Clarke v Abou-Samra

Case [2010] SASC 205


SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

CLARKE & ANOR v ABOU-SAMRA & ORS

[2010] SASC 205

Judgment of The Honourable Justice Kourakis

20 July 2010

CONTRACTS - PARTICULAR PARTIES - PRINCIPAL AND AGENT - RELATIONS BETWEEN PRINCIPAL AND THIRD PERSONS - RIGHTS AND LIABILITIES OF PRINCIPAL IN RESPECT OF CONTRACTS OF AGENT - FRAUD AND MISREPRESENTATION - OF AGENT

EQUITY - GENERAL PRINCIPLES - EQUITABLE CHARGES AND LIENS - MONEY EXPENDED OR BENEFIT CONFERRED ON PROPERTY OF ANOTHER

EQUITY - GENERAL PRINCIPLES - UNJUST ENRICHMENT

RESTITUTION - MISTAKE: RESTITUTION ARISING FROM A PLAINTIFF'S MISTAKEN ACTIONS - RECOVERY OF MONEY PAID UNDER MISTAKE - DEFENCES AND LIMITATIONS ON RECOVERY

Third defendant was principal of company (ALC) which borrowed large sums of money from clients at high interest rates – plaintiffs delivered bank cheque for $207,518.20 to ALC believing they were loaning that amount to first and second defendants to purchase property – third defendant had arranged first and second defendant’s finance to purchase that property – first and second defendants believed bank cheque for $207,518.20 was to discharge an existing debt of $140,000 owed to them by ALC – ALC now in liquidation and third defendant a bankrupt – plaintiffs claim from first and second defendants sum of $207,518.20 plus interest – whether third defendant was authorised agent of first and second defendants for the purpose of negotiating loan – whether plaintiffs paid $207,518.20 to ALC by reason of mistaken belief that third defendant was authorised agent of first and second defendants and that payment would be made to them by way of loan – whether plaintiffs have proprietary interest in first and second defendant’s property – whether first and second defendants hold property on remedial constructive trust for benefit of plaintiffs.

Held: Third defendant not actually or ostensibly authorised by first and second defendants to borrow full $207,518.20 from plaintiffs – third defendant only authorised to borrow $67,518.20 from plaintiffs – plaintiffs did pay $207,518.20 to ALC on mistaken belief that third defendant was authorised agent of first and second defendants and that payment would be made to them by way of loan – however, first and second defendants have good defence to mistake claim to the extent that the payment discharged ALC’s pre-existing $140,000 debt to them – plaintiffs do not have proprietary interest in first and second defendant’s property reflecting the proportion that the value of the bank cheque bears to the purchase price – plaintiffs entitled to and hold an equitable charge over the property for the $67,518.20 – plaintiffs entitled to declarations of entitlement to $67,518.20.

Cheques Act 1986 (Cth) s 5, s 36, s 37, s 71, referred to.
Barclays Bank Ltd v W J Sims Son & Cooke (Southern) Ltd [1980] QB 677; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548; Black v S Freedman & Co (1910) 12 CLR 105; Aiken v Short

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Clarke v Abou-Samra [2010] SASC 205
Case
[2010] SASC 205
Decision Date

CaseChat Overview and Summary

In Clarke v Abou-Samra, the plaintiffs, Mr and Mrs Clarke, sought to recover funds they believed they had loaned to Mr and Mrs Abou-Samra through their company ALC. The plaintiffs delivered a bank cheque for $207,518.20 to ALC, under the belief that the funds were being loaned to the Abou-Samras to purchase property, with the third defendant acting as their agent. However, the Abou-Samras maintained that the cheque was intended to discharge a pre-existing debt of $140,000 owed to them by ALC. The court was tasked with determining the authorisation of the third defendant as an agent, the validity of the plaintiffs' mistaken belief, and the implications for any proprietary interest or equitable charge that might exist.

The central legal issues revolved around the authority of the third defendant in negotiating the loan, the nature of the plaintiffs' mistaken belief concerning the third defendant's authority, and the extent to which the plaintiffs could claim a proprietary interest or an equitable charge over the property in question. The court had to determine whether the third defendant was actually or ostensibly authorised to borrow the full $207,518.20 from the plaintiffs, and if the plaintiffs' payment was indeed made under a mistaken belief regarding the third defendant's authority. Additionally, the court examined whether the plaintiffs had any proprietary interest in the Abou-Samras' property, or if they were entitled to an equitable charge over the property.

The court found that the third defendant was not actually or ostensibly authorised by the Abou-Samras to borrow the full $207,518.20 from the plaintiffs. Instead, the third defendant was only authorised to borrow $67,518.20. The plaintiffs did pay the $207,518.20 to ALC under the mistaken belief that the third defendant was authorised to act as their agent and that the payment would be made as a loan to the Abou-Samras. However, the Abou-Samras had a valid defence to the extent that the payment discharged ALC’s pre-existing debt to them. Consequently, the plaintiffs did not have a proprietary interest in the property, but they did hold an equitable charge over it for the amount of $67,518.20. The court concluded that the plaintiffs were entitled to declarations reflecting this finding.

The court ordered that the plaintiffs are entitled to declarations stating their entitlement to recover the $67,518.20 from the Abou-Samras, in line with the rule in Bannatyne. The precise form of the orders will be determined following further submissions from the parties.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

A remedial constructive trust could not result in any different order to the one which would result from an application of the rule in Bannatyne. A remedial constructive trust or equitable charge securing the return of the whole of the proceeds of the bank cheque cannot be imposed here because of my finding on the effect of the payment in discharging the indebtedness of ALC to Mr and Mrs Abou-Samra.Conclusion Samra was authorised by Mr and Mrs Abou-Samra to arrange a short term loan which was to cover the shortfall of the settlement monies. Samra did not have actual or ostensible authority to borrow the sum of $207,518.20 from Mr and Mrs Clarke on behalf of Mr and Mrs Abou-Samra to enable the settlement on the Medindie property to proceed. Nor did Samra have actual or ostensible authority to receive the bank cheque in that amount on their behalf. Samra received the bank cheque on trust for the purpose of providing it to Mr and Mrs Abou-Samra’s conveyancer as a loan to them on the conditions stipulated by Mr Clarke. Samra misappropriated the cheque by banking it into the trust account of the conveyancers pursuant to his undertaking to pay into that trust account the principal of the $140,000 loan made by Mr and Mrs Abou-Samra to ALC and intending to discharge that indebtedness by so doing. Mr and Mrs Abou-Samra accepted $140,000 of the proceeds of the bank cheque in discharge of ALC’s indebtedness to them. However, Mr and Mrs Clarke are entitled to declarations reflecting my finding in [111] above on the basis of the rule in Bannatyne to the effect that they can recover the shortfall amount of $67,518.20 from Mr and Mrs Abou-Samra. I shall hear the parties as to the precise form of orders.

Ratio Decidendi

Legal Principle Established

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