Health Services Union NSW v McMillan

[2014] NSWSC 1868

Supreme Court

New South Wales

Medium Neutral Citation:

Health Services Union NSW v McMillan & Ors [2014] NSWSC 1868

Hearing dates:

11 December 2014

Decision date:

11 December 2014

Jurisdiction:

Equity Division

Before:

White J

Decision:

1.Give judgment for the plaintiff against the first defendant in the sum of $3,775,806.13 inclusive of pre-judgment interest.

2.Declare that the first defendant held sums deposited in St George Bank account number 1188 2491 during the period from 4 January 2005 to 1 September 2011, up to a total of $611,700 on constructive trust for the plaintiff.

3.Order that the first defendant pay the plaintiff's costs.

Catchwords:

PROCEDURE - civil - judgments and orders - application for summary judgment - application granted
EQUITY - equitable remedies - equitable compensation - where defendants caused goods and services to be supplied to plaintiff at inflated rates and shared in profits - where bribes received by first defendant employee of the plaintiff formed part of loss suffered by plaintiff - whether restitution of bribe and equitable compensation for loss suffered are cumulative or alternative remedies - whether recovery of bribe and receipt of full equitable compensation would involve double recovery

Cases Cited:

Grant v Gold Exploration & Development Syndicate Ltd [1900] 1 QB 233
Mahesan v Malaysia Government Officers' Co-Op Housing Society Ltd [1979] AC 374

Texts Cited:

Bowstead & Reynolds On Agency, 19th ed
Dal Pont, Law of Agency, 3rd ed

Category:

Principal judgment

Parties:

Health Services Union NSW (Plaintiff)
Cheryl Rose McMillan (1st Defendant)
Alfred Alexander Downing (2nd Defendant)

Representation:

Counsel:
H Stowe (Plaintiff)
No appearance (1st Defendant)
In person (2nd Defendant)
Solicitors:
Carroll & O'Dea Lawyers (Plaintiff)

File Number(s):

2013/371161

Judgment

1. HIS HONOUR: This is an application for summary judgment against the first defendant. The plaintiff, the Health Services Union NSW, sues the first defendant, Ms McMillan, and the second defendant, Mr Downing, for damages, equitable compensation, an account of profits and proprietary relief in respect of bribes or secret commissions paid by Mr Downing to the first defendant Ms McMillan, and to the former chief executive of the Union, Mr Williamson.

1. Earlier today, judgment was entered by consent against the second defendant, Mr Downing, for $4,328,492.70 inclusive of pre-judgment interest. Ms McMillan entered an appearance to the proceeding but has not filed a defence. She has been duly served with notice of the present application for summary judgment but has not appeared.

1. Summary judgment could be sought on one of three bases. First for failing to file a defence. Secondly, as a result of deemed admissions arising from her not responding to a notice to admit facts that was served on her. Thirdly, by reason of powerful evidence in the form of a statement given by Ms McMillan to the police in which full admissions were made of serious breaches of her fiduciary duty involving the receipt and payment of bribes.

1. In substance, it is admitted that at a meeting between Mr Williamson, Ms McMillan and Mr Downing in about January or February 2005, it was agreed between those persons that Mr Downing would cause a company, of which he was the principal, that was a supplier of goods and services to the Union, to invoice the Union at inflated rates, that he would keep 50 per cent of the inflated amounts, and would pay the remaining 50 per cent of the inflated amounts to Ms McMillan on the basis that she would share it with Mr Williamson.

1. It is clear that Ms McMillan is liable on a variety of causes of action to compensate the Union for the loss suffered as a result of its paying the invoices at the inflated rates. She also was a recipient of bribes. The bribes she received were a component of the loss that the Union suffered.

1. I am satisfied that the plaintiff is entitled to summary judgment against Ms McMillan. One issue of principle has been debated in relation to the quantification of that judgment sum. The amount of cash deposits made into a bank account of Ms McMillan's from moneys paid by Mr Downing following payment of the inflated invoices, totalled $611,700. Those cash deposits were made over a period of years from 2005 to September 2011.

1. Loss to the Union for which she is liable has been calculated at a sum of $2,446,800. This represents the amounts by which the invoices were inflated. She is liable not only for the profits that she made. She is also liable to compensate the Union for its loss together with pre-judgment interest. The Union is entitled to judgment for $3,775,806.13.

1. The bribes totalling $611,700 were held on a constructive trust by Ms McMillan for the Union, and a declaration should be made accordingly.

1. Counsel for the union submits that judgment should be entered against Ms McMillan for a further sum of $611,700 with pre-judgment interest on that amount of some $332,251.53. Hence the amount for which judgment is sought is $4,719,757.50. The plaintiff submits that it is entitled to cumulative remedies against Ms McMillan. That is to say, a claim in restitution for the amount of the bribe plus damages or equitable compensation for the loss suffered.

1. If that submission is correct and if the judgment were satisfied, the result would be that Ms McMillan would be required not only to fully compensate the Union for its loss but also to restore the bribe with interest, notwithstanding that the amount of the bribe was a direct component of the loss for which judgment would be given.

1. The Union advances its case on the basis of the decision of the Court of Appeal in England in Grant v Gold Exploration & Development Syndicate Ltd [1900] 1 QB 233, in particular, the passage at 244 where AL Smith LJ said:

"The case in this Court of the Salford Corporation v. Lever [1891] 1 Q. B. 168] is a clear authority that where an agent, who has been bribed so to do, induces his principal to enter into a contract with a person who had paid the bribe, and the contract is disadvantageous to the principal, the principal has two distinct and cumulative remedies: he may recover from the agent the amount of the bribe which he has received, and he may also recover from the agent and the person who has paid the bribe, jointly or severally, damages for any loss which he has sustained by reason of entering into the contract without allowing any deduction in respect of what he has recovered from the agent under the former head, and it is immaterial whether the principal sues the agent or the third person first. This is the head-note of this case, and it accurately describes what was decided thereon."

1. In Mahesan v Malaysia Government Officers' Co-Op Housing Society Ltd [1979] AC 374, the Privy Council said (at 382)

"Although as a matter of decision Salford Corporation v. Lever [1891] 1 Q.B. 168 was concerned only with the liability of the briber the dicta summarised in the headnote deal also with the liability of the agent. It was accurate to say that the principal had two distinct remedies against the agent, one for money had and received and the other for the tort of fraud; but it was flying in the face of a long line of authority to say that these two remedies were not alternative but cumulative. The authorities to this effect are discussed at length in the speeches in United Australia Ltd. v. Barclays Bank Ltd. [1941] A.C. 1, a case in which the House of Lords confirmed the principle that where the same facts gave rise in law to two causes of action against a single defendant, one (formerly lying in assumpsit) for money had and received and the other for damages for tort, the plaintiff must elect between the remedies. It held, however, that such election was not irrevocable until judgment was recovered on one cause of action or the other."

1. The learned authors of Bowstead & Reynolds On Agency, 19th ed at article 49 state the principle as being that the agent is liable to the principal in restitution for the amount of the bribe or secret commission, or in tort or contract for any loss suffered by the principal from entering into the transaction in respect of which the bribe or secret commission was given or promised, Mahesan v Malaysia Government Officers Co-Op Housing Society Ltd is cited.

1. In Dal Pont, Law of Agency, 3rd ed, the learned author states the principle as being:

"The principal may arguably, as an alternative to recovering the bribe from the agent, recover from the agent and the briber jointly or severally, damages for any loss he or she has sustained by reason of entering into the contract with the payer. Although the principal must elect between these options, such an election is not irrevocable until judgment is recovered on one cause of action or the other."

1. In a footnote, Professor Dal Pont notes that although subsequent case law has not queried the Mahesan "alternative approach", it had been criticised in certain academic literature which is cited.

1. In the present case, the question arises quite starkly. This is not a case in which the plaintiff's loss is to be determined independently of the payment of the bribe. In a case such as Grant, the principal suffers loss for which both the agent and briber will be liable by reason of having entered into a contract for a price which is different from the true value of the goods bought or sold. That is to say, the measure of damages or compensation would be the difference between the true value of the goods or services bought or sold, and the price given or received.

1. In the present case, the amount of the bribe is a direct component of the claim for compensation. It would involve a double recovery if the plaintiff were to receive both the amount of the bribe and full compensation for the loss.

1. I do not think I would be justified in not following what was said by the Privy Council in Mahesan. Whilst I have had the benefit of very helpful argument by counsel for the plaintiff, I have not had the benefit of argument on the other side. Notwithstanding the plaintiff's argument, I am not persuaded that I should provide the plaintiff with the cumulative remedy sought by adding further amounts of $611,700 plus interest to the amount for which judgment should be entered.

1. For these reasons, I give judgment for the plaintiff against the first defendant in the sum of $3,775,806.13 inclusive of pre-judgment interest. I declare that the first defendant held sums deposited in St George Bank account number 1188 2491 during the period from 4 January 2005 to 1 September 2011, up to a total of $611,700, on constructive trust for the plaintiff. I order that the first defendant pay the plaintiff's costs.

Decision last updated: 24 December 2014