Commonwealth Bank of Australia v Saleh

No judgment structure available for this case.

CITATION: Commonwealth Bank of Australia v Mohamad Saleh & Ors [2007] NSWSC 903
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 16/07/07-19/7/07, 23/07/07-26/07/07, 30/07/07-3/08/07, 6/08/07-10/08/07, 13/08/07

JUDGMENT DATE :
28 August 2007

JURISDICTION: Equity Division
Commercial List

JUDGMENT OF: Einstein J

DECISION: Plaintiff entitled to declarations and orders as recited in reasons. Short minutes of order to be brought in.

CATCHWORDS: Banker and customer - Elaborate fraud committed against Bank - $7,000,000 proceeds of frauds swiftly disbursed following settlement - Provision to Bank of fabricated financial statements in support of a claim that borrowing company requiring receivables finance facility had in the order of $20,000,000 in sales per year - Fraud perpetrated by a variety of actors - Proceedings including claims in rem, claims for deceit, claims for misleading and deceptive conduct, restitutionary claims for mistaken payment, claims for negligent misstatement - Expert evidence in relation to documentary examination and access to computer deep memory - Consideration of tracing - Principles - Damages - General damages - Consideration of principles underpinning awards of exemplary damages

LEGISLATION CITED: A New Tax System (Goods and Services Tax) Act 1999 (NSW)
Corporations Act 2001 (Cth)
Evidence Act 1995 (NSW)
Fair Trading Act 1987 (NSW)
Financial Transactions Reports Act 1992 (NSW)
Trade Practices Act 1974 (Cth)

CASES CITED: Agip (Africa) Ltd v Jackson [1992] 4 All ER 451
Amalgamated Television Services Pty Ltd v Marsden (No 2) (2003) 57 NSWLR 338
ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460
Black v S Freedman & Co (1910) 12 CLR 105
Boscawen v Bajwa [1996] 1 WLR 328
Brady v Stapleton (1952) 88 CLR 322
Briginshaw v Briginshaw (1938) 60 CLR 336
Cassell & Co Ltd v Broome [1972] AC 1027
Cox v Smail (1912) VLR 274
Diplock, In re: Diplock v Wintle [1948] Ch 465
Foskett v McKeown [2000] 3 All ER 97
French Caledonia Travel Service Pty Ltd (in liq), Re: (2003) 204 ALR 353
Frith v Cartland (1865) 71 ER 525
Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298
James v Hill [2004] NSWCA 301
James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62
Lamb v Cotogno (1987) 164 CLR 1
Moses v Macferlan (1760) 97 ER 676
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449
Pascoe v Federal Commissioner of Taxation (Cth) (1956) 30 ALJR 402
Pedler v Richardson (unreported, Supreme Court of New South Wales, Young J, 16 October 1997, BC9705263
Stephens Travel Service International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331
XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448
Watson v Foxman (1995) 49 NSWLR 315

PARTIES: Commonwealth Bank of Australia (Plaintiff)
Mohamad Saleh (First Defendant)
Neil Petts (Second Defendant)
Zia UI-Islam Qureshi (Third Defendant)
Australia and New Zealand Banking Group (Fourth Defendant)
Hassanien Saleh (Fifth Defendant)
Perpetual Trustees Australia Limited (Sixth Defendant)
Quaid Real Estate Pty Limited (Eighth Defendant)
William Lowe Edge (Tenth Defendant)
Qureshi & Associates (Eleventh Defendant)
Abdullah Saleh (Twelfth Defendant)
Faowzi Saleh (Thirteenth Defendant)
Khadige Saleh (Fourteenth Defendant)
Fatima Saleh (Sixteenth Defendant)

FILE NUMBER(S): SC 50149/05

COUNSEL: Mr A Henskens, Mr A Zahra (Plaintiff)
Mr M Newman (Tenth Defendant)
Mr Z Qureshi (appeared in person) (Third Defendant)

SOLICITORS: Henry Davis York (Plaintiff)
Newman & Associates (Tenth Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Tuesday 28 August 2007

50149/05 Commonwealth Bank of Australia v Mohamad Saleh & Ors

JUDGMENT

The proceedings

1 The Commonwealth Bank of Australia [‘the Bank’] brings these proceedings to recover moneys advanced by it in reliance on conduct alleged to have been misleading and deceptive, negligent and fraudulent and to recover damages. It seeks relief against persons and entities alleged to have engaged in such conduct and also against persons said to have received as volunteers, moneys advanced by the Bank. The Bank also claims pursuant to a contractual guarantee.

The receivables finance facility

2 In about mid-May 2005, an application was made to the Bank for a receivables finance facility referable to the receivables of TDM Australia Pty Ltd. TDM was a company which appears to have operated as a wholesaler of electrical light switches, power points and other related products. It was a company with which the major actors for the purposes of the proceedings, Mr Mohamad Saleh, Mr Hassanien Saleh, Mr William Edge and Mr Zia Ul-Islam Qureshi, had been associated:

i. Mr Mohamad Saleh was a joint director and company secretary of TDM from 18 October 2002 to 15 March 2004 and was involved in the business and operations of the company until some time after 3 June 2005;

ii. Mr Hassanien Saleh was a joint director of TDM from 18 October 2002 to 15 March 2004, was the sole director of TDM from 15 March 2004 to 11 April 2005 and was involved in the business and operations of the company until some time after 3 June 2005. He is also the brother of Mr Mohamad Saleh;

iii. Mr Edge was appointed the sole director of TDM on 11 April 2005 and was involved in the business and operations of the company from some time in 2005 until some time after 3 June 2005; and

3 The only defendants present throughout the hearing were Mr Edge, who was represented by his solicitor Mr Newman and Mr Qureshi who represented himself. Many of the defendants had however on earlier occasions been represented by legal advisers but by the time the hearing began Notices of Ceasing to Act had been given by those advisers. Mr Petts, himself a defendant, was called as a witness by the Bank.

4 During final address the Bank elected to restrict its claim against Mr Petts to one of nominal damages. The Bank made the point that the nature and gravity of the fraud and the participation of particular parties in that regard had developed during the course of the hearing. It submitted that it was now apparent on the detailed evidence that the respective proportion of responsibility by Mr Petts had reduced substantially from the position that appeared clear some time ago, even at the time when the default judgment was obtained against him. The ground for the default judgment involved his misleading and deceptive conduct under the Fair Trading Act where it had not been necessary to prove intent and where he had passed across to the Bank materials which turned out to have been fabricated and false. In the circumstance where the Bank accepted that by the end of the hearing it had great difficulty on the facts in being able to persuade the Court that there was a case for substantial damages against Mr Petts, it elected only to seek nominal damages. That being the case nothing further needs be said in this regard and a nominal damages award of $1 is appropriate as against Mr Petts.

5 The other defendants included:

i. ANZ Banking Group Limited [the fourth defendant];

ii. Perpetual Trustees Australia Limited [the sixth defendant];

iii. [National Australia Bank Limited, the proposed seventh defendant was not ultimately served with a summons];

iv. Quaid Real Estate Pty Limited [the eight defendant];

v. [Proceedings were discontinued against the ninth defendant, J Biady and Associates];

vi. Abdullah Saleh [the twelfth defendant, who is the brother of Mohamad and Hassanien Saleh];

vii. Faowzi Saleh [the thirteenth defendant, who is the father of Mohamad and Hassanien Saleh];

viii. Khadige Saleh [the fourteenth defendant, who is the mother of Mohamad and Hassanien Saleh];

ix. [Proceedings were discontinued against the fifteenth defendant, the Arab Bank Australia Limited];

6 The reasons detail the negotiations conducted with the Bank prior to the receivables facility being made available.

7 The essential gravaman of the Bank's case is that it was duped by an elaborate fraud constituted by the provision to it of fabricated financial statements provided in support of the claim that TDM was a substantial company in the order of $20 million in sales per year, requiring the receivables finance facility for a purpose which was itself a tissue of lies. Part and parcel of the fraud which these findings accept was perpetrated, involved oral and documentary representations by a variety of actors generally made to provide adjectival support for the false propositions

· that TDM was a substantial company with the above described sales;

· that TDM required the receivables finance facility for a purpose now shown to have been false.

8 In the main the many misrepresentations went to the Bank's prudential decision to grant the facility and to its security position.

9 Some only of the indicators of the fraud treated with in the reasons are the following:

i. Mr Mohamad Saleh, Mr Hassanien Saleh and Mr Edge absconded shortly after the $7 million was paid. Although Mr Edge has returned, Mr Mohamad Saleh and Mr Hassanien Saleh apparently remain in Lebanon;

ii. the very swift dispersal amongst many Saleh family members after the $7 million was paid, of hundreds of thousands of dollars;

iii. the close down of TDM's office and storage facility buildings which took place virtually immediately upon payment of the $7 million;

iv. the fact that Mr Mohamad Saleh and Mr Edge sought to avoid any discovery of the fraud until after the funds had been disbursed and jointly advanced a fictitious story that Mr Edge had travelled to China to avoid early detection by the Bank of the imaginary and exaggerated debtors;

10 A convenient flowchart setting the manner in which the funds were dispersed was admitted into evidence as Exhibit P32. The flowchart serves to explain some of the complexities treated with in the reasons:

11 In truth the evidence before the Court resoundingly establishes that TDM, which never in fact lodged a tax return in the entirety of its existence and for which accounting documents recorded sales income for the year to 30 June 2003 as zero and its sales income for the year ended 30 June 2004 as $238,500, was simply dressed up for the purposes of the fraud perpetrated upon the Bank as an entity which according to the accounts relied upon by the Bank had an entirely different trading history: the trading statement received by Mr Petts [then with GE Commercial Corporation (Australia) Pty Ltd] and later passed on to the Bank recorded sales income for the year ended 30 June 2004 at $24,310,430 and recorded sales income for the year ended 30 June 2003 at $22,964,117. In the same accounts the balance sheet recorded receivables as part of the current assets for the year ended 30 June 2004 in the sum of $7,012,514 and for the year ended 30 June 2003 in the sum of $5,350,000. In the same way the materials provided to Mr Petts by way of financial statements for the company for the nine months ended 31 March 2005 disclosed interim sales income as $22,392,260, the balance sheet recording receivables for those nine months of $8,564,645. Part of the documentation supplied to the Bank [exhibited to affidavit of Mr Budai as OB9 page 54] showed budgeted sales from June 2005 up to May 2006 of approximately $56 million throwing up a gross profit of $15,239,276. The same materials included a receivables finance trading analysis [at OB9 p56] recording total debtors outstanding at the end of April 2005 at $8,427,540.

12 In short the clear evidence proves a fraud of the most elaborate nature likely only able to have been successful because of:

i. the careful homework carried out by the perpetrators of the fraud on a number of fronts, importantly including the fact that in the nature of things a non disclosed receivables facility would not permit the financial institution offering the facility to have direct access to debtors: [one of these preparatory steps involved a careful questioning of another institution as to what types of questions were likely to be asked by a lender approached for the grant of such a facility];

iii. the care with which the conspirators provided completely fabricated TDM St George bank statements to the Bank.

13 A feature of the evidence involves the steps taken by certain of the actors well in advance of the final grant of the facility to use fictitious addresses and/or names in already setting up purchases to be completed with the funds expected to be received as the proceeds of the fraud.

14 There are a large number of defendants outside of the main actors. They have been identified early in the judgment and in due course treated with in terms of the relevant findings concerning each of them.

15 The Bank's case is extraordinarily detailed and it is necessary to traverse many matters of fact. It is however trite that the Court does not require to set out all of the evidence in a judgment.

An overview of the claims made by the Bank

16 The Bank pleads the following causes of action against the defendants:

i. action in rem – as against the defendants into whom the funds are traced;

ii. deceit as against Mr Mohamad Saleh, Mr Hassanien Saleh, Mr Qureshi, Qureshi & Associates and Mr Edge;

iii. misleading and deceptive conduct as against Mr Mohamad Saleh, Mr Hassanien Saleh, Mr Qureshi, Qureshi & Associates and Mr Edge;

iv. restitution as against the defendants who received the proceeds of the funds advanced by the Bank;

v. breach of contract relating to the guarantee signed by Mr Edge; and

Chronicling the real issues

17 It is convenient to set out in some detail the critical issues which call for determination:

Action in rem

1. Whether the plaintiff advanced $7 million to the first defendant in reliance on any fraudulent misrepresentations found to have been made to it.

2. Whether by reason of advancing money pursuant to any fraudulent misrepresentation found to have been made, the $7 million was immediately impressed with a constructive trust over the funds with the plaintiff as the beneficial owner of the funds.

3. Whether the plaintiff can trace the funds in equity into the hands of the defendants.

4. Does any defendant into whom the funds are traced, claim and prove that such defendant was a bona fide purchaser for value without notice of the plaintiff’s equity?

[No defendants who took the point were shown to be bona fide purchasers for value without notice.]

5. Whether in the absence of any plea under 4, the knowledge of the defendants of the fraud is relevant to the plaintiff’s entitlement to trace into the funds?

6. Whether the plaintiff is entitled to declarations that it is and has always been the true owner of the funds traced into the hands of the defendants.

7. Alternatively, as against the sixth defendant, whether the plaintiff is entitled to a declaration that it has a subrogated interest in the mortgage securing the loan account into which part of the $7 million was paid.

Deceit

8. Whether two or more of the first, third, fifth, tenth and eleventh defendants conspired to deceive and defraud the plaintiff.

9. Whether the pleaded representations by the first defendant; the third defendant; the fifth defendant; the tenth defendant and the eleventh defendant (respectively) were:

a. Made with knowing falsity or reckless disregard for the truth by the first defendant; the third defendant; the fifth defendant; the tenth defendant; or the eleventh defendant (respectively);

b. Made intending any one of them to be relied upon;

c. With respect to the first defendant:

i. made pursuant to a broader conspiracy with the third, fifth, tenth and eleventh defendants to defraud the plaintiff;

With respect to the third defendant:

ii. made pursuant to a broader conspiracy with the first, fifth, tenth and eleventh defendants to defraud the plaintiff;

With respect to the fifth defendant:

iii. made pursuant to a broader conspiracy with the first, third, tenth and eleventh defendants to defraud the plaintiff;

With respect to the tenth defendant:

iv. made pursuant to a broader conspiracy with the first, third, fifth and eleventh defendants to defraud the plaintiff;

With respect to the eleventh defendant:

v. made pursuant to a broader conspiracy with the first, third, fifth and tenth defendants to defraud the plaintiff;

d. Relied upon by the plaintiff to approve the loan and advance the $7 million;

e. The cause of the plaintiff’s damage and if so, in what proportion having regard to other concurrent wrongdoers?

f. Is the plaintiff entitled to exemplary damages?

Misleading and Deceptive Conduct

10. Whether the pleaded representations (express, implied or by silence) by the first defendant, third defendant, fifth defendant, tenth defendant and eleventh defendant (respectively) were:

a. Misleading or deceptive or likely to mislead or deceive in contravention of section 42 of the Fair Trading Act 1987 (NSW);

b. Relied upon by the plaintiff in arriving at its decision to advance the $7 million to Mohamad Saleh;

c. In respect of the eleventh defendant’s representations, whether the third defendant is liable by reason of s 75B of the Trade Practices Act 1974 (Cth) for the misleading and deceptive conduct of the eleventh defendant.

d. The cause of the plaintiff’s damage and if so, in what proportion having regard to other concurrent wrongdoers?

e. Did the plaintiff contribute to its own loss by its own negligence?

f. Is the (relevant) defendant precluded from relying upon any contributory negligence by the plaintiff or proportionate liability by reason of it intending to cause the plaintiff harm or his participation in a broader conspiracy with:

i. [In respect of the first defendant], the third, fifth, tenth and eleventh defendants to defraud the plaintiff?

ii. [In respect of the third defendant], the first, fifth, tenth and eleventh defendants to defraud the plaintiff?

iii. [In respect of the fifth defendant], the first, third, tenth and eleventh defendants to defraud the plaintiff?

iv. [In respect of the tenth defendant], the first, third, fifth and eleventh defendants to defraud the plaintiff?

v. [In respect of the eleventh defendant], the first, third, fifth and tenth defendants to defraud the plaintiff?

Restitution – mistaken payment

11. Whether the plaintiff advanced $7 million to the first defendant pursuant to a mistake of fact entitling it to restitution against the defendants in that amount.

Action Against Mr Edge under the Guarantee

12. Did the plaintiff and the tenth defendant enter into a guarantee in respect of the performance of TDM under its loan agreement with the plaintiff?

13. Has the plaintiff made a demand upon the tenth defendant for payment under the guarantee?

14. Has the tenth defendant failed to pay the sum demanded under the guarantee?

15. What damages are the plaintiff entitled to from the tenth defendant by reason of that failure?

Negligent Misstatement

16. Whether the pleaded representations by the first, third, fifth, tenth and eleventh defendants (respectively) were:

(a) Made in circumstances where the defendant realised or ought to have realised that the plaintiff would rely upon the information or advice;

(b) Made in circumstances where it was reasonable for the plaintiff to rely on the information or advice;

(c) Made in circumstances where the defendant failed to ensure that the information supplied or advice given was accurate and correct;

(d) Relied upon by the plaintiff to approve the loan and advance the $7 million;

(e) The cause of the plaintiff’s damage and if so, in what proportion having regard to the other concurrent wrongdoers?

(f) Did the plaintiff contribute to its own loss by its own negligence?

(g) Is the defendant precluded from relying upon any contributory negligence by the plaintiff or proportionate liability by reason of it intending to cause the plaintiff harm or his participation in a broader conspiracy with:

a. [In respect of the first defendant], the third, fifth, tenth and eleventh defendants to defraud the plaintiff;

b. [In respect of the third defendant], the first, fifth, tenth and eleventh defendants to defraud the plaintiff;

c. [In respect of the fifth defendant], the first, third, tenth and eleventh defendants to defraud the plaintiff;

d. [In respect of the tenth defendant], the first, third, fifth and eleventh defendants to defraud the plaintiff;

e. [In respect of the eleventh defendant], the first, third, fifth and tenth defendants to defraud the plaintiff;

(h) Is the plaintiff entitled to exemplary damages?

An overview of certain of the legal principles which fall for application

Fraudulent conduct

18 There is a plethora of authority in support of the proposition that the Court is bound to see that a case of fraud is clearly proved. An allegation of fraudulent intent is one of the most serious allegations capable of being made. Actual dishonesty is said to be “the hallmark of fraud”. The gravity of the allegation has been said to be such that whereas s140(1) of the Evidence Act 1995(NSW) stipulates a single standard of proof for all civil cases, namely the balance of probabilities, s140(2) preserves the doctrine in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361–362; Pedler v Richardson (Unreported, Supreme Court of New South Wales, Young J, 16 October 1997) at 10-11. See also McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 319.

19 In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 the High Court [per the joint judgment of Mason CJ, Brennan, Deane and Gaudron JJ], has put the matter in the following terms (at 449-450):

20 The High Court has pointed out in Pascoe v Federal Commissioner of Taxation(Cth) (1956) 30 ALJR 402 at 403 [citing Cussen J in Cox v Smail (1912) VLR 274 at 283] that the evidence given by a man of his intention and state of mind, must:

21 Courts have emphasised that the best evidence of a man’s purpose is to look at what was actually done: ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 at 482–483.

Tracing

22 Tracing is a remedy available both at common law and in equity. The equitable and legal remedies co-exist (per Hope JA in Stephens Travel Service International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331 at 341) but are not coextensive.

Common law

23 Tracing at common law is available where it can be shown that the defendant has received the plaintiff’s money and the extent of the defendant’s liability will be determined by the amount received. Liability under this count at common law depends upon receipt of the money rather than its retention. As a result, dishonesty or lack of inquiry on the part of the recipient is irrelevant.

24 Because identification of the receipt is the crucial element at common law, the remedy is of limited or no utility where the plaintiff’s moneys are mixed with those of others: Agip (Africa) Ltd v Jackson [1992] 4 All ER 451. The relevant test for tracing at common law is that of ascertainment so, for instance, where money was paid into a bank account, provided it could be identified as the product of the original money, the plaintiff would have a common law right to claim it.

Equity

25 Equity, unlike the common law, allows money to be followed into a mixed fund. Tracing is a process available to a beneficiary of a trust when a trustee converts trust property to his or her own use, but can also apply to misappropriations by fiduciaries as well as other circumstances. It allows a claimant to follow misused trust property into the hands of third parties who have received it, or trace it into whatever different form it has taken by way of transaction, in order to retrieve it. In general, a beneficiary may recover misused trust property which has gone into the hands of a third party, provided that third party is not a bona fide purchaser for value without notice.

26 The property which is traced does not have to be the exact property which was misused in the first place. It is sufficient if the link between the original property and the traceable property can be established.

27 In Foskett v McKeown [2000] 3 All ER 97 at 120 Lord Millet described the process of tracing in the following terms:

by insisting on the existence of a fiduciary relationship

28 Four years earlier his Lordship had provided a very useful analysis in Boscawen v Bajwa [1996] 1 WLR 328 at 334:

“The submission that the deputy judge illegitimately conflated two different causes of action, the equitable tracing claim and the claim to a right of subrogation, betrays a confusion of thought which arises from the admittedly misleading terminology which is traditionally used in the context of equitable claims for restitution. Equity lawyers habitually use the expression ‘the tracing claim’ and ‘the tracing remedy’ to describe the proprietary claim and the proprietary remedy which equity makes available to the beneficial owner who seeks to recover his property in specie from those into whose hands it has come. Tracing properly so-called, however, is neither a claim nor a remedy, but a process. Moreover it is not confined to the case where the plaintiff seeks a proprietary remedy; it is equally necessary where he seeks a personal remedy against the knowing recipient or knowing assistant. It is the process by which the plaintiff traces what has happened to his property, identifies the persons who have handled or received it, and justifies his claim that the money which they handled or received (and, if necessary, which they still retain) can properly be regarded as representing his property. He needs to do this because his claim is based on the retention by him of a beneficial interest in the property which the defendant handled or received. Unless you can prove this he cannot (in the traditional language of equity) raise an equity against the defendant or (in the modern language of restitution) show that the defendant's enrichment was at his expense

29 There is a view that, in equity, tracing can only be obtained where some pre-existing fiduciary relationship can be shown. But the better view must now be that tracing protects rights of property, rather than enforcing fiduciary obligations. That view is supported by the House of Lords decision in Foskett v McKeown [2000] 3 All ER 97 in which Lord Millet at 124, in particular, stressed that tracing was a process intended to vindicate rights or property rather than to prevent unjust enrichment, even though it may result in that effect.

30 Some support for this view is found in Black v S Freedman & Co (1910) 12 CLR 105 in which the High Court allowed an employer to trace moneys stolen by an employee and paid into an account in the name of the thief’s wife. The fraudulent employee owed fiduciary duties to the employer but his wife did not. The moneys could be claimed from the wife since she received the identifiable proceeds as a volunteer, and were not taken by her as a bona fide party for valuable consideration. Griffith CJ observed [at 109] “it has been laid down in cases decided long ago that if the alienee is a volunteer the estate may be followed into his hands whether he had notice of the trust or not”.

Tracing principles under constructive trusts

31 The equitable principles of tracing are applicable to pre-existing equitable obligations as well as constructive trusts, which are imposed by the Court. However if there is no identifiable property, a constructive trust cannot be imposed. The issue of when the equitable interest is said to arise may have implications for priority disputes among other creditors or claimants.

Tracing into a mixed fund

32 Where a trustee mixes trust property with his or her own property (or that of a third party) the remedy of tracing is not excluded. As long as the property is still identifiable, the fact that it has been combined with other property will, in equity, not prevent it from being traced.

33 This basic principle of tracing in equity and the mixing of funds was stated by Page-Wood VC in Frith v Cartland (1865) 71 ER 525 at 526:

the whole

except so far as he may be able to distinguish what is his own.

34 The right to trace into a mixed fund will depend upon what happens to that fund after the trust moneys are paid into it. If the trustee continues to draw on the account and exhausts it, the trust funds will be gone. It will not matter that the trustee later pays in further funds. There is no presumption that the trustee, in paying money into the account, is repairing the breach of trust: James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62.

A purchase made with mixed money

35 The right to trace into a mixed fund is not limited to a claim for money which has been misappropriated. It can apply to chattels, provided that the chattels in question can be identified and can be separated from the mixed asset or assets. The claimant cannot simply take the property, because it is not purely bought with the trust money, but with a mixed fund. However the claimant is entitled to a charge on the property purchased, for the amount of the trust money laid out in the purchase.

Where the trustee has mixed money in a bank account with his own money

36 Where a trustee has mixed money with his own money, the first money that is deemed to be withdrawn is that held by the trustee (“first in first out” principle of Clayton’s Case (1816) 1 Mer 572; 35 ER 7781). This is because equity assumes that the trustee has acted honestly and reasonably and has withdrawn his own money first. In any case, the rules of tracing still require the money of the beneficiary to be identifiable. In this regard, the lowest intermediate balance rule applies – where the beneficiary is restricted to the lowest intermediate balance that exists in the particular account after the date of mixing the moneys but before the date of the claim. This is so that if the trustee makes a later deposit (after the mixing of moneys) the beneficiary cannot trace into that subsequent deposit: James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62 (recently discussed in Re French Caledonia Travel Service Pty Ltd (in liq) (2003) 204 ALR 353 at [174]).

Tracing into the hands of third parties

37 A bona fide purchaser for value, without notice of the existence of a prior interest, will take the trust property free from the claims of the beneficiaries. Hence it is important to distinguish a bona fide purchaser of the property and a mere volunteer.

38 Where third parties receive property as volunteers, they may be liable as constructive trustees: Diplock, In re: Diplock v Wintle [1948] Ch 465 at 530-2.

39 In Re Diplock a testator left his entire estate ‘for such charitable institutions or benevolent object or objects as his executors should in their absolute discretion think fit’. The executors distributed approximately 210,000 pounds to over 229 charitable institutions over the following 3 years. The House of Lords subsequently held the bequest to be invalid. The next of kin sought to trace the funds into the various institutions and the Court held they were able to do this, since they held that the charities were volunteers and not bona fide purchasers. The following principles [amongst others] concerning recovery against third party volunteers were identified:

· where trust property is transferred to a volunteer who takes without notice, and there is no question of mixing, then the volunteer will hold the property on trust for the rightful beneficiaries;

· where the trust moneys were used to pay off a secured creditor, the trust was not entitled to be subrogated to the rights of the secured creditor who was repaid (at 548-549);

· if the volunteer purchased property with a mixed fund including trust moneys then the beneficiary would be allowed a charge over the property in order to secure repayment of the trust moneys used for the purchase (at 553);

· if an asset is purchased with mixed funds and it increases in value, the beneficiary will not be entitled to any proportionate share in that increase in value. In this respect, careful consideration needs to be given to renovations or improvements made upon real property.

Defences to tracing

40 If the trust property has passed on from a volunteer or a person who took with notice, to a bona fide purchaser for value without notice, the property will not be recoverable. See Brady v Stapleton (1952) 88 CLR 322. The plaintiff must overcome such priority disputes with other claimants or creditors, which represent challenges to the tracing claim.

41 A third party who is a volunteer may raise the defence of change of position, where he can prove that he has innocently changed his position as a result of receiving the trust property: Moses v Macferlan (1760) 97 ER 676.

Chronicling the material events

42 The difficulty in chronicling the material events concerns the amount of detail into which the Bank's case descends: likely for the reason that to prove a case of fraud and fraudulent conspiracy against particular persons, a plaintiff has to comply with the dictates set out in the above described authorities, the allegation constituting one of the utmost seriousness. In consequence almost every conversation, meeting, e-mail and document of relevance to the application for the facility is before the Court.

43 Notwithstanding the plethora of evidence of this type, the Bank's case in essence is a simple one. The case which the Bank has made out is that it was defrauded into granting the facility by numerous outright lies as to:

i. TDM's past financial records; past annual net profits at particular points in time; receivables for past years; sales income over past periods; net assets as at particular points in time; aged payables at particular points in time; anticipated sales and turnover at particular points in time; monthly gross credit sales at particular points in time; monthly debtor payments at particular points in time; levels of stock at particular points in time in its warehouse and paid for: shipments of stock in China awaiting delivery; genuineness of receivables in terms of being genuine assets at particular points in time;

ii. TDM being a reliable and reputable supplier;

iii. TDM's financial accounts having been independently verified by an external accountant at particular points in time;

iv. details of particular contractual arrangements between TDM and Carella Electrical Distribution and the prospects of those arrangements generating additional sales for TDM;

v. Mr Edge having entered into a genuine arms length contract to purchase TDM for $17,000,000;

vi. TDM being a company of such substance that it could command a purchase price of $17,000,000;

vii. the $7,000,000 requested to be borrowed to be paid to the vendor to complete his purchase of TDM;

viii. Mr Edge having paid a deposit of $10,000,000 in connection with a genuine arms length purchase by him of TDM;

ix. TDM having fulfilled all of the terms and conditions of each sale to each of the debtors identified in the attachment to the Offer Statement.

44 The causes of action outside of the fraudulent conspiracy are generally also made out on the evidence before the Court. In a number of instances these causes of action [as for example the representational causes of action] simply overlap with the fraudulent conspiracy case. However the tracing claims require more particular examination.

The witnesses called by the Bank

45 The Bank adduced evidence, usually in affidavit form, sometimes complemented by evidence in chief, from a large number of witnesses. In some instances those witnesses were not required for cross-examination.

The way forward

46 There were so many witnesses called by the Bank that it seems appropriate as to very many of them, to simply end the judgment with a précis of their evidence. Adopting this procedure has the benefit of enabling the reader to follow the evidence without being distracted by the chronicling of much evidence which was often unexceptional.

47 Likewise and in light of the fact that there are a reasonably large number of critical documents which were provided to the Bank and in respect of which the finding is that the documents were misleading, the convenient course is simply to include a table at the end of the reasons identifying the significant documents and the evidentiary references to those documents.

48 In outlining the events which occurred and in terms of the general structure of the whole of these reasons, it seems convenient to:

ii then chronicle some of the other events both before as well as post 3 June 2005;

iii. then set out the evidence given by Mr Edge;

iv. then set out the evidence given by Mr Qureshi;

v. then provide a précis of the evidence given by the other witnesses called by the Bank, only descending into certain particular detail when strictly required; and

The evidence of Mr Oscar Budai

49 As at 2005, Mr Budai was a relationship executive in the Corporate and Business Services Division, having commenced working for the Bank on 21 March 2005. He is now an executive manager in the Business Development and Risk Management section of CBA.

50 Mr Budai worked at Bartercard Australia Pty Ltd between July 2000 and March 2005, during which time he met Mr Neil Petts. Mr Petts is a business broker and formerly worked at Bartercard between approximately 1996 and November 2004. During May and early June 2005, Mr Petts was an Associate Director of the Origination division of GE Commercial Finance.

51 Mr Budai was the principal relationship executive at CBA who dealt with Messrs Mohamad Saleh, Hassanien Saleh, Edge and Petts. He received the bulk of the information provided to CBA in support of the finance application and prepared a credit submission in support of the application. He attended key meetings at the premises of TDM where representations relied upon by the Bank were made.

52 The evidence given by Mr Budai is to be found in two affidavits: those of 14 June 2006 and 24 May 2007. His evidence was dealt with in a number of convenient headings and included the matters set out below.

Prior dealings with Mr Petts

53 Mr Budai met Mr Petts in July 2000 when he commenced his employment with Bartercard. At that time, Mr Petts was the part owner and operator of a Bartercard franchise in Melbourne.

54 Some time around 2002, Mr Petts sold his share in the Melbourne franchise and commenced employment with Bartercard as the State Sales Manager for NSW. Mr Petts worked from Bartercard's head office in North Sydney. Mr Budai worked in the same office of Bartercard in North Sydney from July 2003 to 2004. They became friends.

55 Around December 2004 Mr Petts commenced working as a director for GE, where he was involved in commercial lending from a sales perspective. It was Mr Petts' responsibility to generate new business for GE.

Mr Petts made a referral partner of the Bank

56 The Bank operates a program known as the "Referral Partner Program". Pursuant to the program, the referral partner introduces clients or prospective clients to the Bank in return for part of the disclosed establishment fee charged to the Bank's customers.

57 During the period from about April 2005, Mr Petts referred potential clients to Mr Budai and so Mr Budai decided to register Mr Petts as a referral partner. Prior to the TDM deal described below, Mr Petts had referred about three clients to Mr Budai at the Bank.

The TDM Deal

58 In early May 2005, Mr Budai had a phone conversation with Mr Petts. Mr Petts said that he had a deal that might be suitable for CBA. It was a factoring deal that had been presented to GE, but it could not approve it in under six weeks and the borrower was looking to settle the deal in a few weeks. The company being purchased was TDM Australia. It seemed like a good company and had good turnover, good profit and no debt. Mr Budai asked Mr Petts to send the details to him.

59 Mr Budai met Mr Petts on 12 May 2005. The purpose of the meeting was to discuss the possible provision of finance by the Bank to complete a purchase of TDM. During the course of the meeting words to the following effect were said:

Mr Petts : “I have a transaction which you may be interested in which we can’t do. The borrower needs the transaction to be done in under six weeks and we are not able to do that. I have spent a lot of time on it but GE will not process it in time. The vendor is also pushing for a quick settlement and the purchaser has said he may go to ANZ. You only have a short window to approve the deal.” …

“William Edge (Mr Edge) is purchasing shares in a company called TDM Australia Pty Ltd (TDM). $11,000,000 has already been paid as a deposit. The purchase price is $18,000,000 and they require a $7,000,000 loan. There is no real property security. It will have to be secured by way of a charge over the company or a receivables facility. TDM has a broad customer base that would suit a receivables product. The customers are electrical contractors or builders and retail stores." …

“The company sells electrical products to electricians, builders and electrical wholesalers. They import their product from China. I have been out to the warehouse and seen the operations. The products are quite impressive.”

Mr Budai: “I would be interested in having a look at it.”

60 On the morning of Friday 13 May 2005 Mr Budai received a facsimile transmission from Mr Petts. It contained documents purporting to be financial statements for TDM for the 2002-3, 2003-4 financial years and the nine months to 31 March 2005, together with aged receivables and aged payables as at 31 March 2005 and TDM's credit application forms [PX 482–495] [PX 757–774].

61 In reviewing the above facsimile Mr Budai was interested in TDM's turnover, profit, equity and receivables. He was aware that the Bank's receivables finance area would provide finance to a customer to an amount up to 80 per cent of its approved receivables. He was therefore interested to see the value of TDM's receivables, whether there was a positive growth in the value of its receivables over the years, how concentrated its customer base was and the age of the debtors. Based on his review of the documents, he thought that the financial position looked good. He also noted that the receivables were spread out amongst several debtors of TDM and that TDM was being paid within a relatively short period of time - there were no aged receivables outstanding more than 90 days.

62 It was not Mr Budai’s role as a Relationship Executive to analyse TDM's financial statements to determine the company's credit worthiness or whether the Bank would grant final approval. The Bank had in place a two-stage approval process in relation to applications for a receivables finance facility. The first stage involved an assessment of the credit worthiness of the deal. The second stage involved a field visit by a Bank officer to verify the details of the level of debtors presented to the Bank as well as a satisfactory review by the receivables finance section with regard to the documentation of the borrower. As the reasons which follow make clear, Mr Harrison [a risk executive in the Corporate and Business Services Division of the Bank] reviewed and gave the Stage 1 approval of the TDM credit submission prepared by Mr Budai. Among other documents, he relied upon the financial statements for the year ended 30 June 2004 and the financial statements for the 9 months ended 31 March 2005 for this purpose [Exhibit MH2 pp29-58]. Mr Placek [a risk executive working in the Franchising and Factoring Division of the Bank] was the person responsible for approving Stage 2 of the receivables finance application.

63 On Friday 13 May 2005 Mr Budai discussed the contents of the above-described materials with Ms Sue Kenny, who held the position of Risk Executive in the Bank and to whom Mr Budai was assigned.

64 Ms Kenny's role in the Bank was that of analysing potential transactions with regard to credit risk to the Bank.

13 May 2005 – Mr Budai speaks to Mr Edge

65 On or about 13 May 2005, Mr Budai had a telephone conversation with Mr Edge in words to the following effect:

Mr Budai: "I'm Oscar Budai from CBA. I'll be organising TDM's application for finance. What's the best way to contact you if I need additional information?"

Mr Edge: "I'm on the road a lot repping TDM's products so best to contact me on the mobile".

Mr Budai: "We need to arrange a meeting asap with a specialist from the Bank's receivables finance area. When would you be available."

66 On 13 May 2005, Mr Budai also had a telephone conversation with Mr Ian Morris [a receivables finance specialist and the head of Cash Flow Finance and Working Capital at National Australia Bank who was at 2005, the sales manager working in the receivables section of CBA]. The purpose of Mr Budai’s discussion with Mr Morris was to enquire as to the sort of information that he required in order to assess the suitability of a receivables finance facility for TDM. Subsequent to this discussion, Mr Budai received an email from Mr Morris setting out a list of things he required [PX 898–900].

67 After receiving Mr Morris' email, Mr Budai telephoned Mr Edge again and had a conversation in words to the following effect:

Mr Budai: "It's Oscar again from the CBA. I have a list of things which we require from TDM."

Mr Edge: "I'm on the road a lot. Just direct any requests for further information to Mohamad."

Mr Budai: "William, the Bank requires you to give a statement of your assets and liabilities and your latest tax return. Can you send them through as soon as possible?"

68 After that conversation Mr Budai received a facsimile from Mr Edge which contained a personal statement of assets and liabilities and also his tax return for 2004 [PX 897; PX 470-476,].

69 Mr Budai subsequently telephoned TDM's offices and had a discussion with Mohamad Saleh [often referred to as "Mo"] in words to the following effect:

Mr Budai: "Hello Mohamad. I am Oscar Budai from the CBA. Neil Petts has given me your details. I am doing the application for William Edge and I need to get some additional information. I can send you an email with a list of what is required."

Mr M Saleh: "Yes, that's fine. Anything you need, let me know."

Mr Budai: "I have also arranged to meet with William at TDM's premises on Wednesday. It would be helpful if you were at the meeting too."

70 Mr Budai then forwarded the attachments that he had received from Mr Morris by email to Mohamad Saleh on Friday 13 May 2005 [PX 901 – 903].

71 On 17 May 2005, and in accordance with Mr Morris' request that he be provided with further information as available, Mr Budai sent an email to Mohamad Saleh asking if he could provide the Bank with the information referred to in his email to Mohamad Saleh of 13 May 2006 [PX 931].

72 Also on 17 May 2005, Mr Budai received a facsimile from Mr Petts attaching the information which he had requested in the email of 13 May 2005 [PX 938-954]. The information provided in the facsimile was for the purposes of work being done by the receivables finance area of the Bank (Mr Morris and others) and not for the credit submission that Mr Budai was preparing with Ms Kenny. Accordingly, Mr Budai provided a copy of the facsimile to Mr Morris as soon as it was received so as to expedite things as much as possible.

73 Late in the afternoon of 17 May 2005, Mr Budai sent an email to Mr Harrison with an update on the TDM deal. Mr Harrison was working with Ms Kenny on the review and approval of the TDM deal because the amount to be financed exceeded Ms Kenny's authorisation level [PX 955].

Meeting of Wednesday 18 May 2005 at TDM’s premises

74 On Wednesday 18 May 2005 Mr Budai attended TDM's premises at Wollongong Road, Arncliffe, with Mr Morris. They met Mr Petts and were introduced to two other gentlemen: Mohamad Saleh who was identified to Mr Budai by Mr Petts as the then-current owner of TDM and Mr Edge who was identified as the prospective purchaser of TDM.

75 The purpose of the meeting was to meet Mr Edge and Mohamad Saleh personally, to start developing a relationship with TDM and to explain the process involved in the application and the receivables finance facility. The focus of the meeting was not on auditing figures. That work was to be carried out later during the Stage 2 field visit referred to below.

76 TDM's premises were in an industrial complex. The entry into TDM's premises was via a roller shutter door or a side door. Inside the premises, three of the four walls of the warehouse had shelving and there were two levels of pallets on the shelves. In the centre of the warehouse, there were approximately 24 pallets on the floor. The pallets were stacked with sealed boxes. The warehouse was neat and tidy.

77 After entering the warehouse, Mr Morris and Mr Budai were led upstairs to an office where the meeting took place. The office contained a desk, a computer, a table, a buffet-type cupboard with drawers and about five chairs. There was a folder of documents on the buffet. During the course of the meeting, Mr Morris and Mr Budai were shown a folder of documents as Mr Edge and Mohamad Saleh were talking about TDM's products. The folder contained what was purported to be a folder of original patents that TDM owned.

78 Mr Budai gave evidence that Mr Edge was well-presented, eloquent and appeared knowledgeable about TDM's business and products. During the meeting, Mr Edge told Mr Morris and Mr Budai a little about his business background, saying words to the following effect: "I am also a property developer. I develop residential and commercial properties. I get my funding through ANZ for that."

79 Mr Budai gave evidence that that Mr Edge and Mohamad Saleh behaved like a "tag team". At certain times during the meeting, when Mr Budai directed a question at Mr Edge for his response, he would often refer it to Mohamad Saleh to answer and when Mr Budai directed a question at Mr Mohamad Saleh he would refer it to Mr Edge. For example, during the meeting, Mr Budai asked Mohamad Saleh a question about a product that he had designed thinking that he would be best able to answer. The question was answered by Mr Edge. Similarly, Mr Budai asked Mr Edge a question about whether TDM was prepared to offer the Bank any security and this was answered by Mohamad Saleh. That question and answer was in words to the following effect:

Mr Budai: "Would there be other security available?"

80 Mr Edge told Mr Budai that he had been working at TDM for several months and described its products as better quality, more extensively tested, offering a longer guarantee and more competitively priced [since they sourced their products from China] than any of their competitors. Mr Edge told him about his electrical engineering background and that he liked the TDM products so much that he bought the company. Mr Edge told Mr Budai that TDM had distributors around Australia. He described the negotiations with HPM [another competitor] to have HPM purchase TDM products and distribute them through HPM’s own distribution channels. This was said to be possibly worth an additional $5 million per month in TDM sales. It was also said that a new contract had recently been signed with a new franchise electrical wholesaler called Carella Electrical Distribution which was to provide TDM with significantly more distributors [and hence, sales] in Australia.

81 There was then a discussion in words to the following effect:

Mr Budai: “What is the purpose of the loan application?”

Mr Edge: “I have signed a contract to purchase shares in the company. I need a loan to complete the transaction.”

Mr Budai: “How much have you paid for the company?”

Mr Edge: “$17,000,000. I have paid a deposit of $10,000,000.”

Mr Budai: “I thought the deposit was $11,000,000.”

Mr Petts: “No I was mistaken it’s $10,000,000.”

Mr Edge: “I require $7,000,000. I don’t want to provide any real-estate security. The deal should be able to be financed on the strength of the company. ANZ are prepared to give a loan on that basis and you would have to do the same.”
Mr Budai: “We are happy to look at it.”

82 Mohamad Saleh spoke of TDM’s product superiority and their customers’ high level of satisfaction. Mr Morris then described the two-stage approval process [referred to earlier in this Judgment] that the Bank had in place in relation to applications for a receivables finance facility.

83 Mr Budai asked what the working capital position would be after the settlement of the facility, to which Mr Edge replied that TDM’s customers had been stocked up and that there was approximately $1 million worth of stock in the TDM warehouse and $1 million cash in the TDM bank account. In addition, Mr Edge said that another large shipment from China had already been paid for.

84 A discussion in words to the following effect then followed:

Mr Budai: “We will need to see various documentation before the loan can be approved. William, we will need to see your tax returns, we will need identification to set up the accounts, we will need a statement of assets and liabilities from you William [Mr Edge] and the company’s bank statements.”

Mr Morris "What process do you use for recording your debtors?"

Mr M Saleh: "All the accounts receivable are processed by that one computer. I personally enter each invoice on the computer. I also record all payments that are received and do the banking myself."

Mr Morris: "Under the receivables facility, TDM will be required to open up a new bank account which the Bank controls. All money paid to TDM by its debtors will need to be deposited into this account. TDM will need to provide the Bank with reconciliations at the end of each month. We will also need to check proof of delivery."

Mr Budai gave evidence that MYOB was mentioned by Mohamad Saleh as the software used by TDM, but Mr Budai could not recall whether it was first mentioned at this meeting or at a subsequent meeting. Mohamad Saleh and Mr Morris then discussed the monthly debtor figures as provided by TDM on the trading analysis document [PX 932].

[During cross-examination by Mr Qureshi, Mr Morris explained how the figures ‘flowed’ in the trading analysis document, which represented a summary of the past 12 months of trading [ending April 2005] for TDM. He referred in general terms to the discrepancy that was discovered when certain figures for TDM did not balance.]

Mr Morris: “Are the debtor figures correct?"

Mr M Saleh: "The figures are correct. I have taken them straight from the computer."

Mr Morris: "Well it doesn't add up, so there must be an error somewhere."

85 At the conclusion of the meeting they all went back downstairs to the ground floor of the warehouse. They opened boxes and looked at approximately 10 different products ranging from electrical switches to PVC mouldings. At one point, Mr Edge pointed to various pallets on the floor of the warehouse briefly describing their contents and their intended delivery to customers. Mohamad Saleh then pulled out a junction box and threw it on the floor to demonstrate the strength of the product. Mr Morris stood on the junction box to test its strength and quality and it did not break.

[I interpolate to note that Mr Morris gave evidence of the various representations which were made at the meeting. Mr Morris was generally also involved in terms of reviewing documents provided to CBA in support of the receivables finance application and prepared an application which was submitted to Mr Placek for approval.

86 After the meeting Mr Budai returned to the office. During the course of the meeting he had made some hand written notes of details which were supplied to him. Mr Budai inserted those details into the draft credit application, which he and Ms Kenny were preparing for Mr Harrison. He also created a call report which is a document prepared to show his superiors the contact he had with customers. It does not purport to be a detailed explanation of everything that was discussed at the meeting [PX 972]. Mr Budai destroyed his handwritten notes after entering the detail of them into the draft credit application and the call report. To the best of his recollection, the information recorded in paragraphs 2 to 4 of the report was provided during the meeting by Mr Edge and the information recorded in paragraph 5 was provided by Mohamad Saleh.

87 On 18 May 2005 Mr Budai spoke to Ms Kenny after returning from TDM's premises. The purpose of the conversation was to update her regarding the meeting. The discussion also revolved around potential technical difficulties with providing the entire sum of $7,000,000 sought by TDM on the day of settlement. Under the Bank's lending criteria for receivables finance facilities, the maximum amount able to be lent is 80% of the value of the customer's debtors (which are the security). In TDM's case, this 80% figure was in the order of $6,500,000. Ms Kenny and Mr Budai agreed that any shortfall could be advanced to TDM by way of a different product issued by the Bank – a Better Business Loan (BBL) – which would be repayable by TDM within 12 months.

88 Later on 18 May 2005 Mr Budai had a conversation with Mr Edge in words to the effect of:

Mr Budai: “Due to the Bank’s policies with regard to lending on the value of receivables, we will be unable to lend the entire $7,000,000 secured by the company’s receivables. What we propose is any shortfall between the amount of money that we can lend based on the receivables and the $7,000,000 be made up by a separate better business loan. In this way we can advance you the $7,000,000.”

19 May 2005

89 On Thursday 19 May 2005 the credit submission for the TDM loan was completed by Ms Kenny and Mr Budai and submitted to Mr Harrison [PX 904 – 916].

90 Sometime on or about 19 May 2005 Mr Budai received a facsimile from Mohamad Saleh dated that date with financial information in relation to TDM [Exhibit OB16 p100]. The facsimile was provided to Mr Morris and Mr Budai following on from the meeting they had with Mohamad Saleh, Mr Edge and Mr Petts on 18 May 2005. Mr Budai understood that document to contain the further information as to TDM's debtors which Mohamad Saleh had undertaken at the 18 May 2005 meeting to check with TDM's accountant and confirm.

91 After receiving the facsimile Mr Morris told Mr Budai there were still problems with the debtor figures and that Mr Budai needed to go back to TDM to get better details.

92 Mr Budai telephoned Mohamad Saleh on or about 19 May 2005 and informed him that Mr Morris still had some concerns with the debtor figures. Mr Budai had a conversation with Mohamad Saleh in words to the following effect:

Mr Budai: "The debtor figures still don't balance. I think you need some help in reconciling them."

93 Mr Budai also called Mr Petts at about that time and relayed Mr Morris' concerns to him as well. He called Mr Petts because Mr Budai was aware of the urgency of the transaction and he wanted Mr Petts to impress on Mohamad Saleh and Mr Edge the importance of the debtor figures. They had a conversation in words to the following effect:

Mr Budai: "We are running out of time here. I'm not sure that Mohamad understands exactly what we are trying to arrive at with this spreadsheet. If there is any way you can impress on him the urgency of getting it right, it would be greatly appreciated.

20 May 2005

94 On or about 20 May 2005, Mr Petts forwarded a fax to Mr Budai he had received from Mascot Taxation and Accounting Services addressed to TDM providing further information with regard to the finances of TDM. In the facsimile from Mr Petts of 17 May 2005 [Exhibit OB9 p56] the “Trading Analysis – Previous 12 Consecutive Months” document was incomplete. The facsimile originating from Mascot Taxation provided additional information. Mr Budai forwarded the information on to Mr Morris who was concerned with the Bank's Stage 2 approval [PX 990-991].

23 May 2005 – In principle approval for Stage 1

95 In an email dated Monday 23 May 2005, Mr Harrison gave "in principle" approval for Stage 1 of the TDM deal (which is the credit approval stage) subject to Stage 2 approval by the Bank's receivables finance section [PX 994].

96 After receiving this email, Mr Budai telephoned Mr Edge and had a conversation in words to the following effect:

Mr Budai: “Can you please provide a copy of the contract for sale of business?”

Mr Edge: “Yes.”

Mr Budai: “What is the situation with regard to the plant in China?”

Mr Edge: “The plant is owned by a separate entity. I will have a 33 per cent share in that entity. There is no debt.”

Mr Budai: “I also need to know the timing of the purchase and source of funds for the initial deposit when you agreed to buy TDM.”

Mr Edge: “The deposit is held in a solicitor’s trust account. I will send you a copy of the contract.”
Mr Budai: "Where did you get the money for the deposit?"

Mr Edge: "It was sale proceeds from a recent property development."

Mr Budai: “We have done a credit search which has also raised some issues. TDM Australia has one judgment recorded against it for $21,355 to Australian Exhibition Services.”

Mr Edge: “That has been settled. I will get confirmation of that from the solicitor.”

Mr Budai: “There is also a record of you having one default to St George Bank for $10,000 in the year 2000.”

Mr Edge: “That has been settled and I no longer bank with them. I bank with ANZ.”

Mr Budai: “We will also need to see 12 months of bank statements.”
Mr Edge: “Those are all held by the external accountant and may take some time to obtain.”

24 May 2005 – Approval of stage 2

97 On Tuesday 24 May 2005, Mr Wal Placek confirmed approval of Stage 2 of the TDM deal in a telephone conversation with Mr Budai. Mr Harrison also confirmed to Mr Budai verbally that day that the Bank’s documents, including the Business Facility Documentation (BFD), the receivables finance facility agreement, a registered equitable mortgage (REM) and guarantee could be prepared, subject to the condition that TDM would provide 12 months of bank statements.

98 On or about 24 May 2005 Mr Budai met with Mr Edge at TDM’s premises. Also present at the meeting was Mohamad Saleh and Mr Petts. During the meeting Mr Budai provided Mr Edge with an update on the approval process during which they had a conversation in words to the following effect:

Mr Budai: "We have the approval in principle. There are some forms that I will need you to sign to complete the approval. You are a hard man to get hold of."

99 Mr Budai then conducted a formal identification procedure as required by the Financial Transactions Reports Act 1992 (NSW). This is carried out by filling out a Bank form known as a W4. It involves witnessing the prospective customer sign the form and comparing that signature against forms of identification provided by the customer. The forms of identification must add up to 100 points as set out in a table on the W4.

100 In support of his identification, Mr Edge provided Mr Budai with the originals of his Australian passport number and Heavy Vehicle Drivers Licence. Both of those documents contained photographs. Mr Budai identified the man in the photographs as Mr Edge. He took photocopies at TDM’s premises of Mr Edge’s passport and driver's licence which he retained. Mr Edge and Mr Budai were sitting at a small round table upstairs at the time that Mr Edge signed the W4 document. He was approximately one metre away from Mr Budai when he signed the document three times.

101 When Mr Edge signed the W4, Mr Budai noticed that the signatures he placed on the W4 were markedly different from those appearing on the passport and driver's licence, both of which were similar to one another. When asked why this was so, Mr Edge explained to Mr Budai that he was in the middle of a divorce and had changed his signature when he left his wife. Mr Budai accepted this explanation and did not question his signature on any subsequent occasion when he witnessed him sign documents.

102 Mr Newman’s cross-examination of Mr Budai went some way to establishing the Bank’s process of filling out the W4 document, and in particular, questioned Mr Budai about the W4 document signed by Mr Edge [PX 1000]. Somewhat curiously Mr Budai did not sign the W4 document where the words “[s]ignature of person verifying identification” and “date” appear. Mr Budai gave evidence that it was his practice not to sign his own name immediately after the client [relevantly Mr Edge] had done so, but rather it was normal procedure for him to return to the office with the W4 document and copies of the identification documents provided, and to then instruct his assistant, Mr Peter Allcock, to initial each place where the client [Mr Edge] had signed. Mr Allcock’s initialling process was said to be for the purpose of verifying that the relevant sections had been completed, and not for the purpose of verifying that the person initialling [Mr Allcock] had witnessed the client’s signatures [T425:30]. Mr Budai acknowledged that he should have signed the space under “[s]ignature of person verifying identification” and dated it [PX 1005] but had omitted to do so [T427:25].

103 Mr Budai gave evidence [during cross-examination by Mr Newman] that upon filling out the W4 form, Mr Edge had told Mr Budai of his new address at Lot 2 Martins Ridge Road, Conjola, and that the 252 East Kurrajong Road, East Kurrajong address entered by Mr Budai prior to the actual meeting was no longer correct.

104 Also at the meeting, Mr Budai had a further discussion with Mr Edge in words to the following effect:

Mr Budai: "You will also have to sign the security documents once they're ready and I still need a copy of the sale contract. Can you please send that through?"

105 During the meeting (or a meeting at TDM's premises about that time) Mr Budai noticed that there did not seem to be a lot of activity at the warehouse and that the telephone did not seem to ring. Mr Budai asked how TDM received their orders. Mohamad Saleh replied in words to the following effect:

24 or 25 May 2005

106 Either late on 24 May or early on 25 May 2005, Mr Budai had a telephone discussion with Mr Edge in words to the following effect:

Mr Budai: "I haven't received the contract yet."

25 May 2005

107 At about 1.30 pm on 25 May 2005, Mr Budai received a facsimile which contained the documentary information that he had requested from Mr Edge during their telephone conversation on 23 May 2005 [PX 1102-1104].

108 After receipt of the facsimile on 25 May 2005, Mr Budai telephoned Mr Edge to ask him to explain the front page of the TDM contract of sale which stated a restraint time of three years and a restraint distance of 20 kilometres. Mr Edge replied in words to the following effect:

109 On 25 May 2005, Mr Budai telephoned Mohamad Saleh to ask for TDM’s bank statements for the past 12 months. Mohamad Saleh replied in words to the following effect:

110 On 25 May 2005 Mr Budai created a file note recording the matters of which he had been informed by Mr Edge in relation to the outstanding matters for the approval dated 23 May 2005 [OB 22].

111 On 25 May 2005, Mr Budai provided a copy of his file note, along with the above bank statements to Mr Harrison for his approval. Mr Harrison made handwritten comments on the file note [OB22].

112 On 25 May 2005, Mr Harrison provided Stage 1 approval [subject to the inclusion of a clause requiring the provision of bank statements in the relevant documentation] by email dated 25 May 2005 addressed to Mr Budai and others [PX 1082].

113 Mr Budai received an email from Mr Morris on 25 May 2005 with a copy of the Bank's letter of offer in relation to the receivables finance facility that Mr Edge was required to sign. Mr Morris asked Mr Budai to sign the letter on his behalf and provide it to Mr Edge [PX 1083, 1090-1096]. Mr Budai printed the letter and signed it so that it was ready to be executed by TDM.

114 Sometime in the early afternoon of 25 May 2005, Mr Budai telephoned Mr Edge and they had a conversation in words to the following effect:

115 At this meeting, Mr Budai gave Mr Edge the BFD [Business Facility Documentation headed "Acceptance Document”], receivables finance facility letter and the standard terms and conditions. Mr Edge reviewed the documents and signed them in Mr Budai’s presence. Mr Budai witnessed them being physically signed by Mr Edge. Mr Budai placed his signature shortly afterwards on the Acceptance Document and the standard terms and conditions [PX 1097-1101, 1090-1096, 1292-1319]. The Receivables Finance Agreement Standard Terms and Conditions is dated 1 June 2005. At the time that the document was executed there was no date upon it. The handwritten date is not Mr Budai’s handwriting and appears to have been subsequently inserted by another person from the Bank.

116 At the conclusion of the meeting with Mr Edge on 25 May 2005 words to the following effect of were said:

Mr Budai: “I will still need you to sign the guarantee and registered equitable mortgage as soon as they are done."

117 Mr Edge made a number of similar comments from time to time. Mr Budai believed at the time that if the Bank was not able to move the TDM deal along quickly, the business would be lost to ANZ.

Approximately 27 May 2005

118 On or about 27 May 2005 Mr Budai made arrangements with Mohamad Saleh for a field visit to be carried out at TDM by Ms Lenore Smith of the Bank. At the material time, Ms Smith was a business analyst working in the Bank’s receivables finance section. Her role was to attend a client's premises to inspect and verify their documentation and systems to ensure the business was suitable for receivables finance. The field visit was carried out on 2 June 2005.

Meeting on 31 May 2005

119 On Tuesday 31 May 2005 Mr Andrew Watson [who held the position of General Manager in the Bank’s Corporate and Business Services division for NSW and the ACT], Mr Mario Saia [who held the position of Executive Manager, Corporate], and Mr Budai visited TDM's premises. Mr Budai reported directly to Mr Saia and Mr Saia reported to Mr Andrew Watson. The purpose of the meeting was for Messrs Watson and Saia to meet with Mr Edge and confirm to him that the Bank was committed to providing a valuable service to TDM. At the time, Mr Budai believed that TDM had the potential to become a substantial and valuable customer of the Bank and wanted to introduce Mr Edge to some high level representatives to show that the Bank considered TDM a valuable customer.

120 Prior to the meeting, Mr Budai prepared a client briefing paper for Mr Watson and Mr Saia.

121 The meeting started in a coffee shop next door to TDM's premises. The meeting was attended by Messrs Watson, Saia, Edge and Budai. The discussion at the meeting was fairly high level and about TDM's business and plans for the future rather than on specifics of the TDM deal.

122 During the meeting there was discussion about the future direction of TDM in words to the following effect:

Mr Watson: "What do you see as the future direction of TDM?"

Mr Edge: "I have to do a bit of work there."

123 After they had been at the coffee shop for a while, they all went to the TDM warehouse. When Messrs Saia, Edge and Budai entered the warehouse, Mr Watson [having left the coffee shop earlier] was already speaking to Mohamad Saleh.

124 They were taken on a tour of the warehouse and were shown some products. During that tour, Mr Edge continued to talk about TDM's business and products, saying words to the following effect:

Mr McCoy

263 Mr McCoy is a bank manager employed by Arab Bank Australia Limited. Mr McCoy gives evidence of the receipt of $3,450,000 into Hassanien Saleh's Arab Bank account on 7 June 2005 and the subsequent transfer of funds from that account to the accounts of other members of the Saleh family. Mr McCoy also gives evidence of the transfer of funds from Arab Bank back to CBA on 23 and 27 June 2005.

[ ]

264 [ ]

Mr John Williams

265 Mr Williams is a chartered accountant and a partner of PPB Chartered Accountants. He provided opinion evidence [in the form of an expert report dated 1 June 2007] as to the records and documents required to be kept by an accountant conducting a practice of the type similar to Mr Qureshi’s practice.

266 Mr Williams, during his examination in chief, gave his opinion on the additional documentation and records an accountant would require to prepare financial statements assuming the client only maintained records of its list of receivables and creditors in electronic form [T 602-3]. He gave a description of the process of coding bank statements and the creation of a general ledger to summarise all the transactions that had taken place for the client in the relevant financial year.

267 He explained that the working papers produced are kept and used by the accountant to enable him or her to reconcile the numbers in the financial statements with those documents supplied by the client. They reflect the workings of how the accountant came up with each figure in the financial statements and any tax returns. Copies of bank statements used to reconcile figures and with the accountant’s own workings would form part of these working papers [T 605:21].

268 As referred to in paragraph 25 and 26 of Mr William’s report of 1 June 2007, Mr Williams provides evidence of the documents that would be retained by a prudent accountant after termination of the retainer by a client – namely records, client and third party correspondence and working papers that belong to the accountant and reflect the work carried out. Mr Williams gives evidence of a common accounting profession standard that no documents or records are to be destroyed prior to 7 years.

269 Mr Williams was asked during his examination in chief to look at the documents in Exhibit P14 and gave evidence that on the assumption that they were the only records kept by an accountant for a client who had since terminated his retainer, the retention by the accountant of only these documents at Exhibit P14 was not acceptable or prudent accounting practice.

270 During cross-examination by Mr Qureshi, Mr Williams believed it would be unusual for all of the records of a client to be returned to the client if they insisted on it [T 615:26]. This was at least in part because working papers belonged to the accountant and not the client. In addition, records would be kept because they provided support for the work performed by the accountant and that the obligation to justify the work produced for a client did not end simply when the client terminated an accountant’s services [T 616:2].

Mr Stephen Parbery

271 Mr Parbery, as referred to earlier in the judgment, is a chartered accountant and registered liquidator. He is a partner of PPB Chartered Accountants and was appointed by the Bank as receiver and manager of TDM on 24 June 2005. Mr Parbery gave evidence about the books and records of TDM, and in particular, the genuine St George Bank records of TDM. He also gave evidence of his dealings with the ATO and the position of TDM in respect of the lodgement of tax returns and business activity statements.

The fraudulent conduct of Mohamad and Hassanien Saleh

272 It is convenient to attempt a short overview of the fraudulent conduct of Mohamad and Hassanien Saleh:

i. Mohamad and Hassanien were the founders of the TDM business. They were associated with the business after the appearance of Mr Edge in the affairs of TDM. Mr Edge became a director of TDM by a form signed by him [Supp PX 148-152] . Mr Edge was the sole director of TDM from 11 April 2005 to 3 June 2005.

ii. TDM only had three people ever working at it: Mohamad, Mr Edge and Hassanien. The father of Mohamad and Hassanien was in the warehouse from time to time.

iii. There is ample direct evidence of Mohamad advancing the fraud by conversations and documents sent to the Bank following conversations with the Bank.

iv. The documents which were presented to the Bank are diametrically inconsistent with the true financial position of TDM. Those documents come to the Bank after conversations with Mohamad and Edge where Hassanien is often in the warehouse and clearly knows what is going on. The receipt of nearly $3.5 million dollars of the fraud by Hassanien gives rise to very strong inferences as to his involvement and knowledge.

v. Further, Mohamad and Hassanien were the only two persons authorised to transact business on the TDM St George account [PX 95-96]. They were signing the cheques and receiving money from TDM. They knew that TDM was a pig in a poke and not worth $7 million. To operate a business account requires persons to have regard to the balance of that account from time to time to ensure funds are not overdrawn.

vi. Hassanien and Mohamad must have known that the level of business activity at which TDM was actually performing did not warrant a sale price of anything like $7 million. They were regularly drawing cheques (particularly Hassanien). They must have known the true account balances.

vii. Mohamad was involved with Mr Edge in the deception over China. After the last $1.3 million was transferred out of Mohamad’s account on 14 June 2005 to Lebanon, Mr Edge reappears. Everything was calculated for them to jointly act so that the fraud was not discovered by the Bank before all of the money was safely got away.

viii. The receipt by Hassanien Saleh of approximately $3.5 million gives rise to strong inferences as to his involvement. Hassanien Saleh was also present at TDM at the time of several meetings with the Bank. All of the Saleh defendants rely on the same consolidated form of Defence filed on 16 December 2005.

Misleading and deceptive conduct and negligent misstatement

273 There is an overlap between the deceit claim, on the one hand, and the misleading and deceptive conduct and negligent misstatement claims, on the other hand, in that the representations relied upon are the same. The allegations of falsity in respect of the alleged representations are as set out in paragraphs 100 to 330 of the plaintiff’s Further Amended Summons and Commercial List Statement [filed 6 July 2007]. The key factual matters relied upon to demonstrate the falsity of the representations, shortly stated, include the following:

i. TDM was a small operation at best with negligible sales and debtors;

ii. Mr Edge did not pay a deposit of $10 million or any other amount towards the purchase of TDM;

iii. Mr Edge never travelled to China;

iv. Mr Qureshi and Qureshi & Associates had not independently verified the factual accuracy of the information disclosed in the financial statements of TDM issued by Mascot Taxation & Accounting Services and the information disclosed in those statements was false;

v. the St George Bank statements provided to the Bank were forgeries and false;

vi. TDM’s GST commitments were not up to date.

vii. The evidence discloses that Mohamad Saleh, Hassanien Saleh, Mr Qureshi, Qureshi & Associates and Mr Edge engaged in misleading and deceptive conduct by making false and misleading representations which were relied upon by the Bank.

viii. In the case of representations made by Qureshi & Associates (in liquidation), the evidence discloses that Mr Qureshi was the guiding hand of that company and was intimately involved in the conduct and operations of it. To the extent that Qureshi & Associates has contravened the TPA, Mr Qureshi is accessorily liable by reason of s 75B of the TPA.

Restitution

274 The evidence discloses that the Bank relied on the representations made to it when it made the $7 million payment to Mohamad Saleh. To the extent that it relied upon those matters, the Bank was operating under mistake of fact. The Bank is therefore entitled to restitution of the amount of $7 million paid to Mohamad Saleh as against him and those who received part of those monies from him and were accordingly unjustly enriched.

The findings

275 The real issues calling for determination were outlined earlier in these reasons. It is unnecessary to exhaustively repeat the findings which the extensive reasons set out. A non-exhaustive précis of the essential findings should suffice. I proceed accordingly:

i. the plaintiff has proven that fraudulent misrepresentations were made to it and that it advanced $7 million to TDM in reliance upon those misrepresentations;

ii. the plaintiff has also proved that the $7 million became immediately impressed with a constructive trust over those moneys with the plaintiff having beneficial ownership of the funds;

iii. the plaintiff has proven its entitlement to trace the funds in equity into the hands of the defendants;

iv. none of the defendants into whom the funds have been traced has been in a position to prove that it was a bona fide purchaser for value without notice of the plaintiff’s equity: it is of course apparent that none of the defendants who were absent from the courtroom adduced evidence of any type.

v. Hence the plaintiff is entitled to declarations that it is and has always been the true owner of the funds traced into the hands of the defendants;

vi. the finding is that the first, third, fifth, tenth and eleventh defendants conspired to deceive and defraud the plaintiff: in short the pleaded representations by each of these defendants have been found to have been made, have been found to have been false, have been found to have been made with knowing falsity or reckless disregard for the truth of the representations and have been found to have been made with the intention that they would be relied upon by the plaintiff. These findings extend to cover both the cases in deceit as well as the cases pursued pursuant to the Fair Trading Act and the Trade Practices Act .

vii. In the circumstances of the knowing intent and fraud findings, no questions arise in terms of proportionate liability or in terms of contributory negligence.

viii. The plaintiff's case in restitution in so far as mistaken payment is concerned, has been made out. In short the finding is that the plaintiff advanced $7 million to the first defendant pursuant to a mistake of fact entitling it to restitution against the defendants in that amount.

ix. The plaintiff has succeeded as against Mr Edge in terms of its case that the plaintiff and Mr Edge entered into a guarantee in respect of the performance of TDM under its loan agreement with the plaintiff. The plaintiff has proven that it made a demand upon Mr Edge for payment under the guarantee and that he failed to pay the sum so demanded.

The general damages calculation

276 The approach taken by the plaintiff in their general damages calculation is adopted. In short this involves commencing with the amount of $7,175,102.45 loss constituting the principal and interest excluding any tracing [cf affidavit of Mr Barry Watson of 10 July 2007 paragraph 24 annexure H]. From this overall figure there is to be deducted the categories constituting:

i. moneys already recovered without any final orders from the court [but in respect of which the Bank seeks protective declarations, already having its hands on these funds];

277 Hence the calculation is as follows:

$ 7,175,102 .45 loss being principal and interest excluding any tracing

Less money already recovered:

$ 2,160,683.17 from the Arab Bank (re Hassanien and Fatima)

$ 92,300.97 from CBA (re Abdullah)

$12,004.96 from CBA (re Fawzi)

$ 93,142.14 from CBA (re Hassanien)

$ 92,767 from CBA (re Fawzi)

$ 95,356 .45 from CBA (re Khadige)

$ 91,710.22 from CBA (re Fatima)

$ 441,280.67 (from Petts)

A. Sub Total: $ 3,079,245.58

Add further recovery from Tracing:

$ 94,426 from ANZ (re Hassanien)

$ 1,299,934 from ANZ (re Mohamad)

$ 552,000 from Perpetual (re Fawzi and Khadige)

$ 230,000 from Quaid Real Estate (re Edge)

$ 970,000 against J Biady and Associates Solicitors (re Edge)

B. Sub Total $ 3,146,360

Total loss – A Sub Total – B Sub Total

$ 7,175,102.45 - $ 3,079,245.58 - $ 3,146,360 =

Total General Damages: $ 949,496.87

Exemplary damages

278 A recent decision of the Court of Appeal suffices to state the general principles applicable in respect of exemplary damages. In James v Hill [2004] NSWCA 301, the reasons of Tobias JA [Sheller and Hodgson JJA agreeing] upheld the decision of Bergin J awarding exemplary damages, his Honour observing that an award of exemplary damages is not compensatory in nature but punitive and quoted from XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448 at 471 (per Brennan J):

Broome v Cassell & Co

279 In the joint judgement of the High Court in Lamb v Cotogno (1987) 164 CLR 1, the joint judgement (at 9) observed that the object, or at least the effect, of exemplary damages was not wholly punishment or deterrence but that it also served "to assuage any urge for revenge felt by victims and to discourage any temptation to engage in self-help likely to endanger the peace" and, further, (at 10) "to mark the court's condemnation of the defendant's behaviour".

280 Reference was also made to Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at 311 [55] where Spigelman CJ referred to the first of these additional objectives as "vindication" and to the second as "denunciation". The Chief Justice observed that each of the purposes so identified by the High Court in Lamb was primarily, if not exclusively, a public purpose (at 312 [56]).

281 Tobias JA concluded in James v Hill (at [69]) as follows:

282 In Digital Pulse, Heydon JA observed (at 345 [254]) in a passage cited by the Court of Appeal in Amalgamated Television Services Pty Ltd v Marsden (No 2) (2003) 57 NSWLR 338 at 345 [23]:

283 Clearly enough an award of exemplary damages is appropriate to be made as against each of Mohamad Saleh, Hassanien Saleh, Mr Edge and Mr Qureshi. The above described principles merit this approach to damages. A quite extraordinary fraud was committed. Each of these persons have been found to have been complicit in that regard.

284 There is no evidence as to the net worth of any of these persons. For obvious reasons it is extraordinarily difficult to differentiate between persons who are jointly complicit in a major fraud by reason of the different parts which were played by each of them. It being obvious that Mohamad Saleh, Hassanien Saleh and Mr Edge were central participants in the fraud, in my view the principled exercise of the relevant discretion is to order exemplary damages to be paid by each of these persons in the sum of $150,000.

285 Notwithstanding that in some cases [as for example James v Hill], the Court has regarded the reprehensibility of the conduct of a professional as increased by reason of such a person misconducting himself or herself in the course of the practice of his profession, it seems to me that in this particular case the principled exercise of the discretion is also to order that exemplary damages be paid by Mr Qureshi in precisely the same amount. This is simply because in truth there is no way of discerning as between those who participated in the fraud, precisely what part they played at inception of the fraudulent plan or through the execution of that plan.

286 This is not to minimise the seriousness of Mr Qureshi’s conduct. He was content to allow his professional standing to be utilised for the purposes of the fraudulent conduct. He stood by whilst the Bank acted upon correspondence sent by him to TDM which was plainly intended by him to be seen by the Bank, and acted upon by it.

287 I proceed in non-exhaustive fashion to note many of the orders which are appropriate, reserving for submissions:

i. the precise amount of the judgment to be entered against the tenth defendant;

ii. the precise amount of the appropriate judgment to be entered against the first, third, fifth and eleventh defendants.

[The short minutes of order will need to embrace each parameter of relevance.]

288 The orders which are appropriate include the following:

i. a declaration that that the plaintiff has at all times been the beneficial owner of the $94,426 held in Hassanien Saleh’s bank account number [ ]6876 conducted with the fourth defendant [ANZ Bank] being part of the funds stolen from the plaintiff traced into the hands of the fourth defendant.

ii. an order that the fourth defendant pay to the plaintiff the sum of $94,426 held in Hassanien Saleh’s bank account number [ ]6876 conducted with the fourth defendant [ANZ Bank] plus interest (if any) on those funds which has accrued since the date the funds were frozen.

iii. a declaration that that the plaintiff has at all times been the beneficial owner of the $1,299,934 held in Mohamad Saleh’s bank account number [ ]6481 conducted with the fourth defendant [ANZ Bank], being part of the funds stolen from the plaintiff traced into the hands of the fourth defendant.

iv. an order that the fourth defendant pay to the plaintiff the sum of $1,299,934 held in Mohamad Saleh’s bank account number [ ]6481 conducted with the fourth defendant [ANZ Bank] plus interest (if any) on those funds which has accrued since the date the funds were frozen or recovered from the Arab Bank and placed in a provisions account.

v. a declaration that that the plaintiff has always been the beneficial owner of $552,000 held by the sixth defendant after it was credited to account number [ ]5859 managed by Macquarie Mortgages Pty Ltd as agent for the sixth defendant. [This and the following order relates the evidence of the withdrawal from Hassanien Saleh's Arab Bank account [ ]4450 in the sum of $552,000 and the bank cheque made payable to Macquarie Mortgages in the sum of $552,000 – the withdrawal was signed by Hassanien Saleh. Exhibit P30 explains the relationship between Macquarie Mortgages and Perpetual Trustee. The movement of the funds corresponds with the transaction on the flowchart marked as 11b.]

vi. an order that the sixth defendant pay to the plaintiff the sum of $552,000.

vii. an order that the third defendant pay to the plaintiff the sum of $125,000 plus interest at the prescribed Supreme Court rate.

viii. a declaration that the sum of $2,160,683.17 transferred from the Arab Bank to the plaintiff was money the plaintiff always owned and had a beneficial interest in and the plaintiff now properly holds an unencumbered legal and beneficial interest in those funds. [These matters were dealt with in Mr McCoy’s affidavit of 1 November 2005. What was involved were two transactions or two recoveries by the Arab Bank in respect of the accounts in question. These are matters dealt with in the flowchart at 11 and 11a. On 23 June 2005 of the Arab Bank had transferred $2,150,000 to the CBA being $1.66 million from Hassanien Saleh's account and $490,000 from Fatima Saleh's account. After the initial moneys were recovered offshore there was a residual amount recovered by a transfer from the Arab Bank of $10,683.17 to the CBA [being $603.17 from Hassanien Saleh’s account and $10,080 from Fatima Saleh’s account].

]6804 conducted by the plaintiff in the name of the twelfth defendant;

[ ]571 conducted by the plaintiff in the name of the thirteenth defendant;

]9880 conducted by the plaintiff in the name of the fifth defendant;

]6784 conducted by the plaintiff in the name of the thirteenth defendant;

]6979 conducted by the plaintiff in the name of the fourteenth defendant;

7907 conducted by the plaintiff in the name of the sixteenth defendant

[All of these funds were received by the Commonwealth Bank from the Arab Bank account. The flowchart identifies these transactions as numbers 3, 4, 6, 8, 9 and 10. All are dealt with in Mr Barry Watson’s affidavits.]

[ ]8556] from Mohamad Saleh, then transaction 17 to Cameron Price and then flowchart 18 to Quaid Real Estate.]

xi. an order that the eighth defendant pay to the plaintiff the sum of $230,000 held in account number [ ]6700 plus interest (if any) on those funds which has accrued since the date the funds were frozen.

xiii. an order, varying the orders made on 23 September 2005, and requiring J Biady & Associates Pty Limited to take any and all steps required to transfer to the plaintiff the balance of the moneys held in account number [ ]2423 in the name of “J Biady & Associates Pty Ltd in trust for William Edge and the Commonwealth Bank of Australia”.

Identifying the critical misleading documents provided to the Bank

289 Reference was made earlier in the judgment to the efficient approach being to identify the critical misleading documents provided to the Bank in a table at the end of the reasons. I proceed accordingly to list those documents and references to certain of the evidence in respect of them:

Date

Document

Evidence Ref

11/4/04
[but provided on 25/5/05] Front page of Contract for sale of business – 2004 edition for $17 million sale of TDM to Edge Budai (14/6/06) – OB21, pg 117

4/5/04 to 3/5/05
[but provided on 1/6/05] Forged St George Bank Statements for the period 4 May 2004 to 3 May 2005 Budai (14/6/06) – OB32, pg 216-227

30/6/04
[but provided on 13/5/05] Financial Statements for TDM for the year ended 30 June 2004 Budai (14/6/06) – OB2, pg 2-15

30/6/04
[but provided on 13/5/05] Taxation return for Edge for year ended 30 June 2004 Budai (14/6/06) – OB4, pg 38

28/2/05
[but provided on 1/6/05] TDM Bas form for the period 1 to 28 February 2005 Smith (9/6/06) – LMS1, pg 7-9

31/3/05
[but provided on 13/5/05] Financial Statements for TDM for 9 months ended 31 March 2005 Budai (14/6/06) – OB2, pg 16-29

31/3/05
[but provided on 13/5/05] Aged Payables for TDM as at 31 March 2005 Budai (14/6/06) – OB2, pg 30

31/3/05
[but provided on 1/6/05] TDM Bas form for the period 1 to 31 March 2005 Smith (9/6/06) – LMS1, pg 10-12

31/3/05
[but provided on 13/5/05] Aged Receivables for TDM as at 31 March 2005 Budai (14/6/06) – OB2, pg 31

30/4/05
[but provided on 17/5/05] Aged Receivables [Summary] as at 30 April 2005 Budai (14/6/06) – OB9, pg 56A

30/4/05
[but provided on 17/5/05] Aged Payables [Summary] as at 30 April 2005 Budai (14/6/06) – OB9, pg 57

30/4/05
[but provided on 1/6/05] TDM Bas form for the period 1 to 30 April 2005 [but identified to Smith as the BAS form for March 2005] Smith (9/6/06) – LMS1, pg 4-6

30/4/05
[but provided on 1/6/05] TDM Bas form for the period 1 to 30 April 2005 Smith (9/6/06) – LMS1, pg 13-15

13/5/05 Statement of Assets and Liabilities of W Edge as at 13 May 2005 Budai (14/6/06) – OB4, pg 37

16/5/05
[but provided on 17/5/05] Letter from Qureshi to TDM confirming:
· Accountant for TDM
· He handles TDM’s BAS forms and GST payments;
· TDM’s GST commitments are currently up to date Budai (14/6/06) – OB9, pg 58

17/5/05
[date provided] TDM budgeted cash flows for 12 months to 31 May 2006 Budai (14/6/06) – OB9, pg 54-55

17/5/05 Handwritten Trading Analysis for TDM showing receivables balances and payments for the period May 2004 to April 2005 Budai (14/6/06) – OB9, pg 56

19/5/05 approx Facsimile from “Mo” to Morris and Budai detailing TDM debtor information from May 2004 to April 2005 Budai (14/6/06) – OB16, pg 100

20/5/05 Letter from Qureshi to TDM confirming:
· TDM’s 2004 accounts are correct
· TDM’s debtors as at 30 June 2004 and for the 10 months to 30 April 2005 were as per the schedule attached to the letter
· There was a one off event in the June 2004 quarter when several customers paid their accounts in 60 rather than 30 days Budai (14/6/06) – OB17, pg 101-102

31/5/05
[but provided on 1/6/05] TDM Aged Receivables [Summary] as at 31 May 2005 Smith (9/6/06) – LMS1, pg 3

31/5/05
[but provided on 1/6/05] TDM Receivables Reconciliation [Detail] as at 31 May 2005 Smith (9/6/06) – LMS2, pg 26-28

3/6/05 Letter from Qureshi to TDM confirming:
· The purchaser of TDM plans to utilise the services of an experienced accountant who will be responsible for the efficient management of various accounting issues;
· In terms of the difference between the July and October debtors, the details in TDM’s debtor ledger is correct;
· Qureshi will reconcile the year end accounts with the ledger details to ensure the accounts for the 2005 financial year properly reflect the details in TDM’s ledger Placek (14/6/06) – WRP 10, pg 110-111; Cook (9/6/05) – Annexure “B”

3/6/05 TDM Receivables reconciliation [Detail] as at 3 June 2005 Placek (14/6/06) – WRP 11, pg 112-115

Short minutes of order

290 The parties are to bring in short minutes of order on which occasion:

i. the matters reserved [in paragraph 287] for submission may be argued;

ii. any issues with respect to the proposed orders [as for example suggested duplication/double counting] may be argued;

Corrigenda – 28 August 2007

1. Redacting of parts of banking account numbers on internet version.
2. Removal of paragraph 264 pursuant to addendum toJudgment of 28 August 2007.

Addendum to Judgment – 28 August 2007

The Court's attention has been drawn to a matter which is appropriate to be corrected under the 'slip rule' : Rule 36.7 of the Uniform Civil Procedure Rules 2005. I refer here to paragraph 264 of the judgment delivered today. As the transcript [at 1682.53-1683.5] records leading counsel for the Bank in closing the Bank's case in reply observed that the Bank had not read the document behind tab 35 of the affidavits folder and sought for that material to be returned to the bar table. That request was immediately actioned so that the material was no longer before the Court. This was the evidence of Ms Planic. In fact to the best of my recollection I have never read that evidence. The mistake which crept into the judgment [in the form of paragraph 264] appears to have occurred when some sections of the judgment were taken from the Bank's dramatis personae [MFI P 6]. The whole of what appears in the judgment at paragraph 264 was simply copied verbatim from that dramatis [as is apparent from page 9 of the dramatis]. In all of the circumstances what occurred may fairly be described as a clerical mistake or error arising from an accidental slip or omission in the judgment. In that circumstance the principled exercise of the discretion is to correct the mistake or error. Making that correction does not alter the substance of the reasons nor interfere with any finding. Even prior to the advent of rule 36.17 it was clear that prior to final orders being handed down the court may correct typographic errors and further may correct obvious inaccuracies as long as the substance of the reasons is not altered and no finding is interfered with. If authority for this proposition be required it is to be found in Todorovic v Moussa (2001) 53 NSWLR 463 at [46]-[48] per Beazley JA, with whose judgment Powell JA agreed and Sperling J substantially agreed. I therefore order that the judgment be corrected by the removal of the heading to paragraph 264 and by the removal of paragraph 264 itself.

28/08/2007 - Addition of Corrigenda after paragraph 290 - Paragraph(s) Various

Key Legal Topics

Areas of Law

Banking Law
Fraud

Legal Concepts

Fraudulent Misrepresentation
Breach of Contract
Unjust Enrichment
Mistaken Payment
Expert Evidence
Damages

Actions

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Citations

Commonwealth Bank of Australia v Saleh [2007] NSWSC 903

Most Recent Citation

Southage Pty Ltd v Vescovi [2014] VSC 141

Cases Citing This Decision

12

Qureshi v Commonwealth Bank of Australia [2009] NSWCA 421

Miner and Gilchrist and Anor [2008] FamCA 917

Lawrie v Hwang [2012] QSC 422

Cases Cited

19

Statutory Material Cited

6

Briginshaw v Briginshaw [1938] HCA 34

Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810

Briginshaw v Briginshaw [1938] HCA 34

CITATION:	Commonwealth Bank of Australia v Mohamad Saleh & Ors [2007] NSWSC 903 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	16/07/07-19/7/07, 23/07/07-26/07/07, 30/07/07-3/08/07, 6/08/07-10/08/07, 13/08/07
JUDGMENT DATE :	28 August 2007
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Plaintiff entitled to declarations and orders as recited in reasons. Short minutes of order to be brought in.
CATCHWORDS:	Banker and customer - Elaborate fraud committed against Bank - $7,000,000 proceeds of frauds swiftly disbursed following settlement - Provision to Bank of fabricated financial statements in support of a claim that borrowing company requiring receivables finance facility had in the order of $20,000,000 in sales per year - Fraud perpetrated by a variety of actors - Proceedings including claims in rem, claims for deceit, claims for misleading and deceptive conduct, restitutionary claims for mistaken payment, claims for negligent misstatement - Expert evidence in relation to documentary examination and access to computer deep memory - Consideration of tracing - Principles - Damages - General damages - Consideration of principles underpinning awards of exemplary damages
LEGISLATION CITED:	A New Tax System (Goods and Services Tax) Act 1999 (NSW) Corporations Act 2001 (Cth) Evidence Act 1995 (NSW) Fair Trading Act 1987 (NSW) Financial Transactions Reports Act 1992 (NSW) Trade Practices Act 1974 (Cth)
CASES CITED:	Agip (Africa) Ltd v Jackson [1992] 4 All ER 451 Amalgamated Television Services Pty Ltd v Marsden (No 2) (2003) 57 NSWLR 338 ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 Black v S Freedman & Co (1910) 12 CLR 105 Boscawen v Bajwa [1996] 1 WLR 328 Brady v Stapleton (1952) 88 CLR 322 Briginshaw v Briginshaw (1938) 60 CLR 336 Cassell & Co Ltd v Broome [1972] AC 1027 Cox v Smail (1912) VLR 274 Diplock, In re: Diplock v Wintle [1948] Ch 465 Foskett v McKeown [2000] 3 All ER 97 French Caledonia Travel Service Pty Ltd (in liq), Re: (2003) 204 ALR 353 Frith v Cartland (1865) 71 ER 525 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 James v Hill [2004] NSWCA 301 James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62 Lamb v Cotogno (1987) 164 CLR 1 Moses v Macferlan (1760) 97 ER 676 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 Pascoe v Federal Commissioner of Taxation (Cth) (1956) 30 ALJR 402 Pedler v Richardson (unreported, Supreme Court of New South Wales, Young J, 16 October 1997, BC9705263 Stephens Travel Service International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331 XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448 Watson v Foxman (1995) 49 NSWLR 315
PARTIES:	Commonwealth Bank of Australia (Plaintiff) Mohamad Saleh (First Defendant) Neil Petts (Second Defendant) Zia UI-Islam Qureshi (Third Defendant) Australia and New Zealand Banking Group (Fourth Defendant) Hassanien Saleh (Fifth Defendant) Perpetual Trustees Australia Limited (Sixth Defendant) Quaid Real Estate Pty Limited (Eighth Defendant) William Lowe Edge (Tenth Defendant) Qureshi & Associates (Eleventh Defendant) Abdullah Saleh (Twelfth Defendant) Faowzi Saleh (Thirteenth Defendant) Khadige Saleh (Fourteenth Defendant) Fatima Saleh (Sixteenth Defendant)
FILE NUMBER(S):	SC 50149/05
COUNSEL:	Mr A Henskens, Mr A Zahra (Plaintiff) Mr M Newman (Tenth Defendant) Mr Z Qureshi (appeared in person) (Third Defendant)
SOLICITORS:	Henry Davis York (Plaintiff) Newman & Associates (Tenth Defendant)

Date	Document	Evidence Ref
11/4/04 [but provided on 25/5/05]	Front page of Contract for sale of business – 2004 edition for $17 million sale of TDM to Edge	Budai (14/6/06) – OB21, pg 117
4/5/04 to 3/5/05 [but provided on 1/6/05]	Forged St George Bank Statements for the period 4 May 2004 to 3 May 2005	Budai (14/6/06) – OB32, pg 216-227
30/6/04 [but provided on 13/5/05]	Financial Statements for TDM for the year ended 30 June 2004	Budai (14/6/06) – OB2, pg 2-15
30/6/04 [but provided on 13/5/05]	Taxation return for Edge for year ended 30 June 2004	Budai (14/6/06) – OB4, pg 38
28/2/05 [but provided on 1/6/05]	TDM Bas form for the period 1 to 28 February 2005	Smith (9/6/06) – LMS1, pg 7-9
31/3/05 [but provided on 13/5/05]	Financial Statements for TDM for 9 months ended 31 March 2005	Budai (14/6/06) – OB2, pg 16-29
31/3/05 [but provided on 13/5/05]	Aged Payables for TDM as at 31 March 2005	Budai (14/6/06) – OB2, pg 30
31/3/05 [but provided on 1/6/05]	TDM Bas form for the period 1 to 31 March 2005	Smith (9/6/06) – LMS1, pg 10-12
31/3/05 [but provided on 13/5/05]	Aged Receivables for TDM as at 31 March 2005	Budai (14/6/06) – OB2, pg 31
30/4/05 [but provided on 17/5/05]	Aged Receivables [Summary] as at 30 April 2005	Budai (14/6/06) – OB9, pg 56A
30/4/05 [but provided on 17/5/05]	Aged Payables [Summary] as at 30 April 2005	Budai (14/6/06) – OB9, pg 57
30/4/05 [but provided on 1/6/05]	TDM Bas form for the period 1 to 30 April 2005 [but identified to Smith as the BAS form for March 2005]	Smith (9/6/06) – LMS1, pg 4-6
30/4/05 [but provided on 1/6/05]	TDM Bas form for the period 1 to 30 April 2005	Smith (9/6/06) – LMS1, pg 13-15
13/5/05	Statement of Assets and Liabilities of W Edge as at 13 May 2005	Budai (14/6/06) – OB4, pg 37
16/5/05 [but provided on 17/5/05]	Letter from Qureshi to TDM confirming: · Accountant for TDM · He handles TDM’s BAS forms and GST payments; · TDM’s GST commitments are currently up to date	Budai (14/6/06) – OB9, pg 58
17/5/05 [date provided]	TDM budgeted cash flows for 12 months to 31 May 2006	Budai (14/6/06) – OB9, pg 54-55
17/5/05	Handwritten Trading Analysis for TDM showing receivables balances and payments for the period May 2004 to April 2005	Budai (14/6/06) – OB9, pg 56
19/5/05 approx	Facsimile from “Mo” to Morris and Budai detailing TDM debtor information from May 2004 to April 2005	Budai (14/6/06) – OB16, pg 100
20/5/05	Letter from Qureshi to TDM confirming: · TDM’s 2004 accounts are correct · TDM’s debtors as at 30 June 2004 and for the 10 months to 30 April 2005 were as per the schedule attached to the letter · There was a one off event in the June 2004 quarter when several customers paid their accounts in 60 rather than 30 days	Budai (14/6/06) – OB17, pg 101-102
31/5/05 [but provided on 1/6/05]	TDM Aged Receivables [Summary] as at 31 May 2005	Smith (9/6/06) – LMS1, pg 3
31/5/05 [but provided on 1/6/05]	TDM Receivables Reconciliation [Detail] as at 31 May 2005	Smith (9/6/06) – LMS2, pg 26-28
3/6/05	Letter from Qureshi to TDM confirming: · The purchaser of TDM plans to utilise the services of an experienced accountant who will be responsible for the efficient management of various accounting issues; · In terms of the difference between the July and October debtors, the details in TDM’s debtor ledger is correct; · Qureshi will reconcile the year end accounts with the ledger details to ensure the accounts for the 2005 financial year properly reflect the details in TDM’s ledger	Placek (14/6/06) – WRP 10, pg 110-111; Cook (9/6/05) – Annexure “B”
3/6/05	TDM Receivables reconciliation [Detail] as at 3 June 2005	Placek (14/6/06) – WRP 11, pg 112-115

[2007] NSWSC 903

28 August 2007

Key Legal Topics

Areas of Law

Banking Law

Fraud

Legal Concepts

Fraudulent Misrepresentation

Breach of Contract

Unjust Enrichment

Mistaken Payment

Expert Evidence

Damages