Rheem Australia Pty Ltd v McInnes

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.