Gertsch v Atsas

[1999] NSWSC 898

CITATION:	Gertsch v Atsas & Ors [1999] NSWSC 898
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	2060/96
HEARING DATE(S):	14/06/99 to 18/06/99 and 1/07/99 to 02/07/99
JUDGMENT DATE:	1 October 1999
PARTIES :	Henry Victor GERTSCH v Aspasia ATSAS & Ors
JUDGMENT OF:	Foster AJ

COUNSEL :	M Walton SC with J Burnet for the plaintiff A Barrie for the second defendant T Molomby with F Clark for the third defendant
SOLICITORS:	AG Corporations Group Counsel for the plaintiff Gregory H. Artup & Co for the second defendant Gerard J. Gooden for the third defendant
CATCHWORDS:	SUCCESSION - intestacy - will subject to grant of probate later found to be forged by executor - administrator of estate seeks repayment of moneys received by beneficiaries under the forged will; TRUSTS - constructive trusts - liability for 'knowing receipt' - discussion of relevant principles - whether second and third defendants had 'knowledge' that will was invalid - availability of defence of change of position; EQUITY - remedies - tracing - subrogation - whether inequitable to charge home of third defendant.; UNJUST ENRICHMENT - moneys had and received to the use of the plaintiff - payments made under mistake - defence of change of position - whether second and third defendants acted to their detriment on the faith of the receipt - broad approach to assessment of change of position and detriment - assess nett advantage or nett disadvantage - defendants entitled to rely on reasonable estimates of expenditure - time from which interest payable.; COSTS - appropriate case to depart from ordinary order for costs.
CASES CITED:	Boscawen v Bajwa [1996] 1 WLR 328 Black v S Freedman & Co (1910) 12 CLR 105 Banque Financiere de la Cite v Parc (Battersea) Ltd [1998] 2 WLR 475 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Foskett v McKeown [1998] 2 WLR 298 Barnes v Addy (1874) 9 Ch App 244 Baden v Societe de Generale S.A. [1993] 1 WLR 509 Polly Peck International plc v Nadir (No. 2) [1992] 4 All ER 769 Re Montague Settlement Trusts [1987] 1 Ch 264 Carl Zeiss Stiftung v Herbert Smith & Co (No. 2) [1969] 2 Ch 276 Royal Brunei Airlines v Tan [1995] 2 AC 378 Consul Development Pty Ltd v DPC Estates Pty Ltd (1974-1975) 132 CLR 373 Equiticorp Finance Ltd v Bank of New Zealand (1993) 32 NSWLR 50 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 RBC Dominion Securities Inc v Dawson (1994) 111 DLR (4th) 230
DECISION:	Refer Paragraph 144.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

FOSTER AJ

Friday, 1 OCTOBER, 1999

2060/96 HENRY VICTOR GERTSCH v ASPASIA ATSAS & 2 ORS

JUDGMENT
1    HIS HONOUR: The plaintiff in these proceedings is the administrator of the estate of his half brother, Ludwig Gertsch, who died on or about 19 October 1990. The proceedings were originally brought against three defendants. They have been disposed of as against the first defendant and now relate only to the second defendant, George Fidirikkos, and the third defendant, Maria Hamilton. Each of these defendants had received, in 1991, pecuniary legacies paid to them pursuant to the provisions of a purported will of the deceased, which was later proved to be a forgery. 2    The plaintiff, to whom letters of administration were granted on 26 September 1995 and who is the sole beneficiary of the deceased’s intestate estate, seeks to recover the amount of these legacies, together with interest. In doing so, he invokes the equitable doctrines of tracing, subrogation and constructive trust. He also claims restitution of the moneys paid on the grounds of unjust enrichment of the defendants. 3    The defendants deny that the equitable remedies are available in the circumstances of the case. They each assert the defence of “change of position” to the restitution claim. 4    These claims and defences and their bases in law will be the subject of consideration in these reasons. It is convenient, however, to set out, at this stage, certain facts by way of background.

Background:

5    Ludwig Gertsch (“Mr Gertsch”) was a homosexual man. It appears that he had relationships with homosexual partners which were of extended duration. Prior to April 1990, he had had such a relationship with a Mr Roger Tesseydre (“Mr Tesseydre”), who died in that month. Mr Gertsch inherited most of the estate of Mr Tesseydre pursuant to the latter’s will. Although there is no precise evidence in the case, it was quite apparent that it was an estate of very substantial size. It also appears, in a general way, from the evidence that the deceased’s inheritance occasioned disappointment and perhaps jealousy in persons, whose identity does not appear in the evidence, who might have expected to be, themselves, the object of Mr Tesseydre’s bounty. It also appears from the evidence, again in a general way, that Mr Gertsch was apprehensive that some harm might be done to him, at least towards the end of 1990. He expressed these concerns to each of the defendants, both of whom were close friends. 6    In 1990, after the death of Mr Tesseydre, Mr Gertsch formed another relationship with a Mr Esposito. It does not appear that this relationship had matured into a definite partnership, but Mr Gertsch had developed a deep affection for the other man. 7    In October 1990, in mysterious circumstances, to which more detailed reference will be made later, Mr Gertsch disappeared. In November his dead body was found in a shallow grave in the Blue Mountains, in circumstances clearly indicative of foul play. 8    Mr Gertsch had had as his solicitor a Mr Brian Roberts. He attended to the legal aspects of Mr Gertsch’s business affairs and also to the preparation of wills, or at least draft wills, on Mr Gertsch’s behalf. It appears that Mr Gertsch was inclined to change his testamentary intentions, although whether this took the form of revocation of wills formally made, or simply making alterations to drafts of intended wills, is not clear on the evidence. It appears that he made a will in 1985 which left the bulk of the estate to Mr Tesseydre, who, of course, pre-deceased him. That will has achieved no significance in these proceedings. However, after Mr Gertsch’s death, Mr Roberts, who was known to the defendants and other friends of the deceased, produced a will of the deceased dated 7 September 1990 (The Will). It contained the pecuniary legacies in question in these proceedings. 9    The deceased’s residuary estate was of considerable size. It was left to Mr Esposito. The Will appointed Mr Roberts as executor. On 11 January 1991, Mr Roberts was granted probate of the Will. On 22 January 1991, he paid to the third defendant, by cheque, the sum of $100,000, being the amount of her legacy. On 22 January 1991, he paid, by cheque, to the second defendant the amount of $150,000 and on 25 August 1991, paid to him, by cheque, a further sum of $150,000, the two sums constituting the amount of his legacy. 10    The Will had been forged by Mr Roberts. The signature of Mr Gertsch was not his signature. The purported attesting witnesses had not attested the document. On 11 December 1992, Roberts was arrested and charged with a number of offences in connection with the forgery of the will and the administration by him of the decease’s estate, as its purported executor. He was ultimately convicted of the offences and received a term of imprisonment. 11    Prior to these events, the deceased’s mother, Emmah Gertsch, had died on 27 November 1990. On the basis that Mr Gertsch had died intestate, she inherited his estate. On her death, the plaintiff became the inheritor of her estate, she also having died intestate. The plaintiff was later appointed administrator of her estate. 12    On 11 December 1992, the plaintiff, Roberts having been arrested, obtained an injunction restraining him from dealing with the assets of the estate of Mr Gertsch. On 23 December 1992, the plaintiff obtained the appointment of one William John Widon as administrator of the personal estate and receiver of the real estate of Ludwig Gertsch, then unadministered and undistributed. On 19 May 1993, the plaintiff was granted special letters of administration in respect of his mother’s estate. On 17 June 1993, by statement of claim filed in the Probate Division of this Court, he sought orders against Roberts that the grant of probate made on 11 January 1991 be revoked and that administration of the estate be granted to him. 13    On 16 December 1994, orders were made by Hodgson J that the grant of probate of 11 January 1991 to Roberts be revoked and that administration of the estate be granted to the plaintiff. These orders were stayed to enable letters to be sent to the second and third defendants advising them of the situation. Various other steps were taken which it is not necessary to detail. Ultimately, the order revoking probate was entered on 28 August 1995. On 26 September 1995, letters of administration of the estate of Ludwig Gertsch were granted to the plaintiff. 14    On 22 March 1996, letters of demand were sent by the plaintiff’s solicitors to the second and third defendants requiring repayment of the legacies. Payment not having been made, these proceedings were commenced on 8 May 1996. 15    As the circumstances relating to each defendant are different, it is necessary to consider their cases separately. It is convenient to consider that of the third defendant first.

The case against the third defendant:

16    The evidence in the case was given by way of affidavit, together with oral testimony. The affidavit of the third defendant indicates that she received the legacy of $100,000 on 4 February 1991 and that between February 1991 and December 1992 she expended the money. She paid off the mortgage debt on her home at 20 Hart Street, Balmain, in the amount of $68,614. She also repaid a personal loan obtained from her bank in respect of the purchase of a car, in the sum of $910, paid legal fees owing to a firm of solicitors, in the amount of $132, and paid the charges on her Grace Bros credit card as at 26 February 1991, in the sum of $593. 17    As to the balance, she provided the following information in her affidavit as to the amount of the expenditure and her reasons for it:

“The remainder of the bequest was spent in the following way:-
Education $4,936.00
This expenditure related to my university course ($1,495.00) and my sons’ education. Some 2/3 of what I spent on education was for extra classes and special projects, master classes and grade exams for my sons which were undertaken only because I suddenly had the money to pay for them. In 1990, my expenditure on ballet and music had been $1,092.00, and the increase above this level was not essential to the children’s development in these fields.
Household Improvements $3,637.00
I had the house repainted at a cost of $1,430.00 approximately. This was entirely unnecessary, as it was relatively new. Having done without carpet for several years, I had the house carpeted at a cost of $1,719.00 approximately. Having done without blinds on various windows, I bought blinds at a cost of $448.00 approximately. None of these improvements was necessary, and I did them only because I suddenly had the money.
Credit Card $3,613.00
These were items such as perfume, expensive cosmetics, clothes, CDs for the children, bed linen and books. They were mostly items that I would not have bought without the money from Luddie’s bequest. By way of comparison, whereas my American Express purchases totalled $995.00 for 1991, in 1993 (after the bequest was spent) they were only $235.00. Similarly, on my Grace Brothers credit card the total was $1,976.00 in 1991 but only $505.00 in 1993.
Gifts $3,258.00
I would have incurred little, if any, of this expenditure if I had not received the bequest. During this period I decided to give my sons pocket money. The total of pocket money for the year was $1,664.00 approx. My sons did not previously get pocket money and I ceased giving it to them in early 1992. I also gave my sons other gifts, toys and clothes. For instance I purchased a pair of Nike shoes for Julian, I also paid for Julian’s subscription to Rolling Stone magazine.
Medical - Medicare Private $2,738.00
I decided in 1991 to take out private medical insurance at the family rate. I did not have private medical cover at the time and to the best of my recollection I allowed the cover to lapse in late 1993.
Cash Withdrawals 1991 $8,660.00
Cash Withdrawals 1992 $2,720.00

The cash withdrawals were in small amounts ($100.00, $200.00) during the period from February, 1991 to approximately October, 1992. Averaged over this period, the expenditure was approximately $790.00 per month in 1991 and $302.00 per month in 1992. This money was spent in ways which were not usual for me. Some of it went in eating out with the children at a variety of restaurants. I changed my domestic habits and bought takeaway food often. I cooked very little in 1991, which is uncharacteristic as I have always enjoyed cooking.

During 1991 and 1992 I developed a number of abnormal behavioural characteristics including excessive smoking and drinking, gambling and excessive spending. These were associated with depression which went so far as to lead me one occasion to attempted suicide. I believe that this behaviour was due to the intense grief, stress and fears arising from the murder of Luddie and my concerns about those responsible, and the safely (sic) of myself and the children. I was frustrated by the lack of progress in Luddie’s murder investigation. I had the misguided notion that I might find out something about his death from other sources, and so began to go to Harold Park Paceway and Wentworth Park Greyhound Track in the belief that through gambling I might meet people with criminal connections. My behaviour at this time was very confused, and was accompanied by excessive drinking to overcome my fears as well as feelings of impotence, rage, guilt and grief. Although I find it difficult in retrospect to analyse my irrational behaviour rationally, I do not believe that I would have responded to these stresses by excessive spending if I had not enough money left to satisfy needs of ordinary living, especially for the children.
Total Spent $29,562.00
Total bequest accounted for: $99,811.00 ”

18    The case against the third defendant differs from that against the second defendant, in that reliance is placed by the plaintiff upon a proprietary claim in equity, utilising the doctrines of tracing and subrogation. This claim relates only to the payment made by the third defendant to discharge the mortgage upon her home at 20 Hart Street, Balmain. 19    Her own evidence makes is quite clear that a portion of the disputed legacy of $100,000 was utilised for the purpose of discharging this mortgage, the amount in question being $68,614. There is, therefore, no problem relating to the tracing of that amount into the discharge of that security for her benefit. Equally, it is quite clear that she received the amount as a result of the breach of fiduciary duty by Mr Roberts, as executor de son tort of the estate of Mr Gertsch. The plaintiff, as administrator of that estate, was entitled to follow the money, as trust money, into her hands and point to its use in the discharging of the mortgage. As the money was used to discharge, in full, the existing security, the claim is made by the plaintiff that he should be subrogated to the position of the mortgagee, with the result that he should be given by the court an equitable charge over the property, to secure the repayment to the estate of the amount paid in discharge of the mortgage plus interest. It is not now claimed that the payment discharging the mortgage entitled the estate to a pro rata interest in the property itself. Clearly enough, such a claim would be untenable. See per Millett LJ in Boscawen v Bajwa [1996] 1 WLR 328 at 335. 20 Although it is quite clear, on the facts of this case, that the moneys in question, improperly paid to the third defendant, as the result of a breach of trust on the part of Roberts, were utilised in the repayment of the mortgage, it does not necessarily follow that the plaintiff is entitled to the charge sought by way of subrogation. Although this might have appeared to be the position in accordance with early authority (see Black v S Freedman & Co (1910) 12 CLR 105 at 110), regard must now be paid to development in the law since that time. Defences are now available to a person in the position of a volunteer which were not previously available. The matter is fully discussed in the judgment of Millett LJ in Boscawen at 334-335 in the following passage:

“Equity lawyers habitually use the expressions “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 he 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 unjust enrichment was at his expense.
In such a case the defendant will either challenge the plaintiff’s claim that the property in question represents his property (i.e., he will challenge the validity of the tracing exercise) or he will raise a priority dispute (e.g., by claiming to be a bona fide purchaser without notice). If all else fails he will raise the defence of innocent change of position. This was not a defence which was recognised in England before 1991 but it was widely accepted throughout the common law world. In Lipkin Gorman v. Karpnale Ltd. [1991] 2 A.C. 548 the House of Lords acknowledged it to be part of English law also. The introduction of this defence not only provides the court with a means of doing justice in future, but allows a re-examination of many decisions of the past in which the absence of the defence may have led judges to distort basic principles in order to avoid injustice to the defendant.
If the plaintiff succeeds in tracing his property, whether in its original or in some changed form, into the hands of the defendant, and overcomes any defences which are put forward on the defendant’s behalf, he is entitled to a remedy. The remedy will be fashioned to the circumstances.

…

[I]f the plaintiff’s money has been used to discharge a mortgage on the defendant’s land, then the court may achieve a similar result by treating the land as subject to a charge by way of subrogation in favour of the plaintiff.”

(See also Foskett v McKeown [1998] 2 WLR 298).

21    In Banque Financiere de la Cité v Parc (Battersea) Ltd [1998] 2 WLR 475, Lord Hoffmann, in his speech in the House of Lords, said at 487-488:

“It is important to remember that, as Millett L.J. pointed out in Boscawen v. Bajwa [1996] 1 W.L.R. 328, 335, subrogation is not a right or a cause of action but an equitable remedy against a party who would otherwise be unjustly enriched. It is a means by which the court regulates the legal relationships between a plaintiff and a defendant or defendants in order to prevent unjust enrichment. When judges say that the charge is “kept alive” for the benefit of the plaintiff, what they mean is that his legal relations with a defendant who would otherwise be unjustly enriched are regulated as if the benefit of the charge had been assigned to him. It does not by any means follow that the plaintiff must for all purposes be treated as an actual assignee of the benefit of the charge and, in particular, that he would be so treated in relation to someone who would not be unjustly enriched.”

22    It is plain, in my view, that it is reasonable to regard “proprietary” claims, at least in respect of moneys provided, in breach of trust, to a defendant who is, relevantly, an innocent volunteer as being comprehended within claims relating to “unjust enrichment” and as being susceptible to defences appropriate to such claims. In particular, the defence of “change of position” on the part of the defendant may be raised. 23    The existence of this defence has been recognised for Australia in the decision of the High Court in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 379, 380 and 384. I am satisfied, therefore, that, as a matter of law, the defence is available to the third defendant in these proceedings. 24 As a claim is made by the plaintiff against the third defendant for restitution of the whole amount of the legacy of $100,000, on the basis of unjust enrichment, to which claim change of position has been pleaded, I shall defer a consideration of the law in relation to this defence and of the relevant facts of this case, until I come to consider that aspect of the plaintiff’s claim. 25 The plaintiff also claims against the third defendant on the basis that she became a constructive trustee of the amount of the legacy upon receipt of it and, accordingly, should account to the plaintiff for the full amount of the legacy plus interest from the date of its receipt. As the imposition of a constructive trust is based upon some degree of blameworthiness on the part of the defendant, the nature of which I shall consider later, and the defence of change of position is based upon the innocence of the defendant, it is clear that the defence is not available to resist a claim for constructive trust. It is convenient, therefore, to consider, now, the plaintiff’s claim that the third defendant became a trustee for him of the amount of the legacy. I shall consider, in the first place, what appear to be the relevant principles of law.

The Law as to Constructive Trusts:

26    The trust alleged by the plaintiff to have been imposed upon the third defendant in the circumstances of this case is based upon “knowing receipt”. An early formulation of the circumstances in which a trust would be imposed in a case of “knowing assistance” is to be found in the well-known passage from Barnes v Addy (1874) 9 Ch App 244. In that case, Lord Selborne LC said at 251-252:

“Now in this case we have to deal with certain persons who are trustees, and with certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a court of equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.”

27    The type of knowledge in a defendant requisite for imposition upon him or her of the obligations of constructive trustee, in cases of “knowing assistance”, involves, in the opinion of Lord Selborne, complicity in the fraud and dishonesty involved in the original breach of trust. In terms of the present case, the third defendant could be constituted a constructive trustee of the legacy, on that basis, only if she received it knowing that it was being paid to her as part of a dishonest and fraudulent design on the part of the solicitor, Roberts. 28    It is clear, however, that the law, as it has developed, does not postulate such a high degree of knowledge of dishonesty, in cases of “knowing receipt” of a trust property. Discussion of the question now centres around a formulation in the judgment of Peter Gibson J in Baden v Societe GeneraleSA [1993] 1 WLR 509 at 575-576, where there was dissected out, from earlier cases, five categories of knowledge in a recipient which were regarded as sufficient to base the imposition of a constructive trust for the “knowing receipt” of property or moneys provided to the recipient, in breach of trust. The categories are as follows:

“(1) actual knowledge;

(2) wilfully shutting one’s eyes to the obvious;

(3) wilfully and recklessly failing to make such enquiries as an honest and reasonable man would make;

(4) knowledge of circumstances which would indicate the facts to an honest and reasonable man;

(5) knowledge of circumstances which would put an honest and reasonable man on enquiry.”

29    These categories have been the subject of some controversy in judicial decisions and academic writings. The material is extensive. I shall not refer to all of it.. 30    In Polly Peck International plc v Nadir (No. 2) [1992] 4 All ER 769, Scott LJ (at 777), having indicated that the Barnes v Addy standard of knowledge was appropriate in cases of alleged “knowing assistance” dealt with the appropriate standard in cases of “knowing receipt” as follows:

“Liability as constructive trustee in a ‘knowing receipt’ case does not require that the misapplication of the trust funds should be fraudulent. It does require that the defendant should have knowledge that the funds were trust funds and that they were being misapplied. Actual knowledge obviously will suffice. Mr Potts has submitted that it will suffice if the defendant can be shown to have had knowledge of facts which would have put an honest and reasonable man on inquiry, or, at least, if the defendant can be shown to have wilfully and recklessly failed to make such inquiries as an honest and reasonable man would have made (see categories (iii) and (v) of the categories of mental state identified by Peter Gibson J in Baden’s case [1992] 4 All ER 161 at 235). I do not think there is any doubt that, if the latter of the two criteria can be established against the Central Bank, that will suffice. I have some doubts about the sufficiency of the former criterion but do not think that the present appeal is the right occasion for settling the issue. The various categories of mental state identified in Baden’s case are not rigid categories with clear and precise boundaries. One category may merge imperceptibly into another.”

31    Also, in In re Montagu’s Settlement Trusts [1987] 1 Ch 264, Sir Robert Megarry VC, having posed the question (at 276) “what suffices to constitute a recipient of trust property a constructive trustee of it” considered cases including the Baden case. He said (at 277):

“In determining whether a constructive trust has been created, the fundamental question is whether the conscience of the recipient is bound in such a way as to justify equity in imposing a trust on him.”

32    He noted that there was a difference between the concept of “constructive notice” as it was well known in equitable doctrine and the type of knowledge that was the subject of investigation in the area of constructive trusteeship. He said (at 278):

“The cold calculus of constructive and imputed notice does not seem to me to be an appropriate instrument for deciding whether a man’s conscience is sufficiently affected for it to be right to bind him by the obligations of a constructive trustee.”

33    In relation to the Baden categories, Sir Robert said (at 278-279):

“Accordingly, although I readily approach the five categories of knowledge set out in the Baden case [1983] B.C.L.C. 325 as useful guides, I regard them primarily as aids in determining whether or not the Duke’s conscience was affected in such a way as to require him to hold any or all of the chattels that he received on a constructive trust.
There is one further general consideration that I should mention, and that is that “the court should not be astute to impute knowledge where no actual knowledge exists”: see the Baden case at p. 415, per Peter Gibson J. This approach goes back at least as far as Barnes v. Addy (1874) 9 Ch.App. 244, 251, 252. The view of James L.J., at p. 256, was that the court had in some cases
“gone to the very verge of justice in making good to cestuis que trust the consequences of the breaches of trust of their trustees at the expense of persons perfectly honest, but who have been, in some more or less degree, injudicious.”
Of the five categories of knowledge set out in the Baden case [1983] B.C.L.C. 325, Mr. Chadwick, as well as Mr. Taylor, accepted the first three. What was in issue was nos. (iv) and (v), namely, knowledge of circumstances which “would indicate the facts to an honest and reasonable man” or “would put an honest and reasonable man on inquiry.” On the view that I take of the present case I do not think that it really matters whether or not categories (iv) and (v) are included, but as the matter has been argued at length, and further questions on it may arise, I think I should say something about it.
First, as I have already indicated, I think that one has to be careful to distinguish the notice that is relevant in the doctrine of purchaser without notice from the knowledge that suffices for the imposition of a constructive trust. This is shown by a short passage in the long judgment of the Court of Appeal in In re Diplock [1948] Ch. 465, 478, 479. There, it was pointed out that on the facts of that case persons unversed in the law were entitled to assume that the executors were properly administering the estate, and that if those persons received money bona fide believing themselves to be entitled to it, “they should not have imposed upon them the heavy obligations of trusteeship.” The judgment then pointed out:
“the principles applicable to such cases are not the same as the principles in regard to notice of defects in title applicable to transfers of land where regular machinery has long since been established for inquiry and investigation.”

34    Later (at 280), he pointed to the fact that classes (iv) and (v) in Baden were not governed by the words “wilfully and recklessly”, but were, instead, “cases of carelessness or negligence being tested by what an honest and reasonable man would have realised or would have inquired about, even if the person concerned was, for instance, not at all reasonable”. After some further reference to authority, he noted (at 281) that Sachs and Edmund Davies LJJ in the case of Carl Zeiss Stiftung v Herbert Smith & Co (No. 2) [1969] 2 Ch 276, had concluded that “negligence is not enough and that there must be dishonesty, a conscious impropriety or a lack of probity before liability as a constructive trustee is imposed.” 35 The position in England would now appear to be governed by the decision of the Privy Council in Royal Brunei Airlines v Tan [1995] 2 AC 378. In that case, their Lordships had to consider circumstances in which a constructive trust should be imposed. They said (at 387):

“Given, then, that in some circumstances a third party may be liable directly to a beneficiary, but given also that the liability is not so strict that there would be liability even when the third party was wholly unaware of the existence of the trust, the next step is to seek to identify the touchstone of liability. By common accord dishonesty fulfils this role. Whether, in addition, negligence will suffice is an issue on which there has been a well-known difference of judicial opinion.”

36    There follows a comprehensive exposition of decided cases on this topic, including Australian authority to which I shall make reference later, but, after indicating that most of the academic commentators preferred the test of dishonesty, their Lordships considered what “dishonesty” meant in this context. They said (at 389):

“… in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.
In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others’ property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless.”

37    After consideration of various types of situation, their Lordships made the following general observations (at 390-391):

“The only answer to these questions lies in keeping in mind that honesty is an objective standard. The individual is expected to attain the standard which would be observed by an honest person placed in those circumstances (and) … when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time. The court will also have regard to personal attributes of the third party, such as his experience and intelligence, and the reason why he acted as he did.”

38    There Lordships concluded (at 392) that “dishonesty is a necessary ingredient of accessory liability (and that) “Knowingly” is better avoided as a defining ingredient of the principle, and in the context of this principle the Baden [1993] 1 WLR 509 scale of knowledge is best forgotten.” 39 It might be thought that the situation in England is now tolerably clear. What is the position in Australia? It appears that the High Court has not considered the question since its decision in Consul Development Pty Ltd v DPC Estates Pty Ltd (1974-1975) 132 CLR 373. In that case the following statements of principle appear. Gibbs J (at 398) said:

“It may be that it is going too far to say that a stranger will be liable if the circumstances would have put an honest and reasonable man on inquiry, when the stranger’s failure to inquire has been innocent and he has not wilfully shut his eyes to the obvious. On the other hand, it does not seem to me to be necessary to prove that a stranger who participated in a breach of trust or fiduciary duty with knowledge of all the circumstances did so actually knowing that what he was doing was improper. It would not be just that a person who had full knowledge of all the facts could escape liability because his own moral obtuseness prevented him from recognizing an impropriety that would have been apparent to an ordinary man.”

40    Also Stephen J said (with the concurrence of Barwick CJ) (at 412):

“In my view the state of the authorities as they existed before Selangor did not go so far, at least in cases where the defendant had neither received nor dealt in property impressed with any trust, as to apply to them that species of constructive notice which serves to expose a party to liability because of negligence in failing to make inquiry. If a defendant knows of facts which themselves would, to a reasonable man, tell of fraud or breach of trust the case may well be different, as it clearly will be if the defendant has consciously refrained from enquiry for fear lest he learn of fraud. But to go further is, I think, to disregard equity’s concern for the state of conscience of the defendant.”

41    In Equiticorp Finance Ltd v Bank of New Zealand (1993) 32 NSWLR 50, Kirby P (as he then was) after a consideration of Consul and Baden said, in a dissenting judgment, (at 104):

“In Australia, the only guidance of the High Court is to be found in Consul . It appears to be suggested that, in the case of participation in a breach of trust, a stranger to the trust will be liable at least if the “requisite degree of knowledge” in the categories 1 to 4, as stated in Baden , are made out. In such a case, the stranger will be liable to compensate the beneficiary.”

42    Accordingly, formulations on this topic in Australian decisions do not refer directly to concepts such as “impropriety” or “want of probity”. Nor do they select out as the governing concept, the notion of “dishonesty” which was the subject of exposition in the Brunei case. After considering the material which I have set out and a great deal more which I have not set out, I have come to the conclusion that the acceptance of the first four Baden categories, even though they now have no prominence in England, amounts really to no more than accepting a standard of honesty appropriate in the circumstances. The reference in category (iv) to “the facts” sufficiently indicates, in my view, that a person receiving, for his own use, trust property, whilst in the state of knowledge posited, would not, relevantly, be acting honestly. Translated into terms of the present case, if either of the defendants, at the time when they took the legacies, knew of circumstances which would reasonably indicate to them that the will was invalid, that would be sufficient for the imposition of a constructive trust. Spending of their legacies would be a breach of such trust. 43    Against this background, I turn to consider the claim against the third defendant, that she took her legacy subject to a constructive trust in favour of the plaintiff.

Was the third defendant subject to a constructive trust?

44    Counsel for the plaintiff submits that, when the third defendant took her legacy, she had at least “knowledge of circumstances which would indicate the facts to an honest and reasonable (person)”. Reliance is not placed upon the fifth category of knowledge in Baden. I should say, perhaps, that I entertain considerable doubt whether knowledge of the kind posited in the fifth category would, in any event, be sufficient to base the imposition of a constructive trust. The question, therefore, is whether Ms Hamilton, the third defendant, was acting dishonestly when she accepted the legacy, in that circumstances known to her would reasonably have indicated to her that the will was not the valid last will and testament of Mr Gertsch. It is necessary, therefore, to consider the evidence in the case bearing upon her state of mind at that time. 45    It is clear from Ms Hamilton’s evidence that she first met Mr Gertsch in or about 1964 and that, from that time up to the time of his death, a close relationship developed between them. The details of the development of that friendship appear clearly from her affidavit. I accept her evidence. There is no need to set it out in detail in these reasons. It is clear that he confided to her information as to his relationships with other men and as to difficulties which emerged in those relationships; also problems relating to his hairdressing business and the financing of it, and difficulties in that regard with his half-brother, the plaintiff. She also discussed with him her own problems, domestic and financial, to some of which I shall make reference later. She was aware of the commencement of his relationship with Roger Tesseydre. 46    In 1988, Mr Gertsch told her that Roger had become very ill and that he was going to close his hairdressing salon so that he could devote his time to caring for him. Roger’s health deteriorated fairly rapidly. Mr Gertsch was very distressed about this and was comforted by Ms Hamilton. When Roger died at Easter 1990, Mr Gertsch increasingly came to Ms Hamilton for emotional support. She would meet him approximately three times per week and he would telephone her at least twice a day. Mr Gertsch told her, shortly after Roger’s death, that he had inherited his estate. He referred to it as being “millions”. 47    Shortly after being told of this, she was also advised by Mr Gertsch that he was receiving anonymous phone calls in relation to the inheritance, in which threats were made to his life. He was concerned for his safety. There was discussion about increasing the security of his home. She suggested that he seek help from the police. Later, he told her that he had done so. 48    She knew that Brian Roberts was Mr Gertsch’s solicitor and was handling financial affairs relating to his inheritance from Mr Tesseydre. She was given to understand that there were administrative problems in relation to Mr Tesseydre’s “companies”. He appeared to be somewhat concerned that Mr Roberts was “dragging his feet” in relation to finalising matters relating to those companies. It was during this period that Mr Gertsch made offers of financial help to Ms Hamilton and gave her advice as to the organising of her work and financial affairs, the details of which I shall return to. 49    Ms Hamilton became aware that, at the end of May 1990, Mr Gertsch commenced a relationship with Mr Esposito. It was not a settled relationship. They would break-up and then get back together again. She recalled being told of a problem which had arisen between the two men in August. It involved Mr Roberts. It appeared that Roberts had been displaying some interest in Mr Esposito. He had bought a shirt and vest for him. When Mr Gertsch found out that this had occurred, it appeared that he became jealous. 50    Ms Hamilton was aware, however, that, notwithstanding this rift between Mr Gertsch and Mr Esposito, Mr Gertsch continued to see Mr Esposito and was emotionally attached to him. In late September, Mr Gertsch spoke to her of an incident involving Mr Esposito which had made Mr Gertsch afraid of him. He felt that on an occasion, very recently, when he was being driven as a passenger in Mr Esposito’s car, a situation had developed in which his life was being threatened. He was terrified of Mr Esposito and was proposing to severe all ties with him, but slowly, so as not to anger him. He told Ms Hamilton that he was concerned about his safety and that he intended to change his will. His words as she recalled them were: “I’ve left him Roger’s house, the businesses. But don’t worry I’m changing. I must have been crazy. I have my friends and there is Bradley. You should all be getting more.” She understood this as a reference to changing a will in which he had left the house and businesses to Esposito. The reference to Bradley was, she understood, a reference to a nephew of Mr Gertsch. She recalled that, in this conversation, Mr Gertsch also told her that he intended to find a new solicitor to handle the will for him. He did not want Brian Roberts to be involved in his personal matters. He did not want him handling his personal affairs because he was unhappy with his involvement with Esposito. 51    This was the only occasion on which Mr Gertsch discussed with Ms Hamilton his intentions in relation to his will. Shortly afterwards, on 20 October 1990, she was made aware that Mr Gertsch had disappeared from his home. Thereafter she was involved in giving information to the police in relation to the search for him. After the discovery of Mr Gertsch’s body on 12 November 1990, she continued to assist the police. I am satisfied that she was not aware of the contents of the Will until late January 1991, when she was told by Mr Fidirikkos, in a conversation in his partner’s home, that Brian Roberts had obtained probate of the Will and that she was a beneficiary. It was suggested that she get in touch with Detective McCann who was in charge of the homicide investigation and who would be able to give her the necessary information. She had spoken to the detective on a number of occasions previously and knew him. She spoke to him the next day and was told that she had been left $100,000 in the Will and that the detective would tell Brian Roberts to get in touch with her. She said that when she received this information she “burst into tears and was unable to speak”. Half an hour later Detective McCann brought to her a copy of the deceased’s will dated 7 September 1990. 52    In her affidavit, Ms Hamilton says that although she was initially overcome emotionally at the news of her bequest, she was not in any doubt as to its genuineness, until December 1994. On reading the Will she was reminded of an earlier conversation with Mr Gertsch in which he had indicated that he was going to make sure that both Bradley and his mother would be protected and also of another occasion when Mr Gertsch had enquired of her how much was outstanding on her mortgage. She thought that the enquiry must have been made by Mr Gertsch so that he could determine how much he would leave her. 53    She was cross-examined as to her belief in the genuineness of the Will. It was clear that, either from a reading of the Will, or through what she was told by Detective McCann, she was aware that Roberts was executor of the Will and also that “Vince Esposito was the prime beneficiary”. She knew that, if rumours as to the extent of the money inherited by Mr Gertsch from Mr Tesseydre were correct, that “Esposito would inherit from Mr Gertsch’s estate many millions of dollars.” The following passage then occurred in her cross-examination:

“Q. Did you not consider it surprising knowing what you did or having been told what you had been told by Mr Gertsch that this will should appear leaving such potentially large sums of money to Mr Esposito?
A. Was I surprised?
Q. Yes.
A. I was desperately disappointed.
Q. That is not quite an answer to my question.
A. I was, I suppose I was surprised.”

54    Later the topic was returned to. She was asked the following questions and gave the following answers:

“Q. When you came to understand that Mr Esposito was the, as you put it, the prime beneficiary under this will?
A. (Witness nodded).
Q. I think you said earlier you were surprised?
A. Not surprised, I think I was I was disappointed.
Q. I think you did say that and then I pressed you and asked you if you were surprised and I believe you agreed with me you were surprised?
A. I will have to insist that I was disappointed and not surprised.
Q. Why?
A. Because Luddy did not follow through and change the will.”

55    She was also asked the following questions and gave the following answers:

“Q. It did not strike you as odd when you learnt Mr Roberts was representing Mr Gertsch’s estate that he was doing so pursuant to a document dated 7 September when there had been this apparent break-up in relation between Mr Gertsch and Mr Roberts as early as August?
A. It did not strike me as at odds because he continued to see Vince Esposito and as I recall he was on fairly friendlier terms with Mr Roberts during that period as well.
Q. You said earlier it was his intention not to use Mr Roberts in relation to his personal affairs?
A. His intention not to use Mr Roberts in relation to his personal affairs on that one specific night that is what Luddy had told me.
Q. You say it did not cause you any surprise when you learnt Mr Roberts was representing his estate in early 1991?
A. Not surprised.
Q. You say you were disappointed but not surprised?
A. Yes.”

56    Ms Hamilton also gave evidence that she did not learn that the Will was a forgery until she received the letters sent at the direction of the court in 1994. She had ceased to have contact with Mr Gertsch’s friends, from a period fairly shortly after his death. Consequently, any information they may have received was not passed on to her. Also, I am satisfied, she had not seen some newspaper reports which would have alerted her to the problems with the Will, at an earlier date. 57    I had the opportunity to observe Ms Hamilton when under cross-examination. I formed the view that she was a reliable witness who was seeking to tell the truth as she remembered it. She understood the granting of probate. She had been informed by Detective McCann that the will had been the subject of probate. Furthermore, no suggestion was made to her by the police that there was any doubt as to the genuineness of the Will. I am satisfied that, although she expected the Will might be changed after the conversation she had had with the deceased, she nevertheless believed that the Will produced to her by the police was genuine. She was disappointed that the deceased had apparently not carried through with his stated intentions to alter it. 58    In all these circumstances, I am quite satisfied that she honestly believed on reasonable grounds that the Will was genuine and that she was entitled to the legacy she received under it. Accordingly, there is no basis for the imposition upon her of a constructive trust in favour of the plaintiff. 59    There can be no doubt, however, that the moneys she received under the Will were not paid to her as the result of a genuine legacy. They were moneys which should have passed on intestacy to the plaintiff. Accordingly, he is prima facie entitled to recover them, either through tracing them as trust moneys in the manner already referred to, or by way of a common law money count for money had and received to his use. To both these claims Ms Hamilton has pleaded the change of position defence. I turn then to consider whether the defence has been made out, in whole or in part.

Change of position

60    Since the decision of the High Court of Australia in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, it is clear that the defence of “change of position” is available in Australia. In that case, restitution was sought of moneys paid under mistake resulting in the “unjust enrichment” of the recipient. The majority (Mason CJ, Deane, Toohey, Gaudron and McHugh JJ) after considering the basis of a claim for restitution resulting from unjust enrichment said (at 379-380):

“The fact that the payment has been caused by a mistake is sufficient to give rise to a prima facie obligation on the part of the respondent to make restitution. Before that prima facie liability is displaced, the respondent must point to circumstances which the law recognizes would make an order for restitution unjust. There can be no restitution in such circumstances because the law will not provide for recovery except when the enrichment is unjust . It follows that the recipient of a payment, which is sought to be recovered on the ground of unjust enrichment, is entitled to raise by way of answer any matter or circumstance which shows that his or her receipt (or retention) of the payment is not unjust.
The two “defences” upon which the respondent relies in this Court are, first, that the payments by the appellants were made for good consideration and, secondly, that in reliance upon receipt of the payments the respondent, in good faith, changed its position to its detriment. In the context of a mistake case, these “defences” were included in the well known formulation of Goff J. in Barclays Bank. His Lordship stated:
“(1) If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact. (2) His claim may however fail if (a) the payer intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; or (b) the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee (or a principal on whose behalf he is authorised to receive the payment) by the payer or by a third party by whom he is authorised to discharge the debt; or (c) the payee has changed his position in good faith, or is deemed in law to have done so.”

61    Their Honours returned to the question (at 384-386) where, after a consideration of Australian, English, Canadian and United States decisions, it was made clear that the defence should be accepted in this country. The point had not been argued in the court below. Accordingly, the matter was remitted to the trial judge for further consideration on the facts. In these circumstances, the Court’s comments were of a general nature. Their Honours said (at 385):

“…a defence of change of position is necessary to ensure that enrichment of the recipient of the payment is prevented only in circumstances where it would be unjust .”

62    Their Honours noted that (at 385-386):

“… the defence of change of position is relevant to the enrichment of the defendant precisely because its central element is that the defendant has acted to his or her detriment on the faith of the receipt . In the jurisdictions in which it has been accepted (Canada and the United States), the defence operates in different ways but the common element in all cases is the requirement that the defendant point to expenditure or financial commitment which can be ascribed to the mistaken payment. In Canada and in some United States decisions, the defendant has been required to point to specific expenditure being incurred because of the payment. Other cases in the United States allow a wider scope to the defence, such that a defendant can rely upon it even though he or she cannot precisely identify the expenditure caused by the mistaken payments. In no jurisdiction, however, can a defendant resort to the defence of change of position where he or she has simply spent the money received on ordinary living expenses.”
(Footnote citations omitted.)

63    One of the cases specifically referred to by their Honours and described as important was the decision of the House of Lords in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. In that case a partner in a firm of solicitors stole money from the firm’s client account and used it to purchase gambling chips for the purpose of placing debts in a gambling club. The firm brought an action against the gambling club seeking to recover the stolen moneys. It was held that an innocent recipient of stolen money was obliged to pay an equivalent sum to the true owner where he had not given full consideration for it and had thus been unjustly enriched at the expense of the true owner. The club was found to be such an innocent recipient but was allowed to rely on the defence of change of position in relation to the amount of winnings that it had paid out to the solicitor. Lord Goff of Chieveley, after consideration of authority, said (at 579):

“In these circumstances, it is right that we should ask ourselves: why do we feel that it would be unjust to allow restitution in cases such as these? The answer must be that, where an innocent defendant’s position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position. Likewise, on facts such as those in the present case, if a thief steals my money and pays it to a third party who gives it away to charity, that third party should have a good defence to an action for money had and received. In other words, bona fide change of position should of itself be a good defence in such cases as these. The principle is widely recognised throughout the common law world.”

64    After referring to examples of such recognition, his Lordship continued (at 580):

“I am most anxious that, in recognising this defence to actions of restitution, nothing should be said at this stage to inhibit the development of the defence on a case by case basis, in the usual way. It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer. These are matters which can, in due course, be considered in depth in cases where they arise for consideration.”

65    His Lordship also said (at 580):

“At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things.”

66    Reference may also be made to the decision of the Newfoundland Court of Appeal in RBC Dominion Securities Inc v Dawson (1994) 111 DLR (4th) 230. In that case, the court noted (at p238) that “[t]he mere fact that the moneys were spent does not, by itself, furnish an answer to the claim for repayment” and that “[t]he clearest examples of change of circumstances are those cases where the defendant has spent the money and has nothing to show for it: the donation to charity which would not have otherwise been made; the investment in a business that has failed.” It was noted that the onus was upon the defendant to establish the defence. It was said, however, that “to require that a private individual who believes she was spending her own money, prove her expenditures as if she were claiming damages in an action for negligence would be most unfair. It was t\he plaintiff’s error that put her in the funds in the first place and led her to believe the funds were hers to spend without having to account to anyone for her expenditures.” In such circumstances, the court could be “satisfied with reasonable estimation”. 67 Has Ms Hamilton relevantly demonstrated a change of position consequent upon the receipt by her of the legacy of $100,000? What I have already said indicates that I accept that she received the money bona fide, in circumstances where she could regard it as her own, to be expended as she thought fit. Also, it has already been indicated in these reasons that she expended the money in particular ways. It is submitted on behalf of the plaintiff that very little of that expenditure, if any, attracts the defence. In particular, the plaintiff asserts that the use of some $68,000 to discharge her indebtedness on her mortgage cannot be regarded as a relevant change of circumstances to her detriment. It is, however, argued on her behalf that, in view of the apparent breadth of the defence, it is inappropriate simply to view individual expenditures in isolation. It is necessary, so it is put, to consider the broad effect of the receipt of the legacy upon her lifestyle and patterns of earning and expenditure. It is submitted that changes occurred in this regard that were significant and far reaching and were such as to render it inequitable that she should be called upon to repay the legacy. It may be noted, also, that considerable reliance was placed upon the fact, which I accept, that she did not become aware of any doubts as to the validity of the will until 1994 and was not called upon to make any repayment until 1996. 68 In her affidavit and oral testimony, Ms Hamilton provides considerable information as to her relationship with Mr Gertsch, particularly in the years close to his death and as to his influence upon her life and financial affairs. As I have already indicated, the friendship commenced in 1964. Over the years they saw each other socially on a regular basis, which, by 1969, was approximately once per fortnight. Ms Hamilton describes the relationship as it developed over the whole of the 26 year period in the following terms, which I accept:

“Luddie and I became very close and developed a relationship akin to that of close siblings. We were very comfortable in each other’s company and turned to each other in times of need.”

69    Occasions of need on both sides are referred to in Ms Hamilton’s evidence. I shall not refer to them in detail. As already noted, she provided comfort to him when troubles arose in relation to the financing of his hairdressing business and also in relation to the death of his long time partner, Paul. Ms Hamilton married for a second time in July 1977. There were two children of the marriage and for a period of time, because of obvious domestic commitments, Ms Hamilton saw less of Mr Gertsch than previously, although the friendship continued. 70    In 1986, Ms Hamilton’s marriage ended in divorce. Thereafter, contact with Mr Gertsch increased to the extent of their seeing each other socially, fairly regularly. 71    As a result of the family law property settlement, and financial arrangements she made, she reached the situation at the end of 1987 which she described as being, approximately, as follows:

“(a) Assets -

A. Property known as 20 Hart St, Balmain which had an approximate
value of $350,000.00.
B. Taxi with taxi plates, which had a combined value of approximately
$170,000.00.
C. 1984 Holden Commodore vehicle (bought around the time of
separation) with an approximate value of $7,000.00.
D. Household furniture, furnishings and other contents (realisation value)
approximately $3,000.00.
(b) Liabilities -
A. Mortgage to Advance Bank in the sum of $100,000.00.
B. Overdraft to the National Australia Bank in the sum of $25,000.00.
C. Personal loan from the NAB at Cremorne $7,000.00 (used to buy 1984
Holden Commodore).
(c) Annual gross income of approximately $30-40,000.00.
(d) Usual outgoings in the form of household expenses for myself and the 2
children.”

72    She received no direct support from her ex-husband for the maintenance of the two children, although he paid accounts from time to time. She was forced to work seven days a week administering the taxi business and occasionally driving herself. On occasion she found it necessary to obtain part time jobs to increase her finances. 73    It was during this period that the health of Mr Tesseydre deteriorated rapidly and she provided Mr Gertsch with the comfort and assistance already described. In late 1989, Ms Hamilton experienced financial difficulties in relation to the taxi business. This resulted in her increasing the mortgage and her overdraft with the National Australia Bank. 74    After the death of Mr Tesseydre in Easter 1990, as I have said, her relationship with Mr Gertsch became very close. Meetings took place about three times a week and he would telephone her at least twice a day. 75    In 1990, Ms Hamilton was in need of income and was contemplating taking over the driving of the taxi herself. She discussed these matters with Mr Gertsch who strongly advised her against driving the taxi because of dangers associated with it. He offered to help her to obtain an alternative source of income, through the performance of secretarial work. 76    Mr Gertsch made quite specific proposals to Ms Hamilton. He suggested that she sell the taxi and, from the proceeds, pay out her overdraft and reduce the size of her mortgage as much as possible. This would substantially reduce her weekly mortgage repayments. He also suggested that she convert the ground floor of her home into a flat, which could then be let at a reasonable rental. He offered to organise tradesmen, whom he knew, to do the necessary renovations. In addition, he suggested that she obtain income by doing secretarial work for him and later expanding the secretarial business by working for others. She could conduct the business at her home. He said that he would be in a position to send friends to her who required secretarial work to be done for them. He further suggested that she “might even have time to take up some study, you know, go to uni.” He also offered to lend her money for the purchase of computer equipment necessary for the setting up of the secretarial business. 77    Ms Hamilton considered these proposals and decided to follow them. She accepted an extended loan of $5,000 from Mr Gertsch with which to purchase computer equipment. She then accompanied him on a holiday to Melbourne in which her travel expenses were paid by Mr Gertsch. Upon returning from the holiday she sought out a purchaser for the taxi and taxi plates. On 13 August 1990 she sold them for a price of $149,000. The immediate result of this was that she lost the opportunity of earning a potential gross income of approximately $60,000 per year which she would have earned had she followed through her original plan of taking over the driving of the taxi herself. 78    From the proceeds of sale Ms Hamilton repaid her loan to Mr Gertsch of $5,000, paid out the amount of her overdraft in the sum of $22,946.48 and also paid $93,000 off the mortgage on her home reducing the capital debt to approximately $68,000. 79    I accept her evidence that her position after payment of her debts was as follows. She owned a 1984 Holden Commodore vehicle; she had $15,766.65 in a National Australia Bank Cash Deposit Account; she owned the computer equipment she had purchased and had some household furniture and furnishings; she owned her home subject to mortgage. Her liabilities consisted of the mortgage of $68,000, an overdraft of $2,000 and a personal loan account in the amount of $5,000 approximately. Her outgoings consisted of mortgage payments of $240 per week and living expenses of approximately $250 per week. 80    As a result of the reorganisation of her financial affairs she anticipated receiving income from the flat in the sum of $100 per week and income from secretarial services to be supplied to Mr Gertsch in the sum of $400 per week and additional income from the provision of other secretarial services in the sum of $100 per week. These items of income could not be achieved immediately as the renovation work had to be finished. In the meantime she lived on the funds in her deposit account which, by October 1990 had reduced to approximately $10,000. On 9 October 1990 she applied to register a business name “Bayside Secretarial Service” and opened a bank account in that name. Mr Gertsch asked her to defer commencing her business so that the two of them could take a holiday in Thailand. Ms Hamilton was, at first, reluctant to do this as she wished to start the secretarial business. However, she agreed and, in order to avoid becoming reliant on Mr Gertsch’s money, she made application for and received a sole parent’s pension. The first payment of the pension was on 8 November 1990, which was subsequent to Mr Gertsch’s disappearance. 81    During October 1990 as a result of Mr Gertsch’s encouragement Ms Hamilton applied to enter Macquarie University as a part-time student for a Bachelor of Arts course. Her application was successful. Enrolment was not required until mid February 1991. Her intention was to enrol for one subject each semester to begin with, perhaps increasing the number of subjects if she had time available. 82    This was the situation when on 20 October 1990 Ms Hamilton received news that Mr Gertsch was missing. By 12 November 1990 she was aware that he was dead, after which she realised that she would have to find full-time employment to replace the work that was no longer available to her. She still had available to her money from the sale of the taxi, and also the social security payments she was receiving. She was in some fear for the safety of herself and her children, as she thought that those who had been responsible for Mr Gertsch’s violent death might consider that she, as a close friend and confidante, had knowledge of the whereabouts of money or valuables which he might have secreted in his lifetime. She abandoned, at that stage, any thought of going to university. She took the children away on a summer holiday, having decided not to leave them alone at that point in time. Accordingly, she decided not to seek employment until the end of the holidays in January. She hoped that she could obtain employment of one kind or another similar to that in which she had engaged over the years and, at the same time, seek to generate some secretarial work that could be performed at home with the use of the equipment that had been previously purchased. 83    On 4 February 1991 she received the cheque from Mr Roberts for $100,000.00. I am quite satisfied that the receipt of this large sum of money completely altered her financial outlook. In her affidavit she speaks of her reaction to the bequest and her decisions as to its utilisation, in the following terms:-

“Upon receipt of the bequest of $100,000, I believed that Luddie had made good his promise to look after me financially. I saw a way of using the bequest both to resolve my major financial problems and to allow me to explore the opportunity of university study in which I had long been interested. I decided to use the bulk of the bequest to pay off my mortgage which would relieve me of a monthly liability of $840.00, to pay off my other minor debts, and to revive the idea of going to university. I was then 44 years old and apart from some 18 months after the birth of my oldest son, I had worked since the age of 14. On assessing my position, I considered the opportunity now offered to me was one that realistically I would never have again, and which even if I did, could be then too late to take real advantage of. I thought, too, of Luddie’s encouragement and I thought that this was what he would have wanted me to do.”

84    I have already set out the manner in which the bequest was expended. Despite the psychological difficulties and behavioural problems to which Ms Hamilton made reference, she contrived to persevere with her university course and in November 1991 completed her first year at Macquarie University as a part-time student. She passed in two subjects in each of the two semesters she attended university. 85    Her depressive problems returned in early 1992, occasioning her withdrawal from university in April. She sought psychiatric help, including admission, as a voluntary patient, to the Northside Clinic for a short period in July 1992. Eventually, with the continuation of psychiatric assistance, improvement occurred and, by approximately February 1993, her psychological state and behaviour had returned to normal. With this improvement there occurred a corresponding improvement in her university results, to the extent that she decided to study full-time in 1994. At the commencement of 1993 she had chosen to follow an anthropology rather than a psychology stream in her Bachelor of Arts studies, although she was aware that a degree in psychology would result in better paid work. She was, however, more interested in anthropology, although she knew that employment in this area would be hard to find and less remunerative. In making this choice she relied upon her financial position, resulting from the bequest. By continuing her studies full-time in 1995 she finished the degree course. She fulfilled an honours year in 1996, although suffering some distraction from the commencement of these proceedings. In 1997 she enrolled for work towards the obtaining of a PhD in anthropology. This work is continuing. 86    The first intimation that the bequest might be invalid was contained in a letter from the plaintiff’s then solicitors dated 19 December 1994. After discussion of the matter with her own solicitor, a reply was sent indicating that the bequest was accepted in good faith and had been spent. Finally, a letter of demand was received on 22 March 1996 after which the present proceedings were commenced. 87    Ms Hamilton has provided evidence, which I accept, as to her financial position from the time of receipt of the bequest. From the commencement of 1991 until November 1996 she had no paid employment. Apart from the expenditure, already referred to, of the bequest moneys, she received income as a result of a sole parent pension and family allowance, with a student subsidy from 1993. When her sons attained the age of 16 she began to receive, instead of the pension, an Austudy grant in a similar amount. From November 1991 she received rent from the flat in her home in the amount of $80 per week. The rent has increased over the years being, $100 per week in July 1995, $140 per week in late 1996 and $170 per week from February 1998. 88    In November 1996, in order to cover legal fees and the additional needs of her sons she was obliged to take out a mortgage of $35,000 over her home. This is the maximum amount she has been able to borrow, a request to increase the mortgage to $135,000 being refused. Additionally, she has lost an overdraft facility previously given to her by her bank. Since November 1996 she has had some casual and part-time employment, and is currently receiving approximately $330 per week gross in such employment. Accordingly she has a gross income of approximately $500 per week. In addition to the mortgage she has also a HECS debt of nearly $9,000. She also has the following additional liabilities: A debt to K. Hamilton for $8,000; outstanding legal fees of nearly $17,000 and a current credit card liability of $1700. 89    It is plain that her income can, realistically, do no more than provide minimum living expenses and service her current debts. Moreover, as indicated by evidence in the case, the likelihood of her achieving, at least in the short term, any reasonably substantial income in the anthropology field is slender. 90    In the result, it seems quite clear that the only way in which Ms Hamilton could repay the bequest would be to sell her home which she currently values at $650,000. An immediate detrimental effect would be the loss to her of the flat which provides a significant proportion of her income. Also, after payment of the usual expenses associated with the sale and the repayment of the bequest, mortgage, interest and other outstanding liabilities, Ms Hamilton would have a relatively small amount of capital to put towards the acquisition of alternative accommodation. 91    In all these circumstances, it is submitted on her behalf that she has so changed her position in reliance upon the bequest that it would be inequitable to charge her home with the repayment of the whole or part of it, by way of tracing and subrogation, or to make an order that she pay the amount of the bequest and interest to the plaintiff, on the basis that she has been unjustly enriched through its receipt. 92    Quite plainly, the defence of change of position, as presently developed in the cases, does not admit of precise formulation. I find it of little assistance to focus upon individual statements in the judgments to the exclusion of the broad overarching concept that restitution will be ordered, in whole or in part, only where the defendant has been unjustly enriched by the amount received. Conversely, restitution is not to be ordered where the circumstances would render it unjust to do so. Clearly the circumstances must always be looked at as a whole. To say that, for instance, it is no defence that the moneys have been merely expended is to fail, in my opinion, to distinguish between two situations: one, where the defendant, notwithstanding the expenditure, can repay the amount expended from other funds at his or her disposal, and the other, where the defendant has no access to other funds and the requirement to repay would occasion great financial hardship, even penury or perhaps bankruptcy. Similarly the requirement that a defendant should have acted to his or her detriment on the faith of the receipt will not always be easy to apply. Is the concept restricted to financial disadvantage or is it of wider import? Even if restricted to financial matters, how is it to be determined? Is the concept a broad one, or should the Court undertake the production of a form of profit and loss account detailing advantages and disadvantages to the defendant accruing from the receipt and use of the money? One matter does, however, appear to be tolerably clear on the authorities. The defence does not apply in respect of such moneys as have been expended on ordinary living expenses. Such expenditure would not, by its very nature, involve any relevant change of position. In many cases, of course, where the moneys in question have been mixed with other funds of the recipient, it will be difficult to determine whether any part of the money received has been used in the defraying of ordinary living expenses as it has merely augmented the pool of financial resources available to the recipient, from which both ordinary and extraordinary expenditures are made. However, in the present case, because of the careful and candid analysis which has been made by Ms Hamilton, this problem has been reduced. 93    If one puts to one side the amount paid to discharge the mortgage on her home which, according to the evidence, includes the amount of $132 legal expenses, an amount, in round figures, of $30,000 remains. Ms Hamilton in her evidence, set out earlier in these reasons, has provided an analysis of the manner in which this amount was expended, together with supporting information. She also provided further information in her oral evidence. As a result, counsel for the plaintiff made the submission that 40% of the expenditure should be attributed to ordinary living expenses. I agree that is useful to approach the question in percentage terms but I consider this is far too high a proportion. In my view 12.5% is the appropriate measure. In the result, the plaintiff is entitled to restitution of $3,750 from this amount. 94    What of the balance? The facts, which I have accepted, indicate quite clearly that the utilisation of nearly $70,000 for the payment of the mortgage on her home, enabled Ms Hamilton to effect a radical change in her life. Putting it broadly, she gave up paid employment and became a university student, existing on the pensions and grants referred to, together with rent from the flat, which she had created in her home. Undoubtedly she has changed her position on the faith of the receipt. Has she, however, changed it to her detriment and, if so, to what extent? 95    It is the plaintiff’s case that Ms Hamilton has suffered no relevant detriment from the receipt of the money. She has had the benefit of using it for the repayment of the mortgage and of being, consequently, relieved from her obligation to pay regular instalments of principal and interest. In these circumstances, it is put that there is no demonstrated detriment to her should she now be required to repay the amount, the repayment being secured by way of equitable charge upon her home. I have already indicated that, in her present financial situation, she could not reasonably deal with this new financial impost. Even an order allowing for repayment of the whole sum by instalments, over a lengthy period of time, would, in my view, occasion her considerable financial hardship, having regard to her present uncertain earning situation. 96    I consider it reasonable to approach the determination of this part of the case in a broad fashion by weighing up the advantages and disadvantages accruing to Ms Hamilton from the receipt of the moneys and determining, thereby, whether she is in a position of nett detriment or nett advantage. Such an approach is, in my opinion, reasonable in the circumstances of this case. It accords roughly with the approach suggested by Lord Templeman in Lipkin Gorman (at 560) where he considered the position of an innocent donee of stolen money who expends the whole of it on the purchase of a motor car which he would not otherwise have been able to purchase. He would have altered his position on the faith of the gift and would have been unjustly enriched only to the extent of the second hand value of the motor car at the time when restitution was sought. The amount originally innocently received, was not, in the circumstances, the appropriate measure of the donee’s unjust enrichment. The relevant circumstances required a reduction of the amount. By parity of reasoning, a total extinction of the original amount of unjust enrichment could result, if, at the time of the claim for restitution, the situation was such that the innocent recipient, as a result of the receipt, was suffering financial disadvantage which outweighed the advantage originally bestowed by the receipt itself. 97    It is not an easy matter to weigh up the relevant advantages and disadvantages in the present case. Although there is a definite continuity between the alterations that Ms Hamilton was in the process of making in her life, as a result of the suggestions and help of Mr Gertsch in his lifetime, and the changes she made consequent upon her innocent receipt of the supposed legacy from him, I consider that I can properly have regard only to the effect of the legacy upon her from the time she received it in January 1991. At that time she had already disposed of the taxi business and the opportunity of earning from it sums in the vicinity of $60,000 per year gross. She had already opted, at the time of his death, for an economic future based upon the rental of her flat and the development of a secretarial business conducted from her home. As this business was dependent for its commencement upon the receipt of work from Mr Gertsch himself, this necessarily was brought to a halt by his death. It is a matter of conjecture whether Ms Hamilton would have commenced it and based her future earnings upon it had she not, in January 1991, received the legacy. However, I am satisfied that having regard to the fact that she had worked from a very early age and was a person of intelligence, with a demonstrated earning capacity, she would have found appropriate employment. Earnings from such employment would have been necessary for the payment of her mortgage and the ordinary living expenses for herself and her children. 98    However, as a direct result of receipt of the legacy, she forsook the exercise of her earning capacity. By 1994 when the first indication of some doubts as to the validity of the legacy surfaced and, certainly, by 1996 when the claim for restitution was made, she had, in my view, foregone in earnings, an amount considerably in excess of the amount of the legacy, which by the end of 1992 she had fully expended. As against this, she had, of course, qualified for the receipt of the pensions and grants paid to her as an unemployed student. The evidence does not permit of any precise calculations. However, doing the best that I can, I have formed the view that, had she not received the legacy and, consequently, remained in employment rather than pursuing a university course, she would have, in all probability, paid off a large part of the relatively small mortgage that remained after she had made the financial adjustments referred to during Mr Gertsch’s lifetime. I think it reasonable to find that the mortgage debt would have been reduced to $10,000 by the time that restitution was claimed. I consider that this sum reasonably represents the amount of her unjust enrichment from the use of the legacy moneys for the payment of the mortgage debt. Although the receipt of the legacy has resulted in her absence from the ordinary work force for a lengthy period, I do not consider that any further adjustment is called for. She has been enabled to obtain a University degree which, at least in the long term, would provide her with reasonable remuneration. 99    Consequently, I find that, by receipt of the legacy, Ms Hamilton has been unjustly enriched in the sum of $13,750 or, conversely, she has established the defence of change of position, pro tanto, to the extent of $86,250. Delay was not relied upon as a substantive defence. However, I consider that, in all the circumstances, it would be unreasonable to require that she pay interest on this amount before restitution was demanded of her on 22 March 1996. I award interest in accordance with the usual Supreme Court Scales to the plaintiff from that date until judgment. The amount so awarded is $5,076.50. I also consider that this is an appropriate case to depart from the ordinary order for costs, in so far as the plaintiff has been, to a significant extent, unsuccessful in his claim. I consider that Ms Hamilton should pay one-third of the plaintiff’s costs in relation to the claim against her. 100    I have considered whether I should at this stage make an order charging the amount of $13,692.00 upon Ms Hamilton’s home. This is the total of the award plus interest relating to the mortgage. The doctrines of tracing and subrogation would enable this course to be taken. However it is possible that this may be rendered unnecessary by her making payment of the amount ordered. The plaintiff’s position is currently protected by the existence of a caveat which remains in force until further order of the Court. I think that it is sufficient, at this stage, that I grant to the plaintiff liberty to apply on 7 days’ notice to seek an order charging the amount of $13,692.00 upon the property, 20 Hart Street, Balmain, in the event of non-payment of that amount to the plaintiff within 28 days. I also order that upon payment of that amount to the plaintiff, the plaintiff take all necessary steps to effect withdrawal of the caveat. 101    I turn then to the case against the second defendant, Mr George Fidirikkos (Mr Fidirikkos).

Case against the second defendant

Mr Fidirikkos received a legacy of $300,000 paid in two instalments of $150,000. These amounts are not capable of being traced into any particular assets. Consequently the claim brought against Mr Fidirikkos is based only upon the alternative claims that, in the circumstances he was a constructive trustee of the amount of the legacy in favour of the plaintiff, or that he was unjustly enriched by the receipt of it and should be ordered to make restitution. Mr Fidirikkos denies that he became a constructive trustee and, in relation to the second claim, asserts that he has not been unjustly enriched as a result of the receipt of the legacy because he changed his position to his detriment upon the faith of its receipt. I shall consider first the case based upon the alleged constructive trust.

102    Mr Fidirikkos gave evidence by way of affidavit and oral testimony. I considered that he was a truthful, if somewhat confused and naïve witness. 103    I am satisfied that he was a close friend of Mr Gertsch. He had met him more than twenty years prior to his death and was in frequent contact with him. Mr Fidirikkos owns and conducts the business of a florist shop. Mr Gertsch would, on frequent occasions, visit Mr Fidirikkos at the shop and spend a considerable amount of time with him. Mr Gertsch would confide in him as to problems that might occur in his relationships with his partners. Mr Fidirikkos was fully aware of his relationship with Mr Tesseydre and that Mr Tesseydre was contemplating leaving his entire estate to Mr Gertsch with the result that “there will be a lot of jealous people.” He was also aware that, after Mr Tesseydre’s death, Mr Gertsch complained of receiving threatening phone calls. He also knew of the actions taken by Mr Gertsch to render secure his home in Sutherland Street, Paddington. Besides regular visits to the shop, Mr Gertsch would ring Mr Fidirikkos several times a day to tell him where he was going and what time he would be home. Even when overseas, Mr Gertsch would ring Mr Fidirikkos on a daily basis. 104    The close friendship between the two men led to Mr Gertsch revealing to Mr Fidirikkos, on many occasions, his intentions to change his will. Also, Mr Fidirikkos was led to believe that he would be a major beneficiary in Mr Gertsch’s estate. 105    After Mr Gertsch met Mr Esposito, he informed Mr Fidirikkos that he had again changed his will and would leave Mr Esposito part of his estate. Later he was told that, because of a falling out between Mr Gertsch and Messrs Roberts and Esposito, that each of them would be excluded from the will.

Constructive Trustee

106    The claim that Mr Fidirikkos became a constructive trustee of his legacy is based upon his state of knowledge as to the position between Messrs Gertsch, Esposito and Roberts, Mr Gertsch’s testamentary intentions in respect of Mr Esposito, and his attitude to Mr Roberts as his solicitor and as his executor. It is asserted that, in this state of knowledge, it was unconscionable of him to have taken the legacy, with the result that he became a constructive trustee of it in favour of the plaintiff. The knowledge relied upon relates to two periods, the first in August 1990, the second in October. The first concerns events involving Messrs Gertsch, Roberts and Esposito. The second relates to conversations between Mr Gertsch and Mr Fidirikkos, as to his testamentary intentions, shortly before his disappearance. It is necessary to consider Mr Fidirikkos’ evidence in relation to these matters. 107    Mr Fidirikkos’ affidavit evidence presented some difficulties, in that incidents referred to therein were not in chronological order. However, in the course of his oral testimony the following sequence of events was established to my satisfaction. Some time in August 1990 Mr Fidirikkos was made aware of a significant falling out between Mr Gertsch, Mr Roberts and Mr Esposito. This related to the purchase by Mr Roberts of some clothing as a gift for Mr Esposito. I have already made reference to this. It is clear that Mr Gertsch was very angry with both of them. He appears to have become, rightly or wrongly, very jealous and hurt. Both Mr Gertsch and Mr Roberts spoke to Mr Fidirikkos about the situation. Mr Roberts was concerned that he would lose Mr Gertsch’s legal business. Mr Gertsch told Mr. Fidirikkos that his friendship with Mr Roberts was over and that the relationship between them was purely one of business, which would continue only because of Mr Roberts’ knowledge of the affairs of the Tesseydre estate and of problems relating to possible challenges to Mr Tesseydre’s will. 108    So far as Mr Gertsch’s relationship with Mr Esposito was concerned, this appeared to continue, but in a growing atmosphere of mistrust. About two weeks after the August incident, the further incident occurred, to which reference has been made, when Mr Gertsch felt that he had been put in a position of significant danger by Mr Esposito whilst travelling with him in a car in the Malabar area. It appears that this incident occurred late in August. It led to Mr Gertsch’s seeking gradually to bring to an end his relationship with Mr Esposito. Shortly after it occurred, Mr Gertsch told Mr Fidirikkos about this incident and about his desire to terminate the relationship. 109    Mr Fidirikkos was cross-examined as to the effect that knowledge of these matters had had upon his view of the genuineness of the Will, dated 7 September 1990, in which Mr Roberts was appointed executor and Mr Esposito was made the major beneficiary. It was put to him that, in these circumstances, he could not have accepted that the Will was genuine. The following passages appear in his cross-examination:

“Q. And, of course, you were conscious, were you not, that he and Mr Gertsch had had a rather public falling out in August of that same year?

A. Yes.

Q. Did it not cause you to doubt the authenticity of this document?
A. No.
Q. In all those circumstances?
A. No, I don’t think so.

Q. That Mr Roberts on 7 September 1990 was being appointed to be executor of Mr Gertsch’s estate?
A. I suppose it is one point I missed.
………….
Q. Did it not at any time occur to you that Mr Roberts might have created this document after Mr Gertsch’s disappearance?

A. No.

Q. It never occurred to you?
A. No.
Q. It did not occur to you to be an extremely odd situation after the falling out that he and Mr Gertsch had had that he should be appointed the sole executor of Mr Gertsch’s will on 7 September 1990?
A. I probably didn’t notice the date, sir, and that might have brought the light to me a little earlier but, no, I didn’t notice that date, sir.
…………
Q. If you had noticed that date, can I suggest to you that you would have been very concerned that this document did not, to your understanding, express what you believed Mr Gertsch to have wanted to have done with his estate in the early part of September 1990?
A. 1990? September 1990? No, it probably wouldn’t have. No, it definitely wouldn’t have
been.

Q. In particular, by that date there had been not only a falling out between Mr Gertsch and Mr Roberts but also a break up of the relationship between Mr Gertsch and Mr Esposito?

A. Yes, sir.

Q. And do you say that at no time did you notice or look for or become aware of the date
that this document bears on its last page?
A. No, I didn’t look at that, to be quite honest. I have never noticed that.
………..

Q. May I suggest to you that you certainly by the end of 1990 were well aware that this document bore the date 7 September 1990?
A. No, I was not aware of that, sir. I was aware of the document. I wasn’t aware of that date. Had I seen that date, I would have definitely been able to assist the police in a different way. I tried everything with them.
Q. And you say nobody from the police drew your attention to that date?
A. I can’t recall. If it was drawn to my attention I’m sure I would have known that that wasn’t a correct will.”

110    Mr Fidirikkos was also cross-examined as to his alleged failure to notice the date of the Will, even though it appeared, quite clearly, above the signatures of the attesting witnesses. He maintained that he had never noticed the date and had, consequently, drawn no conclusions from it as to the authenticity of the Will. 111    I observed Mr Fidirikkos very closely whilst he was giving this evidence. I formed the clear impression that he was telling the truth. I am satisfied that he had previously failed to notice the date of the Will or, if he had, that it did not impinge upon his recollection as he had failed to attribute any significance to it. I felt that he was genuinely surprised when his mind was drawn to the apparently significant connection between the date and the events which had occurred shortly before it. He realised then, but not before, that there could be doubt as to the authenticity of the document. 112    In addition to his testimony as to the information that Mr Gertsch had imparted to him about his changing attitude to Mr Esposito and Mr Roberts, Mr Fidirikkos gave evidence of a further conversation with Mr Gertsch. This conversation took place a little over a week before Mr Gertsch’s disappearance on 20 October 1990. He agreed in cross-examination recalling that Mr Gertsch had told him that he had drawn up a new will, in which he had removed any provision for Mr Esposito and in which Mr Fidirikkos had been named as executor. He also said that he had left to his nephew Bradley his house in Sutherland Street, Paddington and also a sum of money for his education. His housekeeper Tanya and Ms Hamilton were left amounts of money, as were the two children of Mr Esposito. Although there was some confusion in his evidence, I think it sufficiently clear that, although there were many conversations between the two men about the changing of Mr Gertsch’s testamentary intentions, this was the last conversation about a will, before his disappearance. 113    Later when Mr Roberts showed him the Will, Mr Fidirikkos became aware that it was not he but Mr Roberts who had been appointed executor and that Mr Esposito had been left the residue of the estate, which was substantial. Bradley had been left not the Sutherland Street property but another property at Regent Street, Redfern, subject to a life estate in favour of Mr Gertsch’s mother. The contents of the Will, therefore, were very much at odds with the contents as described in the conversation. I am satisfied that Mr Fidirikkos’ immediate reaction to the document was to doubt that it was Mr Gertsch’s last will. 114    Before Mr Roberts showed him the Will, Mr Fidirikkos had become concerned about Mr Roberts. He was suspicious that Mr Roberts had been involved in Mr Gertsch’s disappearance. These suspicions were founded upon information given to him by others about Mr Robert’s appearance and behaviour on the night of Mr Gertsch’s disappearance. Also, apparently, some conflict had occurred between accounts of the evening given by Mr Roberts on different occasions. There is no need to refer to the detail of these matters. I am quite satisfied that Mr Fidirikkos was genuinely suspicious, voiced these suspicions to the police, and generally assisted in their investigations. 115    There was a further ground for suspicion. When Mr Gertsch disappeared, a group of persons including Mr Fidirikkos and Mr Roberts went to Mr Gertsch’s flat to search for any information that would assist in determining his whereabouts. Whilst they were at the flat and were making arrangements, with the assistance of others, to secure the premises, Mr Roberts had said to Mr Fidirikkos: “You do as you wish because you are the executor to his Will.” It is clear that this conversation took place at a point in time reasonably close to Mr Roberts’ bringing to Mr Fidirikkos the Will. Mr Fidirikkos stated in evidence that, when Mr Roberts told him that he, Roberts, was the executor of the Will, he thought that it was strange that Roberts was the executor and he was not. He gave the following evidence:

“Q. Well, then, did you ask him why there had been a change, or anything of that kind?
A. I asked him - I asked him - I said to him:
“Is there not another will?”

because I knew that Ludwig had taken Esposito out of that will.

Q. You asked Mr Roberts whether there was another will?
A. Yes.

Q. What did he say?
A. He said to me:
“No, this is the last will”.
Q. Did you make any comment to him after that?

A. No, not really, because I already suspected him.

Q. You suspected him?
A. Yeah.

Q. What did you suspect him of?
A. I thought that basically why that was still in there - I thought - it was only my own feelings - that they had something to do with the murder so that they could possibly get the most of that estate, sir.


Q. Did you have any suspicions about the will itself?
A. None at all.

Q. None at all?
A. No. I thought it was one of but not the last one.

Q. So, you suspected there had been another will and that was being kept from you in some way?
A. Yes, sir.”

116    I should add that when he was shown the Will, Mr Fidirikkos said to Mr Roberts that he had led him to believe that he was executor and that Mr Roberts replied:

“Well you were doing a good job…I’ve just sort of let you do it because in previous Wills you were the executor, so I just thought that I would let you run with it for awhile.”

Mr Fidirikkos said that he was “amazed” at this statement.

117    Mr Fidirikkos said that he did not tell the plaintiff, Mr Gertsch’s brother, that, in his opinion, the Will was not the last will. He did not know him. He knew Mr Gertsch’s mother. He did not discuss the matter with her, apparently because she was not in a fit mental condition. He did discuss his concerns, however, with the police and with a number of Mr Gertsch’s friends. He did not institute any searches for another Will because he had no way of doing so. He asked Mr Roberts whether there was another will and was told that the Will was the last one made by Mr Gertsch. 118    It is clear that Mr Fidirikkos remained suspicious of Mr Roberts. He was asked to maintain contact with him by the police so that he could provide them with information to assist in their enquiries. The police were also suspicious of Mr Roberts. However, the police did not doubt the Will itself. The investigating detective, Mr Bowditch, with whom Mr Fidirikkos maintained contact, told him that, as far as he was concerned, the Will was genuine. This is corroborated by the evidence of Mr Bowditch. It was not until the end of 1992 that the police formed the view that the Will was a forgery. By this time Mr Fidirikkos had expended the whole of the legacy. 119    Before Mr Roberts paid him the first instalment of $150,000, Mr Fidirikkos was advised by him that probate of the Will had been granted. This was early in January 1991. The conversation must have occurred in the period of time when Mr Fidirikkos was aware of police suspicions about Mr Roberts and while he was assisting them by supplying information about Mr Robert’s activities. Also he had told the police that he suspected there was a later will. However they had not found a later will and, obviously, had not opposed the grant of probate of the Will, as propounded by Mr. Roberts. 120    It is the plaintiff’s contention that when Mr Fidirikkos received each instalment of his legacy from Mr Roberts, he did so, in circumstances where he became constructive trustee of the moneys for the plaintiff. The imposition of the trust was required because Mr Fidirikkos did not believe that the Will was the last will of Mr Gertsch. It was a case of “knowing receipt” of trust moneys paid out by Mr Roberts in breach of trust. Mr Fidirikkos, it was submitted, became a trustee because, relevantly, he had, at least, “knowledge of circumstances which would indicate the facts to an honest and reasonable man”, being Category 4 knowledge under the Baden principle, as accepted in Consul. 121    The case is not made any easier by the fact that Mr Fidirikkos gave no express evidence as to his state of mind when the legacies were paid to him. However, at least in the case of the first payment, early in January 1991, it is reasonable to assume that he retained his suspicions of Mr Roberts. He may well, also, have continued to suspect that there was a later will. However, it must be remembered that such suspicions were based upon the conversation he had had with Mr Gertsch shortly before his disappearance in October 1990. He was not shown any document by Mr Gertsch, purporting to be his new will or a copy of it. Furthermore, as Mr Fidirikkos said in his evidence, Mr Gertsch very frequently spoke to Mr Fidirikkos of making changes to his will. The October conversation was certainly not unique in this respect. Also, he had previously been shown copies of earlier wills of Mr Gertsch, some in draft form, some uncompleted, some executed and some not. 122    Moreover, he had clearly told the police about his suspicions and the reasons for them. He knew the police were making relevant investigations. In this context, he had been told by the investigating detective that, in his view, the Will was genuine. On top of this, he was made aware that the Will had been admitted to probate. The evidence does not establish what effect knowledge of the grant of probate had upon Mr Fidirikkos’s view of the Will. However, in my opinion, it is proper to have regard to the fact that he was not, in any way, legally trained and would, in such circumstances, accept that a grant of probate indicated that a legally established authority had accepted that the Will was genuine. He was, thus, in the position that, having voiced his suspicions, he was aware that they had been considered, investigated and not accepted. In such circumstances was it unreasonable and/or dishonest on his part to accept the legacies? I have come to the conclusion that it was not. 123    Moreover, the relevant Baden principle speaks of “knowledge of circumstances which would indicate the facts….”. The relevant “facts” were those that would indicate that the Will was a forgery. No later will has ever been found. The invalidity of the Will did not arise from the existence of a later revoking testamentary instrument. His suspicions as to the existence of such an instrument are really beside the point. Indeed, if a later will was a relevant “fact”, it could not be said, in my view, that at the time he took the legacies his mere suspicions as to the existence of such a testamentary instrument would amount to “knowledge of circumstances” within the meaning of the principle. Even if there had been a later will I entertain considerable doubt that, in the circumstances, Mr Fidirikkos would have held his legacy in trust for the beneficiaries under that will. 124    In Muschinski v Dodds (1984-1985) 160 CLR 583 Deane J (at 613-614) said of the constructive trust:

“The constructive trust shares, however…..some of the institutionalized features of express and implied trust. It demands the staple ingredients of those trusts: subject-matter, trustee, beneficiary (or, conceivably, purpose), and personal obligation attaching to the property: cf. Sir Frederick Jordan, Chapters on Equity in New South Wales , 6th ed. (1947: Stephen ed.), pp. 17-18. When established or imposed, it is a relationship governed by a coherent body of traditional and statute law. Viewed in its modern context, the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle.”

This authoritative statement must also be kept in mind, in determining whether the circumstances of the case call for the imposition of a constructive trust upon Mr Fidirikkos.

125    Here, it is asserted against Mr Fidirikkos that he acted unconscionably in taking the legacies whilst believing that there was a later valid will. If that belief were based upon a “knowledge of circumstances” which would “indicate” that “fact” to him as “an honest and reasonable man” then, arguably, a trust could be imposed. However, such a trust would require a beneficiary as one of its “staple ingredients”. Such a beneficiary would necessarily be one entitled to take under the posited later will. The present plaintiff would not be such a beneficiary; his entitlement arises under an intestacy because the Will was invalidated not by implied revocation but by its being a forgery. 126    I can therefore, discern no basis for the imposition of the constructive trust contended for. Accordingly, I reject this aspect of the plaintiff’s claim. I turn therefore to the question whether Mr Fidirikkos can successfully raise against the plaintiff’s claim for restitution, the defence of change of position, in whole or in part.

Change of Position

127    As already indicated I am satisfied that when Mr Fidirikkos took each instalment of his legacy, he did so believing the Will to be genuine. Whatever suspicion he may have harboured as to there being a later will, these had not be borne out by police enquiries, notwithstanding the assistance he had given. Probate of the Will propounded by Mr Roberts had been granted. There was, apparently, nothing further that he could do. No subsequent will has ever come to light. I consider that, in all these circumstances, Mr Fidirikkos was entitled to receive the pecuniary legacy and treat the money as his own. Has he relevantly changed his position on the faith of that receipt? 128    His evidence in this regard has been, rightly, criticised as difficult and confused. However, this is not enough to dispose of the defence. So much is clear from authorities such as Dawson. Mr Fidirikkos is entitled to rely upon reasonable estimates of expenditure. 129    Prior to and since the receipt of the legacy, Mr Fidirikkos has conducted a florist business in partnership with his wife, from whom he is separated. From the accounting materials provided, including relevant tax returns, it appears that the average nett earnings of the partnership were from $50,000 to $60,000 per annum, this amount being shared equally between them. It appears that, from these earnings, Mr Fidirikkos paid for his ordinary living expenses and provided assistance to his four daughters, where possible. It is apparent that the receipt of the two amounts of $150,000, the first on the 23 January 1991 and the second on the 15 November 1991 made a very significant difference to his financial situation. He had only the one bank account, a cheque account with the Kings Cross Branch of Westpac. This account was used for the purpose of the business as well as his private banking. It appears that money for the living expenses of himself and his wife were drawn from this account at fairly regular intervals. He had no savings account and did not operate any credit cards. He also used cash from the business for the purposes of himself and his wife. This cash did not go through the bank account but was, he says, otherwise recorded in the books of the business. The two cheques making up the legacy were banked into the account and were expended through it. The first cheque was fully spent by the end of October 1991, by which time the account was in overdraft. The second cheque was banked on 13 November 1991 at which time the account was overdrawn by nearly $2,000. The full amount of this cheque was spent by November 1992. Consistently with his belief that the money was his, Mr Fidirikkos did not keep any account of how it was expended. By consideration of his accounting, banking and taxation records, coupled with his recollection of types of expenditure undertaken as a result of the substantial increase in his funds, he has sought to put before the Court a picture of the way in which the legacies were disbursed. 130    Mr Fidirikkos produced in evidence a number of Schedules. They form Exhibit 2A. The first, Schedule A, was simply a sequential list of all his expenses obtained from the cheque butts relating to his bank account. Schedule B consists of taxation returns which I have not found of particular assistance. Schedule C is headed “Venture at ‘The Rocks’”. This relates to a florist store set up from April 1992 to September 1992 flower selling at week-ends, as an adjunct to the florist business. It traded at a loss. Schedule D is headed “Business Expansion”. It relates to an attempt to change and increase the business of the florist shop by the introduction of new exotic stock. It also resulted in a loss. Schedule E relates to entertainment expenses incurred as a result of the influx of funds. Schedule F is of no consequence. Schedule G relates to expenditure on the weddings of his two daughters, Selena and Parisa. There is a fairly large degree of estimation involved in these Schedules apart from the reference to cheque butt entries in Schedule A. I should add that Schedule A also includes two pages of extracted cheque butt entries relating to expenditures which, it is alleged, were undertaken only as a result of receipt of legacies. 131    It is convenient to make reference, in the first instance, to items of expenditure selected from the cheque butt entries and forming part of Schedule A. It appears that this part of Schedule A is the same as Annexure A to the affidavit of Mr Fidirikkos dated 7 May 1999. It appears that the information is intended to illustrate the statement in his affidavit that “I made substantial changes to my personal and financial affairs which I would not have undertaken if I had not received the legacy from the Estate.” I shall refer to the material as “Annexure A”. 132    It is apparent from a consideration of the items in Annexure A that they relate to a number of topics, which have been made the subject of the separate Schedules in Exhibit 2A. There is apparent duplication, such as the many references to “wedding” in the annexure which, clearly, refer in part 1 to expenses which are also referred to in Schedule E under the heading “weddings.” Similarly, reference to “rent/markets” in the Annexure, in amounts of $1,680 and $560, are clearly duplicated in Schedule C, “Venture at the Rocks”. Undoubtedly, the Court could have received more assistance from Mr Fidirikkos, by a more careful and systematic presentation of expenditure relating to the various headings. However, it is not unusual for a Court to be confronted with such a difficulty. It must do the best that it can in the circumstances. 133    Apart from items which may be the subject of duplication in other schedules, there are a number of entries in Annexure A which, quite clearly, having regard to his pre-legacy earning level, could have been acquired by Mr Fidirikkos only as a result of the bequests. An example is the purchase of a Mercedes vehicle for his personal use at a price of $27,000. Associated with this purchase was a substantial insurance premium which, unfortunately, was not renewed before the vehicle was stolen and not recovered. Also included is a sum of $20,000 expended on the purchase of a car for his wife Thea and two sums of $5,000 for the purchase of cars for his son Stefan. He also made significant gifts of money to his wife which are recorded in the schedule. Also drawings for “self” are, obviously far in excess of drawings that would have been made for personal use from the business account prior to the introduction of the legacy sums. Also I gather from his evidence that he resorted to unbanked cash for personal use. This, in my view, tends to corroborate his claim that the drawings for “self” are predominantly, if not entirely, attributable to the legacy. 134    Mr Fidirikkos was cross-examined about items in Annexure A. For instance, it was put to him that amounts for security doors totalling nearly $1,500 were not attributable to the legacy. However, I am satisfied from his answers that this expenditure would not have been undertaken if the legacy money had not been available. It would have been beyond his ordinary means. After some hesitation, I have decided to accept the total amount of the items in Annexure A as being attributable to the legacy. They total, in round figures, $130,250. 135    In paragraph 69 of his affidavit of 7 May 1999 Mr Fidirikkos refers to substantial expenditure made by him upon the house of his partner, Ms Oskerko. This was a house in which he resided. The amounts itemised in the paragraph include, in addition to amounts spent on the house and its furnishings, an amount for dentistry capping work for Ms Oskerko and the purchase of personal apparel for her and for himself. The amounts so spent are claimed to be in addition to amounts referred to in the Schedule. No cross-examination was directed to these amounts. I am prepared to accept them. They total, in round figures, $27,000. 136    Schedule B in Exhibit 2A consists, as I have indicated, of copy tax returns. I can derive no assistance from the detail of these documents, nor has any been offered. Their main significance derives from the evidence of Mr Tompsett, Mr Fidirikkos’s accountant, who testified that the returns showed a decline in profitability of the florist business in 1992, due to the costs of sales increasing at a greater rate than the sales income for the year. This supports Mr Fidirikkos’s contention that he utilised legacy money in an endeavour to change the nature and profitability of the florist business in that year of income, by the purchase of exotic lines, which he would not otherwise have dealt in. This new approach failed and resulted in loss which is referred to in a later schedule. 137    Schedule C deals with the expansion of the florist business into week-end trading at the Rocks venue, to which reference has already been made. I am prepared to accept Mr Fidirikkos’s evidence that he entered into this associated venture because the legacy had provided the necessary capital. I am also prepared to accept that after conducting the venture for approximately five months in 1992, he abandoned it because it was proving a failure. There is a difficulty in that Schedule C provides some information as to expenditure on rent, which is already included in Annexure A. I accept that Mr Fidirikkos made purchases by cheque of various floral and plant items, which are not included in the expenditure referred to in Annexure A. However, there is no attempt made to provide evidence as to the income achieved in this venture, with the result that it is not possible to quantify the loss, although I am prepared to accept that there was one. It appears that no separate books were kept and that accounting for this part of the business was simply incorporated into the accounts for the business as a whole. 138    The business losses claim to be attributable to misapplication of part of the legacy money is to be found in Schedule D and in oral evidence in relation to the topic. I am prepared to accept that Mr Fidirikkos sought to upgrade the florist business, not only by including the venue at the Rocks, but also by buying in “more exotic and higher grade and more expensive flowers.” It is clear that this stock was far more expensive than the stock ordinarily provided in the shop. It did not sell well. The unsold stock had to be dumped each week. I am also satisfied that, due to lack of business acumen and the state of financial confusion that appears to have resulted from Mr Fidirikkos’s intermingling of the legacy money with his business and personal money, the extended trading of the shop, although being conducted at a loss, was allowed to continue from early 1991 to late 1992. It was brought to a stop, apparently, only by the exhaustion of the legacy and the return of the bank account to its condition before the legacy instalments were received. I am satisfied that the purchase of unprofitable stock, which would not otherwise have been purchased, played a significant part in the exhaustion of the legacy. The evidence satisfies me that, by no means infrequently, stock which had cost, on average, $250 per week was left unsold and was dumped. I am satisfied that $25,000 from the legacy was lost in this way. Moreover, although losses from the Rocks venture have not been quantified, I am satisfied that losses did occur. In the circumstances, I think it reasonable to allow a further $5,000, with the result that I find that $30,000 of the legacy money was used in business ventures, which would not otherwise have been undertaken and was simply lost. 139    Schedule E relates to entertainment and like expenses. The evidence makes it plain that the sudden influx of spending money enabled Mr Fidirikkos to increase his ordinary standard of living well beyond what he could previously have enjoyed. I am satisfied that he is, by nature, generous and spent a great deal of money upon entertaining his friends as well as by increasing his own personal levels of expenditure. There is a difficulty, of course, in determining whether amounts claimed in his very general evidence on this topic are duplicated in the drawings to “self” referred to in the analysis of cheque butts in Annexure A. It may be that there is some duplication. However, I am satisfied that, to a significant extent, Mr Fidirikkos utilised cash drawings from the business, which became available to him because the introduction of the legacies into the business bank account thus released to him for personal expenditure far more of the cash takings than had been possible previously. I am prepared to accept that Mr Fidirikkos spent a great deal of the legacy money in this way. The difficulty is that the vagueness of his evidence presents considerable problems in quantification. 140    It is clear that he quite frequently took friends out to dinner as his guests. Also, he dined out, himself, far more often than he had previously, as he says, “up to four times per week.” He also hired boats for fishing trips, sometimes at a cost of $250 per day, which was far beyond his previous means. He also spent money on week-ends away “once or twice per month” at an expenditure of approximately $150 per trip. Mr Fidirikkos estimated that he “regularly spent in the region of $200 to $400 per week on meals and entertainment.” He also made gifts to his family which would otherwise have been beyond his means. Whilst accepting that it is possible that, over the two year period, he may well have spent more on such items, I consider it reasonable to accept that he expended from the legacy moneys an amount of $40,000 over and above what he would ordinarily have spent. 141    Mr Fidirikkos, finally claimed he spent money on his daughters’ weddings well in excess of what he would have been able to spend had he not received the legacy. These amounts are claimed in Schedule G. There is a difficulty as to possible overlapping between amounts claimed in respect of weddings in Annexure A. Additionally, of course, it must be accepted that Mr Fidirikkos would have pushed his previous restricted means to their limit to provide his daughters with weddings, which he would have regarded as suitable. A considerable sum of money is claimed in Schedule G. I think it reasonable to allow no more than the amount of $12,750 in order to allow for the factors that I have mentioned. 142    In the result I am satisfied by the evidence that in relation to the amount of $300,000 received by Mr Fidirikkos he has relevantly changed his position through the expenditure of $240,000. I am conscious that he may well have expended the entire amount of $300,000 in ways that could properly be characterised as other than ordinary living expenses. However, having regard to the onus that he bears, the evidence, in my opinion, does not permit me to make such a finding. The result is that I find that he has been unjustly enriched to the extent of $60,000 and must make restitution in this sum. He must pay interest on this amount, in accordance with the Supreme Court Scales, from the time of the making of demand upon him. The amount of interest so calculated to date of this judgment is $22,152.00. The total payable is, therefore $82,152.00. 143    For the same reasons, as in the case of Ms Hamilton, I consider that Mr Fidirikkos should pay one-third of the plaintiff’s costs in respect of the claim against him. 144    I therefore order:-

A. In respect of the plaintiff’s claim against the second defendant
1. That the second defendant pay to the plaintiff the sum of $82,152.00.

2. That the second defendant pay to the plaintiff one-third of the costs of his

claim against the second defendant.

B. In respect of the plaintiff’s claim against the third defendant
1. That the third defendant pay to the plaintiff the sum of $18,826.50.

2. That the third defendant pay to the plaintiff one-third of the costs of his

claim against the third defendant.

3. That the plaintiff have liberty to apply on 7 days notice for an order

charging the property 20 Hart Street, Balmain with the repayment of

$13,692.00 in the event of the third defendant not paying the same to

the plaintiff within 28 days from today.

4. That the plaintiff upon the payment of the said sum of $13,692.00 do all

things necessary to effect the withdrawal of the caveat currently

registered against the property 20 Hart Street, Balmain.

Last Modified: 10/01/1999