien's, had put and kept the NAB in a position to exercise its power of sale. The terms of the December 2012 deed, clause 2(d) are clear: "JKAM will be responsible for all mortgage repayments and outgoings for the Property" (emphasis added) from 1 January 2013. The Macquarie Dictionary defines the phrase, "responsible for" as "having the responsibility of" or "chargeable with being the author, cause or occasion of". On either meaning, JKAM was the one who was responsible for seeing that "mortgage payments to NAB were made". Its position that it only had to pay Mr Damien when he paid the NAB is untenable on the proper construction of clause 2(d). Being "responsible for all mortgage repayments" is not to be construed as a mere indemnity to Mr Damien for his mortgage repayments to the NAB. Rather, it is an assumption of direct primary responsibility to satisfy the liability to the NAB. JKAM's failure to assume that responsibility is the reason that the NAB ultimately exercised its power of sale over the Camden property. 27. As to the second causation issue, Mr Damien argues that even if there were a breach of clause 6.15, no loss flows from the breach for another reason. He points out that a caveat does not itself create an interest; it merely records on the register a claimed existing equitable interest. Clause 6.15 does not prevent the creation of any such interest. It only prevents the lodgement of caveats against dealings. It is for the Court to determine the relevant priorities between the respective identified interests, whether or not a caveat has been lodged: Double Bay Newspapers Pty Ltd & Anors v AW Holdings Pty Ltd [1996] 42 NSWLR 409 at 423-425; (1996) 7 BPR 14,858; (1996) NSW ConvR 55-787. Mr Damien argues that Darke J has already dealt with the relevant interests in his priorities judgment (at [86]) and that it therefore follows that whilst there may be a breach of clause 6.15, no damage flows from the breach. JKAM's subordinated access to the proceeds of sale of the Camden property after the Champion and Hotray interests was solely the product of the Champion and Hotray interests being created earlier than JKAM's interests, not because Champion and Hotray lodged caveats. 28. This argument is persuasive. The Champion charge alone was for a very substantial sum, $542,652.82. It would have been enough on its own to prevent settlement of the contract for sale if the NAB had not exercised its power of sale by prior right. But Darke J held in the priorities judgment (at [93] and [97]) that the Champion charge had priority over JKAM's equitable interests under the contract for sale and the JKAM mortgage and that Champion's prior equity was not postponed by reason of its failure to file a caveat until September 2013, because JKAM did not search the register in December 2012. Thus, the impediment to completion of the contract for sale was not caused by Champion's caveat but by Champion's prior equitable interest. Clause 6.15 is not crafted to ensure the mortgagor does not create equitable interests. Other clauses under the JKAM mortgage might perhaps arguably have this effect (see for example clauses 6.2 and 6.3) but JKAM's case does not plead a breach of these other clauses. 29. Moreover, apart from issues of causation, JKAM has the onus of establishing Mr Damien breached clause 6.15. It cannot establish breach with respect to the Champion caveat. There is no evidence that Mr Damien was aware that Champion was going to lodge a caveat in September 2013. JKAM has not established that Mr Damien was able to stop Champion lodging such a caveat. Champion was an independent builder who had no relationship to JKAM, other than through the 2010 building contract for the Camden property. It is unlikely that Champion would have given JKAM prior notice that it was going to lodge a caveat, nor does the evidence suggest that it did. Mr Damien was aware that Champion had a potentially caveatable interest, because he had signed the acknowledgement on 4 April 2012. But this was months before clause 6.15 existed and JKAM has not established that after December 2012 Mr Damien was in any position to influence Champion's decision whether to lodge the caveat. Given the terms of the 4 April 2012 debt acknowledgement, which give Champion that right, the evidence is otherwise. 30. The same cannot be said with respect to the Hotray mortgage. Mr Damien and Mr Alcorn were close. Throughout 2012 Mr Damien continued to be a source of advisory work for Mr Alcorn, which he could supply to Mr Damien through Hotray. The Court infers that in December 2012 Mr Damien had some financial leverage over Mr Alcorn/Hotray such that he may have been able to prevent lodgement of the Hotray caveat on 18 December, even if only to delay it for a few days until after 21 December. But because of the causation issues, no loss flows from this breach in any event. 31. This analysis is a complete answer to JKAM's contentions (a) that Mr Damien breached the JKAM mortgage, clause 6.15 at least with respect to the Champion caveat, and (b) that JKAM suffered loss as a result of Mr Damien's breach of clause 6.15. Mr Damien has raised other potential answers to JKAM's case of a breach of clause 6.15. But these are not persuasive. 32. First, Mr Damien challenges JKAM's contention that the lodgement of the caveats impacted the completion of the contract for sale. He submits there was no effect on completion. He says that until completion, a property such as the Camden property belongs to the registered proprietor, who can deal with it as the registered proprietor sees fit, subject only to providing clear title at the time of completion: Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd [1972] 128 CLR 529 at 536-537; [1972-73] ALR 375; (1972) 46 ALJR 421. Mr Damien submits therefore that it is for the vendor to determine how to deal with the interests claimed under the caveats. 33. But this is not an answer to JKAM's contention of a breach of clause 6.15. A vendor can determine how caveated interests are dealt with. If those caveated interests in fact prevent completion occurring, there could be a breach of clause 6.15. But here the caveats did not prevent completion. 34. Mr Damien further contends that no loss could occur as a result of a breach of clause 6.15, as the mortgage was ineffective in any event, because nothing was advanced under it. Mr Damien argues that the mortgage "debt" doubles as the deposit under the contract for sale and that as this "debt" is "subsumed in the deposit, there was no advance made by [JKAM] nor an obligation to pay and there is neither an amount due or payable [under the mortgage]." 35. In now arguing there was no separate advance under the JKAM mortgage, Mr Damien adopts the opposite position to the one he took at the time of the set off judgment. Mr Damien's present contention is the same as that then put by JKAM and later abandoned by JKAM. In the set off judgment (at [21]), Rein J noted the parties' positions on this subject as follows: "21. JKAM as I have noted initially propounded the claim that the $480,000 plus GST was agreed to have been paid by it as a deposit and hence that it should be given credit for that 'payment' but Damien firmly resisted such a contention. Of course JKAM could not recover $528,000 from Damien as a debt (whether assigned or direct) and also obtain the benefit of the $528,000 from Damien as a deposit and by abandoning any claim to the $528,000 as a deposit it eschewed the assertion that it could in effect recover the $528,000 twice." 1. Rein J made clear in the set off judgment that JKAM had abandoned its assertion that the $528,000 was also a deposit and that it thereby avoided a contention that it was seeking to recover the $528,000 twice. The abandonment accorded with Mr Damien's then position. But JKAM was then asserting, and has since continued to assert that the $528,000 (or the balance thereof of $138,000), was recoverable as an advance under the mortgage. Any argument of a doubling up between the deposit and the debt was dismissed long ago before Rein J. Breach of the Lease 1. In final submissions, JKAM seeks damages for breach of both express and implied terms of the lease. 2. Dealing first with the implied term, JKAM contends that Mr Damien breached an implied term of the lease that the lessor would at all times do all things necessary to allow the lessee to have the benefit of the lease, would not impair the lessee's rights under the lease, and must not do anything which would substantially deprive the lessee of that benefit: B. Edgeworth, Butt's Land Law (7th ed, 2017, Thomson Reuters) [7.500] - [7.580]. 3. If a landlord demises property to a tenant and enters into no express covenants for title or for quiet enjoyment, certain promises are implied by force of the word "demise", namely that the landlord is entitled to grant some term in the demised premises and that the tenant will have quiet enjoyment of the premises; but these implied terms only arise in the absence of an express covenant: Miller v Emcer Products Ltd (1956) Ch 304 at 318. So the claim for the implied term would fail because of the express term, clause 9.1 here. 4. But this claim on an implied term, made in final submissions, was not pleaded. The Further Amended Statement of Claim makes a narrower case only of the breach of lease clause 9.1: see the Further Amended Statement of Claim, [38], [40] and [41]. JKAM's case will be tried on the pleadings. 5. JKAM introduced other extraneous arguments of breach of the lease in final submissions. It complained of non-compliance with the lease clauses 17 and 21.3. But these contentions were also not pleaded in the Further Amended Statement of Claim and also cannot be considered. 6. JKAM also complains that Mr Damien did not register the lease in breach of clause 12.1 of the contract for sale, thereby denying JKAM the benefit of indefeasible title. But neither this contention, nor other contentions in the submissions of breaches of the contract for sale were pleaded in the Further Amended Statement of Claim and cannot now be considered. 7. JKAM contends that Mr Damien breached the express covenant for quiet enjoyment when Mr Damien consented to judgment in favour of the NAB on 1 August 2014, thereby permitting the NAB to enter the premises and take possession. JKAM contends it later had no alternative but to consent itself to the NAB's receivers taking possession, as the NAB had commenced proceedings against both Mr Damien and JKAM. JKAM contends that its resultant loss of possession and loss of rents from sub-tenants constitutes a breach of the covenant for quiet enjoyment. JKAM's claim includes loss of income from the sub-leases for 15 years plus the five year option period for renewal consequent upon the loss of possession of the property. 8. The applicable law may be briefly stated. The covenant for quiet enjoyment protects the lessee from substantial interference with the lessee's possession and enjoyment of the leased premises. For the interference to be substantial it must be material and must be more than a mere trespass or nuisance and may involve actual exclusion of the tenant from all or part of the leased premises: Laurinda Pty Ltd v Capalaba Shopping Centre Pty Ltd (1989) 166 CLR 623 at 636-7 and 648-9; (1989) 85 ALR 183; (1989) 63 ALJR 372; [1989] ANZ ConvR 196; [1989] HCA 23. 9. Express covenants for quiet enjoyment are of two types. The covenant may be a qualified covenant, that the tenant may peaceably hold and enjoy the demised premises during the term without interruption from the landlord or persons claiming through or under the landlord. Alternatively, the covenant may be an absolute covenant protecting against interruption by persons claiming by title paramount: Moyston v The West Coal and Iron Company Ltd (1876) 1 CPD 145; (1876) 45 LJQB 401. The express covenant for quiet enjoyment is commonly now given only as a qualified covenant, crafted to secure the lessee's uninterrupted enjoyment of the premises and does not protect the lessee in case of an eviction by title paramount to that of the lessor: Harrison Ainslie & Co v Lord Muncaster [1891] 2 QB 680 at 684 (Lord Esher MR). 10. Clause 9.1 of the lease is a qualified covenant for quiet enjoyment in its usual form. Qualified covenants vary somewhat in their phraseology. But they may safely be entered into by a lessor who does not have title to the demised premises, because any subsequent entry, eviction, ejectment or other interruption or disturbance by the real owner, or by the party entitled to possession or by any other person who does not claim "by, from or under" the lessor, would not be a breach of such a qualified covenant: Line v Stephenson (1838) 132 ER 950; (1838) 4 Bing NC 678; 7 Scott 69; affirming 6 Scott 447 and Merrill v Frame (1812) 128 ER 357; (1812) 4 Taunt 329. 11. For example, even the ejectment of a lessor by the head landlord for non-payment of rent under a head lease or for breach of any covenant in the head lease is not a breach of the covenant for quiet enjoyment in a sub-lease: Kelly v Rogers [1892] 1 QB 910. Nor is it a breach of the covenant if a landlord in a head lease evicts the sub-lessee for non-observance by the sub-lessee of a covenant by the sub-lessor of which the sub-lessee had no notice: Dennett v Atherton (1872) LR 7 QB 316. There is no breach of the covenant for quiet enjoyment if the landlord omits to pay land tax and distress for arrears is levied on the tenant: Stanley v Hayes (1842) 3 QB 105; (1842) 114 ER 447. In such a situation, the usual qualified covenant for quiet enjoyment is not breached because the collector of the tax did not claim from or "under" the lessor but against the lessor. 12. The words in clause 9.1 "without any interruption by the lessor or any person rightfully claiming through, under or in trust for it" are a classic expression of a qualified covenant. Whatever be the precise form of the words used, the covenant only protects against the acts of persons, who claim under the landlord, so far as they are successors in title to the landlord or who actually have authority from the landlord to do the acts in question: Harrison Ainslie & Co v Lord Muncaster and Sanderson v Berwick-upon-Tweed Corporation (1834) 13 Q.B.D 547. 13. The qualified covenant extends to all acts of the landlord itself which interrupt the enjoyment of the tenant, whether they are lawful or not. The covenant does not extend to acts of a stranger, notwithstanding that the stranger purports to claim under the landlord, as the tenant is in those circumstances left to the tenant's action in trespass: Nash v Palmer (1816) 5 M&S 374 at 379; (1816) 105 ER 1088. The lessee is left to its rights in trespass against strangers. 14. Mr Damien submitted to judgment for possession at the suit of the NAB. A lessee who unnecessarily consents to judgment for possession in an action by a lessor may be in breach of the covenant for quiet enjoyment which the lessee has entered into with a sub-lessee: Cohen v Tannar [1900] 2 QB 609. But the key word here is "unnecessarily". If the head lessor submits to judgment which would be entered anyway at the suit of a holder of title paramount, it is not a breach of the covenant for quiet enjoyment. JKAM alleges a breach of clause 9.1 by Mr Damien's consent to judgment in favour of the NAB. 15. JKAM does not rely on any other act of Mr Damien, which would be a breach of the covenant for quiet enjoyment. There is no other alleged physical interference with JKAM's enjoyment of the demised premises, apart from the NAB's judgment for possession. 16. JKAM's argument of breach of clause 9.1 is not persuasive. Many factors indicate that Mr Damien's consent to judgment for possession in favour of the NAB was well justified. Mr Damien was in long-standing default to the NAB, which held a registered first mortgage, which had priority over JKAM's equitable interest as lessee. It is common ground that no mortgage payments to the NAB had been made since January 2013. And in apparent recognition of the futility of a contest with the NAB, JKAM, which was a second defendant in the NAB's proceedings, itself later consented to judgment. 17. Mr Damien did not breach clause 9.1 by giving possession of the Camden property to the NAB. The NAB's exercise of its power of sale occurred pursuant to the NAB's entitlement under the existing first mortgage and a Court order recognising the NAB's superior title. 18. There being no breach of the covenant for quiet enjoyment, the question of damages of the covenant does not arise. No calculations need be made about the financial effect of JKAM's loss of the term of the lease. 19. Although not pleaded, JKAM also raised in final submissions the contention that Mr Damien derogated from the grant of an estate to JKAM as lessee. Even if it had been pleaded, such an allegation would not have been successful in this case. 20. A lessor's obligation not to derogate from the grant is an obligation not excluded by an express covenant for quiet enjoyment: Grosvenor Hotel Co v Hamilton [1894] 2 QB 836. But for a Court to give relief for breach of this covenant, the interference to the lessee's grant must be substantial: Browne v Flower [1911] 1 Ch 219; [1908-10] All ER Rep 545. Commonly it involves the landlord letting and adjoining land in a way that interferes with the conduct of the principal demise. The covenant is also breached when the grantor fundamentally changes the subject of the grant: Peech v Best [1931] 1 KB 1; Mason v Clarke (1955) AC 778; [1955] 1 All ER 914. But there is nothing alleged by JKAM in submissions in this case which would be actionable as such a substantial interference. Applicable Legal Principles – Silence and Misleading Conduct 1. JKAM has pleaded three statutory remedies in its misleading and deceptive conduct claim. Firstly, it relies on the Australian Consumer Law, ss 18 and 30. Section 18 asserts that a person engaging in trade or commerce must not engage in conduct that is likely to mislead or deceive. Section 30 relates specifically to the sale of land, such that a person connected to land must refrain from making false or misleading statements as to certain characteristics of the land, including any interest in it: see s 30(1)(a)-(g). Secondly, JKAM relies upon the equivalent provisions in the state-based Fair Trading Act 1987. By virtue of Fair Trading Act, ss 28 and 32, the Australian Consumer Law applies as a law of New South Wales to persons carrying on business within this jurisdiction. Thirdly, JKAM claims it is entitled to relief under ASIC Act, ss 12DA and 12DC. The wording of section 12DA substantially reflects that in the Australian Consumer Law, s 18, although it specifically concerns conduct that is likely to mislead or deceive in relation to financial services: 12DA(1). Section 12DC can be seen as the Australian Consumer Law, s 30 equivalent, preventing the making of false or misleading representations about a financial product that includes an interest in land: see s 12DC(1)(a)-(b). 2. Although Mr Damien denied engaging in misleading and deceptive conduct, this case was not fought on the basis that none of these statutory remedies was available to JKAM. At least the Australian Consumer Law and Fair Trading Act remedies apply. It is not necessary to discuss their application any further in these reasons. 3. If a breach of any one of these three provisions were to be substantiated, then JKAM seeks statutory remedies for a sum of money and/or monetary compensation. It relies on ss 236 and/or 237 of the Australian Consumer Law; the equivalent provision/s in the Fair Trading Act; and/or s 12GF of the ASIC Act. Where misleading and deceptive conduct is proven, each provision allows for an action for damages to be brought contingent upon proof of "loss or damage": see Australian Consumer Law, s 236(1)(a), ASIC Act, s 12GF(1). "Loss or damage" is defined in s 13(a)-(b) of the Australian Consumer Law as "injury". 4. JKAM's misleading and deceptive conduct case relies to a substantial degree not on the making of positive representations, but on the misleading effect of Mr Damien's conduct in staying silent about relevant matters known to him. JKAM's case is that unless Mr Damien disclosed facts known to Mr Elia during their negotiations, he was engaging in misleading and deceptive conduct. The applicable legal principles may be shortly stated. 5. Silence alone is unlikely to constitute misleading and deceptive conduct. However, remaining silent when there is a "reasonable expectation" that if a particular fact exists it will be disclosed, may do so: Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ASC 55-943 at [41]; (1989) ATPR (Digest) 46-054; [1989] FCA 400. 6. In Miller & Associates Insurance Broking Pty Ltd (CAN 089 245 465) v BMW Australia Finance Ltd (CAN 007 101 715) (2010) 241 CLR 357; (2010) 270 ALR 204; (2010) 84 ALJR 644; [2010] HCA 31 ("Miller v BMW"), French CJ and Kiefel J observed that what amounts to a "reasonable expectation" may differ depending on the context, such as if the alleged misleading conduct occurred during commercial negotiations (at [19]). In that case, the failure of an experienced businessman to make reasonable enquiries himself was held to be a factor relevant to whether the silence was in fact misleading (at [91]). 7. Although the range of circumstances giving rise to a duty to speak cannot be exhaustively defined, Gilmore and White JJ offered a useful list of examples in Addenbrooke Pty Ltd (ACN 055 973 576) v Duncan and Others (No 2) (2017) 348 ALR 1; (2017) 121 ASCR 406; [2017] FCAFC 166 at [428(e)]: "Such circumstances may exist when either the law or equity imposes a duty of disclosure, when a statement conveying a half-truth only is made…when the representor has undertaken a duty to advise, when a representation with continuing effect, although correct at the time it was made, has subsequently become incorrect, and when the representor has made an implied representation." 1. The whole of the relevant circumstances, including the relationship between the parties and the nature of the transaction, must be assessed objectively in order to determine whether a failure to disclose amounts to misleading and deceptive conduct: see Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477; (1986) 68 ALR 77; (1986) ASC 55-501; Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; 110 ALR 608 at 610. 2. Further, although a degree of secretiveness is inherent in commercial transactions given parties will often have conflicting interests, the bargaining process is not a "licence to deceive": Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25; (1992) ASC 56-140; (1992) ATPR 41-164 at [26] per Burchett J. See also Lam v Ausintel Investments Aust Pty Ltd (1990) 97 FLR 458; (1990) ATPR 40-990. 3. The Statement of Claim pleads six categories of alleged conduct by silence, which JKAM claims was misleading and deceptive and led JKAM to enter the September 2012 lease and the December 2012 transactions. It is enough for the purpose of these reasons to consider together these various categories of alleged conduct by silence, in three groups relating respectively to the Denham Court property, the prior encumbrances and the NAB loan facility. Many of the categories of conduct by silence are admitted in the Defence but the defence case was not entirely conducted in conformity with the admissions. But no admission was made of any misleading or deceptive conduct. The main question in issue was whether Mr Elia had a reasonable expectation of disclosure to him. The Denham Court Misleading Conduct 1. JKAM's misleading and deceptive conduct case about the Denham Court property is based on a contention that Mr Damien expressly represented that the construction costs would be secured over both the Camden and the Denham Court properties by a second mortgage. It is said that contrary to that representation the Denham Court property was not referred to in the December 2012 deed or in the JKAM mortgage documents prepared by Mr Alcorn and given to Mr Elia. And it is alleged Mr Elia was not informed of the omission in circumstances where Mr Damien owed him an obligation to highlight the omission. 2. The Court's findings in the narrative of facts in relation to the events between 10 December 2012 and 21 December 2012 compel the conclusion that there was no Denham Court misleading conduct inducing JKAM's transactions with Mr Damien. Neither Mr Damien nor Mr Alcorn positively represented to JKAM that Mr Damien would grant JKAM a mortgage over both the Camden property and the Denham Court property as part of these December 2012 transactions. 3. Mr Elia, the principal actor on behalf of JKAM in negotiations, asked for a second mortgage over the Denham Court property to secure JKAM's construction costs on the Camden property. But the proper inference from the narrative of facts is that Mr Elia was made aware both on 10 December 2012 and 21 December 2012 that Mr Damien was not prepared to grant such a mortgage and Mr Elia accepted that situation. 4. In the Court's view, JKAM did not become a party to the JKAM mortgage under any misapprehension that Mr Damien had or would provide security over the Denham Court property. Mr Damien did not mislead Mr Elia either expressly or by silence to give the impression that the Denham Court property was being offered as security or would become security. JKAM's allegations about the alleged Denham Court misleading conduct therefore fail. The Prior Encumbrances Misleading Conduct 1. An outline of JKAM's contentions on the prior encumbrances misleading conduct is set out earlier in these reasons. The prior encumbrances misleading conduct relates to both the Champion charge and the Hotray equitable mortgage. It is useful to examine the alleged prior encumbrances misleading conduct by reference to each of these encumbrances separately, starting with the Champion equitable charge. 2. The Champion Equitable Charge. Mr Damien's responses to Mr Elia's questions in July 2012 were actively misleading in relation to the Champion charge, which then already existed. Mr Elia was aware that there had been a prior builder engaged on the Camden property, who had left the site after a dispute with Mr Damien. Mr Elia was also aware that this builder had probably not been paid all that was claimed by it and that there was a genuine dispute. But Mr Damien had not told Mr Elia about the 4 April 2012 acknowledgement of debt that created the Champion equitable charge. Nothing in Mr Damien's answers to Mr Elia's questions in their various conversations in July 2012 or earlier had informed Mr Elia of Champion's equitable charge either directly or indirectly and to that extent his conduct was misleading and deceptive. Mr Elia assumed that this encumbrance did not exist when he entered these transactions. 3. Applying the relevant legal principles, Mr Elia had a reasonable expectation that the creation of the Champion equitable charge was a fact that would be disclosed to him before JKAM's entry into the December 2012 deed, the contract for sale and the JKAM mortgage. This conclusion follows from the following matters. 4. First, in the conversations between Mr Elia and Mr Damien in July 2012, Mr Damien had created an impression that he would disclose "outstanding matters regarding the property", which would include any present or future encumbrances over the Camden property. Mr Elia had a corresponding expectation of disclosure. So much follows from the fact that Mr Elia made enquiries about matters that were broad enough to include existing encumbrances and the possibility of such encumbrances being created and Mr Damien gave him assurances in those conversations that there was nothing to disclose. Mr Damien knew from the nature of Mr Elia's inquiry that Mr Elia was interested not only in the present state of the register but in whether the creation of future encumbrances was likely. 5. Second, the statements that Mr Damien had made to Mr Elia in July 2012 were in substance continuing representations. To the extent they were correct when made they had subsequently become incorrect in relation to the Hotray mortgage. Without correction, they had become misleading by changing circumstances over time. 6. Third, communications and negotiations between the parties between April and December 2012 had led to an ambiguous situation in which Mr Elia was relying upon Mr Alcorn, for assistance with legal drafting of transaction documents, as if Mr Alcorn was a lawyer acting for both parties. The circumstances were clear enough to Mr Damien that Mr Elia was looking to Mr Alcorn in this additional role throughout those transactions. Mr Alcorn in fact performed the drafting for both sides and Mr Elia's email correspondence with Mr Alcorn confirms this. By performing the drafting for Mr Elia, Mr Alcorn had taken upon himself a semi-advisory role. Important support for this conclusion flows from the lack of any disclaimer on Mr Alcorn's part that he was not guarding Mr Elia's interests. He did not seek at any stage to limit the degree of reliance that Mr Elia placed upon him. 7. The Hotray Equitable Mortgage. But for the application of the issue-estoppel, the Court would find that Mr Damien concealed the existence of the Hotray equitable mortgage from Mr Elia. The probable explanation for the timing of the creation of the Hotray mortgage was the imminent execution of the contract for sale and the JKAM mortgage. Mr Damien was well aware that the execution of this document would give him a material financial advantage over the interests that JKAM proposed to create through the contract for sale and the JKAM mortgage. Mr Elia and anyone in his position must have appreciated that the existence of the Hotray mortgage was material to Mr Elia's decision to proceed with the deed on 10 December and the two transactions on 21 December. 8. Similar logic applies here to Mr Damien's non-disclosure to Mr Elia of the creation of the Champion equitable charge. Mr Elia had a reasonable expectation that the Hotray equitable mortgage was a fact that would be disclosed to him before JKAM's entry into the December 2012 deed, the contract for sale and the JKAM mortgage. Similar factors applied: Mr Damien creating an impression that he would disclose encumbrances to Mr Elia; the fact that Mr Damien's continuing representations of July 2012 had become incorrect; and Mr Alcorn's role as a lawyer apparently acting for both parties were all in play again, creating a reasonable expectation on Mr Elia's part of the disclosure to him of the existence of the Hotray mortgage. But for the issue-estoppel, the Court would have found the non-disclosure of the Hotray mortgage to be misleading and deceptive. The NAB Loan Facility Misleading Conduct 1. In this group of contentions relating to the NAB loan facility, JKAM alleges that before entry into the September 2012 lease and into the three transactions in December 2012 Mr Damien engaged in misleading and deceptive conduct by not disclosing to JKAM that: 1. Mr Damien had signed the forbearance deed with the NAB; 2. Mr Damien was in default to the NAB under the loan facility secured by the NAB mortgage; or 3. Entry into the four transactions with JKAM would place Mr Damien in default to the NAB under the forbearance deed. 1. JKAM's contentions relating to the NAB loan facility are made out with respect to (1) and (3) above, but not (2). 2. As to (2), the forbearance deed shows that Mr Damien was in default to the NAB by late August 2012. The narrative of findings above is a basis to infer that Mr Elia was aware of Mr Damien's default to the NAB. Mr Elia was generally aware in the first half of 2012 of Mr Damien's financial distress. The probability that Mr Damien was in default to the NAB must have been obvious to Mr Elia from not long after he, Mr Damien and Mr Haddad had begun talking together in December 2011. Mr Damien was open with Mr Elia at times about the pressure being applied to him by the NAB. By mid-2012 Mr Elia was working on the basis that Mr Damien was probably in default to the NAB. 3. Several factors point to Mr Elia working this out for himself. By April/May 2012. JKAM was negotiating to undertake construction work on the Camden property by extending credit to Mr Damien secured over the Camden property (and initially also over the Denham Court property). Mr Elia's April/May 2012 proposal to Mr Damien that JKAM might acquire the Camden property was grounded on the assumption that Mr Damien was not in a financial position both to meet all his existing financial obligations and to complete the construction required on the Camden property from his own resources. 4. As to (1) and (3), Mr Elia was unaware that Mr Damien had signed the forbearance deed, was unaware of its terms and was unaware that Mr Damien would breach the terms of the forbearance deed through the four transactions with JKAM in the second half of 2012. As the narrative of findings shows, the Court does not accept Mr Damien's evidence that he disclosed information about the forbearance deed to Mr Elia in about late August 2012. The course of events better supports the inference that disclosures relating to the forbearance deed were not made to Mr Elia in 2012. Had the forbearance deed been disclosed to Mr Elia, he is the kind of person who would have asked questions of Mr Damien to ascertain more about it and to enquire whether the transactions JKAM and Mr Damien were about to enter were compatible with it. 5. The nondisclosure of facts (1) and (3) was misleading or deceptive. Mr Elia had made enquiries of Mr Damien in July 2012 about his relationship with the NAB and he was given the impression there was nothing of concern with the NAB. Given this inquiry and Mr Damien's answer, Mr Elia had a reasonable expectation that Mr Damien would further disclose to him on this subject, if the situation with the bank materially worsened. 6. And like the situation with the Champion and Hotray encumbrances, what Mr Damien had said about the NAB needed to be corrected, because if it was not misleading when it was first said in July, it had become misleading by the time the forbearance deed was executed and Mr Damien was contemplating entry into a contract for sale that was incompatible with the forbearance deed. The incompatibility arose at least for the following reasons. Mr Damien had not sought the NAB's consent to his entry into the contract for sale and the contract for sale was not unconditional – for example, it allowed deferral of settlement for two years; and was subject to the lease to JKAM, inconsistent with the forbearance deed, clause 6(e). Under the contract for sale, Mr Damien was to receive $300,000 of the sale proceeds: this was inconsistent with clause 6(h) requiring the NAB to receive all proceeds. Under the contract for sale, and the December 2012 deed, the building works were treated as a deposit: this was inconsistent with clause 6(f) requiring a deposit of 10% to be paid on deposit with settlement within 42 days. 7. And like the situation with the Champion and Hotray encumbrances, the same elements of Mr Elia obviously trusting Mr Alcorn to act in his interests, as well as in Mr Damien's interest were present, such that Mr Elia had a reasonable expectation of disclosure of the forbearance deed and the probability of its breach. The No Debts to Champion Misleading Conduct 1. JKAM also alleges that Mr Damien engaged in early positive conduct between December 2011 and March 2012 that was misleading and deceptive. JKAM alleges that between those dates Mr Damien, both orally and by implication, represented to JKAM (a) that Mr Damien did not owe any money to Champion and (b) that the Camden property was not burdened with any security obligation to Champion for debts owing to Champion for construction works. 2. As to (a), the Court does not accept that Mr Damien represented to JKAM at any time that Mr Damien did not owe any money to Champion. Quite the contrary, Mr Damien's early conversations with Mr Elia through Mr Haddad as an intermediary between December 2011 and March 2012 revealed to Mr Elia that Champion had left the Camden property as a result of disagreements about money which had not yet been resolved. This was enough for Mr Elia then to infer that Mr Damien and Champion still had money disputes. Subsequent conversations were to similar effect. Mr Elia was not under the misapprehension that Mr Damien did not have debts outstanding to Champion. He was under the impression that Champion had some money claims against Mr Damien but they were contested. 3. As to (b), Mr Damien did not say to Mr Elia between December 2011 and March 2012 that the Camden property was not burdened with a security obligation to Champion for debts owing to Champion for construction works. In December 2011 Mr Damien did not go into the subject of security over the Camden property for his financial obligations to Champion or any other creditor. But this subject did come up later between the two in July 2012 as the Court's narrative of findings shows. 4. JKAM's contention that between December 2011 and March 2012 it was misled by Mr Damien that he did not owe any money to Champion and that the Camden property was not burdened with any security obligation to Champion fails. The Plus Fitness Lease Registration Misleading Conduct. 1. JKAM alleges that in December 2011 Mr Damien orally represented to JKAM that Mr Damien had leased the Camden property to Plus Fitness under a lease recognised by the NAB. The Court is not confident of Mr Elia's account of his early conversations with Mr Damien in December 2011. Moreover, if the Plus Fitness lease registration misleading conduct had occurred and Mr Elia was of the view that Mr Damien had leased the Camden property to Plus Fitness, and the NAB had consented to that lease, it would be expected that some later discussion would have taken placed between the two of them about how the proposed lease to JKAM would replace the lease to Plus Fitness. But the Court does not accept that any such conversation took place. JKAM was not misled in late 2011/early 2012 to hold an impression that the NAB would later consent to the registration of the September 2012 lease. 2. But even if Mr Damien had made such representations, it would not follow from such a finding that Mr Damien also impliedly represented to JKAM that Mr Damien was in a position, without likely opposition from the NAB, to register any lease that Mr Damien might grant in the future to companies incorporated by Mr Elia, such as JKAM. 3. Mr Damien's bare statement that he had leased the Camden property to Plus Fitness and that this lease had been recognised by the NAB would represent just that and no more. The statement does not bring with it the implication that Mr Damien believes that the NAB would consent to the registration of any lease Mr Damien might grant in the future to JKAM. This implication cannot reasonably be drawn from such a statement. Whether the NAB would consent to a future lease to JKAM would always depend on the terms of the lease and the state of accounts between Mr Damien and the NAB at the time. 4. JKAM's misleading and deceptive conduct case based on the NAB's consent to the registration of the Plus Fitness lease therefore fails. Future Matters, Implied Representations and Reliance 1. JKAM pleads that Mr Damien's misleading conduct involves in part representations as to future matters and there were no reasonable grounds for making those representations. 2. These submissions are not persuasive. Both the prior encumbrances misleading conduct (with respect to the Champion charge) and the NAB loan facility misleading conduct relate to states of affairs which were said to exist at the time of the conduct in question and at the time of the September and December 2012 transactions. The questions and answers Mr Elia asked and Mr Damien answered on 13 July 2012 are only capable of founding inferences about states of affairs (about then existing securities and debt) up to the time that JKAM entered into the transactions. The submission is correct to the extent that it seeks to argue the representations were continuous for that period. But they were not representations about future matters in the sense of predicting that the future state of affairs would come to pass. 3. Moreover, JKAM cannot claim reliance upon the misleading and deceptive conduct much beyond the time that it appreciated that it had been misled. Subsequent reliance conduct may include JKAM taking steps to extract itself from the consequences of Mr Damien's prior misleading conduct. JKAM was aware of the real situation in 2013. 4. The implied representations that JKAM relies upon add little to the expressly pleaded claims of misleading and deceptive conduct. The implied representations set out the steps by which Mr Elia relied upon the other misleading conduct. The implied representations do not appear to the Court to require additional analysis in these reasons. But further consideration is reserved if the parties seek to have further findings made in relation to them. 5. Mr Elia acted upon the prior encumbrance misleading conduct (with respect to the Champion charge). Reliance upon misleading conduct involving non-disclosure may not be the most apt terminology: Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No. 3) (2006) 67 NSWLR 341 at [81]; [2006] NSWCA 282. Had non-disclosure not occurred and had he been aware of the Champion charge he would not have entered the September 2012 lease, nor would he have undertaken construction work at the Camden property. Moreover, he would not have entered the December 2012 deed, the contract for sale or the JKAM mortgage. 6. Had he been aware of the prior encumbrances, his investment interest in the Camden property would have dissolved. The business case for investing in the Camden property by undertaking $528,000 in building works made little financial sense if his interests in the property were deferred behind the combined value of the NAB mortgage, the Champion charge and the Hotray mortgage. Taken together the combined value of these prior encumbrances represented well over $2.6 million. Even assuming Mr Elia expected capital gain upon completion of the work at the Camden property, these encumbrances were significant hurdles. 7. Mr Elia also relied on the NAB loan facility misleading conduct. Had this misleading conduct not occurred, Mr Elia would have been aware of the terms of the forbearance deed and been able to compare them with the transactions that JKAM was about to enter with Mr Damien. This would have revealed to him that the NAB was itself apparently not aware of the September 2012 lease. The September 2012 lease is not mentioned in the forbearance deed. Moreover, the forbearance deed only covers the possibility of a contract for sale being signed and does not mention the JKAM mortgage. 8. The Court does not accept Mr Elia's evidence that had he realised Mr Damien was in default to the NAB in about July/August 2012, that he would not have entered into the various transactions in September and December 2012. Mr Elia had concluded that Mr Damien was in default to the NAB by mid-2012 and he proceeded with the transactions anyway. 9. Mr Elia says he would have enquired of Mr Damien how he was going to clear the default. But Mr Damien would not have been able to give assurances he could clear his default. Had he been able to clear the default, he would have done so. But the Court does accept that Mr Elia would not have entered into the agreement had he realised Mr Damien could not clear his default. Moreover, if Mr Elia had known the NAB was actively considering taking action on Mr Damien's default to the point of binding Mr Damien to the forbearance deed, he would not have entered into the transactions. 10. Absent the NAB loan facility misleading conduct Mr Elia would not have entered the September 2012 lease, nor would he have undertaken construction work at the Camden property. He would not have entered the December 2012 deed, the contract for sale or the JKAM mortgage. As first mortgagee, the NAB had priority over JKAM and could refuse to register the September 2012 lease or to recognise the contract for sale. The lease and the contract for sale were mechanisms for JKAM to derive economic value from its construction expenditure on the Camden property. The JKAM mortgage was a safety net to secure the return of the construction expenditure on the property. As was discussed earlier in these reasons, the forbearance deed would have readily revealed to Mr Elia that the contract for sale directly conflicted with the NAB's requirements of Mr Damien. 11. In the face of the high risks of the NAB refusing to register the September 2012 lease or to recognise the contract for sale there was no business case for JKAM investing substantial construction expenditure into the Camden property or entering any of these transactions. Despite the incentive of capital gain from this investment, Mr Elia would have recognised that and would have refused to proceed further. 12. JKAM therefore suffered loss and damage by proceeding to undertake construction expenditure on the Camden property and entering these transactions. Loss and Damages JKAM Allegedly Suffered and a Damages Hearing 1. The parties have not yet presented to the Court detailed calculations of the loss that JKAM has suffered as a result of the two forms of misleading and deceptive conduct in which the Court has found Mr Damien engaged, the prior encumbrance misleading conduct and the NAB loan facility misleading conduct. The Further Amended Statement of Claim seeks an order that there be an inquiry as to damages, principally in relation to the alleged breach of the lease and the breach of the JKAM mortgage. But an inquiry would also be necessary in relation to the loss and damage suffered as a result of the misleading and deceptive conduct that has been established. 2. Ordinarily such an inquiry as to damages will be undertaken based on the existing evidence from both sides. Neither party should have the opportunity of adding to the lay evidence already adduced in the proceedings. It is undesirable for the Court to reassess the parties' credibility at a separate later damages hearing. Based on the Court's existing findings the parties should be able to advance their competing submissions and calculations of damage. 3. The parties will be directed to agree upon short minutes of order to enable such an enquiry to take place. If the parties seek the determination of any other matters not dealt with in these reasons, those matters should be identified in these short minutes of order. 4. An important preliminary question arises. If there is to be an inquiry as to damages, in relation to the action on the JKAM mortgage and in relation to the misleading and deceptive conduct, a fundamental inconsistency between these two remedies may require JKAM to make an election between them. This issue has not yet been canvassed in the parties' submissions. But it is now clear as a result of the Court's findings. The need for a successful party to elect between inconsistent remedies is a familiar question in some forms of equitable relief: Warman International Ltd v Dwyer (1995) 182 CLR 544 at 559; (1995) 128 ALR 201; (1995) 69 ALJR 362; [1995] HCA 18. 5. The proven misleading and deceptive conduct here may result in an award of compensation or other relief on the basis that Mr Damien induced JKAM to enter into transactions (such as the contract for sale and the JKAM mortgage) which it would not have entered into but for the misleading and deceptive conduct. A normal measure of loss for such misleading and deceptive conduct would be the expenditure JKAM incurred as a result of entry into the transactions in question, including the costs of unwinding those transactions. The relief may include the taking of steps to declare void or discharge mortgages or to otherwise bring to an end the impugned transactions. With the contract for sale, that has already happened by agreement. 6. But it is not consistent with seeking relief for misleading and deceptive conduct to sue upon the impugned transaction. The Court does not readily see how it can give JKAM relief to set aside the impugned transactions and then to give JKAM relief on the basis that the transactions are not set aside. Subject to hearing further submissions, JKAM will probably have to elect between these remedies. The Court wishes to hear submissions about this question in the damages hearing. 7. It may assist the parties in formulating their submissions, for the Court to observe that the true measure of JKAM's damages for misleading and deceptive conduct may be little more than its expenditure on parts of the litigation and various other costs which it has also sought to recover under the JKAM mortgage. It is improbable that the assessment of damages for misleading and deceptive conduct could involve any compensation for loss of part of the bargain which Mr Elia thought JKAM might be securing in his dealings with Mr Damien. 8. But the parties have not yet had an opportunity to put to the Court submissions about damages based upon the Court's actual findings, which have now been made. The Court therefore looks to the parties to put in their competing contentions (and calculations) about what loss and damage has been suffered on JKAM's misleading and deceptive conduct claim. And in that regard, it is also not clear why the Court needs to consider the various issues raised in argument by JKAM about the course of events in relation to specific performance of the contract for sale and the ultimate abandonment of that contract. If the contract for sale was induced by misleading and deceptive conduct, then the appropriate course is for the Court to consider what compensation, if any, JKAM should be awarded to put it in the position as if the contract for sale had not been made. 9. Other pleaded claims may cause confusion in the damages hearing. The Further Amended Statement of Claim, paragraphs [24], [25] and [26] pleads various acts of reliance upon misleading and deceptive conduct. Recovery for some of these acts of reliance is problematic. The Court has found as to paragraph [24](a) and (b) that Mr Damien's misleading and deceptive conduct may have caused JKAM to incur the costs of entering into legal relations with him pursuant to the various instruments. But whether JKAM could also recover the expenses pleaded in [24](c) of engaging in litigation to challenge the priorities judgment asserted by the competing interests is another question. It may well be argued in further submissions by Mr Damien that as soon as JKAM discovered the misleading conduct, to mitigate its loss it should have sought to rescind the JKAM mortgage and the contract for sale, long before pursuing the priorities proceedings. 10. JKAM also pleads in paragraphs [24](d) and (e) that it commenced and continued to develop the Camden property up to an agreed value of $528,000 as a result of the misleading and deceptive conduct and continued that development with a view to profit. But whether that loss can be recovered will depend upon when JKAM found out the truth about the prior encumbrances misleading conduct or the NAB loan facility misleading conduct. Once JKAM found out that this conduct was misleading and deceptive, reliance may cease and recovery of further loss may be precluded. But the parties have not addressed their submissions to these consequential issues. These will also need to be dealt with at the damages hearing. 11. The Further Amended Statement of Claim paragraph [25] asserts that the completion of the contract for sale was commercially feasible in September 2013 but became impossible at the specified purchase price of $2.081 million, given the combined value of the interests asserted by the NAB, Champion and Hotray. But as the misleading, deceptive conduct was occasioned by Mr Damien and the contract for sale was between Mr Damien and JKAM, a claim for loss of opportunity to complete the contract for sale is unlikely to be an available measure of damages. 12. Similarly, the claim in the Further Amended Statement of Claim, paragraph [26] may not be sustainable. This pleaded claim suggests that JKAM has suffered loss and damage because of the loss of the security that the JKAM mortgage would have otherwise provided in respect of the Camden property and the Denham Court property. If contrary to what has occurred, JKAM's claim for misleading and deceptive conduct in relation to the Denham Court property had succeeded, and the other misleading and deceptive conduct relief was not pursued, it may have been possible to rectify the JKAM mortgage to include the Denham Court property. 13. But that is not what the Court has found. To the extent that paragraph [26] alleges that the set off judgment is not secured against the Camden property and the costs ordered against JKAM are not secured against the Camden property, that claim is incorrect. The Court has now found that those securities do exist under the JKAM mortgage. This will have to be clarified by JKAM before the damages hearing commences. 14. Other issues will arise in the damages hearing. In final submissions, JKAM claimed different categories of costs to those claimed in the Further Amended Statement of Claim. These included the following: the range of costs awarded in various proceedings against JKAM; all JKAM's counsels' fees and disbursements, solicitors' fees for the Champion and Hotray proceedings; solicitors' costs for the NAB proceedings; and solicitors' costs for the Court of Appeal proceedings. If these costs are all claimed on the JKAM mortgage they must be properly summarised, tabulated and quantified so that any challenges to their recoverability by Mr Damien can be readily identified. 15. Another issue for the damages hearing is the calculation of interest on the judgment debt of $138,000. JKAM claims an entitlement to interest on that unpaid amount from the date it gave vacant possession of the Camden property by the NAB on 22 May 2015. Why interest is calculated from that date has not been made clear. Calculations of interest and the basis for them will need to be provided to Mr Damien's legal representatives. 16. Finally, some financial issues will have no obvious relevance at a damages hearing so far as the Court can see on the pleadings. JKAM's final submissions include complaints about JKAM's expenditure (a) of the unexpected additional sum of $200,000 in electrical installations; and (b) of the costs of resurfacing the carpark area, at the Camden property. This is an example of the parties' tendencies to travel in submissions beyond the pleaded cases which will have to be reined in on any damages hearing. Conclusions and Orders 1. For these reasons the Court makes the following declarations orders and directions: 1. Note that for the purpose of these orders (a) the "priorities judgment" is a reference to the judgment of Darke J in Champion Home Sales Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952; and (b) the "set off judgment" is a reference to the judgment of Rein J, Karl Damien v JKAM Investments Pty Ltd [2015] NSWSC 272. 2. Declare that the following are part of the Secured Money as defined in the mortgage made between the plaintiff as mortgagee and the defendant as mortgagor on 21 December 2012, namely (a) the sum of $138,000 found due by the defendant to the plaintiff in the set off judgment, (b) the plaintiff's own costs of these proceedings, and (c) the plaintiff's own costs of the proceedings resulting in the priorities judgment and the costs ordered against the plaintiff in the priorities judgment. 3. Direct the parties to agree upon the quantum of costs outstanding under the JKAM mortgage in the proceedings leading to the priorities judgment, as defined in these reasons, or upon an appropriate program for the assessment of those costs and in default of such agreement the parties shall relist this matter for further directions for these costs to be ascertained, including if necessary through the inquiry as to damages. 4. Direct the plaintiff to provide to the defendant a full list or summary of the plaintiff's costs of these proceedings, together with all memoranda of fees and other primary accounting materials reasonably required by the defendant to establish the incurring of the plaintiff's costs and disbursements, with a view to the plaintiff's costs of these proceedings being agreed or referred for costs assessment on the indemnity basis. 5. Direct the plaintiff to provide its calculations of interest due under the mortgage between the plaintiff and the defendant dated 21 December 2012, ensuring in such calculation that interest already claimed pursuant to the Court's judgment in Karl Damien v JKAM Investments Pty Ltd [2015] NSWSC 272 is not double counted. 6. Direct that JKAM provide to the defendant particulars of any further costs or expenses the plaintiff claims have not been dealt with in these reasons and which may need to be the subject of an inquiry as to damages, upon which issue the Court will reserve for further consideration. 7. Dismiss the plaintiff's claim for breach of the covenant for quiet enjoyment, clause 9.1 of the lease between the plaintiff and the defendant dated 1 September 2012. 8. Dismiss the plaintiff's claim for breach of clause 6.15 of the unregistered mortgage made between the plaintiff and the defendant on 21 December 2012. 9. Direct the parties to bring in short minutes of order providing for the procedural directions for a hearing as to damages in relation to the plaintiff's successful claims for misleading and deceptive conduct and on the JKAM mortgage and in relation to any other matters which the parties submit still require determination. 10. To the extent that these orders do not cover all the orders the parties seek as a result of the Court's reasons, further consideration is reserved and the parties are at liberty to bring in short minutes of order to give further effect to these reasons. 11. Direct the defendant/cross-claimant to file a Notice of Discontinuance of the Amended Statement of Cross-Claim filed 16 October 2017. 12. Adjourn these proceedings for further directions on 17 March 2021 in preparation for a hearing as to damages. 13. Grant liberty to apply. ********** Amendments 23 February 2021 - [24] – line 7, "executed" not "execution" Heading above [84] - capitalisation fixed [107] - lines 1 and 4, Elderslie not Ellerslie [277] – line 1, spelling correction Heading above [291] – removal of full stop [340] – line 3, "supply" not "supploy" [388] – line 5, mortgage decapitalised [400] - line 1, "fail" moved to line 4 [403] - line 8, insertion of "the" [418] – line 5, apostrophe removed [426] – line 5, comma removed Order (1) – "reference" not "refence" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 February 2021