New South Wales District Court CITATION: Naji Raffoul v Abdel Naser Qushair [2008] NSWDC 253 HEARING DATE(S): 13-14, 17 November 2008 JUDGMENT DATE: 21 November 2008 JURISDICTION: Civil JUDGMENT OF: Goldring DCJ DECISION: 1. Verdict for the plaintiff in the sum of $134,700 plus interest from 16 January 2006 to the date of judgment 2. Dismiss cross claim CATCHWORDS: CONTRACT - misleading and deceptive conduct - what constitutes LEGISLATION CITED: Fair Trading Act 1987 PARTIES: Naji Raffoul (Plaintiff) Abdel Naser Qushair (Defendant) FILE NUMBER(S): 4784 of 2007 COUNSEL: E White (Plaintiff) S Hughes (Defendant) SOLICITORS: Firmstone & Associates (Plaintiff) Elliot Tuthill (Defendant) JUDGMENT Issues 1 Mr Raffoul owned 25 shares in a company called Raffoul Aviation Pty Ltd. On 16 January 2006, Mr Raffoul and Mr Qushair entered into two agreements. The first was an agreement that Mr Raffoul would transfer his 25 shares to Mr Qushair for a consideration of $25. The second was an agreement that the plaintiff would lend the sum of $140,000 to Mr Qushair, and Mr Qushair would repay Mr Raffoul, by paying $5,000 on the execution of the agreement and thereafter sums of either $1000 or $2000 at monthly intervals until the loan was repaid. 2 Mr Raffoul claims that Mr Qushair has repaid nothing under the loan agreement and claims the amount of the loan. Mr Qushair claims that he has made some repayments, but is not liable to make any further repayments because Mr Raffoul induced him to enter into the two agreements by conduct that was misleading or deceptive, contrary to the Fair Trading Act, 1987, s 42(1), which provides, "A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive", or which constituted actionable misrepresentation at common law. 3 The issues for decision are agreed to be: a. Whether Mr Qushair has paid any amounts to Mr Raffoul in satisfaction or part satisfaction of the loan agreement; b. What representations, if any, were made by Mr Raffoul to Mr Qushair with respect to the agreements; c. If any representations were made by Mr Raffoul, were they incorrect or untrue so as to amount in law to be misleading or deceptive; d. If such representations were made, do they constitute deceit or contravene the Fair Trading Act, 1987, s 42; e. If the representations were made and were deceitful or contrary to statute, to what extent if any is the loan agreement enforceable. Factual background 4 It is agreed that both Mr Raffoul and Mr Qushair signed the two agreements (Share Transfer Agreement and Loan Agreement) on 16 January 2006. 5 Raffoul Aviation Pty Ltd carried on a business of flight instruction at Bankstown Airport under the name "Proflite Australia". Mr Raffoul, who was born in Lebanon, was himself a student at the Proflite flying school and entered Australia on a student visa. In about 2003, he acquired the business and subsequently ran it through Raffoul Aviation Pty Ltd. At various times the company was the registered owner of aircraft used in the business. During 2004, Mr Raffoul sold 25% of the shares in the company to each of three other people, Mr Benedetto, Mr Arva, and Mr Hallal. Mr Benedetto worked in the business and continued to do so after Mr Raffoul left. Mr Arva and Mr Hallal ceased to be shareholders in the company before the end of 2005. 6 It appears from the evidence that Mr Qushair and Mr Benedetto worked closely together after Mr Qushair acquired a share of the business. Mr Benedetto was not called as a witness, and there was no explanation. I infer that his evidence would not have assisted either party. 7 Mr Qushair is a qualified commercial airline pilot who, until he came to Australia as a skilled migrant at the end of 2005, had been working as a pilot for Palestinian Airlines. He had formerly lived in the Kingdom of Jordan. During 2005 he met Mr Raffoul and became friendly with him. There is evidence that Mr Raffoul and Mr Qushair together met a number of contacts in the aviation industry in Jordan, Palestine and Lebanon. Mr Raffoul was eager to attract overseas students to the flying school, as this was a principal source of revenue for the company. 8 When Mr Qushair arrived in Australia on 22 December 2005, Mr Raffoul met him at the airport and took him and his wife to his home. Mr Raffoul's evidence is that he arranged accommodation in a motel at Bankstown for Mr Qushair and his wife, and Mr Qushair admits that they stayed there for one night. Mr Qushair says that he and his wife then went to stay with friends at Carlingford, but subsequently they rented a unit at Bankstown. Mr Raffoul's case is that he arranged with a real estate agent for Mr Qushair to find the unit, and he also arranged a loan to Mr Qushair to enable him to pay the bond on the unit, which amounted to the equivalent of eight weeks rent. Mr Qushair denies this and says that he paid the bond and the rental from his own funds, which he had transferred from his bank accounts in Jordan and Palestine or from money that he had brought to Australia in cash. Mr Raffoul's case is also that from time to time he advanced other money to Mr Qushair, for the payment of part of the price of a motor vehicle and for the payment of the excess on a motor vehicle insurance policy after Mr Qushair's vehicle had been damaged in an accident. Mr Raffoul says that because of the Arabic culture which he and Mr Qushair share, he would give the money to his wife, and his wife would pass it on to Mr Qushair's wife. Mr Qushair denies that any such arrangements were made. 9 Mr Qushair wanted to work in Australia as an air pilot. Mr Raffoul told him that he would have difficulty finding this work, but offered to sell him 25 shares in Raffoul Aviation Pty Ltd for the sum of $140,000. This was the same price at which he had previously sold parcels of 25 shares in the company to others. Mr Qushair says that, in order to induce him to buy the shares Mr Raffoul told him that the company was making lots of profits and had a good future. He also says that Mr Raffoul made statements to him about the company's ability to attract foreign students. Mr Qushair says that these statements were misleading and deceptive, or amounted to deceit, and that they were false. 10 Before Mr Raffoul and Mr Qushair entered into the agreements, Mr Qushair accompanied Mr Raffoul to see an accountant and asked the accountant questions about the finances of the company. There is no evidence that Mr Qushair ever inspected the financial statements or records of the company. There is no evidence that Mr Qushair ever made enquiries about the company's lease of its premises at Bankstown airport, or about the nature of its interest in the aircraft used in the flying school business. Mr Qushair was not independently represented and appears not to have received any independent advice. Notwithstanding this, he appears to have been prepared to enter into a significant commercial transaction on the basis of what Mr Raffoul told him. The company's financial position 11 The financial statements produced by Mr Raffoul and introduced into evidence show that during the financial years 2003 - 2004 and 2004 - 2005, the company made a slight loss. In the year 2005 - 2006, the financial statements show that the company's business increased and that the company made a profit. There is evidence that during this year the company made arrangements that were likely to attract numbers of foreign students. 12 Mr Qushair put into evidence a valuation of the company's assets prepared in August 2007 for the purpose of valuing shares so that Mr Qushair and Mr Benedetto could acquire the remaining shares of the company. This valuation states explicitly the purpose for which it was prepared and advises against using it for any other purpose. It also relates to the position some 18 to 20 months after the date of the share transfer and loan agreements. I conclude that it is of limited, if any, relevance in ascertaining whether the statements allegedly made by Mr Raffoul were misleading or deceptive. 13 At the time the alleged representations made, that is, late in 2005 or early in 2006, the company was making a profit and had good prospects. In the circumstances of the commercial transaction, where it was possible for Mr Qushair to have access to the financial records of the company and to make enquiries of the company's accountant, I cannot find that these statements were in any sense misleading or deceptive. Mr Qushair's credit 14 The only evidence that Mr Raffoul made statements as alleged is the evidence of Mr Qushair himself. He says that before the agreements were entered into Mr Raffoul told him that the company was making lots of profit and that its prospects were good. Mr Raffoul denies ever having made such statements. I find, on the balance of probabilities, that Mr Raffoul did not make the statements attributed to him by Mr Qushair. 15 I find that Mr Qushair was, in most respects, an entirely unbelievable witness. He was unable to produce any documentary or other corroborative evidence to support his assertions that he had carried out a number of important commercial transactions, most particularly the making of regular monthly payments to Mr Raffoul pursuant to the loan agreement. He did not obtain receipts, and he says that he paid the money in cash, so that his bank records, with some minor exceptions, do not show any record of these transactions. When he was cross-examined, he was evasive in many of his answers, and I formed the impression that much of his evidence was fabricated to enable him to escape his obligation to repay the loan. Where there is a difference between the evidence of Mr Qushair and that of Mr Raffoul, I therefore prefer Mr Raffoul's evidence. Did Mr Raffoul act in ways that were misleading or deceptive? 16 Mr Qushair says that Mr Raffoul misled and deceived him by failing to disclose that the aircraft used in the flying school were no longer registered in the name of Raffoul Aviation Pty Ltd. He also says that the company had obligations to refund the tuition fees paid in advance by some students who did not in fact enrol at the flying school, for example, because they were refused visas by the Australian government, and that it was misleading and deceptive for Mr Raffoul not to disclose those matters. 17 The evidence shows that as early as October 2005 Mr Raffoul tried to have the registration of at least two, and possibly three, aircraft transferred from the company to himself, or to a business name which he owned. There was no suggestion, except by Mr Qushair, that this was in any way dishonest. Mr Raffoul's unchallenged evidence was that the Civil Aviation Safety Authority would not permit the transfer of the registration of an Australian aircraft to a person who was not an Australian citizen, even if that person was a permanent resident. The Authority would also not permit the transfer of the registration to a registered business name, but insisted that a company be the registered owner. For this reason, Mr Raffoul had to incorporate a company, which he did the day after the date of the share transfer of loan agreements, and the registration of the aircraft was transferred to that company, Christina's Trading Solutions Pty Ltd, in February 2006. Before Mr Qushair arrived in Australia in December 2005, Mr Raffoul had secured from each of the other shareholders in Raffoul Aviation Pty Limited, including Mr Benedetto, an acknowledgement in relation to the aircraft. For this reason, as all the then shareholders of the company were aware of the proposed transfer of registration of the aircraft, it cannot be suggested that there was any fraud or attempt to misappropriate the property of the company. I cannot identify any evidence of any representation by Mr Raffoul to Mr Qushair that the aircraft belonged to Raffoul Aviation Pty Ltd, and Mr Qushair adduced no evidence that he had searched on any register to ascertain the ownership of the aircraft, or whether, and if so to what extent, the aircraft were encumbered. 18 On 2 February 2006 Mr Raffoul signed a "letter of indemnity" in which he stated that Raffoul Aviation Pty Limited had no outstanding debts or obligations and that he would indemnify the company in respect of any outstanding liabilities. That day, or the next day, depending on whose evidence is accepted, Mr Raffoul, Mr Qushair and the other shareholders all signed a deed of release whereby it was agreed that Mr Raffoul would not be personally liable if it were to be found that the company had any outstanding obligations. Neither document made any representations about aircraft, and the letter of indemnity, at least, appears to have been true at the time. I find, if it is necessary to do so, that all parties, including Mr Qushair, signed a version of this document prepared by Mr Raffoul's solicitor without any handwritten amendments. 19 The letter of indemnity specifically stated that some fees received from foreign students had been applied to the running of the company. There was no statement that the company had any obligation to refund any of these fees, and I could not find on the balance of probabilities that the company, Mr Raffoul or Mr Qushair knew that there would be any obligation to refund any student fees at any time. 20 There was evidence that at one stage the company did owe a significant amount of money to Mr Raffoul. He was cross-examined closely about this. His evidence was that at the time of the two agreements, and at the time that he signed the letter of indemnity and the deed of release, the company, to his knowledge, did not have any outstanding liabilities or obligations except the consequences of using student fees paid in advance, a matter that was expressly disclosed in the letter of indemnity. The fact that the subsequent balance sheet of the company shows that it did have a liability at the end of the financial year is not evidence that at the time of the transaction there was any such liability. 21 Mr Qushair relies on the Fair Trading Act 1987, s 41, which provides: 41 Interpretation (1) For the purposes of this Part, where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) The onus of establishing that a person had reasonable grounds for making a representation referred to in subsection (1) is on the person. (3) Subsection (1) shall not be taken to limit by implication the meaning of a reference in this Part to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead. 22 In this case, because the financial statements of the company showed that it had made a profit in the financial year 2005 -- 2006, and because Mr Raffoul was in contact with the company's accountant, it was not misleading or deceptive for him to say that the company was making a profit or even lots of profit. At the time, that appears to have been true, though a year earlier it would not have been. It could not be construed that he was making a representation about the future. What he said was insufficiently specific to amount to a misrepresentation or conduct that was misleading or deceptive. Events have shown that the company did attract a significant number of overseas students. The part of the company's web page, which was in evidence, shows that a significant number of overseas students successfully completed training with the company. It was not misleading or deceptive for anybody to represent that the company's prospects were good. The statement was, in fact, true. Section 41 has no application to the facts of this case. 23 These proceedings arise out of a commercial transaction to which the parties were educated and skilled adults. Both Mr Raffoul and Mr Qushair were trained commercial pilots. At the time of the transaction Mr Qushair had only been in Australia a short time, but it was to be expected that in a commercial transaction, he would take steps that a reasonably prudent business person in his position would have taken. A reasonably prudent person would have obtained independent advice, would have made enquiries about the ownership of the aircraft used by the flying school, if that was a matter of concern, might well have investigated the position of the lease of the company's premises, and might well have had an independent financial advisor look at the financial position of the company. Mr Qushair did none of these things. Mr Raffoul cannot be held responsible for those omissions. 24 I have considered the various authorities to which Mr Qushair's counsel referred. Most of those authorities are well-known cases on actionable misrepresentation, or which construe the Fair Trading Act 1987, s 42 and the Commonwealth legislation, which is in identical terms. It is quite clear that it is not necessary to establish that a person who makes a representation or, to use the statutory language, engages in conduct, which is in fact misleading or deceptive or likely to mislead or deceive, does intend to mislead or deceive. It is sufficient that the conduct would mislead or deceive a reasonable person. I have found in this case that nothing done by Mr Raffoul falls within the category of conduct that is misleading or deceptive or likely to mislead or deceive. A reasonable person in the position of Mr Qushair would have made his or her own enquiries and would not have been misled or deceived about any matter on which Mr Qushair says he was misled. 25 For these reasons I find that there is no basis for Mr Qushair's defence or cross claim. 26 It is certainly true that the agreement for transfer of shares shows on its face a consideration that is significantly less than the true value of the shares at the time. It is not necessary for me to find what the true value was, but I am convinced on the balance of probabilities that it was not the value attached by Mr Khater some 18 months later. Parties to commercial transactions often stipulate a consideration which does not reflect the true value of the subject matter of the transaction. That is their business. It may be a matter of concern to the revenue authorities, but it does not render the transaction unlawful. 27 Both the agreement for the transfer of shares and the loan agreement, on their face, are documents of an ordinary commercial kind reflecting ordinary commercial transactions. There is no reason why they should not be given their full meaning and effect in law. Has Mr Qushair repaid anything? 28 Mr Qushair says that he did make regular repayments under the loan agreement (a matter to which I will return) but that he ceased doing so in May 2006 after a conversation with Mr Raffoul. He said that it was then agreed that he should not make any further repayments until Mr Raffoul had fixed some outstanding problems, which Mr Qushair identified as the ownership of the aircraft used in the flying school, and the provision of funds to enable any refunds of student fees to be paid. Because of my assessment of Mr Qushair's credit, I find that this conversation never took place and there was no such agreement between Mr Qushair and Mr Raffoul. 29 Mr Qushair has annexed to one of his affidavits bank records showing that a total of $5,300 was transferred from his account to Mr Raffoul's account. He says that these five payments were made in reduction of the amount owing under the loan agreement. Mr Raffoul says that the payments were in relation to advances which he had made, through his wife, to Mr Qushair's wife, for purposes unrelated to the loan agreement. Mr Raffoul also did not produce any documentary evidence, and Mr Raffoul bears the evidentiary burden of establishing what he asserts. In the case of the loan agreement, it is sufficient for him to produce the agreement and to give evidence that no payment has been made pursuant to it to establish his assertion. As Mr Qushair has produced evidence to show payment of $5,300, I can be satisfied on the balance of probabilities that this amount was paid in reduction of the loan. Mr Raffoul has not discharged the onus on him to show that the repayments related to other loans he had made to Mr Qushair or his wife. I cannot find, on the same standard of proof, that Mr Qushair has made any other payment in reduction of the loan, including the payment of $5,000, which, on the face of the loan agreement, was to be paid on execution of the loan. I therefore find that a total of $134,700 remains outstanding under the loan agreement, and that Mr Qushair is obliged to pay the sum to Mr Raffoul. I should add that in his pleading Mr Qushair admitted receiving a letter of demand, although in his oral evidence he denied having received the solicitor's letter. I do not believe him on this point, but in any event his admission in the pleadings binds him. Orders I make the following orders: 1. Verdict for the plaintiff in the sum of $134,700 plus interest from 16 January 2006 to the date of judgment. 2. Cross claim dismissed. ********** 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.