Heperu Pty Ltd v Belle - [2009] NSWCA 252

No judgment structure available for this case.

Reported Decision: 76 NSWLR 230

New South Wales

Court of Appeal

CITATION: Heperu Pty Limited v Belle [2009] NSWCA 252

HEARING DATE(S): 9 April 2009

JUDGMENT DATE:
26 August 2009

JUDGMENT OF: Allsop P at 1; Campbell JA at 179; Handley AJA at 180

DECISION: 1. The appellants file and serve within 28 days submissions on relief in the light of the reasons.
2. The respondent file and serve within a further 28 days submissions on relief in the light of the reasons.
3. The appellants file and serve submissions in reply within a further 14 days.

CATCHWORDS: BANKING AND FINANCE – bank account authority - authority given to agent to operate account – liability of principal for deposit and withdrawal of fraudulently obtained funds by the agent– scope of authority given to agent to operate account - whether scope of authority included authority to deposit funds misappropriated from third parties – no liability where acts were beyond the scope of the authority given to the agent - BANKING AND FINANCE – bank account authority – liability of principal for withdrawal of funds from account derived from the proceeds of misappropriated cheques – whether withdrawal of funds alone is having use and benefit of the funds – principal did not authorise to use the account to receive or deploy misappropriated funds – no liability of the principal in these circumstances - RESTITUTION – money had and received – receipt and benefit of funds in bank account by owner of the account – liability based on possession and control of funds – requirement that owner of account knew or ought to have known that they had possession of control of the funds – “ought to have known” requires some fault on the part of the recipient – owner of account had no knowledge and ought not to have known in the circumstances - RESTITUTION - money had and received – liability of volunteer recipient of misappropriated funds for the traceable proceeds held at the time of the trial – liability separate from liability in equity as a constructive trustee under Barnes v Addy – recognition at law of an equitable interest in property – personal remedy to value of equitable property interest in property in hands of another - liability for proceeds remaining not for amount received - EQUITY – trusts – constructive trust - liability as constructive trustee under first limb Barnes v Addy - no notice and no knowledge – liability as constructive as trustee under second limb of Barnes v Addy – no notice and no knowledge - TRACING – personal liability for value remaining of misappropriated funds that can be traced into real property – tracing of misappropriated cheques into mortgage repayments made on real property – tracing through mixed fund - REMEDIES – remedies at law and in equity – availability of a personal remedy to value of an interest in property where property in hands of another - GOODS – receiver of goods as finder – traceable proceeds of cheques into real property are not goods – law of receiver of goods as finder not applicable on the facts

LEGISLATION CITED: Partnership Act 1892 (NSW)
Real Property Act 1900 (NSW)

CATEGORY: Principal judgment

CASES CITED: Armory v Delamirie (1722) 1 Stra 505
93 ER 664
Austin v Khaliffe [1966] 2 NSWSSR 632
Australia and New Zealand Banking Group Limited v Westpac Banking Corporation [1988] HCA 17
164 CLR 662
Australian Postal Corporation v Lutak (1991) 21 NSWLR 584
Banque Belge pour l’Etranger v Hambrouck [1921] 1 KB 321
Barnes v Addy (1874) LR 9 Ch App 244
Barwick v English Joint Stock Bank (1867) LR 2 Ex 259
Black & Black v S. Freeman & Company [1910] HCA 58
12 CLR 105
Boscawen v Bajwa [1996] 1 WLR 328
Brady v Stapleton [1952] HCA 62
88 CLR 322
British Homes Assurance Corporation Ltd v Paterson [1902] 2 Ch 404
Campbell v Kitchen & Sons Ltd and Brisbane Soap Co Limited [1910] HCA 50
12 CLR 515
Creak v James Moore & Sons Proprietary Limited [1912] HCA 67
15 CLR 426
Devaynes v Noble (1816) 1 Mer 572
35 ER 781
Farah Constructions Pty Limited v Say-dee Pty Limited [2007] HCA 22
230 CLR 89
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Limited [1943] AC 32
Fischlser v Administrator of Roumanian Property [1960] 1 WLR 917
Ford v Perpetual Trustees Victoria Limited [2009] NSWCA 186
Foskett v McKeown [2001] 1 AC 102
Fox v Percy [2003] HCA 22
214 CLR 118
Frith v Cartland (1865) 2 H & M 417
71 ER 525
Hagan v Waterhouse (1991) 34 NSWSLR 308
Hamlyn v Houston & Co [1903] 1 KB 81
Heperu v Morgan Brooks Pty Ltd (No 2) [2007] NSWSC 1438
In re Diplock
Diplock v Wintle [1948] 1 Ch 465
Jacobs v Morris [1901] 1 Ch 2 61
[1902] 1 Ch 816
James v Oxley [1939] HCA 1
61 CLR 433
Jones v Southall and Bourke Pty Ltd [2004] FCA 539
Karak Rubber Co Ltd v Burden (No 2) [1972] 1 WLR 602
Keefe v Law Society of New South Wales (1998) 44 NSWLR 451
Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548
Lloyd v Grace
Smith & Co [1912] AC 716
Marsh v Keating (1834) 2 Cl & F 250
6 ER 1149
Ministry of Health v Simpson [1951] AC 251
Moses v Macferlan (1760) 2 Burr 1005
97 ER 676
National Commercial Banking Corporation of Australia Ltd v Batty [1986] HCA 21
160 CLR 251
Niru Battery Manufacturing Co v Milestone Trading Ltd (No 2) [2003] EWCA Civ 1446
[2004] QB 985
Parker v British Airways Board [1982] 1 QB 1004
Perpetual Trustees Australia Ltd v Heperu Pty Ltd [2009] NSWCA 84
Port of Brisbane Corporation v ANZ Securities Limited (No 2) [2002] QCA 158
[2003] 2 Qd R 661
Primeau v Granfield 184 F 480 (1911)
R v Brown [1912] HCA 6
14 CLR 17
R v Grant [1979] 2 NSWLR 478
Re Hallett’s Estate (1880) LR 13 Ch d 696
Re Oatway
Hertslet v Oatway [1903] 2 Ch 356
Re Sutherland
French Calendonia Travel Service Pty Ltd (In Liq) [2003] NSWSC 1008
59 NSWLR 361
386
Robb Evans of Robb Evans and Associates v European Bank Limited [2004] NSWCA 82
61 NSWLR 75
Russell v Wilson [1923] HCA 60
33 CLR 538
Sinclair v Brougham [1914] AC 398
Scott v Scott [1963] HCA 65
109 CLR 649
Stephens Travel Service International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331
Taylor v Plumer (1815) 3 M & S 562
105 ER 721
Transvaal v Delagoa Bay Investment Co Ltd v Atkinson [1944] 1 All ER 574
Trustee of the Property of F. C Jones & Sons (a firm) v Jones [1997] Ch 159
Vakele Pty Ltd v Assenden [1989] ANZ ConvR 462
Watney v Mass (1954) 54 SR (NSW) 203
Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669
Zobory v Commissioner of Taxation [1995] FCA 1226
64 FCR 86

TEXTS CITED: D Hayton
Underhill and Hayton Law Relating to Trusts and Trustees ((14th Ed) 1987 Butterworths)
J Heydon and M Leeming
Jacobs’ Law of Trusts in Australia ((7th Ed) 2006 Lexis Nexis Butterworths)
Goff and Jones Law of Restitution ((6th Ed) 2002 Sweet & Maxwell)
K Mason
J Carter and G Tolhurst
Mason and Carter’s Restitution Law in Australia ((2nd Ed) 2008 Lexis Nexis Butterworths)
Lloyd’s Maritime and Commercial Law Quarterly 240
R Meagher
J D Heydon and M Leeming
Meagher
Gummow & Lehane’s Equity: Doctrines and Remedies ((4th Ed) 2002 Lexis Nexis Butterworths)
The Law of Tracing (1997 Clarendon Press)
L Smith “Tracing in Taylor v Plumer: Equity in the court of King’s Bench” [1995]

PARTIES: Heperu Pty Limited
Kirisi Holdings Pty Limited
Patrice Belle (formerly Patrice Cincotta)

FILE NUMBER(S): CA 40107/08

COUNSEL: G K Burton SC, C L Cochrane (Appellants)
J S Van Aalst (Respondent)

SOLICITORS: Thomas Henry Bray, Sydney (Appellants)
Hardings Lawyers, Sydney (Respondent)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): 6165/03

LOWER COURT JUDICIAL OFFICER: Palmer J

LOWER COURT DATE OF DECISION: 12 December 2007

LOWER COURT MEDIUM NEUTRAL CITATION: Heperu Pty Ltd & Ors v Morgan Brooks Pty Ltd & Ors (No 2) [2007] NSWSC 1438

40107/2008

ALLSOP P
CAMPBELL JA
HANDLEY AJA
Wednesday 26 August 2009

HEPERU PTY LIMITED & ORS v PATRICE BELLE

Headnote

Between August 2001 and November 2003 Mr Dominic Cincotta practiced a fraud involving the misappropriation of cheques handed to Mr Cincotta for investment on behalf of the appellants. At the time of the fraud Mr Cincotta was married to the respondent, Ms Belle.

The misappropriated cheques were deposited by Mr Cincotta into a Perpetual Trustees Investment account in Ms Belle’s name (the Perpetual account). Funds were then withdrawn from the Perpetual account and deposited into a Westpac bank account also in Ms Belle’s name (the Westpac account). Funds withdrawn from the Westpac account were used to pay off credit card debts and mortgage repayments for property in the name of Ms Belle alone or Ms Belle and Mr Cincotta.

The appellants sued Ms Belle in the Supreme Court of NSW trying to recover the misappropriated funds as one of a number of claims against different parties allegedly connected with Mr Cincotta’s fraud.

The appellants submitted that Ms Belle was liable to account for the misappropriated funds on a number of different bases. However, the primary judge held that Ms Belle was not liable on any of the cases submitted at trial by the appellants.

The issues on appeal from the decision of the primary judge were:

i) whether Ms Belle was liable for funds deposited and withdrawn from the Perpetual account and deposited into the Westpac account based on the authority she had given Mr Cincotta to operate the accounts;

ii) whether Ms Belle was liable as principal on the Westpac account;

iii) whether Ms Belle was liable in money had and received and whether she had received the funds;

iv) whether Ms Belle had accessory liability for funds received as an accessory to a breach of trust;

v) whether Ms Belle was liable as a volunteer;
vi) whether Ms Belle was liable for goods received as a finder.

Held standing the matter over for further submissions

(Allsop P, Campbell JA and Handley AJA agreeing)

Ms Belle was not liable under the bases submitted by the appellant (other than as a volunteer).

1) Ms Belle was not liable for funds deposited and withdrawn from the Perpetual account and deposited into the Westpac account based on the authority she had given Mr Cincotta:

a. There is no liability of the principal where the acts are beyond the scope of authority given to the agent to operate the account: [57]-[59].
b. The use of the accounts for depositing and withdrawing funds misappropriated from third parties was beyond the scope of any authority given to Mr Cincotta by Ms Belle:

i. Ms Belle did not expressly authorise Mr Cincotta to operate the Perpetual account as she did not sign the relevant authority to that effect: [52], [55].

ii. Any general authority that might have been given to Mr Cincotta to operate the Perpetual account as Ms Belle’s agent did not extend to using the account to deposit and withdraw funds fraudulently obtained: [60].
iii. The authority Ms Belle vested in Mr Cincotta to operate the Westpac account did not authorise him to operate the account for receiving funds derived from misappropriated cheques: [59].

2) Ms Belle was not liable as principal on the Westpac account on the basis of the withdrawal of funds out of the Westpac account:

a. The authority to operate the Westpac account was not a grant of authority to Mr Concotta to engage in wrongful conduct and deposit and withdraw fraudulently obtained funds on Ms Belle’s behalf: [65].
b. In light of the extent of authority given to Mr Cincotta Ms Belle cannot be taken through the act of withdrawal of the funds alone to have been using the funds and therefore benefiting from the funds: [64].

3) Ms Belle was not liable in money had and received on the basis of the deposit of proceeds of misappropriated cheques into the Perpetual and Westpac accounts:

a. For Ms Belle to be liable in restitution she needed to know or ought to have known through some fault on her part that she had possession and control of the funds in the accounts at the relevant time: [71], [74]-[75]:

i. Ms Belle did not know that she possessed or controlled the funds in either account: [71];

ii. Ms Belle’s means of knowing was inadequate to found liability on the basis that she ought to have known through some fault that possessed or controlled the funds in the account: [77];
iii. In the circumstances the size of the benefits derived from the accounts did not put Ms Belle on notice such that she ought to have known that she possessed or controlled the funds in the account: [80].

b. Ms Belle did not receive an enduring benefit from withdrawal out of the Westpac account: [81]–[83].

4) Ms Belle was not liable as a knowing recipient of trust funds or through accessory liability:

a. The primary judge’s conclusions on Ms Belle’s honesty and her knowledge of Mr Cincotta’s fraud were not set aside on appeal and therefore Ms Belle was not liable under either the first or second limb of Barnes v Addy : [54], [86].

5) Ms Belle was not liable as a receiver of found goods:

a. Ms Belle did not have possession of goods received as a finder so the law of finder of goods was not applicable in the circumstances: [170].

i. Ms Belle received the benefit of misappropriated cheques traced into real property not goods: [170].

There was one basis submitted by the appellant under which Ms Belle could possibly be found to be liable to account for the benefit she received from the misappropriated cheques.

6) Ms Belle may be liable as a volunteer:

a. Given the primary judge’s findings on knowledge and notice which were not set aside, Ms Belle’s liability as a volunteer had to be based on the ability to trace the proceeds of the misappropriated cheques into the real estate at the relevant time: [108].

i. There is an action at law in money had and received to restore the value of the proprietary benefit retained by a volunteer where the proprietary benefit is traceable in equity from misappropriated funds: [144], [153];

ii. There is a personal equitable remedy touching the volunteer’s conscience available to restore funds derived from misappropriations to the extent, as a volunteer, they retain the funds or their traceable products when there is notice of the claim: [163];
iii. The remedies at law and in equity should focus upon the value properly attributable to the earlier receipts derived from the misappropriated funds and still retained by the volunteer at the relevant time: [157].

b. If at least some of the payments into the mortgage accounts were referable to funds being the proceeds of misappropriated cheques the funds could be traced in equity into the property: [124].

c. The primary judge erred by failing to adequately address the tracing issue and give reasons in concluding that Ms Belle did not have property in her hands which was the proceeds of Mr Cincotta’s fraud: [164].

d. The Court gave leave to the parties to make submissions on the tracing and proprietary issues which they had not previously fully addressed: [173].

e. If it can be demonstrated be demonstrated that some benefit in a traceable interest in the properties can be shown at the relevant time to found a personal claim the appeal should be allowed and remitted to Equity Division for assessment: [170].
f. If it cannot be shown that at the relevant time Ms Belle had a traceable interest in the properties the appeal should be dismissed notwithstanding the primary judge’s error: [169].

40107/2008

ALLSOP P
CAMPBELL JA
HANDLEY AJA
Wednesday 26 August 2009

HEPERU PTY LIMITED & ORS v PATRICE BELLE

Judgment

These reasons are organised as follows:

Introduction	[2]-[5]
The result of the appeal in summary	[6]
The terms of the pleaded case against Ms Belle	[7]-[19]
The primary judge’s appreciation of the pleaded issues	[20]-[23]
The primary judge’s disposition of the case against Ms Belle Ms Belle’s evidence Mr Cincotta as Ms Belle’s agent Ms Belle as recipient of trust property Ms Belle as a knowing participant Liability as volunteer Liability as finder	[24]-[31] [32]-[35] [36]-[39] [40] [41]-[42] [43]-[44]	[24]-[44]
Arguments on appeal summarised	[45]-[46]
Ms Belle’s evidence and any authority given to Mr Cincotta (grounds 1-7 of the Notice of Appeal)	[47]-[60]
The asserted liability of Ms Belle as principal on the Westpac account (grounds 8-11 of the Notice of Appeal)	[61]-[67]
Liability in money had and received; receipt and benefit of funds (grounds 13-15 of the Notice of Appeal)	[68]-[83]
Grant of actual authority	[70]
Ms Belle’s asserted knowledge of the funds	[71]
Ms Belle ought to have known of the funds	[72]-[80]
The receipt of “enduring benefits” from withdrawals from the Westpac account	[81]-[83]
Recipient and accessory liability (grounds 12-16 of the Notice of Appeal)	[84]-[86]
Liability as a volunteer (grounds 17 and 18 of the Notice of Appeal)	[87]-[174]
Liability as a finder (grounds 19 and 20 of the Notice of Appeal)	[175]-[176]
Orders	[177]

Introduction

2 This is an appeal arising out of the same factual substratum as discussed in another appeal to this Court: Perpetual Trustees Australia Ltd v Heperu Pty Ltd [2009] NSWCA 84 (“Perpetual Trustees”). Both appeals were from orders made by the primary judge, Palmer J (Heperu Pty Ltd v Morgan Brooks Pty Ltd (No 2) [2007] NSWSC 1438) after hearing the various cases brought by Dr Landa and his companies (the appellants in this appeal and to whom I will refer in an undifferentiated way as “the appellants”, whether referring to the conduct of the hearing before the primary judge or on appeal) as set out in Perpetual Trustees at [4].

3 The fraudulent conduct of Mr Cincotta is discussed in Perpetual Trustees at [31] to [35]. It is unnecessary to repeat these matters which can be taken as incorporated herein.

4 Dr Landa and his companies also sued Ms Belle, formerly Mrs Cincotta, who was the respondent to this appeal. Their case against Ms Belle was dismissed by the primary judge and they appeal from that dismissal.

5 From 23 August 2001 to 20 December 2002 Mr Cincotta caused six amounts, totalling $2,744,254.50, to be placed in a cash management fund at Perpetual Trustees Australia Ltd (“Perpetual” and the “Perpetual account”, respectively). The form of the pleadings in the Second Further Amended Statement of Claim (“FASC”) paras 11 and 21A suggests that the relevant cheques were deposited in an account with Morgan Brooks and the equivalent sums then withdrawn from that account and deposited into the Perpetual account. However, in addressing the case against Perpetual for conversion of the misappropriated cheques, the primary judge found that the cheques were deposited into the Perpetual account directly. The appeal in Perpetual Trustees proceeded based on this finding of fact. It also appears to be common ground between the parties in this appeal. In any case, the analysis for this appeal does not turn on whether the amounts were initially deposited in an account with Morgan Brooks before being transferred in their entirety to the Perpetual account. There was no debate about the proposition that these were funds to which the appellants were beneficially entitled, to the extent that they were able to be identified. There was no debate about the proposition that Mr Cincotta breached his duties of honesty and fiduciary fidelity to the appellants in directing the funds in question into the Perpetual account in his wife’s name and then into a cash management account at Westpac Banking Corporation (“Westpac” and the “Westpac account”, respectively) also in her name. Funds were thereafter withdrawn from the Westpac account, which appear to have been used for a number of purposes including the payment of credit card debts and of principal and interest on loans secured on certain real property held in the names of Mr Cincotta and Ms Belle and Ms Belle alone.

The result of the appeal in summary

6 With one exception, the appellants’ contentions should be rejected. They should succeed, in one respect, in their arguments on Ms Belle’s liability as a volunteer. That success is, however, of a qualified character. The primary judge erred in two respects in concluding at [135] of his reasons that the appellants had not shown that Ms Belle had property in her hands which was the proceeds of Mr Cincotta’s fraud. That conclusion of error does not, however, translate into a simple remedial conclusion. A number of matters were not addressed before the primary judge and on appeal, some of which concern the appropriate relief in this Court. Some also concern the appropriate relief to which the appellants may be entitled. For these reasons, and the reasons that follow, I would make orders to facilitate the hearing of the parties on the appropriate form of relief.

The terms of the pleaded case against Ms Belle

7 It is necessary, because of the way the appeal was argued and because of potentially difficult questions about relief, to be precise in describing the claims of the appellants against Ms Belle. The claims were contained in paras 21 to 30A of the FASC. It is also necessary to recognise that the legitimate scope of the pleading takes its content not merely from the textual meaning of the words used by the pleader, but also from the context of how the case was conducted at the trial. Thus, final conclusions about the legitimate reach of the case as pleaded can only be made after any relevant aspect of the conduct of the hearing is examined.

8 In para 21A (after the deposits of the six sums into the Perpetual account were recited) it was alleged that the appellants had suffered loss and damage as a consequence of Mr Cincotta’s breach of duty and trust pleaded in para 21 being the withdrawal by him (or Morgan Brooks) of moneys of the appellants and the placement of that money in the Perpetual account.

9 In paras 22 and 23, it was alleged that between August 2001 and December 2003 all the funds in the Perpetual account were withdrawn and placed in the Westpac account. The allegation was that this was done by Mr Cincotta and/or Ms Belle. One particular withdrawal of $1 million was alleged to have been made from the Perpetual account and placed into the Westpac account on 17 February 2003 (see para 22). It was then alleged in para 24 that on 18 February 2003, the sum of $1 million was withdrawn from the Westpac account. It was common ground at the trial that this latter withdrawal was paid to the appellants.

10 In para 25, it was alleged, relevantly, that neither Mr Cincotta nor Ms Belle gave consideration for the transfers into the Perpetual account.

11 Then, in para 26, it was alleged that Ms Belle was liable to account to the appellants for the sums transferred into the Perpetual account in breach of fiduciary duty or trust committed by Mr Cincotta or Morgan Brooke on four grounds as follows:

“(a) she received the funds as a volunteer and gave no consideration therefor;

(b) she knew or ought to have known that the funds so received into her account and the funds so withdrawn by her were not received for any legitimate commercial or other purpose;

(c) she knew that the funds so received into her account were of such magnitude that they were not funds received pursuant to any earnings or other entitlement of the fourth defendant to those funds;

(d) she made no reasonable inquiry as to the source of or reason for the transfers.”

12 The liability claimed in para 26 was one “to account for the sums transferred to her account”, that is, the sums received in the Perpetual account. This can be seen to be a claim for a personal remedy for the payment of money.

13 In para 27, it was alleged that the appellants suffered loss and damage in the sum of $1,744,452.50 [sic] (it appears the amount claimed should have been $1,744,254.50, the figure also used by the primary judge) “[a]s a result of the matters above pleaded.”

14 In para 28, it was alleged that “in the circumstances” it was unconscionable for Ms Belle “to retain the benefit of the funds received into her account.” Again the plea was based on the receipt of funds in the Perpetual account. The expression “her account” in these paragraphs appears to refer to the Perpetual account, though considering the reference to the Westpac account in para 24, it may be an expression wide enough to cover both accounts.

15 In para 29, it was alleged that Ms Belle was “liable to account to the [appellants] for the sum of $1,744,452.50 as a constructive trustee on the ground of knowing receipt in each of [Mr Cincotta’s] breaches of fiduciary duty and/or trust” as earlier pleaded. This was a claim that Ms Belle came under a personal obligation to account – the claim being to account as a defaulting trustee would be liable to account: J Heydon and M Leeming, Jacobs’ Law of Trusts in Australia ((7^th Ed) 2006 Lexis Nexis Butterworths) at 263 [1310] (herein Jacobs’ Law of Trusts). (It will be necessary in due course to say something more of the content and scope of the obligation to “account as a constructive trustee” by reason of the holding of property in which another can be seen to have an interest.) The sum of $1,744,452.50 was the loss said (in para 27) to have been suffered from the pleaded receipts into the Perpetual account, the transfers into the Westpac account and the $1 million transfer out of the Westpac account (paras 20-26), being “the matters pleaded above” in para 27.

16 In para 30, it was alleged that “in the premises”, Ms Belle was “unjustly enriched at the expense of the plaintiffs”. This was a personal claim in restitution founded on the previous paragraphs, which were limited to the receipts into the Perpetual account, the transfers from the Perpetual account into the Westpac account and the $1 million withdrawal from the Westpac account.

17 Finally, in para 30A, and said to be “[f]urther and in the alternative to 26 to 30 above [and], in the premises in 22 to 25 above” Ms Belle was said to be “liable to account” or “liable in damages” or “liable … to pay equitable compensation” to the appellants in each case for $1,744,452.50 by reason that the matters in paras 22 to 24 (the withdrawals from the Perpetual account, the deposits into the Westpac account and the $1 million withdrawal out of the Westpac account) were done by her or, by Mr Cincotta with her actual authority. Subjoined to this paragraph as part of the pleading, but in effect standing as particulars of the allegations in para 30A were the following paragraphs:

“(1) [Ms Belle] gave [Mr Cincotta] the general authority to operate, on his signature alone, each of the accounts with the fifth defendant and the eighth defendant described in 22 to 24 above.

(2) Further and in the alternative, … [Ms Belle] signed in about 1994 an agreement together with [Mr Cincotta] in respect of the operation of the Coffs Harbour office and the business conducted therein and the matters discussed in 22 to 24 above were done within the scope of the authority of that agreement.”

18 The claims for relief in the FASC against Ms Belle were as follows:

“(g) A declaration that [Ms Belle] is liable to account to the [appellants] for the sum of $1,744,452.50 or such other sum as the Court thinks fit on the grounds of knowing receipt.

(h) In the alternative, an order that [Ms Belle] pay the [appellants] the sum of $1,744,452.50 by way of restitution.

(i) In the alternative, damages or equitable compensation in the sum of $1,744,452.50 against … [Ms Belle].”

19 No express claim for any identified property based on tracing was articulated in the FASC. No proprietary remedy whether by way of ownership or trust or security interest was expressly articulated in the FASC.

The primary judge’s appreciation of the pleaded issues

20 The primary judge expressed his understanding of the claims of the appellants against Ms Belle in [93]-[95] of his reasons, as follows:

“The claim against Ms Belle as prinicpal

[93] Dr Landa alleges that:

- between August 2001 and 20 December 2002, a net of $1,744,254.50, being Dr Landa’s money, was used by Mr Cincotta to purchase units in the Perpetual Cash Management Trust in Ms Belle’s name;

- that amount was subsequently withdrawn from the Perpetual account and transferred to the Westpac cash management account in Ms Belle’s name;

- the monies in the Westpac account were used for the benefit of Ms Belle and Mr Cincotta;

- Ms Belle is liable for the fraudulent acts of Mr Cincotta as her agent because those acts were done within the scope of the authority which she had conferred on him.

The claim against Ms Belle as knowing recipient of trust property

[94] Dr Landa alleges that Ms Belle is liable to account to him for the nett proceeds of $1,744,254.50 because:

- she knowingly received trust property, being the money of Dr Landa fraudulently misappropriated by Mr Cincotta;

- she applied that property for her own use, with actual notice that such application was a breach of trust;

Barnes v Addy

Claim against Ms Belle as volunteer

[95] Dr Landa alleges that:

- Ms Belle gave no consideration for the transfer into her Perpetual account of the monies misappropriated by Mr Cincotta;

- as a volunteer Ms Belle holds the money on behalf of Dr Landa, whose superior legal title prevails against her;

- Ms Belle has been unjustly enriched at the expense of Dr Landa and is liable to account for money had and received.”

21 The reference in [94] to the “second limb of Barnes v Addy” can be taken to be in addition to the so-called first limb of Barnes v Addy, based on knowing receipt, to which the heading to the paragraph refers. His Honour later dealt with the so-called two limbs.

22 The primary judge summarised Ms Belle’s defences in [96] and [97] of his reasons as follows:

“Defences and issues

[96] Ms Belle says that, prior to these proceedings, she had no knowledge of the fraudulent misappropriations of Mr Cincotta and that the proceeds of the fraud had been paid into her accounts.

[97] Ms Belle denies that:

- she withdrew any of Dr Landa’s funds from the Perpetual account in her name; either alone or jointly with Mr Cincotta;

- she caused any of Dr Landa’s money to be transferred into the Westpac account in her name;

- she had any knowledge, actual or constructive, of Mr Cincotta’s breach of fiduciary duty and breach of trust;

- she received any funds of Dr Landa;

23 It is to be noted that in [93] of his reasons, the primary judge, albeit in the context of discussing her asserted liability as a principal, expressed his understanding of one of the issues as whether moneys in the Westpac account were used for the benefit of Ms Belle.

The primary judge’s disposition of the case against Ms Belle

Ms Belle’s evidence

24 Central to the primary judge’s disposition of the claim against Ms Belle was his Honour’s evaluation of her evidence. Importantly, his Honour accepted Ms Belle “as a witness of credit” at [98] of his reasons. It can be seen from the balance of his Honour’s reasons, and in particular at [116] that this was a conclusion based, in significant part, on his Honour’s assessment of Ms Belle as truthful. It was plainly a conclusion based, in part at least, on demeanour. Relying on Ms Belle’s evidence, the primary judge was prepared to accept the following: Mr Cincotta managed and controlled the family’s financial affairs, including the payment of all accounts and outgoings; Ms Belle trusted Mr Cincotta completely and had the impression that he was a good businessman; after moving to Coffs Harbour to live in 1993, Ms Belle opened two accounts with Westpac, the Westpac account (to which I have referred) and a cheque account; the Westpac (cash management) account was opened at Mr Cincotta’s request; the cheque account was opened for the purpose of Ms Belle depositing commission cheques that she received as a sales representative for a clothing company; and Mr Cincotta was a signatory to both Westpac accounts.

25 On 1 September 1995, the Perpetual account was opened in the name, “Patrice Cincotta”. The account was opened pursuant to an application form which Ms Belle signed at Mr Cincotta’s request. She gave evidence, and the primary judge accepted, that Mr Cincotta told her that he wished to open the Perpetual account in order to buy shares “for superannuation”. She said that she was unfamiliar with shares and share ownership. She said that she did not ask, and was not told by Mr Cincotta, what shares, if any, were actually bought for her. She trusted Mr Cincotta to act in her interests. The application form for the opening of the Perpetual account had two places for the signature of the applicant. One was at the foot of the second page beside the words “applicant’s signature”. Ms Belle accepted (after originally denying the fact) that the signature placed there was her signature. The other place for signature was further up the page and adjacent to the words “authorised representative appointment”. This part of the form provided for the applicant to authorise another person to operate the account. A signature was placed there authorising Mr Cincotta to operate the account. Ms Belle said this signature was not hers. The primary judge accepted that evidence, saying at [103]:

“… not only because I accept her generally as a witness of credit, but also because, even to the naked eye, the signature in this place differs noticeably from the genuine signature of Ms Belle at the foot of the page.”

26 From this, the primary judge inferred that Mr Cincotta “forged Ms Belle’s signature on the form in this place in order to allow him to operate the Perpetual account in her name without her knowledge.”

27 The application form requested that interest from the deposits in the Perpetual account be credited to the Westpac account.

28 The primary judge was satisfied that Ms Belle signed the application form opening the Perpetual account in reliance upon Mr Cincotta’s assurance that it was for the purposes of acquiring unspecified shares for her benefit. He was also satisfied that Ms Belle had no knowledge otherwise of the content of the application form and that she did not permit Mr Cincotta to operate the account in her name. (See [105] of his reasons.)

29 The primary judge found that Mr Cincotta forged the signature of Ms Belle in each of the applications for investment in the Perpetual account of the personal cheques and the bank cheques given to him by Dr Landa.

30 The primary judge accepted at [116] of his reasons that Ms Belle had no knowledge whatsoever of Mr Cincotta’s dealings with Dr Landa or of the use which Mr Cincotta made of her Perpetual account and her Westpac account in order to facilitate his frauds.

31 Having assessed Ms Belle’s evidence in this way, the primary judge then dealt with the various ways he understood the case to be put:

(a) that Mr Cincotta was Ms Belle’s agent;

(b) that Ms Belle was a recipient of trust property with the relevant degree of knowledge or notice to be personally liable;

(c) that Ms Belle was a knowing participant in Mr Cincotta’s fraudulent design;

(d) that Ms Belle was liable as a volunteer; and

(e) that Ms Belle was liable as a finder.

Mr Cincotta as Ms Belle’s agent

32 The primary judge recited the claims of the appellants that even if Ms Belle was (on this hypothesis) ignorant of Mr Cincotta’s fraud she was liable for Mr Cincotta’s actions in using the proceeds of the misappropriated cheques to purchase units in the Perpetual account, redeeming the units and paying the proceeds into the Westpac account and withdrawing the moneys from the Westpac account.

33 The argument was that, in authorising Mr Cincotta as a signatory to operate the Perpetual account and the Westpac account, Ms Belle gave Mr Cincotta actual and general authority to deposit and withdraw funds from those accounts and that Mr Cincotta was acting within the scope of that general authority when he fraudulently deposited the relevant cheques into the Perpetual account, redeemed the units and placed the funds into the Westpac account and withdrew the funds from the Westpac account.

34 The primary judge rejected this argument on the basis of his finding that Ms Belle did not authorise Mr Cincotta to operate the Perpetual account. Her signature apparently authorising him to operate that account was forged. Also forged were her signatures appearing on the application forms depositing the cheques into the Perpetual account. Therefore, the deposits and withdrawals of the appellants’ money into and out of the Perpetual account were not done with Ms Belle’s authority in any sense.

35 As to the Westpac account, the primary judge accepted that Mr Cincotta may be seen as acting with an actual authority given to him by Ms Belle to operate that account. He concluded, however, at [121] that:

“… the mere act of withdrawal of the funds was not in itself wrongful and caused no loss to Dr Landa. What was wrongful and what caused loss was Mr Cincotta’s misapplication of the withdrawn funds to his own purposes, not to Dr Landa’s purposes. Those acts of misappropriation were unknown to Ms Belle and were in no sense authorised by her.”

Ms Belle as recipient of trust property

36 The primary judge stated that liability under the first limb of Barnes v Addy depended upon the appellants showing that Ms Belle received trust property or property acquired through breach of fiduciary duty with notice of the trust or of the facts and circumstances constituting the breach of duty, referring to Karak Rubber Co Ltd v Burden (No 2) [1972] 1 WLR 602 at 632-633 and Farah Constructions Pty Limited v Say-dee Pty Limited [2007] HCA 22; 230 CLR 89 at 140-141 [112].

37 His Honour concluded that the claim thus formulated against Ms Belle failed for two reasons. The first reason was that having accepted Ms Belle’s evidence, his Honour concluded that Ms Belle did not have notice of any of the facts and circumstances constituting Mr Cincotta’s actions. The primary judge said that he could not hold that she was put upon enquiry as to what use had been made of her Perpetual cash management from 2001 to 2003 merely because Mr Cincotta had opened the account for her in 1995 and that she had heard nothing further about it. In this context, the primary judge referred to his acceptance of Ms Belle’s evidence that Mr Cincotta managed all of the family affairs in an apparently trustworthy manner.

38 The primary judge accepted that Ms Belle had the means of finding out what had happened with the account because she, as owner of the account, was entitled to ask Perpetual for statements. However his Honour held that a person who has the means of finding out about something does not thereby have a obligation in law to find out about that matter, unless there is some apparent reason to do so. His Honour concluded that there was no apparent reason why Ms Belle should have heard anything further about the Perpetual account by 2001.

39 The second reason that the claim thus framed was said to fail by the primary judge was that Ms Belle did not “receive” the funds for the purposes of the rule. In so finding, the primary judge had regard to National Commercial Banking Corporation of Australia Ltd v Batty [1986] HCA 21; 160 CLR 251. The primary judge dealt with Batty in [128]-[130] as follows:

“[128] In that case, one of two partners of an accounting firm misappropriated cheques payable to a third party, deposited the cheques in the firm’s bank account, withdrew the proceeds and applied them to his own use. One issue was whether the proceeds of the cheques had been received by the firm to the use of the bank which had paid them. The other partner of the firm was not at any time aware that the cheques had been paid into the firm’s account, and there was nothing which put him on enquiry as to what transactions were being effected through the partnership account, although he had the means of finding out if he wished.

[129] At p 268, Gibbs CJ, with whom Wilson and Dawson JJ agreed, said:

‘Where, because of the action of a servant or agent acting outside the scope of his authority, or for that matter because of the action of a complete stranger, money has been paid into the account of the defendant, who has technically received it, although he is quite unaware of that fact, and the money is then misappropriated, still without the knowledge or intervention of the defendant, there seems to be no reason in justice or equity why the defendant should be answerable for the money simply because theoretically he had the means of knowing that the money was in the account. In principle, in those circumstances, the defendant ought not to be liable unless, before the money was misappropriated, he knew or ought to have known that he had possession or control of it. In other words, where the defendant has not had the benefit of the money, has not played any part in disposing of it and was ignorant of the fact that it was theoretically under his control, he should not be liable in the absence of fault on his part.’

[130] Accordingly, the Court held that the innocent party had not received the funds. In accordance with this reasoning, I hold that Ms Belle did not receive Dr Landa’s funds into her Perpetual cash management account or into her Westpac account.”

Ms Belle as a knowing participant

40 This was a claim perceived by the primary judge to be encompassed in the pleadings based on the second limb of Barnes v Addy, that Ms Belle was a knowing participant in the fraud of Mr Cincotta. This claim failed by reason of the findings of honesty and lack of notice of Ms Belle (discussed above).

Liability as volunteer

41 It was submitted that Ms Belle received the payments as a volunteer, in that she gave no consideration for them. The appellants relied upon cases such as Black & Black v S. Freeman & Company [1910] HCA 58; 12 CLR 105 in which the High Court held that money stolen by a man and handed over to his wife as a gift could be recovered by the victim of the fraud notwithstanding the fact that the wife had not participated in the fraud. The primary judge rejected the claim framed on this basis at [135] of his reasons stating:

Black

42 At this point it should be noted that the pleading of receipt by Ms Belle in paragraphs 21-30A of the FASC was by the deposit of the funds in the Perpetual account and the Westpac account. The receipt of the funds giving rise to her liability was said in these paragraphs to be the receipt of the relevant funds into the two relevant accounts. As shall be discussed in due course, the evidence in the case extended beyond these limits and included detail of the withdrawals from the Westpac account for a number of apparent purposes, one of which was the payment of mortgage instalments and interest on loans used for the purchase of real estate. Leaving to one side the question of those mortgage instalments and interest payments, the disposal of the funds from the Westpac account permitted the primary judge to conclude, as he did, that it had not been shown that at the time of the hearing Ms Belle had property in her hands which she knew to be the proceeds of Mr Cincotta’s fraudulent misappropriations. Subject to the question of the payments in respect of the mortgages (to which I will come) there was no appeal from the primary judge’s finding that it had not been shown that Ms Belle had property in her hands at the time of trial which she knew to be the proceeds of Mr Cincotta’s fraudulent conduct. It should also be noted that for the purposes of the tracing claim (to which I will come) the relevant time to assess the facts is when the party receives notice of the claim or otherwise becomes aware that he or she has property paid for with the misappropriated funds of another. I will refer to this as the relevant time. Nevertheless, the terms of his Honour’s findings in [135] reflect an issue not clearly raised in the FASC under the claim of liability as a volunteer, namely what property, if any, did Ms Belle hold (at the time of the trial) which could be shown to be the proceeds of the misappropriations by Mr Cincotta. It will be necessary to return to this particular aspect of the pleading and the conduct of the trial.

Liability as finder

43 The appellants submitted that Ms Belle was in the position of a finder who takes lost goods or money into his or her possession, not obtaining absolute title to the stolen funds and not being entitled to keep them as against the rightful owner. Further, it was submitted that Ms Belle owed duties of safe keeping to the appellants to take reasonable care to ascertain the identity of, and to trace the true owner of, the funds and to take care of the funds in the meantime. These claims did not emerge with any clarity from the pleading. Nevertheless they appear to have been propounded before the primary judge.

44 The primary judge dismissed this way of putting the claim in [137] of his reasons in the following terms:

“For the reasons which I have given above, Ms Belle did not, in any sense required by the law, take Dr Landa’s money into her possession. It has not been shown that, since she discovered Mr Cincotta’s fraud, she has denied title to money or property in her possession which she knows, or has been proved, to be property traceable to the proceeds of Mr Cincotta’s fraud against Dr Landa. The claim against Ms Belle on this ground is but a variant of the claim based on the assertion that she is a volunteer. It fails for the same reasons.”

Arguments on appeal summarised

45 The appellants submitted on appeal, that their case at trial was that Ms Belle was liable to account on the following bases as expressed in the written submissions:

“(a) [Ms Belle] was liable as principal and/or in money had and received for the actions of [Mr] Cincotta in using the proceeds of the cheques to purchase units for [Ms Belle] in the Perpetual [account] redeeming the units as cash payments to [Ms Belle’s] Westpac [account] and withdrawing the monies from the Westpac [account].

(b) [Ms Belle] was liable to account to the appellants in equity as a recipient of trust property or property the subject of a breach of fiduciary duty or its traceable proceeds or as an accessory to a trustee’s or fiduciary’s breach of trust or breach of duty.

(c) As a ‘volunteer’ or ‘finder’, [Ms Belle] acquired no more than a possessory title to the monies, held subject to the superior title of the relevant appellant.

(d) The defences to restitution were not available in this case and were not in any event pleaded by [Ms Belle].”

46 There is an issue, debated on appeal, as to whether the tracing claim referred to in (b) above was run at the trial. Further, the question of the traced product of the misappropriations was also relevant to the claim of liability as a volunteer. The pleading, as I have sought to set out, did not refer to tracing. No proprietary relief was claimed. I will return to this in due course. It is first necessary to deal with the attack made on the primary judge’s acceptance of Ms Belle’s evidence as to what she knew, and did not know, and as to what she did, and did not do.

Ms Belle’s evidence and any authority given to Mr Cincotta (grounds 1-7 of the Notice of Appeal)

47 The appellants first directed their criticisms by reference to grounds 1-7 in the Notice of Appeal which were in the following terms:

“1. His Honour erred in accepting [Ms Belle] as a witness of credit and that she was doing her best to give her evidence truthfully and honestly.

2. His Honour erred in accepting [Ms Belle’s] evidence to the effect that [Mr Cincotta] managed and controlled the family’s financial affairs, that she trusted him completely until after the relevant events in the proceedings, had the impression that he was a good businessman and left the family’s financial affairs to him.

3. His Honour erred in accepting [Ms Belle’s] explanation about the circumstances of opening of the cash management account with [Perpetual] in her name in 1995 (‘the Perpetual [account]’).

4. His Honour erred in accepting that [Ms Belle] did not know that [Mr Cincotta] had placed what purported to be her signature against the words ‘Authorised Representative Appointment’ in the body of the second page of the application form for the opening of the Perpetual [account]; alternatively, his Honour erred in finding that the said signature was not [Ms Belle’s] signature.

5. His Honour erred in accepting that [Ms Belle] had no knowledge of the content of the said application form other than what she professed in her evidence to have and that she did not permit [Mr Cincotta] to operate the account in her name.

6. His Honour ought to have found that [Ms Belle] gave [Mr Cincotta] general actual authority to operate in her name and on her behalf the Perpetual [account].

7. His Honour ought to have found that [Ms Belle] was liable for the fraudulent acts of [Mr Cincotta] as her agent in respect of deposits by [Mr Cincotta] into the Perpetual [account] of cheques delivered by or on behalf of one or other of the [appellants] because those acts were done within the scope of the authority which [Ms Belle] had conferred on [Mr Cincotta]. His Honour erred in finding to the contrary.”

48 The first proposition of the appellants was that the primary judge did not make findings based on demeanour and that this Court was in as good a position as the primary judge to assess matters of credit, reliability and probability of recollection.

49 I reject that submission. The findings by the primary judge that Ms Belle was a truthful and reliable witness were in part based on seeing and assessing her and in that sense partly based on demeanour.

50 This being the case, the standard by reference to which the primary judge’s factual conclusions should be assessed was that discussed in Fox v Percy [2003] HCA 22; 214 CLR 118 at 128 [28] and [29]: glaringly improbable findings or findings contrary to compelling inferences.

51 The appellants submitted that the evidence taken as a whole did not present Ms Belle as someone innocent of her husband’s conduct, signing whatever her husband asked her to sign, believing his explanations and leaving him in charge of the family business and finances. First, the appellants attacked the finding that she did not sign the authorised representative appointment in August 1995 in setting up the Perpetual account or that she otherwise did not know that Mr Cincotta had signed for her. The appellants submitted that the Court should give weight to the admitted fact that in April 1994 Ms Belle gave general operating authority to Mr Cincotta in relation to her cheque account with Westpac and the Westpac account. The appellants also relied on the fact that Ms Belle did sign the document opening the Perpetual account (though not that part of the form authorising Mr Cincotta to operate the account) and on her case did not see, and did not ask to see, any of the statements of account issued by either Perpetual or Westpac in the relevant period and did not request them from Mr Cincotta. It was also submitted that in examining the transcript her evidence about not noticing the allegedly blank application form did not “ring true”. It was also emphasised that in her affidavit she had told a different version of events about shares and the Perpetual account and that she had sworn incorrect affidavits about her knowledge of the refinancing of the property she owned in August 2003. It was also emphasised that her evidence as to the signature on the opening of the Perpetual account changed. Her affidavit of 21 March 2007 reversed her earlier affidavit evidence in accepting that the signature at the bottom of the application form for the opening of the Perpetual account was genuinely hers. It was submitted that no explanation was provided as to why no comment was made about the authenticity or otherwise of the signature in the authorised representative part of the form in the March 2007 affidavit.

52 Taking into account all the submissions of the appellants about Ms Belle’s evidence, I am not able to conclude that his Honour’s acceptance of Ms Belle in relation to the signatures on the opening of the Perpetual account was either glaringly improbable or contrary to compelling inferences. Further, the acceptance of the complete reliance on Mr Cincotta was a matter which is not improbable given the apparent nature of the marriage relationship. The form of the signatures supports his Honour’s findings about the opening of the Perpetual account. No expert evidence was called in relation to the handwriting of the signature. His Honour had the advantage of seeing Ms Belle and seeing her cross-examined about all these matters. There is nothing which points unequivocally to any error in the primary judge’s conclusion that Ms Belle was not aware of Mr Cincotta’s fraud. The statements by her that she trusted her husband believing him to be a successful businessman are entirely objectively believable and were supported by the primary judge’s view of the witness.

53 The appellants submitted that the evidence concerning Ms Belle assisting or being involved in the mortgage origination business was contrary to her denial of that fact. There was evidence from Mr Aulsebrook that Ms Belle rang him about commissions. It also appeared that in 2004 Ms Belle gave some assistance in the home loans business started by Mr Cincotta and their son. The cross-examination in relation to this, however, was not such as to deny necessarily the legitimacy of her general statements that she relied on her husband in matters of business. The assertion of the appellants and certainly some aspects of the evidence of Dr Landa was that Ms Belle had a role in Mr Cincotta’s modus operandi of ingratiating herself with investors who were to be defrauded. A conclusion to this effect from Ms Belle’s conduct depended upon a finding that she was aware of what Mr Cincotta was doing and engaged in social communication with people such as Dr Landa in order to further the fraud. Even if it be the case, as it may well have been, that Ms Belle accompanied her husband on social occasions and did her best to engage socially with apparent prospective clients of her husband, that does not take the matter of her knowledge of any improper conduct by her husband forward at all.

54 I see no basis to overturn the findings by his Honour that Ms Belle was an innocent party in these transactions, without any knowledge of her husband’s impropriety and relying on him implicitly in matters of business.

55 On this basis, Ms Belle did not expressly authorise Mr Cincotta to operate the Perpetual account, in that she did not sign the relevant authority to that effect. The appellants submitted, however, that she signed that application leaving her husband to fill in “whatever else needed to be filled in”, recognising that Mr Cincotta looked after all financial affairs for the family. This may well be sufficient in another context for Ms Belle to be bound, in some respect, to the operation of the account. However, the question is whether Ms Belle authorised the use of the Perpetual account by Mr Cincotta for the deposit of cheques and withdrawal of funds fraudulently obtained. Ms Belle did not authorise Mr Cincotta to use the account in this way.

56 The appellants point out, and correctly so, that Ms Belle gave Mr Cincotta authority to operate both the Westpac account and the Westpac cheque account. Thus, they submitted, the primary judge erred in not concluding that the relevantly misappropriated funds were received by Ms Belle by their passing through an account in Ms Belle’s name in respect of which account she had vested Mr Cincotta with authority to operate. It was submitted by the appellants that Batty supported this conclusion.

57 In Batty, one of two partners misappropriated cheques payable to a third party, deposited them in the firm’s bank account, withdrew the proceeds and applied them to his own use. The bank, having been successfully sued for conversion by the third party, claimed to recover from the innocent partner. It was held that the use of the account in the fraudulent manner in question was outside the scope of the partnership business and so the fraudulent partner did not have the authority of his partner to operate the account in this way: see Batty at 261-262 (Gibbs CJ), 269 (Wilson J), 280-286 (Brennan J), and 298 (Dawson J). The scope of the authority of Mr Davis (the rogue partner) as between the bank and the partnership extended to accepting the deposit of cheques within the ordinary course of business of the firm. This was in the context of the Partnership Act 1892 (NSW), s 10, but also of the general law of principal and agent, of which the Partnership Act was said to be an exemplification: Batty at 260, per Gibbs CJ citing British Homes Assurance Corporation Ltd v Paterson [1902] 2 Ch 404 at 408. Gibbs CJ was of the view at 261 that “… the representation constituted by the application could not reasonably have been understood as authorizing Mr Davis to deposit cheques which neither he nor Mr Batty had any right or authority to deposit.” Wilson J agreed with Gibbs CJ. Brennan J saw it as necessary to identify the relevant class of act that was in the ordinary course of business. (Gibbs CJ had defined this in effect by the legal entitlement to receipt.) Brennan J recognised (at 282) that this question of classification was central to the liability. Brennan J concluded that the ordinary course of the partner’s business did not extend to authority in the partners to deposit third party cheques; he construed the written mandate to the bank narrowly. Further, he found the bank had been put on notice by further features of Mr Davis’ conduct. Dawson J agreed with Gibbs CJ that Davis was not acting in the ordinary course of the business of the partnership in depositing the cheques; he also refused to disturb the concurrent findings of fact that the acts of Mr Davis were not in the ordinary course of business of the partnership.

58 The appellants submitted that since the relationship between Ms Belle and Mr Cincotta was not one of partnership there were in effect no limits to the authority with which she invested him in respect of the Westpac account. Thus, she should be taken as having authorised the receipts of the misappropriated funds and received the misappropriated funds.

59 I reject this submission. Though there was no partnership, here, as in Batty, the issue is one of agency: Did Ms Belle, by her vesting of authority in Mr Cincotta to operate the Westpac account, authorise him to deposit cheques misappropriated from third parties, such that she can be taken to have received such funds? Whatever may be the contractual position vis-à-vis Westpac, there is no reason to conclude that she authorised the collection of the product of misappropriated cheques to found a conclusion that she received such funds in the context of a claim by the third party against her. Batty was concerned with the relationship of principal and agent and the extent of the authority of the fraudulent agent in dealing with a party in contractual relations with the firm, the bank. The question here is whether Ms Belle received the funds merely because they were deposited into the Westpac account and then removed from the Westpac account. (I leave to later the question of benefit and receipt from how the funds were deployed out of the Westpac account.) This question is not answered by distinguishing Batty; it is answered by asking (as Gibbs CJ did in Batty) whether the authority that Ms Belle gave to her husband can be understood to include receiving on her behalf the proceeds of misappropriated cheques. On the primary judge’s findings as to Ms Belle’s honesty and knowledge, the answer to that question is, no.

60 Thus, even if the appellants be correct in their submissions as to Ms Belle investing Mr Cincotta with authority to operate the Perpetual account, that authority would, likewise, not extend to receiving on her behalf misappropriated cheques.

The asserted liability of Ms Belle as principal on the Westpac account (grounds 8-11 of the Notice of Appeal)

61 Grounds 8-11 of the Notice of Appeal were in the following terms:

“8. His Honour failed to find, and ought to have found, that [Ms Belle] gave [Mr Cincotta] actual authority not only to withdraw but also to deposit into her cash management account opened in 1993 with Westpac Banking Corporation (‘the Westpac [account]’).

9. His Honour erred in finding that the mere act of withdrawal of funds from the Westpac [account] was not in itself wrongful and caused no loss to the [appellants].

10. His Honour erred in drawing a purported distinction between the said act of withdrawal and the misapplication of withdrawn funds to the purposes of [Mr Cincotta] and not to the [appellants’] purposes.

11. His Honour ought to have found that [Ms Belle] was liable for the fraudulent acts of [Mr Cincotta] as her agent in respect of deposits by [Mr Cincotta] into the Westpac [account] and, further and in the alternative, withdrawals by [Mr Cincotta] from the Westpac [account] because those acts were done within the scope of the authority which [Ms Belle] had conferred on [Mr Cincotta]. His Honour erred in finding to the contrary.”

62 To the extent that these grounds focus upon the asserted authority to receive funds into the Westpac account derived from misappropriated cheques deposited into the Perpetual account, I have dealt with this submission above.

63 To the extent that these grounds focus upon the withdrawal of funds from the Westpac account something further needs to be said. First, with the exception of the withdrawal of $1 million on 18 February 2003 from the Westpac account (which was paid to the appellants) there is no pleading that the loss to the appellants was caused by the withdrawals from the Westpac account. Paragraphs 22, 23, 25, 26, 27, 28, 29 and 30 are all directed to deposits into the Perpetual account, the withdrawal from the Perpetual account and the deposits into the Westpac account. Paragraph 30A which pleaded the general authority to operate the Perpetual and Westpac accounts as a basis for liability, pleaded that liability as the matters in paragraphs 22-25 and the resultant liability of $1,744,452.50. Again this comprises the deposits into the Perpetual account, the withdrawals out of it and the deposits into the Westpac account, less the one withdrawal of $1 million from the Westpac account that was paid to the appellants. Nevertheless, as will be discussed in due course, an issue litigated at the trial was the use of funds withdrawn from the Westpac account.

64 Secondly, another way of putting what the primary judge did at [121] of his reasons (see [35] above), is to ask whether, in light of the extent of Mr Cincotta’s authority, Ms Belle can be taken (through the action of withdrawal alone) to have been using (and in that sense receiving the benefit of) the funds and without more than this be liable to repay them. The answer to this, again, is, in my view, no. This is for the same reasons as the deposit into the account was not authorised. She did not authorise him to use the account to receive or deploy misappropriated funds. (Whether or not she can be taken to have received the benefit of funds by how they were deployed and be liable on that basis is another question, and one to which I will come presently.)

65 In other words, the authority to operate the bank account was not a grant of authority to Mr Cincotta from Ms Belle either to engage in the wrongful conduct or to deposit or withdraw on her behalf funds into or out of the account which were the proceeds of fraud so as to make her liable, without more, for their receipt or withdrawals.

66 These conclusions do not run counter to cases such as Barwick v English Joint Stock Bank (1867) LR 2 Ex 259 at 266, Hamlyn v Houston & Co [1903] 1 KB 81 at 85 or Lloyd v Grace, Smith & Co [1912] AC 716 as submitted by the appellants. Here, the question is the extent of the authority granted by Ms Belle to Mr Cincotta, not as between Ms Belle and the bank or some other person dealing with Mr Cincotta apparently on their joint behalves, but as between them in order to answer the question whether his acts can be sheeted home to her for all purposes (even if fraudulent) by reason of her making him her agent for these acts.

67 The words of Lord Shaw of Dunfermline in Lloyd v Grace, Smith & Co at 740, which were particularly relied on by the appellants, are not determinative of the issue. There, Lord Shaw said:

“I look upon it as a familiar doctrine as well as a safe general rule, and one making for security instead of uncertainty and insecurity in mercantile dealings, that the loss occasioned by the fault of a third person in such circumstances ought to fall upon the one of the two parties who clothed that third person as agent with the authority by which he was enabled to commit the fraud.”

Ms Belle’s grant of authority to operate the Westpac account (and also the Perpetual account, if the primary judge be taken to be wrong in his conclusion as to authority to operate that account) was not the authority by which Mr Cincotta was enabled to commit the fraud. It facilitated its effectuation, but Mr Cincotta’s fraud was undertaken by his misrepresentations and misappropriations.

Liability in money had and received; receipt and benefit of funds (grounds 13-15 of the Notice of Appeal)

68 Grounds 13-15 of the Notice of Appeal complained about the failure of the primary judge to make a finding that Ms Belle received the funds and had the benefit of them, in the following terms:

“13. His Honour erred in finding that [Ms Belle] did not relevantly receive the relevant funds into the Perpetual [account] or the Westpac [account].

14. His Honour erred in failing to find that the [Ms Belle] did not have the benefit of the relevant funds.

15. His Honour erred in filing [sic] to make any findings at all in respect of whether or not [Ms Belle] had the benefit of the relevant funds and the legal implications of such a finding despite that being part of the [appellants’] case.”

69 The submissions on appeal in support of these grounds contained four elements: first, the grant of actual authority to operate both accounts; secondly, that Ms Belle knew of the presence of the funds in the accounts; thirdly, that Ms Belle ought to have known of the receipt of the funds in the accounts; and, fourthly, the receipt by her of the enduring benefit of the funds withdrawn from the Westpac account.

Grant of actual authority

70 First, as to the asserted grant of actual authority to operate the Perpetual and Westpac accounts, I have dealt with that. Ms Belle gave no authority to Mr Cincotta to deal with misappropriated cheques or their proceeds.

Ms Belle’s asserted knowledge of the funds

71 Secondly, in reliance on the cases dealt with by Gibbs CJ and Brennan J in Batty at 264-269 and 276-280, respectively (Marsh v Keating (1834) 2 Cl & F 250; 6 ER 1149; Jacobs v Morris [1901] 1 Ch 2 61; [1902] 1 Ch 816; and James v Oxley [1939] HCA 1; 61 CLR 433) and on Batty itself, the respondents submitted that during the period between the deposit and withdrawal of the funds in either or both the Perpetual and Westpac accounts Ms Belle knew that she possessed or controlled the funds. This argument is defeated by the primary judge’s conclusions that Ms Belle did not know, nor did she have notice, of the facts and circumstances of Mr Cincotta’s actions and that Mr Cincotta managed all the family’s financial affairs: [125] of his reasons. The rejection of the attack on appeal on these findings of credit puts an end to this argument.

Ms Belle ought to have known of the funds

72 Thirdly, in reliance on the same cases referred to at [71] above, the appellants submitted that Ms Belle should be taken to have received the funds during the period between their deposit and withdrawal because she ought to have known that she possessed or controlled the funds.

73 In Batty, Gibbs CJ (with whom Wilson J agreed at 269-270) discussed Marsh v Keating, Jacobs v Morris and James v Oxley. After an analysis of those cases, and in particular relying upon what Dixon J had said in James v Oxley at 456, Gibbs CJ made the statement of principle set out at 160 CLR 268-269 (quoted by the primary judge at [129] of his reasons) as follows:

“Where, because of the action of a servant or agent acting outside the scope of his authority, or for that matter because of the action of a complete stranger, money has been paid into the account of the defendant, who has technically received it, although he is quite unaware of that fact, and the money is then misappropriated, still without the knowledge or intervention of the defendant, there seems to be no reason in justice or equity why the defendant should be answerable for the money simply because theoretically he had the means of knowing that the money was in the account. In principle, in those circumstances, the defendant ought not to be liable unless, before the money was misappropriated, he knew or ought to have known that he had possession or control of it. In other words, where the defendant has not had the benefit of the money, has not played any part in disposing of it and was ignorant of the fact that it was theoretically under his control, he should not be liable in the absence of fault on his part.”

74 Thus, for Ms Belle to be liable, the appellants must show that she ought to have been aware that she had possession or control of the funds in question in the account. In Marsh v Keating the ordinary diligence that was required of the firm in the conduct of its broking business would have disclosed it. Jacobs v Morris is a difficult case, as the discussions of it by Gibbs CJ (at 216-267) and Brennan J (at 277-279) in Batty show. As Gibbs CJ said at 267, Jacobs v Morris does not decide that means of knowledge are enough to render liable a person into whose account money has been paid. The notion that Ms Belle “ought to have known” of the presence of the funds required, as Gibbs CJ said at 269, some “fault” on her part conformable with the proposition that she ought to have known of the presence of the moneys. The relevant fault of the recipient and the consequent conclusion that he or she ought to have known of the receipt will then suffice for retention of the funds to be unjust or against justice and equity: see Moses v Macferlan (1760) 2 Burr 1005 at 1012; 97 ER 676 at 680-681; Campbell v Kitchen & Sons Ltd and Brisbane Soap Co Limited [1910] HCA 50; 12 CLR 515 at 531; R v Brown [1912] HCA 6; 14 CLR 17 at 25; Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Limited [1943] AC 32 at 61 and 64; Watney v Mass (1954) 54 SR (NSW) 203 at 205-206; and Fischler v Administrator of Roumanian Property [1960] 1 WLR 917 at 946-947 all cited by Gibbs CJ in Batty at 268; see also Australia and New Zealand Banking Group Limited v Westpac Banking Corporation [1988] HCA 17; 164 CLR 662 at 673; and Perpetual Trustees at [126]-[128]. It is unnecessary to enter into any discussion invoked by Farah Constructions at 156 [150] as to the need for categories or principled analysis, rather than unstructured judicial discretion, for any conclusion as to injustice in this context: see the discussion in K Mason,

J Carter and G Tolhurst, Mason and Carter’s Restitution Law in Australia, ((2^nd Ed) 2008 Lexis Nexis Butterworths) at 63-71 [164]-[175] (herein “Restitution Law in Australia”). Here, on the authority of Batty, fault of a recipient leading to the conclusion that he or she ought to have known of the receipt of the funds such that it would be unjust or inequitable to retain the funds is the required analysis.

75 The content of the required degree of fault and the standard by reference to which the person “ought” have known of the funds may, perhaps, be informed by the cognate principles as to when in restitution a party is to be denied a defence based on good faith change of position, short of actual knowledge of the factors giving rise to the right of restitution: see Restitution Law in Australia at 870 [2421]; and see Niru Battery Manufacturing Co v Milestone Trading Ltd (No 2) [2003] EWCA Civ 1446; [2004] QB 985 at 998-1003 [145]-[162] per Clarke LJ (as his Lordship then was) with which Butler-Sloss P agreed (at 1013 [193]). As appears from that discussion and from Batty itself mere means of knowledge is inadequate. Another way of putting the standard underpinning “ought” in this context is expressed in R Meagher, J D Heydon and M Leeming, Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies, ((4^th Ed) 2002 Lexis Nexis Butterworths) at 342 [8-270] (herein Equity: Doctrines and Remedies) as:

“… all matters: (a) of which he would have received notice if he had made the investigations usually made in similar transactions; and (b) of which he would have received notice had he investigated a relevant fact which has come to his notice and into which a reasonable man ought to have inquired.”

76 Here, it was submitted that the relevant fault that should lead the Court to the conclusion that Ms Belle ought to have known of the funds as to make it unjust for her to resist a restitution claim was based on:

(a) her means of knowing what was in the account;

(b) the submissions that Ms Belle was actively involved in Mr Cincotta’s business; and

77 Ms Belle’s means of knowing what was in the account are inadequate to found liability (see above); and the judge’s findings, based in part on his assessment of her demeanour, was effectively to the contrary of her participation in the business. The findings at [125]-[126] of the primary judge’s reasons, based in part on demeanour as they were, can be seen to be his Honour’s reasons for concluding that there was no fault on Ms Belle’s part to lead to the conclusion that she ought to have known of the presence of the funds in the Perpetual and Westpac accounts:

“[125] The first reason is that, on the facts as I have found them, Ms Belle did not have notice of any of the facts and circumstances constituting Mr Cincotta’s actions of breach of trust or a breach of fiduciary duty. I cannot hold that she was put upon enquiry as to what use had been made of her Perpetual cash management account from 2001 to 2003 merely because Mr Cincotta had opened the account for her in 1995 and she had heard nothing further about it. As I have observed, I accept Ms Belle’s evidence that Mr Cincotta managed all of the family’s affairs in an apparently trustworthy manner.

[126] It is true that Ms Belle had the means of finding out what had happened with the account because she, as owner of the account, was entitled to ask Perpetual for statements. However, a person who has the means of finding out about something does not thereby have an obligation in law to find out unless there is some apparent reason to do so. There was no obvious reason why Ms Belle should have heard anything further about the Perpetual cash management account by 2001.”

78 The appellants submitted, however, that the magnitude of the benefits in fact received by Ms Belle and derived from the payment out of the Westpac account were such as put her on notice as to the receipt of these funds, in particular by payments for her credit card debts, significant mortgage liabilities and family expenses.

79 The appellants also use this utilisation of funds out of the Westpac account as a separate basis for a conclusion of receipt, that is as a form of enduring benefit. The two arguments should be kept separate.

80 The appellants referred to various schedules that were before the primary judge and to the original records of the Westpac account and payments out of it. The proceeds of the misappropriated cheques were not the only funds placed into the Westpac account. Significant other funds (the precise source of which was not the subject of evidence) were placed into the account. Looking at the accounts and the uses made of the moneys, I would not interfere with the primary judge’s conclusion that Ms Belle ought not have known of these funds in the Westpac account for the purposes of receipt therein in accordance with the statement of principle by Gibbs CJ in Batty at 268-269.

The receipt of “enduring benefits” from withdrawals from the Westpac account

81 Fourthly, it was said that Ms Belle received what was said to be an “enduring benefit” by the payments out of the Westpac account.

82 This raises, once again, the pleading issue. Nowhere in the pleading is there a clearly expressed claim for moneys had and received or restitution based on the receipt by Ms Belle of the proceeds of the misappropriated cheques by payment of her credit card debts or other payments. To plead that a party received funds because of their deposit in a bank account not operated or controlled by that party, as is contained in paragraph 28 of the FASC, is one case, it is another to rely upon the enduring benefit of individual payments out of that account even if such payments go to a credit card in the name of the party. Depending, however, on how the case was conducted, the phrase “benefit of the funds received into her account” might be sufficiently elastic to encompass final use out of the Westpac account. The payments out of the Westpac account were said to have been used to pay credit cards and to make payment of principal and interest in respect of certain real property. Whilst this was not expressly pleaded as a receipt of a benefit, as shall be seen in due course, the case that was conducted by the appellants attempted to show that Ms Belle was liable as a volunteer to repay funds received by her without consideration in respect of property remaining in her hands which, at the relevant time, , she knew to be the proceeds of Mr Cincotta’s conduct.

83 I will return to this aspect of the claim for moneys paid and received when I deal with the appeal on the liability of Ms Belle as a volunteer and as a constructive trustee thereby.

Recipient and accessory liability (grounds 12-16 of the Notice of Appeal)

84 There is an overlap between the restitutionary claim dealt with in grounds 13-15 of the Notice of Appeal and grounds 12 and 16 of appeal.

85 Grounds 12 and 16 of the Notice of Appeal were in the following terms:

“12. His Honour erred in his finding that, on the facts as he found them, [Ms Belle] did not have knowledge (actual or constructive) or reason to know or the means of knowledge of the facts and circumstances constituting [Mr Cincotta’s] actions of breach of trust and breach of fiduciary duty to the [appellants].

…

16. His Honour erred in finding that [Ms Belle’s] failure to account as a knowing participant (accessory liability) under what is known as the second limb in Barnes v Addy failed on the facts.”

86 The appellants accepted in argument that if the findings about honesty and notice are not set aside (as I do not think they should be) the claims under both the first and second limbs of Barnes v Addy must fail given the knowledge and notice requirements in Farah Constructions.

Liability as a volunteer (grounds 17 and 18 of the Notice of Appeal)

87 Grounds 17 and 18 of the Notice of Appeal were in the following terms:

“17. His Honour erred in failing to find that after [Ms Belle] became aware of [Mr Cincotta’s] fraud, she sought to retain for herself or her benefit or disposed of her for benefit property which had been derived from the proceeds of the fraud.

144 Importantly also, the whole of the reasoning in Banque Belge was based on the existence of the fund (which was in money). The case is authority for an action at law being available for moneys had and received, or an order for payment, in a sum representing the value of the property held by a volunteer defendant and owned in law or equity by the plaintiff. The amount of the judgment in Banque Belge was clear because the property was a fund of money. There is no reason why the case should not also be authority where the retained property owned in law or equity is an interest in land, commensurate with the traced proceeds of the plaintiff’s funds. Given that the reasoning of the Court of Appeal was so clearly based on the existence of the identifiable property, there is much to be said for the proposition that any judgment money sum in this case should be the equivalent of the value remaining (at least up to the amount of the sums used) in Ms Belle’s interest in the property, not the equivalent of the sums paid. It may also be that it should be limited to the increased value referable to payment of principal (and not interest). Banque Belge is not authority for the proposition that if moneys can be seen to be traceable into non-money assets (as here, real estate) a personal remedy in money had and received in the amount of the sum of money traced into the property exists, independently of the liability to repay or restore what is held. This is of some importance when one recognises that the sums that can be identified as paid into the mortgage accounts went to pay off (with other funds) both principal and interest, that the value of the asset may, conceivably have fallen and that, after payment, there were further borrowings on the security of the property. It is also important to recognise that Ms Belle, for the reasons discussed earlier, did not receive the funds in the relevant accounts.

145 To identify the common law right in this way is to focus upon the measure of the value surviving in the hands of an innocent voluntary recipient when notice of the claim is received, rather than the measure of value received: cf L Smith, The Law of Tracing (1997 Clarendon Press) at 28-32. This can be recognised as conformable with the underlying conception that it is the inequitable retention of money or benefit that lies at the root of unjust enrichment: Lipkin Gorman at 578-580 per Lord Goff of Chieveley. In the context of both the common law right and the equitable obligation to restore (see Black v S. Freedman, to which I will return presently) resting on the identification and recognition of the equitable interest in the property by tracing in equity, there is every reason for coherence and conformity between the operation of common law and equity in this respect: see Lipkin Gorman at 566 per Lord Templeman.

146 Further, this approach to the position of an innocent volunteer in a case such as this where the whole measure of receipt cannot be seen to be an enduring benefit conforms with the approach to recovery in Lipkin Gorman. There C, a solicitor, dishonestly withdrew cash from his firm’s client (trust) account by making out cheques for cash and having a clerk cash them. C used the cash to gamble at the defendant’s club where the cash was exchanged for chips. On one occasion, C procured a bankers draft made out to the firm which he endorsed to the club. No claim based on Barnes v Addy was made. The claim was in restitution. The House of Lords permitted recovery of the net gain by the club. The club was a volunteer, the contracts of gaming being rendered void by the gaming legislation. The club was held to be innocent. The present case can be distinguished in that Ms Belle did not receive the funds in the relevant accounts. But, nevertheless, Lipkin Gorman is of some assistance as to the importance of retention.

147 Lord Templeman (with whom Lord Bridge of Harwich, Lord Griffiths and Lord Ackner agreed) stated the general principle of the common law obligation of repayment of the receipt of stolen money as follows at [1991] 2 AC at 559:

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd.

‘It is clear that any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep.’”

At 562 and 563, Lord Templeman identified the retention of received funds as crucial, stating the following at 563:

“… My conclusion is that the club has no right to retain stolen money received by the club from the thief. Repayment by the club to the victim, limited to the net amount of stolen money which the club retains, will not inflict a net loss on the club as a result of the transactions between the club and the thief. In the present case money stolen from the solicitors by Cass has been paid to and is now retained by the club and ought to be repaid to the solicitors. The solicitors will recover part of their stolen money and the club will only lose the winnings the club was not entitled to make out of the solicitors’ money.”

148 At 565-566 Lord Templeman referred to Black v S. Freedman and at 566 said:

“Although the decision in this case went on the grounds of trust, the reasoning applies equally to a claim for money had and received.”

149 Lord Templeman then referred to and relied on Banque Belge. At 566, in discussing Transvaal v Delagoa Bay Investment Co Ltd v Atkinson [1944] 1 All ER 574 where the donee of the stolen money had dissipated it, Lord Templeman said:

“… The difficult questions which arise when a donee innocently disposes of stolen money do not arise in the present case where the stolen money has been retained by the club.”

Farah Constructions

Barnes v Addy

The Law of Restitution in Australia

150 Lord Templeman reached the conclusions he did, not by concluding that there was a prima facie obligation to repay all received moneys less a deduction based on a defence of change of position, but relying on Banque Belge, by focussing on the unjust enrichment by reference to the money retained.

151 Lord Goff of Chieveley (with whom Lord Bridge of Harwich, Lord Griffiths and Lord Ackner also agreed) at 578-582 dealt with the arrival at the net retained sum by an application of a defence of change of position; that is there was a prima facie obligation to repay all received moneys, less a deduction based on a defence of change of position.

152 I leave aside as unnecessary to discuss the applicability in Australia of the scope of the approach of Lord Goff: cf Farah Constructions at 155-159 [148]-[158]. The argument on appeal did not press the claim in relation to the credit card payments which had been dissipated, if the findings of lack of notice and knowledge were not disturbed (as they should not be).

153 Thus, the approach of the Court of Appeal in Banque Belge and of Lord Templeman in Lipkin Gorman (supported by Professor Smith in “Simplifying Claims to Traceable Proceeds” (2009) 125 LQR 338 at 340) is entirely supportive of an obligation at law to restore, in money terms, the value of the retained proprietary benefit derived (as here) from the receipt of funds traceable in equity from cheques misappropriated from the appellants. The importance of retention of benefit, as a matter of substance, can be seen in Ford v Perpetual Trustees Victoria Limited [2009] NSWCA 186 at [119]-[131].

154 A similar result flows from the application of equitable doctrine. There is no impediment to concurrent remedies at law and in equity being available: Stephens Travel Service at 341. Black v S. Freedman is clear authority for the equitable obligation upon the innocent volunteer to restore to the plaintiff the fund identified and remaining (whether in original form or traceable product) in his or her hands. The equitable obligation arises from the later discovered position, not from wrongful conduct. Therefore, the extent of the personal equity involved, created by the circumstance in question, is the touching of the conscience of the volunteer recipient to deal with the property of another conformably with the interests of the owner, now discovered. The expression of view of O’Connor J as to constructive trust (as to which see the views of Spigelman CJ in Robb Evans that the characterisation is better expressed as resulting trust) should be seen in this light. To call the volunteer recipient a constructive trustee and to call upon him or her to account as a constructive trustee (because he or she upon discovery of the fund or asset belonging to another has become one) does not mean the volunteer comes under personal liabilities, independently of, or beyond, the obligation to restore the fund or asset and any attendant obligation. He or she does not, for instance, become liable to pay damages for the moneys received that led to the fund or asset being created, as if he or she were a knowing participant in the fraud.

155 It is also important to recognise that the trust rests on the existence of property rights and in that sense is not purely remedial. The court declares that a trust exists and existed (though the innocent volunteer did not know it): see Zobory v Commissioner of Taxation [1995] FCA 1226; 64 FCR 86 at 90; Australian Postal Corporation v Lutak (1991) 21 NSWLR 584; and the helpful (if I may say so) discussion by Crennan J in Jones v Southall and Bourke Pty Ltd [2004] FCA 539 at [55]-[80].

156 The (now discovered) existence of the fund or asset by the (hitherto) entirely innocent volunteer explains, in part perhaps, the taxonomical preference of Spigelman CJ in Robb Evans. It also focuses attention on the form of the remedy, both at law and in equity. To the extent that a lien or charge can be seen as a security interest for what was earlier paid (as distinct from what remains), there may be an injustice to the volunteer in imposing such a remedy. Here, the funds were used to pay interest and principal. It is not self evident that the interest payments increased the value of her equity. Of course, payments of interest kept alive the opportunity of the equity of redemption and of capital appreciation thereof. The relevance of this to a restitutionary claim is not, however, self evident. As I have already said, further borrowings on the security of the assets appear to have been made, which may have reduced or eliminated any equity. The properties may also have fallen in value.

157 The remedy, both at law and in equity should focus upon the value properly attributable to the earlier receipts derived from misappropriations and still retained by the volunteer at the relevant time. The proper approach to the assessment of this and its relationship to the funds received would be a matter for assessment. For instance, at law, it might be that the plaintiff would not be entitled to any increase in value of the asset into which funds were traced, though the position in equity may be that the plaintiff is so entitled: Scott v Scott; and cf The Law of Restitution Law in Australia at 128 [309].

158 The learned authors of The Law of Restitution Law in Australia at 126 [307] express the view that the common law remedy does not require proof that the defendant “retains” the plaintiff’s money. Lipkin Gorman at 580 (Lord Goff) is referred to. There Lord Goff put the place of non-retention squarely in the context of the defence of change of position. This was the case also in the other case cited by the authors, Barros Mattos Jnr v MacDaniels Ltd [2004] 3 All ER 299 (Laddie J). However, Lord Templeman in Lipkin Gorman examined the question of the primary right of restitution at the level of retention. This was the approach of the Queensland Court of Appeal in Port of Brisbane Corporation v ANZ Securities Limited (No 2) [2002] QCA 158; [2003] 2 Qd R 661 at 670 [9] (McPherson JA with whom Davies JA and Mullins J agreed). As I have sought to show, retention of the fund was the gravamen of the claim, the argument and the reasoning in Banque Belge (at law) and in Black v S. Freedman (in equity). See also Ford v Perpetual Trustees.

159 The authors of The Law of Restitution Law in Australia at 130 [313] discuss the effect of Farah Constructions and said:

The court rebuffed the suggestion that a form of strict liability, subject to the defences of change of position and bona fide purchase for value without notice, might exist alongside or in place of the ‘first limb’

It is not sufficient that the recipient later discovers that the money derived from a misapplication or ‘breach of trust’, even if the recipient was a volunteer or retains the transferred property.

160 It is unnecessary to explore the complete relationship between restitutionary remedies and equitable recovery under the so-called first limb of Barnes v Addy. This is particularly so given the concession made concerning the payments to the credit card account being dissipated and irrecoverable if the knowledge and notice findings were not disturbed. The last sentence of the above quotation (the second emphasised passage) with respect, goes too far. Farah Constructions was not dealing with an identified fund of money or property in the defendant’s hands at the relevant time which through tracing at law or in equity can be seen to be one in which the plaintiff has an interest. Nothing in the case, as I read it, was intended to deny relief in a case such as Banque Belge, Black v S. Freedman, or here (if it be proved that Ms Belle held property in respect of which the appellants had a proprietary interest or over which they had a charge from the tracing of the proceeds of the misappropriated cheques).

161 If the funds received had been dissipated before any knowledge or notice was attributed to the volunteer, the first emphasised passage in the above quotation may be correct. It is important to recognise, however, that the High Court did not examine Lipkin Gorman: see Farah Constructions at 153 [141] where the Court said:

162 All that is necessary to decide in this case is the nature of the remedy or remedies available against a volunteer found to hold at the relevant time identifiable property owned at law or in equity by the plaintiff

163 In equity, based on Black v S. Freedman, there was an obligation upon Ms Belle, touching her conscience, to recognise the entitlement of the appellants to restoration of the funds derived from her husband’s misappropriations to the extent that, as a volunteer, she retained the funds or their traceable products when she had notice of the claim.

164 The primary judge concluded at [135] that the appellants had not shown that Ms Belle at the date of the hearing and judgment had property in her hands which she at that time knew to be the proceeds of Mr Cincotta’s fraud. He gave no reasons for that conclusion. The above discussion reveals that the question of tracing is one of some detail and complexity which was not addressed by his Honour and which has not been adequately addressed by the parties in the submissions on appeal. Prima facie the primary judge has erred by failing to address the issue and give reasons. His Honour also addressed the incorrect time. It is not the date of the hearing that is relevant, but the date Ms Belle received notice of the claim or when she otherwise became aware that she had property paid for with the misappropriated funds. At least those errors are implicit in [135] of the primary judge’s reasons. Nevertheless, proper attendance to the question of tracing and the correct time may reveal that his Honour’s substantive conclusion was correct.

165 At least one complication arises at this point. The Mareva order preventing the sale of the real estate pending the disposition of the suit was discharged by order of the primary judge: see order 3 made on 4 February 2008 and entered on 12 March 2008. No application was made to restore the order pending the appeal. The Court was informed at the appeal that Ms Belle has now sold her interests in the relevant properties. No evidence was led on appeal as to the disposition of any such funds and no concessions were made about their disposition.

166 These events do not, however, prevent this Court in the proper discharge of its appellate function in rehearing the matter to make an order of a kind which puts the appellants in the position, as far as possible, that they should have been if the primary judge erred in a meaningful way in the respects that I have identified . These sales, after judgment, cannot inhibit the Court’s power to grant a personal remedy against Ms Belle to the appellants based on a traceable fund at the relevant time, if they are otherwise entitled to such remedy. I have already discussed some of the limitations of the pleadings. That discussion, however, reveals that the tracing exercise was before the court and it was, in the manner that I have identified, directly relevant to the common law and equitable claims that can be seen to be propounded by the pleading in the context of what was litigated at trial.

167 It should be noted that no issue was raised at trial or on appeal by way of defence referable to any effect of the Real Property Act 1900 (NSW).

168 The Court has not heard arguments on some of the issues discerned above. The primary judge did, in my view, err at [135] of his reasons. Whether or not that should lead to the appeal being allowed may be open to debate.

169 The question then arises of what orders should be made. If it cannot be shown that at the relevant time Ms Belle had a traceable interest in the properties, the appeal should be dismissed, notwithstanding the errors in [135] of the primary judge’s reasons.

170 If it can be demonstrated, with precision, that some benefit in a traceable interest in the properties can be shown at the relevant time to found a personal claim, the appeal should be allowed and the case remitted to the Equity Division for assessment.

171 The parties should be given a month to direct their attention to these issues. Considerable difficulty lies in the path of the appellants. They should address the problems and concerns that I have discussed including:

(a) the extent, if any, that interest payments can and did create a proprietary benefit, in the absence of evidence of increasing value of the land and in the light of the evidence (if any) concerning the distinction between payment of interest and principal;

(b) the effect of any discharges of the mortgages and increased borrowings;

172 Unless it is possible to persuade this Court that there is real utility in an inquiry I would dismiss the appeal.

173 In that context the only orders that I would presently make are:

(a) the appellants file and serve within 28 days submissions on relief in the light of these reasons;

(b) the respondent file and serve within a further 28 days submissions on relief in the light of these reasons;

174 The parties should not assume any entitlement to a further oral hearing. I would only permit such if the Court considered it appropriate. I would take the somewhat unusual step of permitting further submissions because the reasons, whilst directed to points raised on appeal, deal with those points in some more detail than the arguments. The parties should restrict their submissions to the question of tracing and the aspects of it I have raised in the light of the existing evidence.

Liability as a finder (grounds 19 and 20 of the Notice of Appeal)

175 Grounds 19 and 20 of the Notice of Appeal were in the following terms:

“19. His Honour erred in his finding that [Ms Belle] did not take the [appellants’] funds into her possession in the sense required by law for liability as a finder.

20. His Honour erred in his finding that [Ms Belle] was not liable to the [appellants] as a finder of the relevant funds.”

176 The principles and cases relied on here concerned the finding of goods: see Russell v Wilson [1923] HCA 60; 33 CLR 538; Armory v Delamirie (1722) 1 Stra 505; 93 ER 664; and Parker v British Airways Board [1982] 1 QB 1004. It strains legal analysis to attempt to stretch the facts here into this legal category. Ms Belle did not have possession of goods as a finder. She received a benefit by the traceable proceeds of the cheques in question being paid to the mortgage accounts. Her potential liability for this has been discussed. No other relevant principle of law flows from the so-called finding cases.

Orders

177 In the above circumstances, the orders that I would make are set out at [173] above.

178 In preparing these reasons I have had the great advantage of the assistance of Handley AJA for which I am grateful.

179 CAMPBELL JA: Apart from making no comment about para [113], I agree with Allsop P.

I agree with Allsop P.

**********

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Citations

Heperu Pty Ltd v Belle [2009] NSWCA 252

Most Recent Citation

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Statutory Material Cited

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Perpetual Trustees Australia Ltd v Heperu Pty Ltd [2009] NSWCA 84

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Cited Sections

CITATION:	Heperu Pty Limited v Belle [2009] NSWCA 252
HEARING DATE(S):	9 April 2009
JUDGMENT DATE:	26 August 2009
JUDGMENT OF:	Allsop P at 1; Campbell JA at 179; Handley AJA at 180
DECISION:	1. The appellants file and serve within 28 days submissions on relief in the light of the reasons. 2. The respondent file and serve within a further 28 days submissions on relief in the light of the reasons. 3. The appellants file and serve submissions in reply within a further 14 days.
CATCHWORDS:	BANKING AND FINANCE – bank account authority - authority given to agent to operate account – liability of principal for deposit and withdrawal of fraudulently obtained funds by the agent– scope of authority given to agent to operate account - whether scope of authority included authority to deposit funds misappropriated from third parties – no liability where acts were beyond the scope of the authority given to the agent - BANKING AND FINANCE – bank account authority – liability of principal for withdrawal of funds from account derived from the proceeds of misappropriated cheques – whether withdrawal of funds alone is having use and benefit of the funds – principal did not authorise to use the account to receive or deploy misappropriated funds – no liability of the principal in these circumstances - RESTITUTION – money had and received – receipt and benefit of funds in bank account by owner of the account – liability based on possession and control of funds – requirement that owner of account knew or ought to have known that they had possession of control of the funds – “ought to have known” requires some fault on the part of the recipient – owner of account had no knowledge and ought not to have known in the circumstances - RESTITUTION - money had and received – liability of volunteer recipient of misappropriated funds for the traceable proceeds held at the time of the trial – liability separate from liability in equity as a constructive trustee under Barnes v Addy – recognition at law of an equitable interest in property – personal remedy to value of equitable property interest in property in hands of another - liability for proceeds remaining not for amount received - EQUITY – trusts – constructive trust - liability as constructive trustee under first limb Barnes v Addy - no notice and no knowledge – liability as constructive as trustee under second limb of Barnes v Addy – no notice and no knowledge - TRACING – personal liability for value remaining of misappropriated funds that can be traced into real property – tracing of misappropriated cheques into mortgage repayments made on real property – tracing through mixed fund - REMEDIES – remedies at law and in equity – availability of a personal remedy to value of an interest in property where property in hands of another - GOODS – receiver of goods as finder – traceable proceeds of cheques into real property are not goods – law of receiver of goods as finder not applicable on the facts
LEGISLATION CITED:	Partnership Act 1892 (NSW) Real Property Act 1900 (NSW)
CATEGORY:	Principal judgment
CASES CITED:	Armory v Delamirie (1722) 1 Stra 505 93 ER 664 Austin v Khaliffe [1966] 2 NSWSSR 632 Australia and New Zealand Banking Group Limited v Westpac Banking Corporation [1988] HCA 17 164 CLR 662 Australian Postal Corporation v Lutak (1991) 21 NSWLR 584 Banque Belge pour l’Etranger v Hambrouck [1921] 1 KB 321 Barnes v Addy (1874) LR 9 Ch App 244 Barwick v English Joint Stock Bank (1867) LR 2 Ex 259 Black & Black v S. Freeman & Company [1910] HCA 58 12 CLR 105 Boscawen v Bajwa [1996] 1 WLR 328 Brady v Stapleton [1952] HCA 62 88 CLR 322 British Homes Assurance Corporation Ltd v Paterson [1902] 2 Ch 404 Campbell v Kitchen & Sons Ltd and Brisbane Soap Co Limited [1910] HCA 50 12 CLR 515 Creak v James Moore & Sons Proprietary Limited [1912] HCA 67 15 CLR 426 Devaynes v Noble (1816) 1 Mer 572 35 ER 781 Farah Constructions Pty Limited v Say-dee Pty Limited [2007] HCA 22 230 CLR 89 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Limited [1943] AC 32 Fischlser v Administrator of Roumanian Property [1960] 1 WLR 917 Ford v Perpetual Trustees Victoria Limited [2009] NSWCA 186 Foskett v McKeown [2001] 1 AC 102 Fox v Percy [2003] HCA 22 214 CLR 118 Frith v Cartland (1865) 2 H & M 417 71 ER 525 Hagan v Waterhouse (1991) 34 NSWSLR 308 Hamlyn v Houston & Co [1903] 1 KB 81 Heperu v Morgan Brooks Pty Ltd (No 2) [2007] NSWSC 1438 In re Diplock Diplock v Wintle [1948] 1 Ch 465 Jacobs v Morris [1901] 1 Ch 2 61 [1902] 1 Ch 816 James v Oxley [1939] HCA 1 61 CLR 433 Jones v Southall and Bourke Pty Ltd [2004] FCA 539 Karak Rubber Co Ltd v Burden (No 2) [1972] 1 WLR 602 Keefe v Law Society of New South Wales (1998) 44 NSWLR 451 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 Lloyd v Grace Smith & Co [1912] AC 716 Marsh v Keating (1834) 2 Cl & F 250 6 ER 1149 Ministry of Health v Simpson [1951] AC 251 Moses v Macferlan (1760) 2 Burr 1005 97 ER 676 National Commercial Banking Corporation of Australia Ltd v Batty [1986] HCA 21 160 CLR 251 Niru Battery Manufacturing Co v Milestone Trading Ltd (No 2) [2003] EWCA Civ 1446 [2004] QB 985 Parker v British Airways Board [1982] 1 QB 1004 Perpetual Trustees Australia Ltd v Heperu Pty Ltd [2009] NSWCA 84 Port of Brisbane Corporation v ANZ Securities Limited (No 2) [2002] QCA 158 [2003] 2 Qd R 661 Primeau v Granfield 184 F 480 (1911) R v Brown [1912] HCA 6 14 CLR 17 R v Grant [1979] 2 NSWLR 478 Re Hallett’s Estate (1880) LR 13 Ch d 696 Re Oatway Hertslet v Oatway [1903] 2 Ch 356 Re Sutherland French Calendonia Travel Service Pty Ltd (In Liq) [2003] NSWSC 1008 59 NSWLR 361 386 Robb Evans of Robb Evans and Associates v European Bank Limited [2004] NSWCA 82 61 NSWLR 75 Russell v Wilson [1923] HCA 60 33 CLR 538 Sinclair v Brougham [1914] AC 398 Scott v Scott [1963] HCA 65 109 CLR 649 Stephens Travel Service International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331 Taylor v Plumer (1815) 3 M & S 562 105 ER 721 Transvaal v Delagoa Bay Investment Co Ltd v Atkinson [1944] 1 All ER 574 Trustee of the Property of F. C Jones & Sons (a firm) v Jones [1997] Ch 159 Vakele Pty Ltd v Assenden [1989] ANZ ConvR 462 Watney v Mass (1954) 54 SR (NSW) 203 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 Zobory v Commissioner of Taxation [1995] FCA 1226 64 FCR 86
TEXTS CITED:	D Hayton Underhill and Hayton Law Relating to Trusts and Trustees ((14th Ed) 1987 Butterworths) J Heydon and M Leeming Jacobs’ Law of Trusts in Australia ((7th Ed) 2006 Lexis Nexis Butterworths) Goff and Jones Law of Restitution ((6th Ed) 2002 Sweet & Maxwell) K Mason J Carter and G Tolhurst Mason and Carter’s Restitution Law in Australia ((2nd Ed) 2008 Lexis Nexis Butterworths) Lloyd’s Maritime and Commercial Law Quarterly 240 R Meagher J D Heydon and M Leeming Meagher Gummow & Lehane’s Equity: Doctrines and Remedies ((4th Ed) 2002 Lexis Nexis Butterworths) The Law of Tracing (1997 Clarendon Press) L Smith “Tracing in Taylor v Plumer: Equity in the court of King’s Bench” [1995]
PARTIES:	Heperu Pty Limited Kirisi Holdings Pty Limited Patrice Belle (formerly Patrice Cincotta)
FILE NUMBER(S):	CA 40107/08
COUNSEL:	G K Burton SC, C L Cochrane (Appellants) J S Van Aalst (Respondent)
SOLICITORS:	Thomas Henry Bray, Sydney (Appellants) Hardings Lawyers, Sydney (Respondent)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	6165/03
LOWER COURT JUDICIAL OFFICER:	Palmer J
LOWER COURT DATE OF DECISION:	12 December 2007
LOWER COURT MEDIUM NEUTRAL CITATION:	Heperu Pty Ltd & Ors v Morgan Brooks Pty Ltd & Ors (No 2) [2007] NSWSC 1438