National Australia Bank Ltd v Rusu
[2001] NSWSC 32
•12 February 2001
CITATION: NAB LTD v. RUSU & 4 ORS [2001] NSWSC 32 CURRENT JURISDICTION: Equity FILE NUMBER(S): SC 4371/96 HEARING DATE(S): 28 & 29/04/99 and 16 & 17/11/00 JUDGMENT DATE:
12 February 2001PARTIES :
Monica Charis Rusu (First Defendant)
National Australia Bank Limited (Plaintiff)
Peter Francis Mato (Second Defendant)
Petru Mato (Third Defendant)
Anisora Mato (Fourth Defendant)
Edward Laurentio Popeea (Fifth Defendant)JUDGMENT OF: Bryson J at 1
COUNSEL : Mr J Thomson for Plaintiff
Second, Third, Fourth and Fifth Defendants appeared unrepresented on 28 & 29/4/99;
Second Defendant appeared unrepresented on 16 & 17/11/00;
W. Washington for Third and Fourth Defendants on 16 & 17/11/00.SOLICITORS: Dibbs Crowther & Osborne for Plaintiff
Nemes Thomas & Co. for Third and Fourth DefendantsCATCHWORDS: RESTITUTION - proceeds of theft - Bank sued clerk to recover moneys stolen by her from the safe and recovered judgment - Bank sued her de facto and recovered amounts obtained by him from her with knowledge that money was stolen and spent for his own purposes - expenditure by him included repayments to financier on account of a loan to him secured by mortgage over his parents' house - Bank sued parents for restitution for advantage derived by them from reduction of mortgage and relied on Barnes v. Addy and on subrogation - claim failed as parents were not dishonest accessories or recipients - financier was not in any sense their agent to receive funds. CASES CITED: Barnes v. Addy (1874) LR 9 Ch. App. 244,
Royal Brunei Airlines Sdn Bhd v. Tan [1995] 2 AC 378,
Black v. S Freedman & Co (1910) 12 CLR 105
Beach Petroleum NL v. Kennedy (1999) 48 NSWLR 1
Australia and New Zealand Banking Group Ltd v. Westpac Banking Corp. (1988) 164 CLR 662DECISION: See para.54.
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISIONBRYSON J.
MONDAY 12 FEBRUARY 2001
JUDGMENT4371/96 - NATIONAL AUSTRALIA BANK LIMITED v. MONICA CHARIS RUSU & 4 ORS
1 HIS HONOUR: The primary claim by the plaintiff National Australia Bank Ltd (NAB) is that the first and second defendants are accountable to it for $476,500 which was taken from the safe at NAB’s Campbelltown branch on Monday 17 June 1996. At the time of the theft the first defendant Monica Rusu was employed as a clerk by the Bank at the branch and the second defendant Peter Francis Mato was living with her in a de facto or similar relationship. The first defendant did not appear at the hearing, and was then serving a sentence of imprisonment after conviction for larceny based substantially on the facts alleged against her by NAB.
2 A body of circumstantial material makes it probable to a very high degree that the first defendant stole $476,500 in cash from the safe. The first defendant worked as a teller and participated in packing up the cash on hand and placing it in the safe. The safe was secured by two combination locks; the operation of each lock required use of a key and knowledge of the combination of numbers which would open the lock. Some staff members had keys for one lock and knowledge of its combination number, and another group of staff members had keys for the other lock and knew its combination number. The first defendant had one key and knew the combination for the corresponding lock. In fact the other lock was defective, so that it was possible to go through the ordinary processes to secure that lock yet it would remain ineffectively secured, and it would be possible to open the safe by opening the other lock.
3 Evidence of other staff members shows that the first defendant was still on the premises after other staff left on the afternoon of 17 June 1996, and an electronic record shows that a little later the safe was opened for a short time and then closed again. The first defendant was picked up by the second defendant in his car outside the bank premises at a time which is consistent with her having used a fairly short period after the last other member of staff left to open the safe, steal the cash and close the safe again.
4 Mr R Makin, a bank auditor employed at the Campbelltown NAB branch who was present on 17 June 1996 showed in evidence that he left the branch at about 5:21 pm at the same time as Mrs Patricia Robinson, the customer service supervisor, and that the first defendant then remained at the branch; she made an arrangement with other staff that the security clerk’s personal computer be left on and said that she was being picked up in half an hour. Mrs Robinson generally confirmed this account. Both she and Mr Makin gave descriptions of the operations by which the safe could normally be secured, and Mr Makin’s evidence explained how it had been established that the left hand combination could fail to “spin off”, meaning fail to be fully effective, although the safe appeared to be properly secured; and how the safe could in that case be opened using controls for the right hand combination. Evidence of Mrs Robinson and of Ms Kelle Bolger excluded the possibility of keys held by them having been used to open the safe after Mr Makin and Mrs Robinson departed. Mr Robert Koka, a technician with knowledge of the working of the alarm system, showed that the alarm was electronically recorded as having been secured at 17:17 on 17 June, reopened at 17:34 and closed again at 17:43, and that the alarm had not been activated. The amount placed in the safe on 17 June and missing on 18 June was also established. None of these witnesses was challenged in cross-examination. I accept that their evidence is correct. NAB claims the discrepancy between the funds recorded as being placed in the safe at the close of business on 17 June and the amount found there the following day.
5 From these findings it follows not only that the first defendant is liable in debt but also that she is liable to tracing and other equitable remedies in respect of dispositions of the funds. I propose to give judgment against the first defendant for $476,500 being the amount of money stolen together with interest up to the date of judgment at the rates ordinarily allowed on judgment debts. That interest amounts to $224,255.26. Judgment will be given for $700,755.26.
6 The second defendant appeared in person and was not represented at the hearing, although at earlier stages in the proceedings he did have legal representation. He did not read any affidavit evidence or give oral evidence, except that he tendered a bundle of documents relating to his concreting business. NAB claims against him, as against the first defendant, that he is accountable to NAB for the whole sum of $476,500. Although he had a close association with the first defendant I do not find that it has been established, as a matter of probability, that he participated in the theft of the money as a principal or that he received or handled the whole of the funds. However in a number of transactions following 17 June 1996 he used funds of such significant amounts that it is very improbable that they came from any source other than the first defendant, being the proceeds of the theft. It is also improbable that the second defendant came to control those funds or to have the disposition of them as a result of any transaction for value between him and the first defendant, or without knowledge that the money was the proceeds of theft by her from NAB. The closer a payment is to 17 June 1996 and the greater the amount of the payment, the more likely it is that the money came from the first defendant and her theft.
7 Although at earlier times other claims were made against the third and fourth defendants, the claims pressed by NAB against them at the hearing primarily related to allegations in para 11(a) of the Statement of Claim. In that paragraph it was alleged that with the use of NAB’s funds the first and second defendants caused payments to be made in reduction of liabilities of the second, third and fourth defendants to Avco Financial Services Ltd (Avco). Seven payments from 24 June 1996 to 21 October 1996 totalling $37,600 were particularised. In paras 16(e), 16(f) and 16(i) it was alleged that the third and fourth defendants knowingly participated in and aided and abetted the first and second defendants in acts in breach of fiduciary duties, that they hold all benefits they took or received arising out of the breaches on constructive trust in favour of the plaintiff, and that the plaintiff is entitled to trace its funds to the assets acquired and benefits received.
8 The payments to Avco had the effect of reducing (but not of discharging) liabilities under a mortgage in favour of Avco. Mortgage U921212 dated 16 December 1994 was granted by the third and fourth defendants as registered proprietors of their house at Ambarvale, and it operated to secure liability under a loan agreement annexed to the mortgage. While the proceedings were pending the Ambarvale house was sold, and it is now represented by a fund of money out of which remedies formerly available against the house can be awarded. The loan agreement related to a loan of $115,259.56, repayable by monthly instalments of $1,422.80, to be made until 16 December 2019. The second defendant there called Peter Francise Mato was a party to the loan agreement; he was referred to as the borrower, while his parents were referred to both as borrowers and as mortgagors. On the face of their dealings with Avco the third and fourth defendants incurred principal liability as borrowers as well as charging their property as mortgagors. The substance of the transaction was different; the loan was used by the second defendant to purchase equipment for his concreting business, his parents participated only so as to enable him to obtain the loan and as between them the transaction had the character alleged in para 7 of the Statement of Claim, that is, that the mortgage secured loans from Avco to the second defendant.
9 The second defendant gave a different account of the Avco loan in a police interview. According to what he said in the interview the loan was taken out by his parents and he made payments to them in respect of the loan to assist them. I am satisfied however that this is not a true picture of the transaction. The probabilities do not support that view of the transaction; it is far more likely that the substance was as asserted by Messrs Truman Hoyle on behalf of his parents in their letter of demand. He did not deny that claim at the time it was made.
10 The second defendant embarked on his concreting business about December 1994 when the loan from Avco was obtained. The business was only marginally profitable according to a profit and loss statement prepared by his accountants as of 30 June 1995.
11 Messrs Truman Hoyle solicitors representing the third and fourth defendants wrote a letter of demand to the second defendant on 8 May 1996 putting the position that the loan was a borrowing by the second defendant and that security was given on the basis that he would meet all the payments, and that he had defaulted, entitling Avco to sell the property. They sought resolution in a short time and threatened legal proceedings. Messrs Truman Hoyle wrote again on 16 May saying they had had no response and that legal proceedings were being instituted. On 23 May they made a “without prejudice” offer under which the second defendant would pay $40,000 to the third and fourth defendants, transfer his third share in some vacant land and repay some payments they had already made to Avco. The offer was not accepted.
12 About March or April 1996 the first defendant asked Mr Ahmet, the manager of the NAB branch at which she worked, to consider a loan application for the second defendant to pay out an Avco debt and for $40,000 to be paid to his parents for the purchase of a property. The first defendant gave him various pieces of information and showed him documents, but Mr Ahmet did not take a favourable view of the prospects of the Bank making a loan and rejected each of several proposals which she brought forward. The second defendant did not participate in the approach to Mr Ahmet.
13 In a written statement which he gave to a police officer on 28 June 1996, the second defendant stated that he lived with the first defendant and that he had lived with her in a villa at Old Hume Highway Camden which they rented for a couple of months. His evidence was that he went to the NAB branch in the main street of Campbelltown on 17 June 1996 to pick her up from work, and collected her at about 5:30pm or “a quarter to” (meaning 5.45 pm) and that they then went home. He said to the same effect in an interview with a police officer on 23 August 1996.
14 In a declaration made for the purpose of stamp duty on a transaction in land at Narrabri (which it seems did not proceed) the second defendant said that he was the fiancee of Ms Rusu. The second defendant again spoke of Ms Rusu as his fiancee in the statutory declaration which he made for an insurance claim on 9 December 1998. In that declaration he said that he had lived with her in his parents’ Ambarvale house for about two years.
15 In an affidavit made for the purpose of these proceedings and in accordance with an order of the court requiring him to do so, the second defendant on 13 June 1997 showed that he had the following assets:
· interest as joint tenant with the third and fourth defendants in a property at Narrabri;
· truck and concrete business trading as Ferris Concrete Pumping, related equipment including a concrete pump and a truck registered QAV917;
· Tasman boat valued at $35,000 jointly with the first defendant;
· household furniture;
· approximately $2000 in a bank account; and
· Holden car registered AEQ 51A.
- His stated liabilities related to the Avco loan.
16 In an affidavit of the second defendant sworn 7 May 1998, which was put in evidence by NAB, the second defendant alleged that the seven payments to Avco particularised in the Statement of Claim (and a further payment of 29 June 1996 of $4000 not alleged in the Statement of Claim) were made from a cheque account held with the Endeavour Credit Union or from cash held by him and obtained over the years from his business. He gave similar explanations for all cash moneys which he had paid at relevant times.
17 There was a marked change in the second defendant’s pattern of behaviour with respect to meeting his obligations in that up to June 1996 he paid the minimum monthly payments in respect of his accounts with Esanda Finance, and was in fact in default in respect of his account with Avco, whereas later he made payments which were usually significantly larger than the amounts which had fallen due. In the second defendant’s dealings with Esanda Finance, illustrated at Ex SEG4 p 200, there was a marked change of the pattern of transactions in and after July 1996. Compared with earlier transactions, payments to Esanda Finance became much more frequent and much larger.
18 On 10 July 1996 the second defendant purchased a diesel engine including a radiator in the name of his concrete business P&E Concrete Pumping from VM Diesel Engines, and paid the price of $8000 in cash, using a bundle of notes. On 15 July 1996 the second defendant and the first defendant purchased an engagement ring for which the second defendant paid $3500 in cash. In August they again attended at the same jewellery store and the second defendant ordered a gold bracelet; he then paid $1000 in cash as deposit and about a week later paid the balance, $1000, in cash and collected the bracelet.
19 There were other transactions in which large sums were paid by the second defendant for goods and services and on account of debts in the weeks following 17 June 1996. In a number of cases these have been shown to have been payments literally in cash. The payments to VM Diesel Engines and Family Boat Centre are the largest payments but there were others in very striking amounts, individually and cumulatively. On 18 June 1996 the second defendant made payments to Advance Bank, the Tyre Shoppe, Camden Petroleum, the Roads and Traffic Authority and the NRMA which totalled over $9000. On the following day he paid $2500 to Strathfield Car Radios, and he made other large payments in June and July for tyres and other supplies relating to motor vehicles, and to Advance Bank, to Avco and Esanda Finance and others. The pattern of spending large amounts, including large amounts shown to have been paid in cash, continued through August 1996 and there were significant payments later.
20 I do not accept the second defendant’s contention that he had significant funds in the Endeavour Credit Union or in cash built up from his business over time. I have regard to the very poor profitability of his business as appears from his tax return, and the financial difficulties of his relationship with Avco and his parents. The second defendant’s income tax return for the year 1995 showed a net income from his concreting business of $6433. It is extremely unlikely that he had significant sums on hand to spend as he pleased yet did not do anything to meet the obligations to his parents in circumstances where they expected to lose their house as result of action taken by Avco, and were employing solicitors to threaten proceedings against him. Bearing in mind his relationship with the first defendant and the amount of money which had been stolen, the probabilities strongly favour his having obtained from the first defendant the funds with which he embarked on relatively large expenditures and purchases after the theft had taken place. There was a marked change in his access to funds, particularly to cash funds and in the circumstances of his close association with the first defendant, it should be concluded that he obtained these moneys from her and knew that they were stolen.
21 Although I have in mind the serious nature of an inference that the second defendant knew that money which was placed at his disposition had been obtained by theft, the circumstances are in my view overwhelmingly strong. The second defendant was living with the first defendant, who had very modest means and was employed as a clerk by the bank. The second defendant conducted a concreting business which made very little profits and he was unable to meet commitments to repay money which had been borrowed for his business purposes and for which his parents, the third and fourth defendants, had given security over a house which they owned; and his relations with his parents had reached the point that their solicitor had sent correspondence to him demanding that he meet his obligations, yet he had not complied. In some transactions in which significant amounts of money were paid in cash the first and second defendants acted together. In my view it should be inferred, as overwhelmingly probable, when the second defendant started to make purchases and expend moneys on a scale which would be unusual for the financial state of his concreting business, including purchases of goods which did not have any relation to his concreting business, soon after the first defendant had stolen a large sum of money, that he obtained that money from the first defendant and that he knew that she had stolen it from her employer. He must have known the true situation and known that the funds which he obtained from the first defendant and disposed of did not belong to her but belonged to NAB or, to express the same thing in a more formal way, he must have known facts which showed that the money was held by her on constructive trust for NAB from which the money had been stolen.
22 I am not able to find that the second defendant was a party to the theft or that he is responsible to NAB for the whole of the moneys stolen, but in the circumstances he is accountable to NAB for all moneys which he obtained from the first defendant and himself used.
23 The plaintiff’s counsel submitted that it should be held that the second defendant is liable for the whole amount stolen because he was a knowing participant in the use and disposal of the funds. It can be readily inferred that he was a knowing participant in the use and disposal of funds which he has been shown to have handled, but those circumstances do not in my view establish as a probability that he handled all of the stolen funds, nor that he was a participant in stealing the whole of the funds.
24 The facts are relevantly quite close to the facts in Black v. S Freedman & Co (1910) 12 CLR 105, in which Mrs Black was held to be liable for the part of the stolen money which came into her possession. In the present case, as in Black’s case, the person who stole the money was an employee of the person from whom it was stolen, and was clearly in a fiduciary relationship with the owner for that reason, so that it is not necessary to resort to the full force of the dictum of O’Connor J at 110.
25 I turn to deal in detail with the transactions in relation to which it should be found that the second defendant alone or with the first defendant applied money that, to his knowledge, belonged to NAB, and for which he is accountable to NAB and is subject to a tracing remedy where property to which the money was applied can be identified.
26 As alleged in para 11(a) of the Statement of Claim I find that the seven payments to Avco totalling $37,600 were made by the first and second defendants with NAB’s funds.
27 Paragraph 11(b) of the Statement of Claim alleges that the second defendant made a cash payment of $8000 to VM Diesel Engines on 10 July 1996 for the purchase of a new diesel motor for his truck. I do not accept the second defendant’s evidence that “this cash was obtained by me from payments received over the years from my business.” In my finding it was made with NAB’s money which he obtained from the first defendant.
28 In para 11(c) it is alleged that the first and second defendants made a series of four payments from 27 July 1996 to 9 August 1996 in cash and totalling $27,549.96 on the purchase of a boat and trailer from Family Boat Centre at Blacktown. The second defendant paid $15,000 towards the purchase of the boat and trailer, late in July, either 30 or 31 July 1996. The first payment was made in cash with three bundles each containing $5000 in $50 notes which he produced to the vendor from the boot of his car. He made a further cash payment of $10,000 on 5 August 1996. In his lengthy police interview he declined to give any information about the purchase of the boat. In the second defendant’s evidence the whole was provided by cash from his business; and there was a first payment of $2000 which was provided indirectly by him as he gave the first defendant cash for that amount with which she obtained an initial cheque for $2000. I do not accept the second defendant’s evidence about the source of this cash, and find that the payments were made with NAB’s money. This amount is directly traceable to the boat and trailer and NAB is entitled to a tracing remedy against the first and second defendants and to a charge over the boat and trailer for $27,549.96.
29 In para 11(d) NAB alleges that three payments made from 1 July to 19 August 1996 of cash in reduction of the second defendant’s liabilities to Esanda Finance Ltd (Esanda Finance) were made with NAB’s money. These payments total $10,500. The evidence refers to three more. Again the second defendant attributes these payments to his business, stating “The only source of my monies at that time was cash that I had accumulated from my business over the years and other monies received and deposited in my bank account” (affidavit sworn 7 May 1998, para 2(d)). I do not accept this explanation and find that these three payments were made with NAB’s money.
30 In para 11(e) NAB alleged that the second defendant used NAB’s money to make cash deposits to his account with Advance Bank of $2850 (18 June 1996) and $5500 (2 July 1996), totalling $8350. A further payment of $3242.78 is Item 23. These deposits and transactions in which the amounts deposited were drawn down appear from Advance Bank records admitted in evidence. These transactions follow a period of very low activity and small balances. The circumstances are the same in substance as for the Esanda Finance payments. I find that the payments to Advance Bank were made with NAB’s money.
31 In para 11(f) NAB alleged that cash deposits were made to the second defendant’s account with the Endeavour Credit Union on 2 July 1996 of $4000 (Item 21) and of $19.10 on 14 August 1996. These are not borne out by statements recording dealings with Endeavour Credit Union (Ex SEG4 pp 274ff) and I do not allow that claim.
32 The moneys for which the second defendant is liable can be identified by reference to Schedule A to the affidavit of Simone Emma Gilbert sworn 23 April 1999, which sets out payments alleged by NAB to have been made by all defendants after 17 June 1996. Not all the payments there referred to require attention as some were made by the first defendant and no involvement by the second defendant has been shown, while others were made by the third, fourth and fifth defendants and do not call for adjudication in detail. I adopt the numbers given to payments in that schedule and state my findings and reasons for deciding whether the second defendant is liable.
Item 1 - 18 June 1996. Advance Bank $ 2,850.00
Item 19 - 2 July 1996. Advance Bank $ 5,500.00
Item 23 - 2 July 1996. Advance Bank $ 3,242.78
Total: $11,592.78
Paragraph 11(e) of the Statement of Claim refers to the first two of these payments. I am satisfied as a matter of probability that each of these payments was made with money of NAB which the second defendant obtained from the first defendant and knew to be stolen. I allow these claims.
Item 2 - 18 June 1996. The Tyre Shoppe $2,730
Item 16 - 1 July 1996 320
Total $3,050
I am satisfied that the second defendant made these cash payments with money from the same source as in Item 1. I allow these claims.
Item 3 - 18 June 1996. Camden Petroleum $1,201.38. I am satisfied that the second defendant made this cash payment with money from the same source as Item 1. I allow this claim. See however Items 45, 66 and 69.
Item 4 - 18 June 1996. Road and Traffic Authority $344. I am satisfied that the second defendant made this cash payment with money from the same source as Item 1. I allow this claim. See however Items 35, 47, 85, 94, 95, 96 and 99.
Item 5 - 18 June 1996. NRMA $1,861.20. I am satisfied that the second defendant made this cash payment with money from the same source as Item 1. I allow this claim. See however Item 93.
Item 6 - 19 June 1996. Tarshe - Harvey Norman furniture $1099.00. This is not a payment by the second defendant. It is not allowed.
Item 7 - 19 June 1996. Strathfield Car Radio $2,500.00
Item 15 - 26 June 1996. Strathfield Car Radio $2,140.00
Total: $4,640.00
I am satisfied that the second defendant made these cash payments with money from the same source as in Item 1. I allow these claims.
Item 8 - 20 June 1996. NAB Mastercard $ 50.00
Item 18 - 2 July 1996. NAB Mastercard $1826.13
Item 39 - 25 July 1996. NAB Mastercard $ 200.00
These are not payments by the second defendant. They are not allowed.
Item 9 - 20 June 1996. NAB Visa Card $ 30.00
Item 20 - 2 July 1996. NAB Visa Card 1416.65
Item 38 - 25 July 1996. NAB Visa Card 1850.00
Item 78 - 20 November 1996. NAB Visa Card 500.00
Item 98 - 7 April 1997. NAB Visa Card 150.00
Item 100 - 16 June 1997. NAB Visa Card 100.00
These are not payments by the second defendant. They are not allowed.
Item 10 - 22 June 1996. Scundi Brothers. $957.00. This is not a payment by the second defendant. It is not allowed.
Item 11 - 23 June 1996. One Stop Pine $920.00. I am satisfied that the second defendant made this cash payment with money from the same source as in Item 1. I allow this claim.
Item 12 - 24 June 1996. Southwest Ring Tread $1,225. I am satisfied that the second defendant made this cash payment with money from the same source as in Item 1. I allow this claim.
Item 13 - 24 June 1996. Avco Financial Services $2800.00. This is the first of many payments to Avco Financial Services. Some but not all of them are particularised in para.11(a) of the Statement of Claim. I am satisfied that the second defendant obtained the moneys used to make all these payments from the first defendant with knowledge that they had been stolen. Item 111 is in a different position. The series which I allow is:-
Item 13 - 24 June 1996 $2,800
Item 32 - 17 July 1996 $5,000
Item 41 - 29 July 1996 $5,000
Item 51 - 7 August 1996 $8,000
Item 54 - 12 August 1996 $6,000
Item 56 - 19 August 1996 $9,000
Item 77 - 21 October 1996 $1,800
Item 101 - 13 June 1997 $1,500
Item 102 - 18 July 1997 $1,500
Item 103 - 27 August 1997 $1,500
Item 104 - 16 September 1997 - $1,500
Item 105 - 15 October 1997 $1,500
Item 106 - 18 November 1997 $1,500
Item 107 - 16 December 1997 $1,500
Item 108 - 15 January 1998 $1,500
Item 109 - 15 January 1998 $1,509
Item 110 - 17 February 1998 $1,500
Total: $52,609
I allow $52,609.00.
Item 14 - 25 June 1996. Mobile Affordable Batteries $240.00. I am satisfied that the second defendant made this cash payment with money from the same source as in Item 1. I allow this claim.
Item 17. This is the first of six payments to Esanda Finance. Three are referred to in para.11(d) of the Statement of Claim. I am satisfied that the second defendant obtained the moneys used to make all these payments from the first defendant with knowledge that this had been stolen. The whole series is:-
Item 17 - 1 July 1996 $2,000
Item 33 - 18 July 1996 $2,000
Item 46 - 1 August 1996 $4,000
Item 48 - 2 August 1996 $3,500
Item 53 - 12 August 1996 $3,500
Item 58 - 19 August 1996 $5,000
Total: $20,000
I allow these claims.
Item 21 - 2 July 1996. Endeavour Credit Union $4000.00
Item 42 - 29 July 1996. Endeavour Credit Union $5000.00
Item 55 - 14 August 1996. Endeavour Credit Union $19.10
Items 21 and 55 are referred to at para.11(f) of the Statement of Claim. As I earlier stated, I do not allow them as they are not established by the Endeavour Credit Union statement on which counsel for NAB relied. Item 55 is established by Ex SEG4 page 277. I am satisfied that the second defendant is liable for this payment on the same basis as Item 1. The amount allowed is $5000.00.
Item 22 - 2 July 1996. Plomara-Harvey Norman Electrical $280.00. This is not a payment by the second defendant. The claim is not allowed.
Item 24 - 4 July 1996. Woolworths $416.68. This is not a payment by the second defendant. The claim is not allowed.
Item 25 - 4 July 1996 - Phil McCarrol Ford $393.25. I make the same findings for Item 1. The claim is allowed.
Items 26, 27 and 28 - these items were not pressed.
Item 29 - 10 July 1996 - Cycle City $204.00. This is not shown by evidence to have been a payment made by the second defendant. I do not allow the claim.
Item 30 - 10 July 1996 - VM Diesel Engines $8,000. This claim is referred to in para.11(b) of the Statement of Claim. For reasons stated earlier the second defendant is liable for this payment. The claim is allowed.
Item 31 - 12 July 1996 - Pink Diamond Restaurant - $693.19. The evidence to which NAB’s counsel referred, namely statements collected by investigating police, does not establish that this payment was made by the second defendant. The claim is not allowed.
Item 34 - 19 July 1996 - G & C Auto Electrics - $134.50 in cash. I do not regard payment of this small amount in cash, at the time at which it was made, as indicative of the source of the moneys and this item is not allowed.
Item 35 - 22 July 1996 - Roads & Traffic Authority $14.00.
Item 47 - 2 August 1996 - Roads and Traffic Authority - $138.00.
Item 85 - 3 December 1996 - Roads & Traffic Authority - $93.00.
Item 94 - 6 January 1997 - Roads & Traffic Authority. - $114.00
Item 95 - 4 March 1997 - Roads & Traffic Authority - $606.00.
Item 96 - 13 March 1997 - Roads & Traffic Authority - $14.00.
Item 99 - 9 May 1997 - Roads & Traffic Authority. - $80.00
For each of these items I make the same finding as for Item 34. These items are not allowed.
Item 36 - 22 July 1996. NAB $2,000.00. This is not a payment by the second defendant. The claim is not allowed.
Item 37 - 24 July 1996 - Packaged Computers $1,900. I make the same finding as for Item 1. The claim is allowed.
Item 40 - 29 July 1996. Brass & All $114.85. This is not a payment by the second defendant. The claim is not allowed.
Item 43 - 30 July 1996 - Sherwood Hills Auto Port - $249.00. For the same reasons as in Item 34 this claim is not allowed.
Item 44 - 31 July 1996 - Family Boats - $15,000.00
Item 49 - 5 August 1996 - Family Boats - $10,000.00
Item 52 - 9 August 1996 - Family Boats - $ 549.96
Total: $25,549.96
Payments to Family Boat Centre are referred to in para.11(c) of the Statement of Claim. The second defendant is liable for these amounts for the reasons I stated when I dealt with para.11(c). The second defendant is also liable for a further $2000 for which his explanation showed that he was responsible. The claim is allowed at $27,549.96.
Item 45 - 1 August 1996 - Camden Petroleum $166.61.
Item 66 - 6 September 1996 - Camden Petroleum - $236.14.
Item 69 - 20 September 1996 - Camden Petroleum - $273.04. These items are not allowed for the same reason as Item 34..
Item 50 - 7 August 1996 - Phil McCarrol Ford - $241.90. This item is not allowed for the same reason as in Item 34.
Item 57 - 19 August 1996. The Lighting Centre $560.00. This was not a payment by the second defendant. It is not allowed.
Item 59 - 19 August 1996 - Dog Breeder - $500.00. Evidence referred to by counsel relating to this item does not support it. It is not allowed.
Items 60 - 20 August 1996, New England Glass and Aluminium $1600.00.
Item 61 - 20 August 1996. Whitmans, Camden $499.20. These claims were not pressed by NAB’s counsel.
Item 62 - 21 August 1996 - Skip Master Waste Management - $195.00. I am not prepared to allow this for the same reasons as for Item 34 and also Item 59.
Item 63 - 21 August 1996 - Criscell Bathroomwear and Ceramics - $5,000
Item 64 - 21 August 1996 - Criscell Bathroomwear and Ceramics - $1,000
Total: $6,000
Items 63 and 64 are allowed for the same reasons as Item 1.
Item 65 - 26 August 1996. Bing Lee $960.00. This was not pressed by NAB’s counsel. This claim is not allowed.
Item 67 - 2 September 1996 - Sherwood Hills Auto Port - $90.00. I make the same finding as for Item 34. This item is not allowed.
Item 68 - 16 September 1996 - Funnels Electrical Contracting - $184.75. I make the same finding as for Item 34. This item is not allowed.
Item 70. 25 September 1996. Tarshe-Harvey Norman $398.00. This is not a payment by the second defendant.
Item 71. 26 September 1996. Third and Fourth Defendants $30,000.00. This is not a payment by the second defendant.
Item 72 - 25 September 1996 - Phil McCarrol Ford - $398.35. For the same reasons as Item 34 this is not allowed.
Item 73 - 27 September 1996 - V M Diesel Engines - $77.74. For the same reasons as Item 34 this is not allowed.
Item 79 - 21 November 1996 - Jacon Industries Pty Ltd - $390.00.Items 74 - 8 October 1996. Hilliers Transport $7000.00.
Item 75 - 8 October 1996. New England Glass & Aluminium $7000.00.
Item 76 - 11 November 1996. Third and Fourth Defendants $15,000.00. These are not payments by the second defendant.
Item 80 - 22 November 1996 - Jacon Industries Pty Ltd - $1,500.
Item 92 - 6 January 1997 - Jacon Industries Pty Ltd - $1520.54.
Items 79, 80 and 92 appear to be ordinary and unremarkable transactions in the concreting business, having regard to the times of payment, the amounts involved and the services for which they were paid. They have not been shown on the probabilities to be associated with stolen moneys. They are not allowed.
33 Item 81 - 25 November 1996 - Roads & Traffic Authority - $16.00. This item was not pressed by tendering the supporting documents. In any event it should not be allowed for the same reasons as Item 34.
Items 82, 83, 84. These are not payments by the second defendants.
Supporting documents for Items 84 to 96 were not tendered. See t51/57 to 52/13. None of them should be allowed for that reason. However there are additional reasons why they should not be allowed.
Item 86 - 30 December 1996 - Phil McCarrol Ford - $187.50. For the same reasons as Item 34 this claim is not allowed.
Item 87 - December 1996 - Murphy’s Lawyers Inc. $16,000. In his affidavit of 7 May 1998 the second defendant said that this amount was paid by cheque by his parents. The fourth defendant gave evidence when examined during Mareva proceedings that she made the payments with money borrowed from the fifth defendant. A statement by an Associate of Murphy’s Lawyers Inc shows that on 21 February 1997 the firm received the sum of $16,000 “in relation to the defendants” but did not identify the person who made the payment. On the evidence it should not be found that the second defendant made the payment, or that the payment was made with money stolen from NAB.
Items 88, 89, 90 and 91. These are not payments by the second defendant.
Item 93 - 6 January 1997 - NRMA - $239.55. For the reasons as Item 34 this claim is not allowed.
Item 97 - 30 March 19976. RH and GC Hammond $1500. This is not a payment by the second defendant.
Item 113 - 1998 - Graeme Howe & Associates $1000. The evidence relating to this payment is a statement in para 2(p) of the second defendant’s affidavit of 7 May 1998 that he “paid to Grahame W. Howe & Co. Solicitors $1,000 on account of legal fees. This was paid by money order”. No date is given for this payment. In 1998 Grahame W Howe & Co. Solicitors were acting for the second defendant in these proceedings. The payment may have been made at any time up to about 23 months after the theft. The first defendant in an affidavit also made on 7 May 1998 when the same solicitors acted for her gave the same address as the second defendant, namely the Ambarvale house. This indicates their association continued. However in view of the lapse of time and the relatively small amount I do not think that the probabilities are that this sum was obtained from the first defendant. The claim is not allowed.Item 111 - 13 March 1998 - Avco Finance $82,988.15. This payment was not made in the same circumstances as those I dealt with at Item 13. The second defendant stated in his affidavit of 7 May 1998 that he raised funds for repayment to Avco by selling his business on 13 May 1998 to Viorel Fetelea for $75,000 and by obtaining $7000 from his Advance Bank account. In my view it should not be found that the moneys so paid were obtained from the first defendant. The second defendant is not liable to NAB in respect of it.
34 I will give judgment against the second defendant for the total of the sums allowed. As it appears that he had ready access to stolen funds from the time of the theft I will allow interest on the funds he in fact used, from 1 August 1996, by which time the majority of his payments had been made.
35 Summary of the claims allowed against the second defendant.
Advance Bank 1, 19 & 23 Tyre Shoppe 2 & 16 Camden Petroleum 3 Roads & Traffic Authority 4 NRMA 5 Strathfield Car Radios 7 & 15 One Stop Pine 11 Southwest Ring Tread 12 Avco Financial Services Ltd 13, 32,41, 51, 54, 56, 77, 101, 102, 103, 104, 105, 106, 107, 108, 109 & 110 Mobile Affordable Batteries 14 Esanda Finance Ltd 17, 33, 46, 48, 53 & 58 Endeavour Credit Union 42 Phil McCarrol Ford 25 VM Diesel Engines 30 Packaged Computers 37 Family Boats 44, 49 & 52 Criscell Bathroomware and Ceramics 63 & 64 TOTAL
36 Interest at rates allowed on judgment debts from 1 August 1996 to 12 February 2001 amounts to $66,792.03. Judgment will be given for $213,318.60.
37 NAB’s claims include claims for tracing remedies against assets of the first and second defendant. These claims have not yet been addressed in detail and further consideration of them will be reserved so that NAB may have an opportunity to establish that it is entitled to an equitable charge over any particular assets. A large number of assets were seized by police in the course of their investigations, held for some years and then passed into the custody of the Bank under an order which I made which does not affect ultimate entitlements to the property and relates only to its interim preservation. Until further order the property will remain in the custody of NAB and subject to the control of the court, which may be exercised so as to give effect to any equitable charges or tracing remedies which may be established, and also in aid of execution against goods.
38 I turn to the claim that the third and fourth defendants are liable as constructive trustees for payments of money made out of what must be taken to have been property held by the first defendant on constructive trust for NAB, taken and applied by the second defendant towards the Avco loan with knowledge of the facts giving rise to the constructive trust. It is important that the moneys totalling $37,600 which the second defendant paid to Avco were not in any sense paid by him to or on account of his parents. The second defendant was a principal debtor, jointly and severally a borrower of all the funds from Avco, and fully liable to Avco for all moneys payable in respect of the loan. Further, the substance of the relationship between him and his parents was that he was the principal debtor and they were not, and they had joined in the loan agreement only as guarantors for him and were entitled to indemnity from him if any of the liability actually fell on them or on their property. They were benefited by the payments to Avco in an oblique way in that their joint and several liability to Avco was reduced, both their personal obligation and the mortgage debt secured on their house property, but in my opinion it is not possible to equate this oblique benefit with the receipt by them of money to which NAB was entitled in equity. The only recipient was Avco, it was entirely appropriate for Avco to receive payments from the second defendant in respect of his loan liability to Avco, the payments were made for consideration and for value, and in no sense can Avco be thought of as an agent for the third and fourth defendants to receive those funds, or for any other purpose. Before any question can be raised that the third and fourth defendants incurred the recipient liability associated with Barnes v. Addy (1874) LR 9 Ch App 244 and Royal Brunei Airlines Sdn Bhd v. Tan [1995] 2 AC 378, and are therefore liable for the restitution remedy there recognised, it is necessary that it should be established that in some relevant sense they were recipients of the money, as recipients of something for which restitution is to be made.
39 NAB’s counsel referred, as I understood only in passing and not so as to base his case upon it, to tracing of moneys at common law. In my view there can be no relation between the present facts and tracing NAB’s stolen money at common law as there was no transaction in which a payment was made to the third and fourth defendants in respect of the Avco debt and mortgage. Tracing at common law could lead only to the payee, Avco, against which there was no claim. NAB’s claim against the third and fourth defendants was based on principles associated with Barnes v. Addy (1874) LR 9 Ch. App. 244, referred to in the passage in the judgment of Lord Selborne LC at 251-2. Lord Selborne’s observations have become the foundation of the modern law relating to constructive trust liability of persons who receive or assist in dealing with property subject to a trust or constructive trust, yet are not themselves formally constituted as trustees and are not initially constructive trustees. Authorities earlier than Barnes v. Addy are not often now referred to (but see Royal Brunei Airlines v. Tan at 385). Lord Selborne’s observations were directed to agents of trustees and of constructive trustees; that is, the observations were narrowly focused and the examples of agents expressly referred to were solicitor, banker and “agent of any sort to trustees”. Lord Selborne’s observations have been applied to derivative liability of a much wider class. His Lordship’s observations included some caveats which should not be disregarded. The first paragraphs of his judgment (at 251-2) are in these terms:
- It is equally important to maintain the doctrine of trusts which is established in this Court, and not to strain it by unreasonable construction beyond its due and proper limits. There would be no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable applications of them.
- Now in this case we have to deal with certain persons who are trustees, and with certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort , or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust . But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees. Those are the principles, as it seems to me, which we must bear in mind in dealing with the facts of this case. If those principles were disregarded, I know not how any one could, in transactions admitting of doubt as to the view which a Court of Equity might take of them, safely discharge the office of solicitor, of banker, or of agent of any sort to trustees. But, on the other hand, if persons dealing honestly as agents are at liberty to rely on the legal power of the trustees, and are not to have the character of trustees constructively imposed upon them, then the transactions of mankind can safely be carried through; and I apprehend those who create trusts do expressly intend, in the absence of fraud and dishonesty, to exonerate such agents of all classes from responsibilities which are expressly incumbent, by reason of the fiduciary relation, upon the trustees.
40 It will be seen that Lord Selborne first referred to extended liability of persons who are not properly trustees, including persons “actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust.” When however his Lordship came to refer to agents he referred to two classes; those who “receive and become chargeable with some part of the trust property” and those who “assist with knowledge in a dishonest and fraudulent design on the part of the trustees.” In referring to the latter class, Lord Selborne appears to be recurring specifically for agents to what he had said about the responsibility of those actually participating in any fraudulent conduct of the trustee. In relation to liability based on knowing assistance, now referred to as accessory liability, it has become established that dishonesty is a necessary ingredient and also a sufficient ingredient, and this general reference to dishonesty has been adopted in preference to views of the law in which detailed classifications of the knowledge and means of knowledge of the element of dishonesty were undertaken: see Royal Brunei Airlines Sdn Bhd v. Tan [1995] 2 AC 378 at 392F-H. The reference is to objective dishonesty, not dishonesty according to the understanding of the person charged: see Beach Petroleum NL v. Kennedy (1999) 48 NSWLR 1 at 87. In my view the question of dishonesty is not to be approached by applying concepts of constructive notice or constructive knowledge taken from other areas of equity. According to the factual context, a person may be in a situation such that refraining from making inquiries or otherwise obtaining knowledge may be a demonstration of dishonesty. The concept of objective dishonesty seems to exclude from consideration inquiries into whether a person was wilfully blind to facts which reasonably ought to have been obvious; it is enough that the facts ought to have been obvious.
41 The third and fourth defendants are not shown by any evidence to have had any involvement in the events by which the second defendant made the payments to Avco using money stolen from NAB. There is no evidence of their being associated with those payments as participants in any sense. There is no point at which even to begin to consider whether they were objectively dishonest in relation to those payments for the purpose of determining whether they incurred accessory liability for them.
42 The case of persons who receive and become chargeable with some part of the trust property has come to be referred to as recipient liability. When Lord Selborne referred to agents who “become chargeable” he was in my opinion referring to the agent being chargeable to his principal, that is, to the misapplying trustee, and in that way excluded receipts of money which the agent was entitled, as between himself and the misapplying trustee, to retain for himself; such as payments for consideration for the agent’s services. A recipient is only liable to the beneficial owner for payments made to him for consideration if he falls within the other branch relating to assisting and doing so dishonestly.
43 In Tan their Lordships at 386E-F distinguished recipient liability from accessory liability, apparently on the basis that dishonesty is not an element of recipient liability. Their Lordships were not called on to deal fully with recipient liability, but they appear to have expressed the basis of distinction with the observation:
- Recipient liability is restitution-based; accessory liability is not.
44 The principles which deeply underlie equity suggest that a restitution-based remedy must have some basis in the position in conscience of the person against whom it is awarded so that it must be shown that a recipient did not receive the payment for value or had notice of another person’s equitable interest in the money; or at the very least, it should be open to him to show that he did give value and had no notice.
45 In the High Court’s exposition of the common law claim for restitution in Australia and New Zealand Banking Group Ltd v. Westpac Banking Corp (1988) 164 CLR 662 at 673 their Honours gave an example of circumstances in which liability for restitution is displaced where:
- … the payment was made for good consideration such as the discharge of an existing debt …
46 There is no possible view of the facts in which Avco was in any way the agent of the third and fourth defendants to receive the payments. In my view the third and fourth defendants are not in any sense the recipients of the payments made by the second defendant to Avco, and for that reason they can not be liable to any common law or equitable remedies based on restitution. No money was paid to them, and no money was paid on their account or for their benefit. The second defendant, who owed Avco money, paid Avco part of his debt. The fact that the third and fourth defendants were jointly and severally liable for the same debt does not mean that they were in any sense recipients of the payments. They should be regarded as entitled to have the second defendant make the payments; as is alleged in paras 6 and 7 of the Statement of Claim, they gave a mortgage to secure loans by Avco to the second defendant. The second defendant had an obligation to them to make the payments to Avco, and if it was possible to regard them as recipients, they would be in the protected position of the recipients of money paid in discharge of an existing debt to which the High Court referred in ANZ Banking Group v. Westpac.
47 NAB’s counsel referred to a number of circumstances in this context but did not show any clear basis for taking any other view. Among other things he referred to the third and fourth defendants’ being in a position to dispose of significant payments after June 1996 whereas there were indications, most notably the terms of Messrs Truman Hoyle’s letters of demand on their behalf, that earlier they were in a poor financial position. However, no overall view of their financial position appears and there is no reasonable basis for findings regarding their possession of funds after June 1996 that could lead to an inference that they obtained funds from or through the first defendant or that they knew that any such funds were stolen. Indeed there is very little evidence of any association between them and the first defendant.
48 Submissions were also made to the effect that the third and fourth defendants had some form of constructive notice of the source of the money and received the benefit of the reduction of the burden of the mortgage on their property in circumstances that put them on inquiry about the source of the money. In my view the test is a test of dishonesty, but it is not applicable because there is no basis for the finding that they were in any way involved in the transaction of payment. They took no part in it, had no control over it, and were not in a position where any knowledge or inquiry of theirs would have affected matters. In any event, there is no indication of dishonesty on their part.
49 Counsel pointed to a contrast between the apparently strained relationship which existed in May 1996 between the second defendant and the third and fourth defendants and signs of a reconciliation at later times. I regard that as no more than a natural consequence of his beginning to meet his obligations, and not an indication of anything suspicious or of any involvement of the third and fourth defendants in dishonesty.
50 In my view it cannot be said that they are liable under remedies associated with Barnes v. Addy which are based on knowing assistance in a breach of trust. No evidence establishes that they participated in any way in the transactions in which payments were made to Avco; the only circumstance which suggests that they may have is that they had earlier, before the theft and when it was quite appropriate for them to do so, caused their solicitor to call on the second defendant to meet his obligations. At that time when their son was in default they had good reason to infer and must be taken to have known that he was in a poor financial state and unable or unwilling to meet his obligations to them; but that goes no distance at all towards demonstrating that when later and over several months he made a series of payments to Avco they knew that he had come by the money used to make the payments in an improper way.
51 Counsel for NAB contended that principles of subrogation entitled NAB to stand in the position which the secured creditor Avco would have been in if the second defendant had not made the payments. I see no analogies with situations in which securities which have been discharged in favour of one person under a common liability are treated as continuing in existence for the purpose of equitable adjustments of the rights of other persons who share the common liability. In my opinion there is no respect in which it is inequitable that the third and fourth defendants should have the benefit of the reduction in the liability produced by payments by the second defendant to the common creditor which the second defendant was obliged to make; obliged, that is, to them as well as to the common creditor. For the purpose of determining equitable remedies the benefit which the third and fourth defendants obtained in the reduction in the charge over their property as a result of payments made by the second defendant should be seen as a benefit which they received for value, because they were entitled as against their son to have those payments (and all payments) made by him.
52 For these reasons I will give judgment for the third and fourth defendants.
53 NAB also made claims against the fifth defendant but these were resolved in some way which led to the proceedings against him being discontinued.
54 Orders:
(1) Give judgment for the plaintiff against the first defendant for $700,755.26 with costs.
(2) Give judgment for the plaintiff against the second defendant for $213,318.60 with costs.
(3) Reserve further consideration of claims by the plaintiff against the first and second defendants for equitable remedies relating to specific items of property.
********(4) Give judgment for the third and fourth defendants with costs.
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