Jones v Southall & Bourke Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Jones (as Trustee of the property of Heather MacNeil-Brown, A Bankrupt) v Southall & Bourke Pty Ltd [2004] FCA 539

Bankruptcy – Restitution of stolen moneys in ‘relation back’ period – ‘Ordinary course of business’ – ‘Good faith’ – Knowledge or suspicion of debtor’s insolvency – Constructive trust – Restitution of stolen moneys – Tracing – Proprietary claim – Equitable charge.

Federal Court of Australia Act 1976 (Cth) ss 24(1)(d), 25(1A)
Sentencing Act 1991 (Vic) s 86
Crimes Act 1958 (Vic)
Bankruptcy Act 1966 (Cth) ss 121(1), 122(2), 122(2)(a), 122(4)(c)

Attorney‑General (Hong Kong) v Reid [1994] 1 AC 324 considered
Australian Postal Corporation v Lutak (1991) 12 NSWLR 584 considered
Black v S Freedman & Co (1910) 12 CLR 105 referred to
Boscawen v Bajwa; Abbey National plc v Boscawen [1995] 4 All ER 769; [1996] 1 WLR 328 referred to
Burns v Leda Holdings Pty Ltd (1987) 89 FLR 365 noted
Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 referred to

Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] CH 105 noted

Concut Pty Ltd v Worrell (2000) 176 ALR 693 followed
Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 referred to
Downes Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd(in liq) (1948) 76 CLR 463 referred to
Farrington v Deputy Commissioner of Taxation (2002) 50 ATR 429 followed
Foskett v McKeown [2000] 3 All ER 97 referred to
Fowkes v Deputy Director of Prosecutions (1997) 2 VR 506 considered
Giumelli v Giumelli (1999) 196 CLR 101 referred to
Harkness v Partnership Pacific Ltd (1997) 41 NSWLR 204 considered
Holmes v Wennington (1790) 2 Bos & Pul 401; 126 ER 1350n referred to
Hospital Products Ltd v United States Surgical Corporation (Hospital Products/Surgical Staples case) (1984) 156 CLR 41 referred to
Johnson v Miller (1937) 59 CLR 467 referred to
Menzies v Perkins [2000] NSWSC 40 referred to
Muschinski v Dodds (1985) 160 CLR 583 referred to
National Australia Band Ltd v Rusu [2001] NSWSC 32 referred to
Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 referred to
Re Goode; Ex parte Mount (1974) 4 ALR 579 referred to
Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 referred to
Re Stephenson Nominees Pty Ltd v Official Receiver on Behalf of Official Trustee in Bankruptcy; Ex parte Roberts & Another (1987) 76 ALR 485 noted
Robertson v Grigg (1932) 47 CLR 257 followed
Rust v Cooper (1777) 2 COWP 629; 98 ER 1277 noted
Scott v Scott (1963) 109 CLR 649 referred to
Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] 3 ALL ER 75 considered
Spedding v Spedding (1913) 30 WN (NSW) 81 referred to
Taylor v White (1964) 110 CLR 129 followed
Warman International Ltd v Dwyer (1995) 182 CLR 544 referred to
Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 considered
Zobory v…

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Details
Case
[2004] FCA 539
Decision Date

CaseChat Overview and Summary

The appellant, who was an employee of the respondent, brought an appeal against the findings of the magistrate concerning s 122(2) of the Bankruptcy Act 1966 (Cth) and a constructive trust, as well as the magistrate's treatment of the issue of insolvency. The appeal was based on the discovery of theft by the appellant, who was entrusted with significant responsibilities in the respondent's business, including the control of the debtors/creditors ledger and supervision of banking and office duties. The appellant had stolen a substantial amount of money from the respondent, which was used to pay for living expenses, including mortgage payments for the appellant's house.

The legal issues before the court included whether the magistrate's findings in relation to s 122(2) and the constructive trust were erroneous, as well as the magistrate's treatment of the issue of insolvency. The court also had to consider the appellant's claim that there was a delay in the delivery of the judgment. The court considered the evidence presented, including the appellant's admission of the theft, and the impact of the theft on the appellant's ability to meet their living expenses and mortgage payments. The court also considered the advice of Detective Phillip Kenny in relation to the charges laid and the requisite standard of proof in criminal matters.

The court found that the magistrate's findings in relation to s 122(2) and the constructive trust were not erroneous. The court held that the appellant's theft was a deliberate act and that the appellant had benefited from the stolen funds. The court also held that the issue of insolvency was irrelevant to the matter. The court dismissed the appeal and ordered that the appellant pay the respondent's costs.

Orders

Orders of the court

1. The appeal be dismissed.

2. The appellant is to pay the respondent’s costs.

Background

Background to the litigation

The appellant claimed, in grounds 2 to 5 (inclusive) of the notice of appeal, error in the magistrate’s findings in respect of s 122(2) and, in grounds 6 to 8 (inclusive), error in the magistrate’s findings as to a constructive trust. The appellant also claimed, in grounds 9 and 10, error in the magistrate’s treatment of the issue of insolvency and in ground 11, the appellant stated “Delay in delivery of judgment.” Ground 11 was not pressed on the appeal.FACTS It is appropriate to consider in more detail the two transactions which are the subject matter of the appellant’s claims, the charge of 7 July 1999 and the payment under that charge of $67,500 on 9 August 1999. The bankrupt commenced employment with the respondent on 3 March 1986 as an accounts clerk. She was subsequently promoted to accounts manager, and remained in this position until her employment was terminated on 19 January 1999. As the accounts manager, she was responsible for the control of the debtors/creditors ledger, balancing the cash registers and supervising banking and office duties and she held a position of complete trust with the company. She agreed with this description of her role. She commenced annual leave on 16 December 1998 and on 22 December 1998 it was discovered that she had written an unauthorised cheque for $5,889.50 that was used to pay for landscaping costs at her house. When interviewed by the respondent about the theft she agreed to repay the stolen funds from her long service and holiday leave entitlements otherwise due at the termination of her employment. Following the discovery of the theft the respondent conducted an audit. The audit was completed in late March 1999 and showed the bankrupt had stolen a total of $496,350.05 from the respondent between December 1990 and December 1998. The respondent contacted the local police on 28 March 1999 and reported those findings. Following the advice of Detective Phillip Kenny, charges were laid on 12 April 1999 for the theft of $138,551.12 in 241 incidents of theft between 1 July 1997 to December 1998. Having regard to the requisite standard of proof in criminal matters and to authorities such as Johnson v Miller (1937) 59 CLR 467, Detective Kenny’s advice as to the charges to be laid is unremarkable and no inference arises from that advice in relation to the strength or otherwise of possible charges in respect of the balance of the stolen funds, being $357,798.93. When confronted by the police the bankrupt admitted that she had stolen the funds. Before his Honour, the bankrupt was asked a series of questions about the relationship between the stolen funds and her acquisition of her house as follows:“[Mr Rosen] What were you doing with the money?- - -I was using the money on living expenses.That would cover all of your living expenses, whether it was all the bills that you had to pay, all the expenses that you were incurring? - - - Yes, the mortgage was paid out of the bank. But if you were not receiving that amount of money fraudulently from the company, you wouldn’t have been able to meet all of these expenses, including the mortgage payments, would you? - - - That is ostensibly – or that is the reason why I did what I did.You did what you did to pay whatever expenses or outgoings that you were incurring over that period of time. Is that right? - - - That’s correct.If you weren’t extracting money from the company, you wouldn’t have been able to meet those expenses, would you? - - - No, certainly not.You certainly wouldn’t have been able to meet the mortgage payments on the house, would you? - - - The mortgage payment was made directly out of my bank account.Yes, I understand that, it was directly debited from your bank account? - - -Then I have nothing else to say regarding that payment. I have answered that question.”

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

CRENNAN J

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Established by: CRENNAN J

Full text does not contain this section.