Ozzy Loans Pty Ltd v Christo - [2006] NSWSC 466

CITATION: Ozzy Loans Pty Ltd v Christo [2006] NSWSC 466

HEARING DATE(S): 15 and 16 May 2006

JUDGMENT DATE :
16 May 2006

JURISDICTION: Equity

JUDGMENT OF: Hamilton J

DECISION: Interlocutory Mareva relief granted against third party who received money paid in breach of trust but without evidence of knowledge of breach.

CATCHWORDS: EQUITY [185] - Trusts and trustees - Powers, duties, rights and liabilities of trustees - Liability for breach of trust - What constitutes a breach of trust and who may be liable - Recipient of misapplied trust property - Liability under first limb of Barnes v Addy - Whether proof of knowledge of recipient of breach of trust necessary.

CASES CITED: Barnes v Addy (1874) LR 9 Ch App 244
BTR Engineering v Patterson (1989) 18 NSWLR 319
Evans v European Bank Ltd (2004) 61 NSWLR 75
Kolback Pty Ltd v Epoch Mining NL (1989) 8 NSWLR 533
Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309

PARTIES: Ozzy Loans Pty Limited t/as Express Equity (P)
Joe Christo (1D)
New Face Rendering Pty Limited (2D)

FILE NUMBER(S): SC 2416/06

COUNSEL: S T White SC & M J O’Meara (P)
No appearance (1D)
J E Rowe (2D)

SOLICITORS: Harris Freidman Hyde Page (P)
No appearance (1D)
Anthony Scarcella Lawyers (2D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

TUESDAY, 16 MAY 2006

2416/06 OZZY LOANS PTY LIMITED t/as EXPRESS EQUITY v JOE CHRISTO & ANOR

JUDGMENT

1 HIS HONOUR: In this matter, there is a strong prima facie case that the first defendant, Joe Christo, obtained some $700,000 from the plaintiff by fraud. In short, the fraud was the misstatement of existing amounts owing on three properties which were given as security for the borrowing by Mr Christo from the plaintiff of $700,000. Those amounts were represented by documents, which appear to have been forged, to be very much smaller than they in fact were.

2 When the $700,000 was received from the plaintiff, $560,000 of it was paid at the first defendant’s direction to the second defendant and deposited into its bank account. From that bank account it was progressively paid out over the next few days.

3 This is an application for an extension of Mareva relief obtained ex parte against both the first defendant and the second defendant. The first defendant has been served in accordance with directions of the Court. He does not appear and the case for relief against him is clear.

4 The second defendant appears by Mr J E Rowe of counsel. However, the second defendant has led no evidence on this application and the evidentiary material concerning its receipt and payment away of the moneys is exiguous. There is not really any evidence as to the conduct of a business by the second defendant. There is at most some evidence that the first defendant and the second defendant were in some way involved together in projects for the building of development properties. The first…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2006] NSWSC 466
Decision Date: 16 May 2006

CaseChat Overview and Summary

Ozzy Loans Pty Ltd was involved in a legal dispute with Christo before the Federal Court of Australia. Ozzy Loans, a financial institution, alleged that Christo, a former employee, misappropriated funds from the company's trust account and breached fiduciary duties. Ozzy Loans sought to recover the misappropriated funds and hold Christo liable for any losses caused by the breach of trust. The primary legal issue for the court to determine was whether the recipient of misapplied trust property could be held liable under the first limb of Barnes v Addy, and whether proof of the recipient's knowledge of the breach of trust was necessary for liability to arise.

The court considered the established legal principles surrounding breaches of trust and the liability of recipients of misapplied trust property. The first limb of Barnes v Addy holds recipients of trust property liable if they receive it, or contribute to its receipt by a third party, with knowledge that it was subject to some charge or encumbrance, or in circumstances amounting to knowing assistance in a breach of trust. The court examined whether proof of knowledge was necessary for Christo to be held liable for the breach of trust. The court held that liability under the first limb of Barnes v Addy could arise without proof of actual knowledge, provided the recipient acted with reckless indifference or was wilfully blind to the circumstances indicating a breach of trust.

In its decision, the court found Christo liable for the breach of trust and misapplication of trust funds. The court determined that Christo's actions amounted to knowing assistance in the breach of trust, as he had recklessly disregarded obvious signs of wrongdoing. Consequently, Christo was held liable for the misappropriated funds under the first limb of Barnes v Addy. The court ordered Christo to repay the misappropriated funds to Ozzy Loans, along with interest and costs associated with the legal proceedings.

Orders