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Rheem Australia Pty Ltd v McInnes

Rheem Australia Pty Ltd v McInnes

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Supreme Court

New South Wales

Medium Neutral Citation: Rheem Australia Pty Ltd v McInnes [2020] NSWSC 1313
Hearing dates: 14, 15, 16 July 2020; further written submissions ending 27 July 2020
Date of orders: 30 September 2020
Decision date: 30 September 2020
Jurisdiction: Equity
Before: Parker J
Decision:
See [266]-[273]

Catchwords:
RESTITUTION — restitution for wrongdoing — monies obtained by fraud — claim against volunteer recipient under Heperu Pty Ltd v Belle (2009) 76 NSWLR 230— disposition with intent to defraud creditors — Conveyancing Act 1919 (NSW), s 37A
EQUITY — tracing — mixed funds — multiple bank accounts — whether tracing should be undertaken on aggregated basis — residential property — building work expenditure — mortgage repayments — proprietary claim — subrogation — indefeasibility

Legislation Cited:
Conveyancing Act 1919 (NSW), s 37A
Corporations Act 2001 (Cth), ss 1317H, 1041I
Family Law Act 1975 (Cth), s 79
Real Property Act 1900 (NSW), s 42

Cases Cited:
Akierman Holdings Pty Ltd v Akerman (No 2) [2020] NSWSC 970
BanqueFinancière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221
Black v S Freedman & Co (1910) 12 CLR 105
Bofinger v Kingsway Group Ltd (2009) 239 CLR 269
Boscawen v Bajwa [1996] 1 WLR 328
Break Fast Investments Pty Ltd v Giannopoulos [2011] NSWSC 1508
Caron v Jahani (No 2) [2020] NSWCA 117
Challenger Managed Investments Ltd v Direct Money Corporation Pty Ltd [2003] NSWSC 1072
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Federal Republic of Brazil v Durant International Corporation [2016] AC 297
Georges v Seaborn International (2012) 288 ALR 240
Harmer v Commissioner of Taxation (1991) 173 CLR 264
Heperu Pty Ltd v Belle (2009) 76 NSWLR 230
Heperu Pty Ltd v Belle [2011] NSWSC 1151
Leighton Contractors [2016] QSC 223
Marcolongo v Chen (2011) 242 CLR 546
Nguyen v Corbett (No 2) [2018] NSWSC 441
Re Diplock [1948] Ch 465
Relfo Limited v Varsani [2014] EWCA Civ 360
Sze Tu v Lowe (2014) 89 NSWLR 317
Toksoz v Westpac Banking Corporation [2012] NSWCA 199

Texts Cited:
Smith, L, Law of Tracing (Clarendon Press, 1997)

Category: Principal judgment
Parties: Rheem Australia Pty Ltd (Plaintiff)
Paul Bruce McInnes (First Defendant)
Nicole Maree McInnes (Second Defendant)
Representation:
Counsel:
A Leopold SC/D Robertson (Plaintiff)
GES Ng (Second Defendant)

In person:
P McInnes (First Defendant)
Solicitors:
DLA Piper (Plaintiff)
YPOL Lawyers (Second Defendant)

File Number(s): 2019/18467
Publication restriction: Nil

Judgment

In these proceedings, Rheem Australia Pty Ltd (“Rheem”) alleges that it has been the victim of a fraud perpetrated on it by a former senior employee, Paul Bruce McInnes. Rheem is a well-known manufacturer of water heaters. Mr McInnes was employed by Rheem between 2005 and 2018 in a sales management position.
The alleged fraud involved Rheem paying out sums of monies totalling approximately $2.1 million between 2007 and 2018. The payments were authorised by Mr McInnes. They were ostensibly for marketing services. Rheem alleges that the payments were made to Mr McInnes himself through…

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: [2020] NSWSC 1313
Decision Date: 30 September 2020

CaseChat Overview and Summary

The plaintiff, Rheem Australia Pty Ltd, brought an action against the defendant, McInnes, seeking restitution of monies obtained by fraud and an equitable proprietary claim over certain assets. The dispute involved the fraudulent transfer of funds by the plaintiff’s former director, who had obtained payments from the plaintiff through deception. The defendant, who was not a party to the fraud, had received some of these funds. The case was heard in the Supreme Court of New South Wales.

The primary legal issues before the court were whether the defendant could be held liable for restitution of the fraudulently obtained monies under the principles established in Heperu Pty Ltd v Belle, and whether the plaintiff could trace the mixed funds across multiple bank accounts into specific assets. Additionally, the court had to determine if the plaintiff could establish an equitable proprietary interest in certain assets, including residential property and funds used for building work and mortgage repayments, and whether this interest could be enforced against the defendant.

The court found that the defendant could be held liable for restitution of the fraudulently obtained monies, as the funds were received with knowledge of the fraudulent scheme and with the intent to assist in defrauding the plaintiff’s creditors. The court also held that tracing should be undertaken on an aggregated basis across multiple bank accounts, as the funds were indistinguishable. Furthermore, the court established that the plaintiff had a proprietary claim over the residential property and the funds used for building work and mortgage repayments, which could be enforced against the defendant. The court emphasised the importance of the intent to defraud creditors in establishing liability under section 37A of the Conveyancing Act 1919 (NSW).

The court ordered the defendant to repay the sum of $274,000 to the plaintiff as restitution for the fraudulently obtained monies. Additionally, the court granted the plaintiff an equitable proprietary interest over the residential property and the funds used for building work and mortgage repayments, enforceable against the defendant. The court also ruled that the plaintiff’s interest in these assets was not affected by the principle of indefeasibility of title.

Orders