Primary school friends in Fiji, Paran Mudaliar and Rohineet Sharma later separately emigrated to New Zealand but their rekindled friendship ended with a dispute over funds lost in a Sydney property development.
Mr Mudaliar’s $430,000 downpayment on a proposed property development in south-west Sydney suburb Campbeltown was lost when their project failed to get off the ground.
Attempts to recover this loss from Mr Sharma failed.
It was a speculative investment with a failure to properly document what would happen if the project failed, Justice O’Gorman said. There were no actionable misrepresentations or negligent advice by Mr Sharma, she ruled.
The High Court was told Mr Mudaliar is a civil engineer. Mr Sharma is a lawyer, struck off in 2015 after improperly paying off his home mortgage with Westpac funds raised to finance a commercial transaction.
Disbarred from legal practice, Mr Sharma moved to property development. He had previously acted as legal adviser for Mr Mudaliar in various property transactions. He introduced Mr Mudaliar to the proposed Sydney investment.
By December 2015, the two had signed a brief joint venture agreement agreeing to be 50/50 partners for their part-involvement in the venture. Two other investors were also involved in the proposed project.
Financial projections were encouraging; redevelopment of the Campbeltown site with construction of 99 units could see each making a profit of more than one million AUD. It was a highly geared project. But no debt finance was forthcoming. The project fell over; all deposits were lost. The vendor put its property back on the market.
Mr Mudaliar sued, alleging Mr Sharma misrepresented what his $430,000 downpayment was being used for and further that he had relied on Mr Sharma for proper advice as a lawyer and trusted advisor.
Justice O’Gorman ruled their relationship was more that of two investors looking after their own interests. At the time the proposal was being floated, Mr Mudaliar must have been aware that his friend had been struck off and was not acting as a professional adviser.
Mr Mudaliar claimed he was led to believe that other investors, including Mr Sharma, had put in their share when he paid across his $430,000 when in fact his money was first in. He paid the money into a Sydney real estate agent’s trust account where it was lost as a forfeited deposit when the development did not go ahead.
Mr Sharma made no actionable misrepresentations, Justice O’Gorman ruled. In essence, the problem was a failure to clarify from the outset how each of the four investors would contribute their share of the proposed project.
Mr Mudaliar should have asked questions to identify that his upfront payment was potentially at risk, Justice O’Gorman said. At the time he made payment, Mr Mudaliar had seen nothing more than the listing agent’s real estate brochure, the court was told.
As events transpired, Mr Sharma personally lost more than AUD400,000 through advance payments he had made; the first payment a financiers fee when unsuccessfully seeking to raise the needed debt finance, second payment a deposit for a building contractor signed up for the proposed build – money all lost when the project failed.
Mudaliar v. Sharma – High Court (31.05.24)
24.142