MBF Australia Limited v Malouf

The appeal concerned a dispute between MBF Australia Limited ("MBF") and Mr Malouf, with Mr Malouf seeking to recover $165,000 from MBF. The Equity Division had declared that MBF held this sum on trust for Mr Malouf since 8 December 2000 and ordered MBF to pay the sum with interest. The case was heard in the Court of Appeal of New South Wales.

The legal issues before the court included whether MBF was a bona fide purchaser for value without notice of the cheque or its proceeds, and what interest in the proceeds MBF acquired if value was given without notice. The court also considered the effect of subsequent notice before the full beneficial interest in the proceeds was acquired, and whether the crossing of the cheque "not negotiable" affected the rights acquired by MBF, particularly in relation to the rights of a holder in due course.

The court's reasoning focused on the proposition that the money, having been obtained by fraud, was impressed with a trust for Mr Malouf. This was supported by authorities such as *Black v S Freedman & Company*, which establishes that thieves hold stolen funds on trust for the owner. The court also considered alternative bases for a trust, including a resulting trust arising from the failure of the purpose for which the cheque was provided, as per *Barclays Bank Ltd v Quistclose Investments Ltd*. Crucially, the court determined that MBF was not a bona fide purchaser for value without notice, meaning the proceeds of the cheque were held on trust for Mr Malouf. The court also noted that the crossing of the cheque "not negotiable" was a relevant factor, potentially leading to the same conclusion.

The appeal was dismissed with costs.