Drinkwater v Nadinic [2016] NSWSC 1733

Supreme Court New South Wales

Medium Neutral Citation: Drinkwater v Nadinic [2016] NSWSC 1733 Hearing dates: 1 December 2016 Date of orders: 09 December 2016 Decision date: 09 December 2016 Before: Pembroke J Decision: See paragraph [40] Catchwords: EQUITY – effect of fraudulent concealment – 'fraud unravels everything' REMEDY – practical justice – setting aside deed as between plaintiff and defendant – other parties to deed unaffected – whether unfairness to the defendant Cases Cited: Brickenden v London Loan & Savings Co [1934] 3 DLR 465 Farley (Aust) Pty Ltd v J R Alexander & Sons (Qld) Pty Ltd (1946) 75 CLR 487 Reddaway v Banham [1896] AC 199 Spence v Crawford 1939 SC (HL) 52 Orix Australia Corporation Ltd v M Wright Hotel Refrigeration Pty Ltd (2000) 155 FLR 267 Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 Category: Principal judgment Parties: Cheryl Drinkwater as trustee for the Cheryl Drinkwater Trust – plaintiff Andrew Frane Nadinic – defendant Representation: Counsel: M Gunning – for the plaintiff A G Martin – for the defendant

Solicitors: Hewitts Commercial Lawyers – for the plaintiff Summer Lawyers Pty Ltd – for the defendant` File Number(s): 2016/242022

Judgment

Introduction 1. In my judgment given on 30 September 2016, I held that the plaintiff had been induced to enter into a deed of settlement by reason of the defendant's concealment of material facts. I noted that the core of the plaintiff's complaint was that the defendant's failure to disclose was misleading and deceptive, in the statutory sense as well as in the sense that it constituted equitable fraud. The further hearing to which this judgment relates was held to determine the relief which I should grant to the plaintiff. 2. The deed of settlement included an obligation by the plaintiff to pay $2,050,000 to the defendant secured by a second mortgage over her land. I held that the defendant's concealment was fraudulent; that it was a deliberate choice by him; and that it was the product of the conflict between his fiduciary duty to the plaintiff and his interest in the payment of the GST refunds to a company known as Maxstra Constructions. 3. Pivotal to my reasoning was the following unchallenged evidence of the plaintiff, which I had no hesitation in accepting: If I had known that Maxstra [Constructions] had received GST refunds of $923,589.00 that Brooks was entitled to from the ATO, before I signed the Deed of Settlement, I would not have agreed to pay to the Defendant the sum of $2,050,000.00 to be secured by a second mortgage over the Land. 1. A brief outline of the relevant contextual facts is summarized in my earlier judgment: [21] The evidence revealed that Brooks (when controlled by the defendant), Maxstra NSW and Maxstra Constructions were involved in a scheme to manipulate the GST system for the ultimate advantage of Maxstra Constructions which, as I have mentioned, was not the builder. The submissions did not address the lawfulness of this scheme but there were troubling aspects about it. Both Maxstra NSW and Maxstra Constructions are now in liquidation. [22] Unknown to the plaintiff, Maxstra NSW issued invoices totaling $10,366,698 to Brooks in respect of the project. There was no conceivable justification for this. The value of the project was only approximately $6.5 million. The ANZ facility amount was $6.35 million and for the period from June 2014 to March 2016, drawdowns from the ANZ Bank totalled $6.1 million. The building contract price was $6.398 million. And this project was the only business of Brooks. It was not possible for Brooks to pay, and not possible for Maxstra NSW to justify issuing, invoices totalling $10,366,698. [23] I am afraid to say that this was not merely creative accounting. It was behavior that bears the hallmark of naked dishonesty. Its apparent purpose was to generate an entitlement in Brooks to receive GST refunds. In one sense, given the correlative liability that accompanies a GST refund, this might not have mattered to the plaintiff – except for the fact that, when the GST refunds were received, they were not remitted to Brooks. The defendant directed PKF, the accounting firm then acting for Brooks, to transfer the monies to Maxstra Constructions. … Not surprisingly, in the circumstances, the defendant did not inform the plaintiff of the direction to transfer the monies to Maxstra Constructions – although she had been his fellow director of Brooks since 2013. … [26] A total of $923,589 was transferred to Maxstra Constructions. That sum represented GST input tax credit refunds to which Brooks had become entitled after lodging business activity statements that were ostensibly predicated on the receipt from Maxstra NSW of invoices totalling $10,366,698. As I have indicated, the invoices must have been inflated or fabricated. And the defendant must have known it. He must have known that they contained false representations that were intended to induce the Australian Taxation Office to pay to Brooks a substantial sum representing GST input tax credit refunds.