Australian Receivables Ltd v Tekitu Pty Ltd

Australian Receivables Ltd, a creditor, brought proceedings against Tekitu Pty Ltd, a company, and two individuals, the first and third defendants, concerning the proceeds from the sale of a business. The case involved a dispute over whether the moneys received into the first defendant's trading account were held on trust for the plaintiff, and whether the second and third defendants were liable for any shortfall in the retained moneys. The plaintiff also sought to establish whether there was a breach of contract by the first defendant regarding the warranties in the Sale of Business Agreement and whether the plaintiff breached its obligation to conduct business after completion in the ordinary and usual course. The court was required to determine if an implied or resulting trust arose on receipt of the moneys into the trading account and if the plaintiff was entitled to trace into part of the funds held in the controlled moneys account. The court also needed to establish if the knowing assistance in a dishonest breach of trust or fiduciary duty was established and whether the second and third defendants were liable under the second limb of Barnes v Addy.

The court held that an implied or resulting trust arose on receipt of the moneys into the trading account and the plaintiff was able to trace into part of the funds held in the controlled moneys account. The court found that the knowing assistance in a dishonest breach of trust or fiduciary duty was established, and therefore, the second and third defendants were liable under the second limb of Barnes v Addy. The court further held that the only breach of warranty established was in relation to the preparation of the company's accounts. However, the plaintiff could not recover damages in respect of that breach as there was no reliance on the relevant warranty. Regarding the plaintiff's obligation to conduct business after completion in the ordinary and usual course, the court found that there was no breach as the meaning of "ordinary and usual course" of business did not require the plaintiff to do so. The plaintiff was entitled to set-off as against moneys owing by it to the first defendant under the Sale of Business Agreement the shortfall on its retained moneys claim after payment out of moneys held on trust for its benefit.