Rogers v Kabriel

[1999] NSWSC 368

CITATION:	Rogers v Kabriel [1999] NSWSC 368
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	3052/97
HEARING DATE(S):	06/10/98; 07/10/98; 08/10/98; 09/10/98; 10/2/99; 11/02/99
JUDGMENT DATE:	23 April 1999
PARTIES :	Joan Freedom Rogers (P1) Joan Freedom Rogers Pty Ltd (P2) Bedrich Kabriel (D1) Narendra Prasad (D2) Fontana Films Pty Ltd (D3)
JUDGMENT OF:	Young J

COUNSEL :	Plaintiff: B A Coles QC and A P Coleman Defendants 1 & 3: P Le G Brereton SC and D P M Ash 2nd Defendant in person.
SOLICITORS:	Plaintiff: Corrs Chambers Westgarth Defendants 1 & 3: Beilby Poulden Costello
CATCHWORDS:	Corporations [85]; Prescribed interests; Investment of $1 million; Whether exempt from Corporations Law; Equity [35]; Fiduciary; X owed fiduciary duties to Y and Z; Preferred Z over Y; Z obtained large amount of Y's money; Whether Y bound to restore; Procedure [788]; Money counts; Money had and received; Scope; Restitution [5]; Recovery of money; Extent of defence of change of position; Taxes & Duties [148]; Deductions; Investment in Australian films; Prerequisites for deduction; Trade Practices [141]; Accessory liability; Acts on behalf of others
ACTS CITED:	Corporations Law (NSW) Parts 7.11, 7.12 (s 995); ss 9, 66(3), 1005, 1274B Evidence Act 1995 (NSW) s 38(1) Fair Trading Act 1987 (NSW) ss 42, 61 Income Tax Assesment Act 1936 (Cth) Div 10BA, ss 124ZADA(1)(d)(iii), 124ZADA(2), 124ZAFA(1), 124ZAFA(1)(a), 124ZAFA(1)(c)(i), 124ZAFA(1)(c)(ii) Trade Practices Act 1974 (Cth) ss 52, 75B, 84(2)
DECISION:	See paras 205 to 208

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG, J

Friday 23 April 1999

3052/97 - ROGERS & ANOR V KABRIEL & ORS

JUDGMENT
1 HIS HONOUR : The first plaintiff, a quite wealthy lady, controls the second plaintiff, a proprietary company. The first defendant is a film producer who is the leading light in the third defendant. The second defendant is an accountant and financial adviser. He acted as such for both the plaintiffs and the third defendant.
2 Mr B A Coles QC and Mr A P Coleman appeared for the plaintiffs. Mr P Le G Brereton SC and Mr D P M Ash appeared at the hearing, for the first defendant, Mr Kabriel, and the third defendant, Fontana Films Pty Ltd to which I will refer simply as “Fontana Films” or “Fontana”. The written submissions were signed by Mr Brereton SC alone. The second defendant, Mr Prasad, appeared in person.
3 The plaintiffs complain about two transactions, the first which occurred about 17 September 1996 (the “First Transaction”), they say had the effect of depositing $650,000 into Fontana Films’ bank account. The plaintiffs wish to recover it, either as money had and received or otherwise.
4 The other transaction took place on 16 October 1996 when the second plaintiff “invested” $1m with Fontana Films in connection with a film, (the “Second Transaction”).
5 As I said, the first plaintiff controls the second plaintiff. For simplicity, I will simply refer to “the plaintiffs”. The plaintiffs’ interests sold a business for $36m, of which the first plaintiff received $27m. By September 1996 the first plaintiff had lost confidence in her advisers and was suspicious of her daughter. She was friendly with the first defendant Mr Bedrich Kabriel, and he suggested that the second defendant, Mr Narendra Prasad, was a good accountant who could advise Mrs Rogers.
6 In September 1996, the plaintiffs were purchasing a property in the Southern Highlands and required $650,000 to complete the purchase.
7 Mrs Rogers first met Mr Prasad on 4 September 1996 and was interested in having him be her financial adviser. She met Mr Prasad for the second time on 7 September 1996 when she signed two authorities, authorising Mr Prasad to exercise authority over her monies in quite wide respects. Mr Prasad advised Mrs Rogers that she had a considerable tax problem and prepared investment plans. Included amongst these was a suggestion that an investment in the film industry would be a good idea. At this time Mr Prasad gave Mrs Rogers four copies of the prospectus for the film “The Ugly Dumpling” and he says he told Mrs Rogers “This is the type of document which is issued when the film is made”.
8 Arrangements were then made for Mrs Rogers to see Mr Seller, a solicitor who is a partner in the firm of Gadens. Mr Prasad at least saw Mr Seller and gave him some material which referred to “The Ugly Dumpling” and also provided provisional certificates in respect of about five films including the film “Skar”. It is doubtful whether Mr Bedrich Kabriel attended the conference at Gadens. Mr Seller’s evidence was quite unsatisfactory generally and he provided the only evidence that Mr Kabriel did attend that conference.
9 On 13 September 1996, Mrs Rogers attended a meeting at Mr Seller’s office with Mr Bonnell and Mr Kabriel. Mr Prasad was there though Mrs Rogers does not recollect his presence. Mr Prasad raised the topic of film investment and said that he proposed to put Mrs Rogers into a film scheme, though he was not sure which, and asked Gadens to advise her. In due course Gadens advised that Mrs Rogers should not take any steps with respect to film investment until a due diligence review of the documents could be undertaken so that Gadens could give her concluded advice.
10 On 16 September 1996, Mrs Rogers and Mr Prasad met at Quay West and walked down to the Advance Bank where they met a manager, Mr Stephenson. Mr Prasad wrote out a cheque for $15m, Mrs Rogers signed it and handed it over to Mr Stephenson. Mrs Rogers and Mr Prasad then went down to the National Bank, where the manager, Mr Davenport, refused to release the money.
11 On that day at the Advance Bank, Mr Prasad prepared two withdrawal slips for $650,000 each. Mrs Rogers can only remember signing one authority for $650,000 but the surrounding material shows she signed two. I found Mrs Rogers to be very vague in giving her evidence and reached the conclusion that it would be unsafe to rely on many of the statements she made unless they were corroborated. Mr Prasad says that Mrs Rogers told him, “I’d like to invest in the film. Can I invest $1.3 million?” to which Mr Prasad replied, “No Rick does not need that money” and Mrs Rogers then allegedly said, “Can I put half in it and half extra, and you make sure that the other half extra $650,000 goes into a fixed deposit, so it’s instantly available”.
12 Mr Prasad’s evidence was hard to accept. He represented himself. At p 99 of the transcript Mr Prasad indicated that he wished to make a statement. I advised him as to his liability to be cross examined and he then said that he did not want to give evidence. Mr Brereton SC then called Mr Prasad to give evidence in the case of the other defendants and he was examined orally in chief by Mr Brereton SC for about three-quarters of an hour. Mr Coles QC cross examined him for about five minutes. The witness then requested and was granted, a five minute adjournment. About five minutes after resuming the witness was seen to be continuously rubbing his forehead with his right arm, his speech was slow and a couple of minutes after that the witness said he was sorry he could not answer any more questions and that he was ill. The matter was then adjourned to the next day. A medical report was tendered on the next day which showed that Mr Prasad had suffered severe heart failure attacks and suffered from a mild degree of dementia associated with increasingly severe short term memory changes. The doctor reported “All in all, I recommend that he be regarded as a not reliable witness in court, and respectfully request that in interest of his health he be excused court attendance.”
13 This leaves me in a very odd situation. As I said during submissions, I do not think that I can disregard the whole of Mr Prasad’s evidence. I would certainly pay attention to it if it contained admissions against Mr Prasad, but the rest of the evidence must have very little weight in view of the facts that the evidence was not cross examined and the doctor’s view that Mr Prasad is an unreliable witness. However, there were some parts of Mr Prasad’s evidence where he was able to look at documents and give some explanation. Some of that evidence, I think, is credible. On the other hand, I would be very loath to accept Mr Prasad’s evidence as to conversations he had with anyone else in the case.
14 I will shortly deal with the two separate transactions, but before I do I should make mention of some evidence which was undisputed and which forms part of the background to the transactions.
15 Mr Bedrich Kabriel, who has been a director of the third defendant Fontana Films since 20 August 1968, first met Mrs Rogers in the mid to late 1960s when he was making a commercial for one of the products that her former company was promoting. They became friendly and in 1982 Bedrich Kabriel joined a group of advisers to Mrs Rogers known as “the Cenovis Advisory Group Committee”. When Mrs Rogers was experiencing difficulties with her accountants she asked Mr Kabriel for advice, and it was he who suggested the services of the second defendant. Mrs Rogers first met Mr Prasad at Mrs Rogers’ Quay West apartment when he was introduced by Mr Kabriel. Mrs Rogers appointed Mr Prasad her financial adviser and accountant without more enquiry.
16 It is alleged by the plaintiffs that the relationship between Mr Kabriel and Mrs Rogers was such that he could reasonably be treated as a fiduciary who had agreed to act on behalf of Mrs Rogers and to be her adviser.
17 On 7 September 1996, Mrs Rogers gave Mr Prasad two authorities, the first which is headed “Authority to Act and or Give Instructions” is addressed to Mr Prasad and confirms Mrs Rogers’ authority for him to act on her behalf and on behalf of associated companies in relation to any dealings with banks, accountants and other institutions. The second headed “Acknowledgment and Authority to Give and Receive Information” acknowledges that Mrs Rogers has appointed Mr Prasad for financial and taxation advice and authorises him to seek or give information and use that information regarding Mrs Rogers’ “personal and business affairs and associated companies for the purpose of deposit of funds and banking facilities”.
18 In cross examination, Mrs Rogers was asked about these documents. Mr Brereton SC put: “When you signed the second of the documents ... you understood you were authorising Mr Prasad to act on your behalf?”
A. “Yes”.
Q. “You understood that you were authorising him to act on your behalf in relation to any dealings with Gadens?”
A. “Yes”.
Q. “And to act on your behalf, and on behalf of any of your associated companies in relation to any dealings with any other institutions that he deems appropriate?”
A. “Yes”.
Q. “And you understood that by signing that you were giving him a very wide scope of authority to make decisions on your behalf?”
A. “That’s right”.
19 In that background I must examine the two transactions and I believe that the most convenient way to do so is to deal with them and the other questions that arise in these proceedings under the following headings:
1. An overview of the facts and the witnesses.
2. The First Transaction.
2A. The claim by the plaintiffs against Mr Prasad in respect of the First Transaction.
2B. The claims by the plaintiffs against the First and Third Defendants in respect of the First Transaction.
3. The Second Transaction.
3A. Findings of fact with respect to the Second Transaction.
3B. Was the investment tax deductible?
3C. The claim against Mr Prasad regarding the Second Transaction.
3D. The claims against Fontana Films regarding the Second Transaction.
3E. The claim against Mr Kabriel regarding the Second Transaction.
4. The claim against Fontana Films under the Corporations Law.
5. The Result of the case.
20 1. An overview of the facts and the witnesses
The hearing took two days before me last October. It was then necessary to stand the matter over until December because of Mr Prasad’s condition. Counsel then prepared written submissions over January and spoke to them on 10 February 1999. A minor loose end was dealt with on 11 February. I then commenced writing these reasons, but ran into difficulties and called for further written submissions if either or both counsel wished to do so. They both did so, the final submission reaching me on 11 March. Those submissions were most helpful. In accordance with modern practice, they were supplied in hard copy and on disk to make them easier to incorporate into the final version of the reasons for judgment.
21 Although I accept generally the evidence that Mrs Rogers gave, I do not accept it in its entirety. As I have already mentioned, I found that much of her evidence was very vague and gave the indicia of a person who had been on the sideline rather than in the heat of the action.
22 Mr Prasad gave evidence in a way that made me think that he was frightened of something, though I do not know of what. As appears from earlier in these reasons, he indicated he wanted to give evidence, Mr Brereton SC cross examined him under s 38(1) of the Evidence Act 1995. When it was Mr Coles QC’s turn to cross examine, Mr Prasad became too ill to continue. I thus have to evaluate his evidence in a special way.
23 Mr Kabriel gave evidence in a confident manner and was not affected by cross examination. Although there was a considerable amount of debate in the written submissions on both sides as to whether his evidence should be accepted, I have little hesitation in accepting his evidence. I also accepted the evidence of Mr Devos, though I suspect that he was confused as to what meeting was what. As in most cases, there were a number of supporting witnesses. I was not impressed with the evidence of Mr Seller, the solicitor, whose memory was weak on this matter. I do not need to mention the other incidental witnesses: generally I accepted their evidence.
24 2. The First Transaction
2A. The claim by the plaintiffs against Mr Prasad in respect of the First Transaction
25 It is first necessary to examine the facts in a little more detail. On 17 September 1996 an amount of $650,000 was withdrawn from the account of the second plaintiff at the Advance Bank, Account No 44078230. This was achieved by way of the withdrawal and deposit forms signed in blank by Mrs Rogers. The only part of those documents which bears Mrs Rogers’ handwriting is the signature. At the time of the withdrawal and deposit of the $650,000 from the second plaintiff’s bank account into Fontana Films’ bank account, Mr Prasad was engaged or contracted by Fontana Films as its financial adviser or financial controller. Mr Prasad’s specific role was to raise money on behalf of Fontana Films for the production of films.
26 Mr Coles QC and Mr Coleman submit that Mrs Rogers did not authorise the withdrawal of $650,000 from the second plaintiff’s bank account or for those funds to be deposited into Fontana Films’ bank account and only discovered the deposit of the money into Fontana Films’ account in January 1997. I am not satisfied that this is completely so.
27 There is no doubt that an amount of $650,000 was placed on term deposit with the Advance Bank into Contract No 96057043 by Mr Prasad. This money was eventually used to settle the purchase of the Southern Highlands property. There is also no doubt that a second sum of $650,000 was withdrawn from the second plaintiff’s account on the same day and paid to Fontana Films.
28 Mr Coles, QC and Mr Coleman put that it should properly be inferred that Mr Prasad took advantage of the instructions he was given to set aside $650,000 as a cloak for the unauthorised misappropriation of an identical sum on that day. They put that this inference is supported by Mrs Rogers’ evidence that the fact of the withdrawal was concealed from Mrs Rogers when Mr Prasad (after some prompting) finally supplied her with a statement of account for monies he had apparently spent purportedly on her behalf. However, whilst I generally agree with Mr Coles QC and Mr Coleman for the reasons they give in their written submissions that Mr Prasad’s evidence on the matter is implausible, I could not be confident of accepting Mrs Rogers’ evidence on this point.
29 There is no doubt that Mrs Rogers appointed Mr Prasad as her financial adviser and accountant and vested him with some authority. The real question is: what authority did he have? I have already referred to the two Authority Documents and to Mrs Rogers’ evidence in respect of the authority that she considered that Mr Prasad possessed. Mrs Rogers specifically said in her affidavit that Mr Prasad had no authority to enter into the First Transaction. I think that is more a statement of belief and that I really need to examine the documents in the surrounding circumstances.
30 Mr Coles QC and Mr Coleman say that the Authority Documents relied on by Fontana Films are insufficient authority. I would agree; their basic thrust is to permit Mr Prasad to gather and give information, not to allow him to make investments. It is difficult to treat Mr Prasad as having ostensible authority because he was acting for both sides of the transaction and thus both sides knew the exact state of his authority.
31 Plaintiffs’ counsel say that even on Mr Prasad’s own version (upon which he has declined to submit himself for cross examination) of the deposit of the $650,000 is that on an occasion not otherwise elaborated upon at the Advance Bank, Mrs Rogers is supposed to have said:-
“Yeah, I’d like to invest in the film. Can you do it now, and put a further $650,000 deposit ...”
or -
“Can I invest $1.3m into this account?”
32 Plaintiffs’ counsel submit that this account is highly implausible and should be rejected for at least three reasons:-

(a) It is inherently unlikely that Mrs Rogers would initiate a proposal to invest or agree to invest in a film on 17 September 1996, three days after the meeting attended by her at Gadens on 13 September 1996. Objectively the evidence discloses that although there was only a brief discussion about films at that meeting, Mr Seller’s advice to her, which she accepted, was that any investment in film should be delayed until a proper due diligence was completed;
(b) Mr Prasad’s version is inherently inconsistent. On the one

hand, it is said that he attended a meeting with Gadens and
provided them with documents in relation to a film investment of
$1.3m by Mrs Rogers and yet, Mr Prasad asserts that when Mrs
Rogers asked if she could invest $1.3m into Fontana Films’
account he said, “No, Rick does not need that money”;
(c) No receipt or other acknowledgment was issued for the $650,000 either then or at any other time.
33 I agree with this submission for the reasons put forward. Furthermore, there is no evidence as to the terms on which the $650,000 was “invested” with Fontana Films. The highest that the evidence goes was that the money was to be invested in a film, but this is rather nebulous. Even if the money was to be invested in the film “The Ugly Dumpling’, it would not assist the defendants as the prospectus had expired and the money in fact was not “invested” in that film.
34 Mr Brereton SC says that the inference must be that the investment was made as a film investment. I do not see how I can accept this on the facts. There was not even the pretence of taking the money on the basis of an application in a prospectus, there is nothing to show that the plaintiffs were to get the documentation that they would need to prove a tax deduction for a film investment and there was no attempt by Fontana Films to use the money for its own film production.
35 The most likely scenario is that Mr Prasad either considered that the “investment” was in Mrs Rogers’ interest or else the needs of Fontana Films outweighed all other considerations in his mind. I will, for the moment assume the former. Thus, I will consider the case on the basis most favourable to Mr Prasad.
36 Basically, the situation is that Mr Prasad, in breach of the terms of his agency agreement with the plaintiffs, took it upon himself to “invest” $650,000 of the plaintiffs’ money in Fontana Films. The plaintiffs have sought to recover that amount from Fontana Films. For the reasons given in Part 2B of these reasons, I have held they are entitled to do so. There must, however, be some doubt as to the ability of Fontana Films to satisfy any judgment. On that basis, the plaintiffs have suffered loss. That loss is the present assessment of the likelihood of shortfall which will need to be assessed by a Master if needs be.
37 The next question is whether that loss was a result of Mr Prasad’s actions. The allegation is that the “investment” was not in the interests of either of the plaintiffs. That is probably correct, at least on the facts as are now known, but Mr Prasad may well have thought that he was so acting. However, the duty of the agent was, in the words of Article 38 of the 17th ed of Bowstead & Reynolds on Agency (Sweet & Maxwell, London, 1996) “to act in accordance with the terms of (his) contract and not exceed his authority.” The agent who thinks that he is acting in the best interests of the client, but is not acting within the terms of his contract is liable to the principal if damage ensues. This was laid down in Fray v Voules (1859) 1 El & El 839; 120 ER 1125 and has been recently applied by the Court of Appeal in Donellan v Watson (1990) 21 NSWLR 335, 342. Thus, despite Mr Prasad’s intention, he was not acting within the scope of his authority and accordingly is liable for any loss caused by his actions.
38 It might be said that this simple cause of action was not pleaded. However, in my view it is implicit in what is pleaded in paragraph 17 of the second further amended statement of claim.
39 Thus the result is that there should be damages for breach of Mr Prasad’s duty in an amount to be assessed by a Master.
40 This conclusion really makes consideration of the other ways in which the case was put academic, but I will briefly consider them in case this matter goes further.
41 The plaintiffs’ chief submission is that Mr Prasad committed a fraud on Mrs Rogers. The primary way this is put is that in making the representation that it was his intention to use the withdrawal and deposit slips Mr Prasad caused Mrs Rogers to sign in blank only for the purpose of facilitating the purchase of Frogmeadow (the property in the Southern Highlands that Mrs Rogers was acquiring) when that was not his intention. That representation was made with the intention that Mrs Rogers act on it by signing the withdrawal and deposit slips and, as a result of Mrs Rogers so acting, the plaintiffs have suffered damage, namely the loss of the $650,000. Counsel referred to Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563. As I have said earlier, I do not accept this version of the facts.
42 Mr Coles QC and Mr Coleman then put that the plaintiffs are entitled to recover the $650,000 from Mr Prasad as a cause of action lies in debt against a thief: Chowne v Baylis (1862) 31 Beav 351, 358; 54 ER 1174, 1177. They put that it should properly be inferred that Mr Prasad took advantage of the instructions he was given to set aside $650,000 as a cloak for the unauthorised misappropriation of an identical sum on that day. They further say that it is very significant that the withdrawal was concealed from Mrs Rogers when Mr Prasad (after some prompting) finally supplied her with a statement of account for monies he had apparently spent purportedly on her behalf.
43 The statement of law is correct, but is irrelevant for two reasons. First, the facts as I have found them do not support it. Secondly, the charge against Mr Prasad is acting fraudulently and without authority, not theft. I agree that there is a very significant difference in law between stealing money and obtaining money by means of fraudulent misrepresentation. With the first, there is no parting with property; with the second, there is a transfer of property, subject to the transaction being avoided. This distinction is vital in cases where a third party obtains title from the wrongdoer before the transaction is avoided; see eg Phillips v Brooks Ltd [1919] 2 KB 243.
44 A further alternative claim is that Mr Prasad breached his fiduciary obligations to the plaintiffs and the defendants are not entitled to retain the monies which passed to Fontana Films as a result of this breach.
45 It is conceded that Mr Prasad owed duties of a fiduciary nature to the plaintiffs. Mr Coles QC and Mr Coleman put that Mr Prasad’s liability as an errant fiduciary does not depend on whether he received or benefited from the proceeds of his breach. Mr Prasad in fact gained significant personal advantage from this transaction. He secured the viability of his principal employer, Fontana which was then able to pay its debts. As financial controller of the third defendant, his success in raising money would result in the payment of a commission to him. It was in this sense that Mr Prasad stood to gain a benefit from his actions and thus placed himself in conflict of his duty to Mrs Rogers and his potential to gain a benefit from his breach. They further put that it is a misconception to regard the ambit of the defaulting fiduciary’s liability as being dependent upon or limited to those cases where he is liable to account for a benefit or gain to himself. This is correct up to a point, but the fiduciary’s liability is to account for his own personal profit or gain (in this case his secret commission) rather than the whole capital sum processed by him: Chan v Zacharia (1984) 154 CLR 178, 199.
46 Mr Brereton SC puts that the $650,000 transaction involved no breach of fiduciary duty on the part of Mr Prasad. He says that in recommending the $650,000 investment, Mr Prasad committed no breach of fiduciary duty. He made no benefit or gain from the transaction, for which he could be held liable to account. There was no conflict between his duty to his principal, ie the plaintiffs, and his personal interest. At the highest there was a conflict between his duty to his principal the plaintiffs, and his duty to his principal the third defendant, but in those circumstances all he could be held liable for is compensation for any loss consequent upon preferring Fontana Films’ interests to the Rogers’ interests; and as the whole purpose of the transaction was to gain a tax deduction by making an expenditure of capital, it is impossible to see, at least at this stage, that there has been any loss. Advantage to Fontana Films was not personal advantage to Mr Prasad; to the extent that it is suggested that he stood to gain a commission by preferring his duty to Fontana Films over his duty to Mrs Rogers then his liability as an errant fiduciary, if that he be, would be to account to her for any such commission.
47 When considering the actions of a person who can be categorized as a fiduciary, it is important not to be caught up in “unthinking resort to verbal formulae” and to remember that “not every breach of duty by a fiduciary is a breach of fiduciary duty”: Bristol and West Building Society v Mothew [1998] Ch 1, 16 and see Permanent Building Society v Wheeler (1994) 14 ACSR 109, 157-8. However, in the present case, the alleged breaches are of a conflict of interest and duty type and so fall under the classic principles.
48 In my view, the submission of Mr Coles QC and Mr Coleman is correct. However, Mrs Rogers must have known of the connection between Mr Prasad, Mr Kabriel and Fontana Films. The only thing that was concealed was the commission that Mr Prasad was getting for his fund raising efforts. Thus, the success of the submission merely leads to the requirement that Mr Prasad account for his commission which really gets no-one anywhere as it would not appear that the commission was very much and the claim in breach of duty as an agent would mean that it may be disregarded.
49 The result thus is that the plaintiffs are entitled to damages against Mr Prasad for breach of his duty as their agent to keep within his authority. The quantum may be fixed by a Master.
50 2B. The claims by the plaintiffs against the First and Third Defendants in respect of the First Transaction
Mr Coles QC and Mr Coleman say that on any view of the evidence, the receipt and use by Fontana Films of the $650,000 is a straightforward case of monies had and received. They cite James v Oxley (1939) 61 CLR 433 where the recipients had not received any benefit from the money but were nevertheless liable because the funds in question had been sufficiently under their control so as to constitute a receipt. They put that the position would have been a fortiori if the recipients had known of and used the money for their own benefit.
51 I cannot, with respect see that James’ case gives any assistance in the present litigation. In that case, the money was received by a firm of solicitors for the plaintiff and was paid out without authority because of the fraudulent statement of a clerk to the solicitor drawing the cheque to withdraw the funds. It has nothing to say with respect to when Y an authorised agent of X pays money to Z intending that the moneys will be Z’s property from which Z will make profits and from which profits X will benefit.
52 Plaintiffs’ counsel contrast the present case with the situation in National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251, where, owing to the fraud of another, a person had money paid into his account, from which it was thereafter withdrawn, in each case without his knowledge (eg at pp 260-269). Counsel say that the situation in the current case is the converse to the observations of Gibbs CJ at p 269 that “where the defendant has not had the benefit of the money, has not played any part in disposing of it and was ignorant of the fact that it was theoretically under his control, he should not be liable in the absence of fault on his part”. Again, on the facts as I have found them, the plaintiffs derive no solace from these words.
53 Mr Brereton SC says that “The $650,000 was not received by Fontana Films to the use of the plaintiffs, but to Fontana’s own use. The $650,000 was received by Fontana Films as a film investment, for taxation purposes. In return for it, the plaintiffs were entitled to an interest in the copyright in the film to be produced, from which they might generate income in the future. The money was invested for Fontana to spend.” Later on he says, “The circumstances surrounding the plaintiff’s investment...as both parties should be taken as knowing that her purpose was to gain a tax deduction, give rise at least to an implied contract by which she expended the moneys by way of contribution to the cost of producing a film to be produced by Fontana.”
54 As I have already indicated in Part 2A of these reasons, I cannot see any such implied contract. The investment in films is a technical matter to be dealt with by persons experienced in the pitfalls. It is an investment which to be at all protected needs to be supported by provisional certificates and a prospectus. The investor needs to have units in a scheme which will entitle her to rights in respect of the copyright in a film, usually a particular film. I find it impossible to imply from the mere fact of investment of $650,000 even in the atmosphere of wanting a tax deduction that Mrs Rogers bought units giving her rights to copyright in a film. A fortiori this is so when the “investment” was made immediately after the consultation with Gadens about film investment which recommended caution. The only conclusion that I can form is that the money was paid over for a consideration which failed. This category includes cases where the money was paid over as part of a transaction which was never consummated.
55 Where money is paid over in respect of a transaction which is not consummated, the payer is entitled to repayment, and, if this is not forthcoming, to recover it as money had and received.
56 Whichever rational way one treats the plaintiffs’ case, one gets to the same result. If Mr Prasad was not authorised, then the plaintiffs can recover back the money paid as money had and received. If Mr Prasad had authority to “invest” the money with Fontana Films, the terms of the investment were so vague, (ie “Would you like to invest in a film?”) that the transaction would have to be one where the transaction was never consummated and the money paid is recoverable.
57 Mr Brereton SC says that this is not a case of “money had and received.” He puts that it is necessary to carefully identify the basis upon which the claim is put. He says that whilst there is no doubt in Australian law, where money has been stolen, it is trust money in the hands of the thief who cannot divest it of that character, Black v S Freedman & Co (1910) 12 CLR 105, 110; Australian Postal Corp v Lutak (1991) 21 NSWLR 584, 589; contra Millett LJ “Tracing the Proceeds of Fraud” (1991) 107 LQR 71, 77, not every payment procured by a misrepresentation - even an intentional one - has that consequence. That is because where money is paid under a legally effective transaction, neither mistake nor misrepresentation vitiates consent or gives rise by itself to an obligation to make restitution: that obligation flows if at all from the ineffectiveness of the transaction if it is rescinded: Bristol and West Building Society v Mothew (t/a Stapley & Co) [1998] Ch 1, 22; Portman Building Society v Hamlyn Taylor Neck [1998] 4 All ER 202, 208.
58 I believe that this submission is correct as far as it goes, but irrelevant. There is a vital distinction between theft of money and obtaining money through false pretences, which I have already discussed. However, when, as here, no third party has taken title, it is a distinction without a difference.
59 Mr Brereton SC then puts that the $650,000 was not received by Fontana Films to use of the plaintiffs, but to Fontana Films’ own use. He says that the $650,000 was received by Fontana Films as a film investment, for taxation purposes. In return for it, the plaintiffs were entitled to an interest in the copyright in the film to be produced, from which they might generate income in the future. The money invested was Fontana Films’ to spend. Unfortunately for this submission, it is just not borne out by the facts. This is not a case where there was a properly documented transaction with receipt of moneys after application on a prospectus with the payer receiving a document that she was a unit holder in an investment scheme with a share of copyright. The plaintiffs received nothing: Fontana Films just spent the money.
60 Then it is put that the restitutionary count for “money had and received” does not outflank and supersede the principles enunciated in Barnes v Addy (1874) 9 Ch App 244. If it did, then there would never have been a need for Barnes v Addy, at least in its first limb, since “money had and received” would always have been available, even without the element of knowledge which Barnes v Addy requires. If the plaintiffs can rely on “money had and received” here, those long established principles will be defeated by a side-wind. If the “money had and received” doctrine is capable of application at all in this type of case, it does not found relief here.
61 This, to my mind is just a red herring. There is no need ever to invoke Barnes v Addy. There was a direct payment to Fontana Films in circumstances where Mr Prasad, the agent for both parties knew the full circumstances. The purpose for which the money might have been paid was never consummated. The money must be returned.
62 Mr Brereton SC put that it is fundamental to the claim for money had and received that the payment of the $650,000 to Fontana Films was not authorised by the first plaintiff. If it was an authorised payment as a tax investment, no question of money had and received arises. I do not accept this submission. Even if it were correct, the payment was not a deductible film investment for the reasons set out in Part 3B, so that it is no answer to the plaintiffs’ claim.
63 The next submission is that in any event, it would be unjust to require Fontana Films to repay the $650,000 in circumstances where it has arranged its affairs on the basis that it had received the money regularly, and applied it to the payment of its debts and the production of “Skar”. It is put that the plaintiffs’ claim was a restitutionary claim and in such a claim the defendant may defend by showing that the payee had adversely changed its position in reliance on the payment. This was because, it was said, Fontana Films had changed its position by proceeding with the production of “Skar” and expending the funds which it held in Czechoslovakia for that purpose, reliant upon the knowledge that monies including the $650,000 had been raised.
64 Assuming, without deciding whether the facts behind this submission have been established, the question is whether it would amount to a defence.
65 The defence has its genesis in the view of Lord Mansfield when he had the law recognize the common money count for money had and received in Moses v Macferlan (1760) 2 Burr 1005, 1010; 97 ER 676, 679, that a defendant sued in money had and received was in fact advantaged as he could rely on any available equitable defence to show that he was not bound in equity to repay. See the 5th ed of Goff & Jones on Restitution (Sweet & Maxwell, London, 1998) Ch 40. The defence usually only features in a case of recovery of money paid under a mistake. There is no reason in principle why it should not operate on a wider basis at least to cover the case of money had and received after a total failure of consideration. It is common ground that it does not apply to a straight out claim for recovery of money lent.
66 In David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 384-6, the High Court accepted that the defendant may defend a claim for repayment of monies paid to it under a mistake of fact by showing that it had adversely changed its position as a result of the payment. The final words of that summary are important. The High Court actually said, at page 385, “...the defence of change of position is relevant to the enrichment of the defendant precisely because its central element is that the defendant has acted to his or her detriment on the faith of the receipt... the common element in all cases is the requirement that the defendant point to expenditure or financial commitment which can be ascribed to the mistaken payment.” At page 386 the judges conclude, “In no jurisdiction, however, can a defendant resort to the defence of change of position where he or she has simply spent the money received on ordinary living expenses.” See also State Bank of NSW Ltd v Swiss Bank Corp (1995) 39 NSWLR 350, 357. In this respect, English authorities should be read with care as the vital element of reliance does not appear as such in the consideration of many of them, see Goff & Jones op cit at page 822.
67 Although the scope of the defence is not at this stage fully mapped out, the commentators are agreed that not every case where the defendant has spent the money received will provide him or her with a defence. In summary, mere expenditure will not constitute a change in position, the defence is not available when the defendant has simply spent the money received on ordinary living expenses. There must be a change in position, not just an adjustment of lifestyle. Further, the money should be spent solely in reliance on the payment. That is, but for the payment and the defendant thinking that it was richer than it was it would not have made the expenditure. Finally, the defendant must not have knowingly contributed to the making of the payment. See Mason and Carter, “Restitution law in Australia” (Butterworths, Sydney, 1995) [2407], [2415]-[2418]; KG Nicholson “Recovery of Money Paid Under a Mistake of Fact” (1986) 60 ALJ 459, 464-5.
68 The facts as to the disposal of the $650,000 are fairly clear. The money was paid into Fontana Films’ account with the Advance Bank. At that date, that account was in overdraft in the amount of $144,852. The account had an overdraft limit of $100,000. Immediate payments of $225,000 were made to support a related company Manifesto Films Pty Ltd which made commercials and $43,000 was paid for the purchase of a motor vehicle. Within four weeks, the $650,000 had all been spent and the balance immediately before the deposit of $1m as a result of the Second Transaction was made up of three sums deposited after the $650,000 deposit.
69 As the High Court pointed out in the David Securities case, in Canada and in some parts of the United States, the defendant must point to a specific expenditure being incurred because of the payment. Whether this is so in Australia has yet to be determined. Mason and Carter op cit take the view that this is an unnecessary restriction, see [2416]. I will assume that their view is correct for present purposes, without deciding the point.
70 However, even making this assumption, I cannot see the factual material from which I should find that these payments were made in reliance of the payment of the $650,000. The onus appears to be on the defendant, but, even apart from the question of onus, the facts just show that the bulk of the money was absorbed in repaying an overdraft, restructuring the group (or at least supporting an associated company) and purchasing a motor vehicle. Thus, I do not find the defence made out.
71 It is really unnecessary to consider the other causes of action relied on, but, in deference to counsel I will briefly do so.
72 Plaintiffs’ counsel put that there has been a knowing receipt by the third defendant of monies misappropriated by Mr Prasad from Mrs Rogers. Thus the monies bore and maintained the character of trust monies in his hands. His payment of such monies to a third person did not divest the monies of their character as trust money unless the recipient shows that his receipt was bona fide for valuable consideration and without notice; see Black v S Freedman & Co (1910) 12 CLR 105, 110; Agip (Africa) Ltd v Jackson [1991] Ch 547, 566-567; Zobory v FCT (1995) 129 ALR 484. As I do not find any misappropriation, this head of claim fails.
73 Next, plaintiffs’ counsel mount an argument based on the principle in Haywood v Roadknight [1927] VLR 512. The principle is that if A relies on B in its dealings with C and knows that B is in a fiduciary relationship with C, then, if B abuses the fiduciary relationship with C, A will not be permitted to benefit from that abuse. In the present case, counsel say that those in control of Fontana Films knew the source of the money, namely that it had come from Mrs Rogers. They knew that Mr Prasad who had obtained the “investment” was a fiduciary qua Mrs Rogers. That amount injected a large amount of cash into Fontana Films’ bank account, cleared its overdraft and enabled it to pay its creditors and transfer money to Manifesto Films Pty Limited. Alternatively, Mr Prasad’s knowledge of the facts in his capacity as financial controller or fundraiser for Fontana Films was knowledge which he was under a duty to disclose to Fontana Films, and accordingly, such knowledge is imputed to that company; see Belmont Finance Corporation v Williams Furniture Ltd [1980] 1 All ER 393, 404.
74 Mr Brereton SC submits that this argument is not open to the plaintiffs on the pleadings. I do not need to consider that submission as the argument cannot succeed in the scenario where the facts are that Mr Prasad acting under his general authority from Mrs Rogers vested the moneys in Fontana Films by way of a bad investment, because there was no breach of fiduciary duty.
75 So far as Mr Kabriel personally is concerned, I cannot see any basis for liability over the First Transaction. Mr Brereton SC submits that even taking the plaintiffs’ case at its highest, Mr Kabriel is not liable for participation in any knowing receipt by Fontana Films of the $650,000. There is nothing to suggest that Mr Kabriel participated in any relevant way or had any relevant knowledge at all.
76 I should note that Mr Brereton SC submitted that any accessorial liability of Fontana Films could not exceed that of Mr Prasad. For the reasons I have already given, I do not accept that proposition.
77 3. The Second Transaction
It is necessary to deal with the Second Transaction in five parts, viz:
3A. Findings of fact;
3B. Was the investment tax deductible?
3C. The claim against Mr Prasad;
3D. The claims against Fontana Films; and
3E. The claim against Mr Kabriel.
78 3A. Findings of fact
The Second Transaction involves the $1m paid to Fontana Films in October 1996.
79 The factual background is that on 16 October 1996, a meeting was held at Quay West attended by Mr Prasad, Mrs Rogers and at which Mr Kabriel later arrived. The plaintiffs say that Mrs Rogers was induced at that meeting to provide a $1m cheque by virtue of the representations by Mr Prasad that:
(a) there would be available to her considerable tax advantages for investing in a film; and
(b) the investment would be by way of subscription in “The Ugly Dumpling Film Fund”.
80 There is no doubt that Mrs Rogers provided the $1m and that it was paid into Fontana Films’ bank account on 17 October 1996.
81 The plaintiffs say that each of these representations was false.
82 Again, I am hampered by the view that I have taken of the credibility of the principal witnesses Mrs Rogers and Mr Prasad. I can really only rely on the objective facts and inferences as to why those facts came to pass.
83 I agree that as Mr Coles QC and Mr Coleman submit, the plaintiffs paid $1m on terms that would be inexplicable unless they were led to expect that the expenditure would produce taxation advantages. Indeed, each of the defendants does not appear to dispute, and even embraces, this as the plaintiffs’ purpose.
84 The key question is whether the plaintiffs invested their money in the film “The Ugly Dumpling” later renamed “Love Until”. Mr Coles QC and Mr Coleman say that this question must be answered, “Yes”, while Mr Brereton SC says that the investment was merely in tax deductible film and that it was appropriate for the investment to be utilized as it was by Fontana Films freeing up funds in Czechoslovakia to pay part of the production costs of the film “Skar”.
85 Mrs Rogers’ evidence as to the 16 October meeting is that:-
(a) It was at the request of Mr Prasad;
(b) Mr Prasad raised the prospect of her investing in films to minimise tax;
(c) During that conversation, Mr Kabriel arrived following which Mr Prasad said to Mr Kabriel that it was a good idea for Mrs Rogers to invest $1m in his film fund;
(d) Mr Kabriel said, “If its good for Joan then I agree;
(e) Mr Prasad then said you will be investing in a film called “The Ugly Dumpling” and then handed Mrs Rogers a copy of the prospectus for “The Ugly Dumpling”;
(f) Mrs Rogers then handed a cheque for $1m to Mr Prasad.
86 Mr Prasad’s version of the 16 October meeting is that he had been recalculating the amount of Mrs Rogers’ income, taking into account an amount of $5m which was on deposit in the Kogarah branch of the National Australia Bank and earning interest. He asserted that Mrs Rogers needed to invest a further $1m because there had been short provision for her tax.
87 Mr Coles QC and Mr Coleman put that this account is wholly implausible as it is improbable that a deposit of $5m at the interest rates at which Mr Prasad said he could obtain would generate enough income so as to require a $1m tax deduction. They say that it is a fabrication by Mr Prasad that a $1m investment was required to alleviate any tax burden of the alleged deposit sitting in the Kogarah branch. There was no reason as at 16 October 1996 why Mrs Rogers needed to expend such monies at all. It was eight and a half months before the end of the relevant financial year, most film investments being made at the very end of the financial year.
88 They further submit that Mr Kabriel’s version of the 16 October meeting in which he claims he was wholly disengaged from the process, is also implausible. They put that it is absurd for Mr Kabriel to assert that although he knew nothing about Mrs Rogers investing in Fontana Films, after the 16 October meeting he went back to his car and exclaimed that he had told Mr Prasad that he did not want Mrs Rogers involved in film financing. They say it is also implausible to maintain that Mr Prasad had said “Rick will do whatever he can to help” when Mr Kabriel apparently constantly expressed a specific desire that Mrs Rogers not invest in his films. He did not say anything to that effect to her on 16 October 1996 even when he realised the topic of discussion was her investing in films.
89 In my view the first plaintiff’s version is more likely to be correct. There is no doubt that Mrs Rogers was provided with copies of the prospectus for “The Ugly Dumpling” at the meeting on 16 October 1996. Indeed, Mr Prasad says he gave her four copies.
90 Secondly, Mrs Rogers obviously took some interest in “The Ugly Dumpling” as she has written inside the copy of the prospectus that is exhibit PX10 the new title, “Love Until”.
91 Thirdly, it is common ground that she retained possession of the prospectus and took it to a later meeting at the premises of Fontana Films at Turella.
92 Fourthly, the whole flavour of Mrs Rogers’ evidence is that she placed store by the fact that there was a prospectus in respect of her investment. My criticisms of Mrs Rogers’ evidence do not extend to rejecting the central core of her evidence. I accept her evidence that she would not have signed the cheque for $1m had no prospectus been given to her. I also accept her later evidence that she put store on the issue of the prospectus because it showed to her that it meant that there was a genuine investment opportunity and that Fontana Films were honest and they had nothing to hide.
93 Fifthly, at no time did counsel for Fontana Films ever put to Mrs Rogers that she was content to have her money deposited to the general account of Fontana Films, and expended for its general purposes. The evidence does not go far enough to show she assented to the manner in which the moneys were in fact applied.
94 3B. Was the investment tax deductible?
It is necessary to explore whether, if the defendants’ case is correct, the plaintiffs would be entitled to a tax deduction for their investment. This is because it would be even more unlikely for the plaintiffs to have made the investment if they were not likely to be able to obtain their deduction.
95 Mr Coles QC and Mr Coleman put that the plaintiffs would not be entitled to a deduction for the investment that ended up in the film “Skar”. They say that unless the plaintiffs became entitled to a tax deduction in the year of income for which the relevant funds were expended, the purpose for which the monies were paid has failed.
96 As will be seen from what I have set out from the submissions, both parties relied on the decision in Federal Commissioner of Taxation v Faywin Investments Pty Limited (1989) 89 ALR 599 (Lockhart, J) and (1990) 93 ALR 241 (Full Federal Court, Bowen CJ, French and Hill JJ). This appears to be the leading case on the subject of tax deductibility for investment in films. However, it only partly provides answers to the present problem. For instance, Mr Coles QC and Mr Coleman submit that the case establishes that it is possible, if the taxpayer agrees to it, to contribute to the reimbursement of production costs already incurred. That case is thus wholly different from the present. In any event, they say, the plaintiffs did not agree to contribute money to the running costs of Fontana Films and to do so would not enable either of them to obtain a tax deduction. Further, in the present case there is no element of reimbursement of Fontana Films for monies it had spent on the production of films.
97 Plaintiffs’ counsel submit that under Division 10BA of the Income Tax Assessment Act 1936 the amount of money expended by a taxpayer by way of a contribution to the cost of production of a film is allowed as a deduction for the year of income in which the monies were expended by the taxpayer: see ss 124ZAFA(1)(a) and the concluding lines of s 124ZAFA(1). Thus, for there to be an effective available deduction for monies expended in October 1996, all of the circumstances pre-requisite to obtaining that deduction had to be satisfied in the financial year ended 30 June 1997. Mr Brereton SC agrees that the deduction, if it is able to be claimed, must be for the year of payment, ie that ending on 30 June 1997.
98 The monies so expended by the taxpayer must have been expended “under a contract” which must necessarily have been entered into by the taxpayer no later than the time at which the monies were expended (see ss 124ZAFA(1)(a)).
99 Again, the taxpayer must be in a position to satisfy the Commissioner that she expected to become one of the first owners of the copyright in the film at the time when the moneys were expended (see s 124ZAFA(1)(c)). Necessarily, the relevant expectation on the taxpayer’s part must exist at the time the monies are paid by the taxpayer and the taxpayer must be in a position to demonstrate that fact to the satisfaction of the Commissioner.
100 Thus, it is submitted it is plain from the foregoing that the monies must be expended in connection with a specifically identified film. Moreover, the taxpayer must show that when the monies were paid she intended to use her interest in the copyright in the film for the purpose of producing assessable income “from the exhibition of the film to the public” in cinemas, on television (see s 124ZAFA(1)(c)(ii)); and note that the declaration required by s 124ZAFA(1)(d)(iii) is a declaration which must be in force in respect of the film.
101 However, the submissions are that in the present case:
(i) the plaintiffs did not enter into any contract to expend capital monies in producing an identified film unless that film was “The Ugly Dumpling” as represented;
(ii) the only expectation required by s 124ZAFA(1)(c)(i) which would have been possible for Mrs Rogers to have formed at the time when the monies were expended was an expectation of acquiring an interest in the copyright of “The Ugly Dumpling”; on her evidence on no other possible basis could she assert truthfully to the Commissioner that he should be satisfied that she had the expectation required by sub-section (1)(c)(i);
(iii) likewise, in connection with the requirements of sub-section (1)(c)(ii) Mrs Rogers could not truthfully claim to the Commissioner that she was intending to use her interest in the copyright of any film other than “The Ugly Dumpling” to produce assessable income.
102 As at the time the plaintiffs expended the relevant funds (16 October 1996) and at no time prior to the expiry of the financial year in which those funds were expended (30 June 1997) had the defendants taken all necessary steps to enable the plaintiffs to claim any deduction for that year. The plaintiffs cannot make any claim for a deduction for expenditure towards the production costs of “The Ugly Dumpling”. This is because no part of the funds were contributed to either the past or prospective production costs of the film. The defendants do not assert otherwise. What the defendants do assert was that they supplied to the plaintiffs a document received on 28 April 1997 or a document dated 28 July 1997 recording the receipt of different sums of money as investments for “approved films - namely ‘Skar’”. Each document refers to a provisional certificate, a copy of which was said to be enclosed. Plaintiffs’ counsel point out that it is not the defendants’ case that any material contractual or other event occurred or was intended to occur after the plaintiffs parted with the $1m on 16 October 1996 to complete what was necessary for the plaintiffs to obtain a deduction. Indeed, the defendants have consistently objected (successfully) to the reception of evidence from the plaintiffs with respect to events after 1996 on the basis of relevance. Further, it was never put to Mrs Rogers that she ever assented to the defendants appropriating the monies which the third defendant had received towards making the film “Skar”. In particular, by the time she was informed of the alleged existence of a film of this title and of the assertions by the defendants that the plaintiffs’ money was supposedly invested therein, she had become wholly suspicious of the defendants and had commenced investigations. The document first recording any reference to an investment in “Skar”, although dated 28 March 1997, was first sent on 28 April 1997 in response to enquiries by Mr Hammil of Woinarski.
103 The plaintiffs say that they thus have had no tax deduction available to them under Div 10BA of the Income Tax Assessment Act, nor did they claim any for the 1996/1997 financial year, the only year in which such a deduction (if otherwise available) could have been claimed. In particular, it was not open to the plaintiffs to claim any deduction for the alleged film “Skar” because they:
(i) never agreed to invest $1m in a film called “Skar”;
(ii) were never shown a prospectus apparently produced for this film;
(iii) never entered into any contract to expend capital monies in producing or contributing to the cost of producing the “Skar” film;
(iv) on the defendants’ conduct could never have formed any expectation required at the time of expending the sum of $1m on 16 October 1996 of becoming a part-owner of the copyright in “Skar”; and
(v) by no honest means could ever have attempted to satisfy the Commissioner on the above question.
104 Furthermore, although not known to the plaintiffs, it is apparent that there was not in force any declaration with respect to the film “Skar” in accordance with s 124ZADA(1). Such a declaration must be lodged by a person who has been notified by the Commissioner under s 124ZADA(2) that the person is considered an appropriate person to lodge the declaration in respect of the film.
105 The first defendant lodged a purported s 124ZADA declaration apparently received by the Australian Taxation Office on 28 July 1997.
106 In that “declaration” the first defendant asserted merely a belief that the Commissioner might consider him an appropriate person to make the declaration (par 1), and requested to be notified as to whether the Commissioner considered him to be an appropriate person to make such declaration (par 8).
107 It is thus clear that no declaration as required by s 124ZAFA(1)(d)(iii) was in force in respect of the film “Skar”. Clearly Mr Kabriel had not yet been notified (if he ever was - as to which there is no evidence) that the Commissioner considered him to be an appropriate person. (It is unlikely that the Commissioner would have acted on the document lodged, since it wholly fails to comply with the requirements of s 124ZADA(e) relating to details of opening a film account ).
108 Hence, in the year of income in which the monies were expended by the plaintiffs, there was not in force the relevant declaration and for that further reason no deduction was allowable.
109 Counsel for the plaintiffs further submit that s 124ZAFA, which requires a contribution to be made by the taxpayer to the cost of producing a film, has not been satisfied in the present case. This is because:
(i) the plaintiffs did not contribute to the cost of producing a film but contributed to the cost of the working expenses of the third defendant;
(ii) if the plaintiffs did provide money to the running costs of Fontana Films and Fontana Films possessed other funds to finance the production of a film, it cannot be said that the plaintiffs have provided money or contributed capital towards the production of a film. There is simply no justification as a question of fact for saying that the monies paid to the general account of a company will amount to a contribution to the cost of the production of a film just because the company later makes a film or just because the company is a company in the business of making films;
(iii) further, the evidence does not satisfactorily disclose that the contributions made by Mrs Rogers were spent on any films.
110 In any event, in strong contrast to the facts in the Faywin Investments case (supra), there was no agreement between the plaintiffs and the third defendant for the plaintiffs to contribute monies by way of reimbursement of the third defendant for monies it might have spent in the production of a film.
111 Counsel thus submit that it follows from the above that there was no contribution by the plaintiffs toward the cost of the production of a film. That reason, and the reasons relating to the requirements of Division 10BA of the Income Tax Assessment Act 1936 show that the plaintiffs could not have a deduction and that the payment on 16 October 1996 of $1m did not produce the significant tax advantage represented to Mrs Rogers on that day.
112 Mr Brereton SC says that this is a false analysis. He puts that the position is as follows:
1. The requirements of Income Tax Assessment Act s 124ZAFA(1) for a deduction to be allowed in respect of monies expended under a contract entered into on or after 25 May 1988 (see sub-section (n)) are:-
(i) that a taxpayer has, under the contract, expended capital monies in producing, or by way of contribution to the cost of producing, a film (see sub-section (a));
(ii) that at the time when the monies were expended, the taxpayer was a resident and a provisional certificate or a final certificate was in force in relation to the film (see sub-section (b));
(iii) that the Commissioner is satisfied that, when the monies were expended, the taxpayer expected to become the first owner or one of the first owners of the copyright in the film when that copyright came into existence, and intended to use that copyright or her interest in it for the purpose of producing assessable income from the exhibition of the film to the public (see sub-section (c));
(iv) that, where the monies were expended by the taxpayer by way of contribution to the cost of producing the film, there is in force a declaration lodged in respect of the film in accordance with sub-section 124ZADA(1) by a person who has been notified by the Commissioner under s 124ZADA(2) that the person is considered by the Commissioner to be an appropriate person to lodge the declaration in respect of the film (see sub-section (d)(iii)); and
(v) that before the end of the financial year in which capital monies were first expended in producing or by way of contribution to the cost of producing the film, a production contract was entered into under which an amount of capital money specified in the production contract as the estimated cost of producing the film was to be expended in producing or by way of contribution to the cost of producing the film, or a production contract and an underwriting contract or contracts were entered into under which an amount of capital money specified in the production contract as the estimated cost of producing the film was to be expended in producing or by way of contribution to the cost of producing the film (see sub-section (d)(iv));
(vi) notably, in contra-distinction to earlier periods (see sub-sections (f), (h), (k)), there is no requirement that the monies be “deposited in a film account” in respect of the period under 25 May 1988 (see sub-section (n)).
113 2. There is no requirement that the contract referred to in sub-section (a) be in writing. With this I agree.
114 3. The circumstances surrounding the plaintiffs’ investment of both sums, as both parties should be taken as knowing that Mrs Rogers’ purpose was to gain a tax deduction, gave rise to an implied contract by which she expended the monies by way of contribution to the cost of producing a film to be produced by Fontana Films.
115 4. Sub-section (a) does not require that there be a particular identified film at the time of the expenditure by the taxpayer, and as films evolve in the course of their production and frequently undergo name changes, this is not surprising. All that is required is that there be in a practical and commercial sense a link between the contributions of the investor and the expenditure of film production expenses. Expenditure obtains its character as a contribution to the cost of producing a film from the purpose of the taxpayer, rather than from the manner in which the funds are expended (see the Faywin Investments case (supra) per Lockhart J at first instance and Hill J in the Full Court). Although the cross examination of Mr Karl Kabriel showed that some of the total expenditure which he claimed for “Skar” was inaccurately documented, a very large part of the expenditure was uncontestable. As Mr Bedrich Kabriel explained, funds held in Czechoslovakia were used to pay the production costs there, and the funds received from Mrs Rogers in Australia, which were applied to Australian expenses of Fontana, freed up those Czechoslovakian funds for that purpose.
116 5. In September and October 1996, Mrs Rogers was resident in Australia and the second plaintiff was a New South Wales corporation; and a provisional certificate was in force in relation to the film “Skar”. Thus, sub-section (b) is satisfied.
117 6. The Commissioner’s satisfaction under sub-section (c) is required at the time when the deduction is to be allowed. Since the plaintiffs have not at this stage sought it, the Commissioner has not had to make a decision. However, it is put, the circumstances of a film investment for tax purposes would inevitably give rise to the requisite intention on the part of the taxpayer. The draft prospectus for “Skar” is some evidence of this. Mrs Rogers or her company, at the time of the expenditure, intended to become a copyright owner of whatever film was produced using the monies contributed by her. By 30 June 1997, she could truthfully claim that when she expended the monies in September and October 1996 she expected to become one of the first owners in whatever film Fontana Films produced using those monies, and as it transpired that film was “Skar”.
118 The problem with this and the earlier submission 1(iii) is that they depend on the assumption that there must be implied from the mere fact of the making of the investment in film that there was an intention in Mrs Rogers or the second plaintiff to have an expectation to become one of the first owners of the copyright in some film or other. I do not consider that this implication should be made.
119 7. There was in force a declaration lodged in respect of the film in accordance with s 124ZADA(1). Thus, sub-section (d)(iii) is satisfied. Even if there were formal defects in the documentation that would not have prevented its supplementation or correction to enable a deduction to be allowed.
120 8. A production contract and underwriting contract was entered into. Thus sub-section (d)(iv) was satisfied.
121 9. It thus follows that whatever the shortcomings in his evidence, Mr Levy’s opinion, given in his capacity as a tax law consultant, to the effect that so long as the Commissioner of Taxation was satisfied that the plaintiffs expected to become one of the first owners of the copyright and to use that interest to produce assessable income, they would be entitled to an income tax deduction equal to 100% of the amounts invested - is correct. If a taxpayer expends monies for the purpose of their being contribution to the cost of producing a film (but not any particular film), and expects to become an owner of the copyright of whatever film is subsequently produced, and there is in force a provisional certificate in relation to that film when the monies are expended, then the requirements are satisfied. Accordingly, the submission that the defendants had not taken all necessary steps to enable the plaintiffs to claim any deduction is not correct. At the very least, even if this view is wrong, it could not be said to be unreasonably held.
122 The principal point made by Mr Brereton SC is that there is no requirement in Division 10BA that the investment be in any particular film. He points to the words “a film” in s 124ZAFA(1)(a). However, when one reads paragraphs (a)-(d) of the sub-section as a logical whole it is fairly clear that the investment must be in a particular film in which copyright or a share of the copyright is to pass to the investor. It is virtually impossible to say that a person who, say, invests money in films to be made by a big movie studio has, at the time of her investment, an expectation that she would be the owner of the copyright when the film was made.
123 Mr Levy gave evidence which tended to support the third defendant. Mr Levy was a very believable witness in the box, but, on analysis, Mr Coles QC’s criticisms of him are valid. In any event, he cannot be of assistance on the construction of the statute. Whilst I accept that films evolve in the course of their production and frequently change their titles and sometimes change direction, I however do not accept that the deduction is available in cases other than when the investment is in a particular film.
124 Despite the very technical submissions made on each side, in my view the matter comes down to a couple of simple thoughts. First, it was necessary that there be an expectation in Mrs Rogers or the other plaintiff that she would have copyright in the film. There was not that expectation. Secondly, the expectation must be with respect to a particular film. The “investment” in the instant case was in the context of “The Ugly Dumpling”. Some of the money found its way, indirectly, into “Skar”. The requirements were thus not satisfied.
125 These findings are sufficient to show that the probabilities were that the deduction was not likely to be available at the time the investment was made. I thus do not need to consider the remaining matters of detail raised by both sets of counsel under this head.
126 3C. The claim against Mr Prasad regarding the Second Transaction
I now need to deal with the case against Mr Prasad over the Second Transaction.
127 The plaintiffs say that Mr Prasad, Fontana Films and Mr Kabriel made false and misleading representations within the meaning of s 52 of the Trade Practices Act 1974, or, alternatively, the representations were fraudulent. In paragraph 20 of the second further amended statement of claim, it is pleaded that the plaintiffs “should for tax reasons invest in a film to be made by Fontana Films and that upon doing so considerable tax advantages would be available to them.” In paragraph 21, the pleading is that the film investment would be in “The Ugly Dumpling Film Fund”.
128 The plaintiffs say that these representations were made at the 16 October 1996 meeting at Mrs Rogers’ Quay West apartment attended by Mrs Rogers, Mr Prasad and Mr Kabriel; Mr Prasad and Mrs Rogers were at the meeting first. Mr Kabriel arrived later and only stayed for a short time, the evidence being anything from five to ten minutes (per Mr Kabriel) up to half an hour or 40 minutes (per Mr Kabriel’s chauffeur, Mr Devos). I prefer the latter, but little turns on it.
129 Mrs Rogers’ evidence was that before Mr Kabriel arrived, Mr Prasad told her, “I am working on your financial affairs at the moment. One of the best ways for you to minimise your tax is to invest in films”. After Mr Kabriel arrived, Mr Prasad said to him, “I think it is a good idea for Joan to invest $1,000,000 in your film fund”. Mr Kabriel seemed surprised, but said, “If it’s good for Joan then I agree”. Shortly afterwards, at the meeting, Mr Prasad said, “You will be investing in a film called ‘The Ugly Dumpling’” and handed her a copy of the prospectus. Mrs Rogers did not read it, but handed to Mr Prasad a cheque for $1m. She did not receive any documents or receipt either then or for some time afterwards.
130 In cross examination Mrs Rogers was asked the following:
Q. “You knew Mr Prasad was assisting Mr Kabriel in some way?”
A. “Yes.”
Q. “And you knew that by advancing the money to Fontana you were advancing it to a company in which your friend Mr Kabriel was interested and with which Mr Prasad had some connection?”
A. “Yes.”
131 Mr Kabriel said that when he entered the meeting, Mr Prasad was saying to Mrs Rogers, “You can see how this will benefit you tax wise, its up to Rick if he is willing to help you” and Mr Kabriel then said, “Rick will do whatever he can to help you.” Mr Kabriel said he had to go to another meeting, but that Mr Prasad was to explain everything to Mrs Rogers very clearly.
132 Mr Devos gave evidence that upon his return to the car, Mr Kabriel said, “Bloody Prasad, I told him not to involve Mrs Rogers in the film fund raising. That’s all I need. I don’t want him to involve Mrs Rogers in Skar. Andrew should be giving her advice on her business investments. I don’t want her involved in my business.” I would accept this evidence: it is inherently credible.
133 Mr Prasad gave some brief evidence about the meeting and also about a conference he had had with Mr Kabriel the day before as to whether he would accept further funds from the plaintiffs. Mr Prasad says that he had handed Mrs Rogers four copies of the prospectus of “The Ugly Dumpling” some time earlier so that she could give them to her friends. There seems to be no dispute between the parties that “The Ugly Dumpling” film was already completed and in any event no units were issued in or offered to Mrs Rogers in “The Ugly Dumpling Film Fund”.
134 Mr Brereton SC submitted that although Mr Prasad had given evidence that he had discussed the proposed investment with Mr Kabriel “probably a day before the meeting with Mrs Rogers”, this evidence was somewhat vague and was given under cross examination pursuant to s 38(1) of the Evidence Act 1995. Although the plaintiffs seize on DX14 as “proof on the defendants’ own case that Mr Kabriel had knowledge of the approach prior to 13 September 1996”, this is not so: it refers to the events of the meeting on 16 October 1996.
135 The evidence as to the representation that any investment made would enable the plaintiffs to obtain a tax deduction either for 200% of the amount of the investment, or at least 100% of the investment, does come from Mr Prasad’s file note DX14. I cannot say to what time that note refers. On Mr Prasad’s evidence, the initial advice as to the virtue of film schemes as tax protection was said about the time of the conversations with Gadens and that what happened on 16 October, even though it involved a million dollars, was merely a topping up of the investment.
136 Mr Brereton SC says that Mrs Rogers’ evidence does not establish any such representation. A fortiori it does not prove any representation (which is not pleaded) that the plaintiffs would obtain a deduction of 200% or 100% of the value of the investment. At the very highest, it proves advice was given that for tax reasons and to gain a deduction, the plaintiffs should invest in a film or films.
137 In my view the evidence goes further than Mr Brereton SC would concede. I agree that there was probably no mention of 200% tax saving at the meeting, but there was a clear statement that the investment in film would produce a significant tax advantage. I also accept Mrs Rogers’ evidence that the investment was to be in “The Ugly Dumpling” and that she was handed a prospectus for that film at the meeting.
138 Mr Brereton SC further submits that:-
1. Insofar as any thing was said about a tax deductible investment, it was advice, not a representation of fact. Insofar as anything was said about tax benefits, it was an opinion and/or a projection, which is not false merely because it turns out to be incorrect, so long as there was a reasonable basis for it when it was made; see eg James v Australia and New Zealand Banking Group Ltd (1986) 64 ALR 347, 372.
2. Such representation was not false in any material particular. There was a reasonable basis for it and so long as there was a reasonable basis for the opinion or projection, if on close judicial consideration it turns out to be wrong that does not make it misleading. Not only Mr Levy’s opinion, but the judgments of Lockhart J and Hill J in the Faywin case (supra) show that different views may easily honestly and reasonably be held on this question.
3. Any such representation was not fraudulent. Advice to invest in a film for tax reasons could not be knowingly false, because it is not a representation of fact. In any event, there was a reasonable basis for it.
139 After consideration, I consider that these submissions are correct. Mr Prasad does seem to have held the view that the investment would be tax effective for Mrs Rogers and, although I have held that it was not, he may well have held that opinion. In expressing that opinion, he was thus not making any false or fraudulent statement.
140 Mr Coles QC and Mr Coleman put that the representation made by Mr Prasad in respect of the investment being in “The Ugly Dumpling” was clearly false. On the facts as I have found them, this is so. The representation was made with the intention that Mrs Rogers provide a cheque in the sum of $1m to Mr Prasad who intended to deposit that cheque into the general account of Fontana. Mrs Rogers acted on the representation and provided the cheque. The plaintiffs cannot obtain a tax deduction for this amount and have suffered loss and damage in the sum of $1m and loss of the use of those funds.
141 The representation as to “The Ugly Dumpling” was false. However, my real concern is as to what flows from that fact. Had the representation been false, but the money had been invested in “Skar” in a similar way, would not the result have been that there would have been no loss?
142 Mr Brereton SC puts that that the film in which the money was invested was not “The Ugly Dumpling” was quite immaterial to the purpose of all parties. He points to the evidence that Mrs Rogers did not even read the prospectus before she handed over her cheque for $1m. Thus, he says, the $1m cheque was not drawn, nor the consequent investment made, in reliance on any such representation. Mrs Rogers’ motive was to gain a tax benefit: the name or script of the film and the contents of the prospectus were quite irrelevant to her decision to invest.
143 Mr Coles QC and Mr Coleman put that there can be no doubt as to the materiality of “The Ugly Dumpling” film to the plaintiffs. Although in her oral evidence (T 44.30-44.47) Mrs Rogers said that the title and content of the film had no interest for her at the time of her handing over the cheque for $1m, this did not obviate the materiality to her of the film “The Ugly Dumpling” and the provision to her of the prospectus. It was never put to Mrs Rogers that at the time she handed over the $1m, she agreed to do so on terms that the defendants could identify any film in connection with which she would later be entitled to claim a tax deduction. Indeed, an analysis along these lines would be wholly opposed to Mrs Rogers’ evidence at T43 where she made it clear that she “wouldn’t just do a million dollars without knowing what was, cause I got the Ugly Dumpling on the spot.”
144 Further, it was material to Mrs Rogers that there was an extant film project and the handing over of the prospectus conveyed to her that the transaction into which she was putting the plaintiffs’ money was a genuine one. The front cover of the prospectus plainly records “Prospectus - The Ugly Dumpling Film Fund”. It is common ground that she retained possession of the prospectus. Mrs Rogers took the prospectus to a later meeting at the third defendant’s premises at Turella. Mrs Rogers also gave the following evidence at T67:

Q. “Would you have signed the cheque for $1m if there’d been
no prospectus given to you?”

A. “No, and I - I was expecting the documentation, receipts
which I never received.”
...
Q. “Mr Brereton asked you, Mrs Rogers, and you agreed with

him, that the contents of the prospectus were not relevant to

you on 16 October 1996. Do you recall giving that
evidence?”
A. “It wasn’t relevant at the time because I trusted him.”

Q. “Was there, however, any significance at all attached by you

to the fact that the prospectus existed and that Mr Prasad
handed one over to you?”

A. “Yes, because it meant that it was genuine.”
Q. “And by that what do you intend to convey?”
A. “I meant that I thought they were honest and they had nothing

to hide.”

145 Even though Mrs Rogers did not read the prospectus, I do not accept that the vehicle for the investment was of no interest to her. It is true that there is insufficient evidence to find that the identity of the film was the causa causans for the investment, it was a material matter for Mrs Rogers. However, the key point is that for the reasons set out in Part 3B above, the investment for deductibility must be one where the intention is to obtain an interest in copyright in a particular film. As Mrs Rogers was only contemplating “The Ugly Dumpling”, it was impossible for her to have any intention to gain an interest in the copyright of any other film.
146 The damage that flows is the loss of the tax deduction, probably less the amount of the $1m that is recovered from Fontana Films.
147 The plaintiffs also put that Mr Prasad breached his fiduciary duties to them which breach caused them loss. They say Mr Prasad breached his fiduciary duties to the plaintiffs by advising and allowing them to invest the $1m in the third defendant. He stood to benefit from the transaction by gaining commission based upon the amount of money raised by him for the third defendant.
148 However, by parity of reasoning with the First Transaction, the only result is that Mr Prasad must account for his commission which is probably hardly worth having.
149 3D. The principal claims over the Second Transaction against Fontana Films
I have already considered the factual situation under Part 3C and will not repeat what I there said. It must be noted that there is no claim in restitution for money had and received in this part of the case. The key questions in this part of the reasons are whether the representation about “The Ugly Dumpling” can be sheeted home to Fontana Films, and whether the principles of Barnes v Addy (1874) 9 Ch App 244, 251, apply.
150 Plaintiffs’ counsel put that Mr Prasad was acting as Fontana Films’ agent for the purpose of raising funds for it within the meaning of s 84(2) of the (Cth) Trade Practices Act 1974. The making of films by it and the general conduct of its business, including the raising of funds for the making of films, is in the usual business of Fontana. The representations above were thus made in trade or commerce: Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594. They submit that the conduct of the third defendant, by its agent Prasad, falls squarely within the ambit of s 52 of the Trade Practices Act 1974 and s 42 of the Fair Trading Act 1987 (NSW). They also say that the case falls under s 995 of the Corporations Law, a matter I will consider under Part 4 of these reasons.
151 Mr Brereton SC submits that neither Fontana nor Kabriel is liable for the alleged misrepresentations. Further, Mr Brereton SC submits that:
1. In advising the plaintiffs that they should invest in films, Mr Prasad was neither acting on behalf of Mr Kabriel nor Fontana Films, but on behalf of the plaintiffs. He submits that it is important to focus on the relevant conduct, which in this case is the advice given by Mr Prasad to the plaintiffs as to how they should structure their affairs. In giving such advice, Mr Prasad did so not on behalf of Fontana Films, but in the course of advising the plaintiffs, in his capacity as their professional adviser.
2. Kabriel and Fontana Films were not “knowingly concerned” in the making of any such representation.
152 As can be seen, one of the vital differences in approach by the counsel of either side is whether what was said was said as agent for Fontana Films or as an adviser of the plaintiffs. I have set out the contentions on this fairly fully and do not need to restate them.
153 Section 84(2) of the Trade Practices Act enlarges the concept of liability for acts of agents as against the general law; see Walplan Pty Ltd v Wallace (1986) 8 FCR 27, 38. The key phrase in the sub-section is “conduct...on behalf of”. In the Walplan case at page 37, Lockhart J indicated that these words were wide ranging and covered situations where a person did something in the course of his or her employment with a company or otherwise acted in the course of that company’s affairs. It is not necessary to show that the act was intended to benefit the alleged principal, but when it does, it is easier to infer that the act was on behalf of the principal: Trade Practices Commission v Sun Alliance Australia Ltd (1993) 16 ATPR 41-286, 41,848.
154 In the situation where a person is involved in a transaction in more than one capacity, it is a matter of commercial reality as to whether the relevant statement was made on behalf of the defendant: Lisciandro v Official Trustee in Bankruptcy (1996) 139 ALR 689, 698.
155 Although the actions of Mr Prasad were in my view directed and even primarily directed to Mrs Rogers’ tax problems, he was also acting in a way that would benefit Fontana Films and to a smaller degree, himself. He handed out prospectuses in his role as an agent of Fontana Films, he must have known the need that Fontana Films had for funds. However, I accept Mr Devos’ evidence that Mr Kabriel was angry that Mr Prasad was steering Mrs Rogers into investing in Fontana Films against Mr Kabriel’s wishes. I further generally accept Mr Kabriel’s evidence that he was reluctant to have Mrs Rogers invest monies with him. Indeed, even on Mrs Rogers’ evidence, he was apparently surprised when the question of the proposed investment was raised at all. It thus seems to me that as a matter of commercial reality, if the representations were made, they were made as part of the financial advice that Mr Prasad was giving Mrs Rogers as her financial adviser.
156 I now turn to whether Fontana Films was “knowingly concerned” in the making of the representation about “The Ugly Dumpling”. Mr Brereton SC says that to be “knowingly concerned” a party must know each fact which constitutes the contravention, and take some action to assist or facilitate its commission. To be “knowingly concerned” a party must know each fact which constitutes the contravention, and take some action to assist or facilitate its commission; mere knowledge is not enough: see Yorke v Lucas (1985) 158 CLR 661, 670; R v Tannous (1987) 10 NSWLR 303, 308. He puts that neither Mr Kabriel nor Fontana Films knew that the representation was being made, let alone that it was false. The plaintiffs can really only submit that Mr Kabriel “must have known” that the basis upon which a deduction could be properly claimed had not been put in place, but, even if this were established, that is constructive notice and not the actual notice which is required to establish liability as an accessory of this type. Mr Kabriel and Fontana Films did nothing to assist or facilitate the relevant conduct and Mr Prasad’s knowledge cannot be attributed to Fontana Films because he was not relevantly acting on behalf of Fontana Films but as agent for Mrs Rogers, and because he was not Fontana Films’ directing mind.
157 Mr Brereton SC points out that the evidence shows that Mr Prasad was not at the relevant time company secretary, though he did become such from 19 May 1997. Mr Prasad was never a director. Thus, as Mr Prasad was not at the relevant time an officer of the company, his knowledge is not imputed to the company. Further, the plaintiffs get no comfort, as they submit they do from Belmont Finance Corp v Williams Furniture Ltd (No 2) [1980] 1 All ER 393, 404 where Buckley LJ speaks of the obligation of an officer of a company to report certain matters to the company, as that case deals with an officer who was a director and secretary. El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685, 703 shows that the company will only have imputed knowledge of what is known by one of its officers if the company is under a duty to inquire of the officer as to the source of the funds, because, for example, it is put “on inquiry”. That was not the case here. To receive monies from fundraising for film making was nothing unusual and does not of itself raise suspicion or inquiry.
158 Again, it could not be said that Mr Prasad was relevantly the controlling mind of the company. It is quite clear that whichever version of the meeting of 16 October 1996 one takes, it was Mr Kabriel that was the one who was in charge of Fontana Films.
159 In my view these submissions are made out. Thus, the Trade Practices and fraudulent representation matters cannot be sheeted home to Fontana Films.
160 The next matter is whether the plaintiffs paid over their $1m by mistake.
161 Mr Coles QC and Mr Coleman say that the monies paid by the plaintiffs for film investment were paid by way of mistake. The plaintiffs intended that the monies be invested in the film fund for “The Ugly Dumpling” when in fact the monies were paid into Fontana Films’ general funds and no units could be issued in “The Ugly Dumpling” at the time of the investment.
162 On the other hand, Mr Brereton SC says the payment was not made as a result of any operative mistake. The plaintiffs knew that they were investing in a film to be made by Fontana Films. There was no discussion as to which film. That it could be any one of several was plain from the proposal discussed by Mr Prasad with Mrs Rogers and, particularly, the written proposals discussed by him with Gadens on her behalf. He puts that the plaintiffs have adduced no evidence whatsoever of their state of mind when making the investment. Mrs Rogers did not read the prospectus until much later. She gave no evidence of what she believed was the subject of her investment. Accordingly, there is no evidence of any mistake, as there is no evidence of her then state of mind.
163 I have already canvassed a similar submission in Part 2B of these reasons. The real core of it is that an experienced businesswoman would blindly hand over a cheque for $1m on the say so of her financial adviser that it was a tax effective investment when she had sought and obtained advice from Gadens and had asked and received a prospectus that was clearly marked “The Ugly Dumpling Film Fund”. The submission does not impress me.
164 Mr Brereton SC’s next submission is that the “mistake” did not “cause” the disposition: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 376-8, 393-6. Mr Brereton SC puts that in the present case, any mistake was not causative, because it was immaterial to the plaintiffs’ decision, as they were not concerned with the name or script of the film, but only to gain a tax deduction. He relies on Mrs Rogers’ evidence at T44 which I have already analysed.
165 The key sentence in the David Securities case for present purposes is at p 378, viz, “If the payer has made the payment because of a mistake, his or her intention to transfer the money is vitiated and the recipient has been enriched”. Goff and Jones translate this by saying, “The burden is on the plaintiff to show from the facts that he would not have made the payment but for his mistaken assumption of fact...if the payer had known the true facts, would he have paid the money?” (op cit 5th ed p 191) and see Barclays Bank Ltd v WJ Simms Son & Cooke (Southern) Ltd [1980] QB 677, 695.
166 I do not consider that the plaintiffs have proved their case to this extent. Although Mrs Rogers gained comfort from the prospectus and the film fund and thought that the document showed that the investment was genuine, there is no doubt that the primary factors in the decision to “invest” were the trust that Mrs Rogers had in Mr Prasad and the need for obtaining a tax effective investment. Had no mistake about “The Ugly Dumpling Film Fund” been made, it may well be that Mrs Rogers would still have made the investment.
167 Thus the plaintiffs’ claim as to mistake fails. This means that it is also unnecessary to reconsider Mr Brereton SC’s repeated application to reopen to shore up the defence that if Fontana Films received a payment under a mistake, it would be inequitable for it to have to repay the money as it had materially changed its position on the faith of the receipt.
168 The next claim is made on the ground of unconscionable conduct. All Mr Coles QC and Mr Coleman can say about this is that Mrs Rogers was subject to a significant level of vulnerability about which Messrs Prasad and Kabriel knew and could exploit. The case is thus one of unconscionable exploitation of a perceived disability and retention of a benefit accepted in those circumstances. They referred to Bridgewater v Leahy (1998) 72 ALJR 1525.
169 Mr Brereton SC says that the defendants did not engage in unconscionable conduct. He puts that unconscionable conduct is of the type of conduct described in Blomley v Ryan (1956) 99 CLR 363 and Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 and involves a dealing in which one party takes unconscionable advantage of a special disadvantage which affects the other. He puts that in the present case there is no element of special disadvantage, let alone unconscionable use of it by Mr Kabriel and Fontana Films. There is nothing to suggest any overreaching or unconscionable conduct here; Mrs Rogers did not regard herself as being under any duress. The plaintiffs’ submissions that Mrs Rogers was “subject to a significant level of vulnerability” does not transcend to any evidence to establish it and is quite contrary to the evidence. I agree with this submission.
170 The next head of claim is that there was a knowing receipt by Fontana Films of the monies which flowed through to it because of Mr Prasad’s breach of fiduciary duty.
171 Plaintiffs’ counsel submit that by the conduct (as detailed above) of Mr Prasad, its financial controller, and Mr Kabriel, its principal director and shareholder, Fontana Films was sufficiently aware of the matters giving rise to a breach of duty by Mr Prasad so as to make it liable under the first limb of Barnes v Addy, that is to say as the recipient of property acquired in breach of fiduciary duty. It held the $1m so received by it on constructive trust for the second plaintiff, and is liable to account for that amount plus interest. It is clear that within 4.5 months of receiving the funds on 17 October 1996 Fontana had spent the entire $1m, the relevant bank statement, PX02.133 showing the bank account of Fontana Films being reduced to a balance of $17,280 by 6 March 1997.
172 Mr Brereton SC, however, submits that Fontana Films did not receive the $1m with knowledge of any breach of duty by Mr Prasad. Further, the evidence does not establish dishonest participation by Fontana Films in any impropriety of Mr Prasad. To the contrary, it had every reason to think that the investment was the act of an independently advised businesswoman; Mr Kabriel took steps, once he discovered that an investment was contemplated to see that she was fully advised by her adviser, Mr Prasad. There is nothing to suggest that Fontana Films knew of any impropriety by Mr Prasad. Indeed, the transaction was, in the circumstances, relevantly in the interests of the plaintiffs, who had a tax problem and needed a tax deduction; the transaction was calculated to give them that. Mr Brereton SC further puts that the plaintiffs are unable to point to any material matter which was not known to them, disclosure of which could have affected their decision to proceed with the transaction. They fully understood the purpose of the transaction, the risks, and the connection of Messrs Prasad and Kabriel with it.
173 The plaintiffs’ allegation is under the first limb of Barnes v Addy, the “knowing receipt of trust property” rule. That rule imposes liability only in respect of trust property in the strict sense, and not to gains or benefits made in breach of fiduciary duty: Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373, 396; United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157, 253. The $ 1m was not trust property “in the strict sense”, or at all. Thus there is no liability under the first limb of Barnes v Addy.
174 Thus, Mr Brereton SC submits, any liability of Fontana Films would therefore have to be under the second limb of Barnes v Addy, which is not pleaded. Even if it were, under that limb there has to be established assistance with knowledge in the dishonest and fraudulent design. Even assuming such design can be shown against Mr Prasad, dishonesty must also be shown against Fontana Films. Negligence in failing to make inquiry is insufficient: Consul Development at p 402. The court looks to all the circumstances known to the alleged participant, its experience and intelligence, and its reason for acting as it did: Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, 392. In the present case, Fontana Films did nothing to assist in any breach of fiduciary duty; it had no knowledge of the circumstances which led to the investment being made; and there was no reason why it should. Knowledge that Mrs Rogers was the source of the funds, which is all that the plaintiffs can establish, is insufficient because it falls far short of proving knowledge of any dishonest design.
175 In my view these submissions ought to be accepted.
176 I should note that the principle considered in Haywood v Roadknight [1927] VLR 512 was again raised here. As I noted in connection with the First Transaction, the plaintiffs say that those in control of Fontana Films knew that the money had come from Mrs Rogers. They knew that Mr Prasad, who had obtained the “investment”, was a fiduciary qua Mrs Rogers. That transaction injected a large amount of cash into Fontana Films’ bank account.
177 Mr Brereton SC submits that this argument is not open to the plaintiffs on the pleadings. I do not need to consider this as in my view, the case is not one where Fontana Films sought out the fiduciary to carry on its fund raising in respect of the $1m. Rather, the position was the reverse, Mr Prasad sought out a reluctant beneficiary.
178 Thus, were it not for the Corporations Law problem dealt with in Part 4, there would be no liability on Fontana Films in respect of the Second Transaction on any of the causes of action pleaded.
179 3E. The claim over the Second Transaction against Mr Kabriel
180 I now can consider the claims against Mr Kabriel personally. These are:
(i) Under s 75 B of the Trade Practices Act;
(ii) Breach of fiduciary duty; and
(iii) Knowing receipt of trust monies.
I will deal with these in turn.
181 (i) Plaintiffs’ counsel submit that Mr Kabriel was directly and indirectly knowingly concerned in the contravention (see s 75B of the Trade Practices Act and s 61 of the Fair Trading Act) because he knew the monies were obtained for a film investment which would generate a tax deduction and he must be taken to have known that the basis upon which such a deduction could be properly claimed had not been put in place: Yorke v Lucas (1985) 158 CLR 661.
182 Mr Brereton SC takes issue with this. He says that even if I was of the view that there was a false representation, there was no evidence that Mr Kabriel knew that it had been made, let alone that it was false. Thus Mr Kabriel cannot be liable under s 75B of the Trade Practices Act as, to be liable under that section, a party must know of each fact which constitutes the contravention and take some action to assist or facilitate its commission: Yorke v Lucas (supra); R v Tannous (1987) 10 NSWLR 308. I agree with these submissions.
183 It is next put that Mr Kabriel himself breached fiduciary duties owed to the plaintiffs.
184 Mr Coles QC and Mr Coleman say that Mr Kabriel was a director of the second plaintiff having been appointed on 16 September 1996. This is established by the tender of the relevant extract from the records of the Australian Securities Commission as under s 1274B of the Corporations Law, such an extract is prima facie evidence of the matters stated in it in the absence of evidence to the contrary. Thus it is put that Mr Kabriel’s objection that he was not at the meeting at which he was purportedly appointed a director of, inter alia, the second plaintiff is irrelevant. So too is the absence of any written record of his consent. He was asked and agreed to be a director if he was required (see T200.44). The minutes of the directors’ meeting of 17 April 1997, PX02.51, was not objected to by the defendants and shows Mr Kabriel participating as a director of the second plaintiff.
185 However, it is submitted that on a broader basis, Mr Kabriel owed fiduciary duties outside the traditionally recognised heads. He was an admitted long-standing and trusted friend of Mrs Rogers. He knew she trusted him to act in her best interests: he was her confidante. He had served on the Cenovis Group Advisory Committee. At the significant occasion where the $1m was invested he declared, “Rick will do whatever he can to help you”. It was to Mr Kabriel that Mrs Rogers turned when she fell into dispute with her daughter and former accountants and solicitors. She was in need of financial advice or assistance. It was on Mr Kabriel’s recommendation and introduction that Mr Prasad was appointed as Mrs Rogers’ accountant.
186 Counsel further put that it was readily apparent to Mr Kabriel that:
(i) Mrs Rogers was, at the time she paid the $1m, vulnerable;
(ii) Mrs Rogers and the second plaintiff had come into millions of dollars following the sale of the Cenovis Group of companies;
(iii) Mrs Rogers was susceptible to the position of dominance in her affairs that, as at 16 October 1996, Mr Prasad had attained; and
(iv) Mrs Rogers was reliant on expert assistance in connection with her affairs.
187 In that scenario, it is put, Mr Kabriel exploited his position both as a director of the second plaintiff and as Mrs Rogers’ trusted adviser and confidante (see generally Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41, 96-97 per Mason J; Glandon Pty Ltd v Strata Consolidated Pty Ltd (1993) 11 ACSR 543, 546-547, 556-7). Thus, by allowing the second plaintiff to invest $1m of its money in Fontana Films, Mr Kabriel was in breach of his fiduciary duties described above in that:
(i) there was a clear case of a conflict of interest between Mr Kabriel’s duties to the second plaintiff and his duties to Fontana Films of which he was a director and shareholder;
(ii) Mr Kabriel knew or ought to have known that at the time of the investment by the second plaintiff on 16 October 1996, all things necessary to be done in order to enable the second plaintiff to obtain a tax deduction had not been put in place, thus exposing the second plaintiff to a real risk of not being so able to claim a tax deduction;
(iii) there was a personal benefit to be gained by Mr Kabriel should the second plaintiff invest in Fontana Films in the sense that Mr Kabriel would not have to transfer and use the funds in his alleged account in Prague to pay Fontana Films’ running costs and instead could supposedly use the Prague account to pay for the production of any film.
188 Mr Brereton SC submitted that, on the contrary Mr Kabriel did not, in breach of any fiduciary or director’s duty owed by him, permit the plaintiffs to invest in Fontana Films. He puts that Mr Kabriel did not owe duties to the second plaintiff as a director. He was never a director of the second plaintiff. His status as a member of the Cenovis Advisory Group was undertaken deliberately in order to avoid his having to assume the responsibilities and burdens of directorship. His offer to act as such if required, acceptance of which was never communicated to him, does not make him a director. Corporations Law s 1274B and PX02.208 do not assist the plaintiffs because there is evidence to the contrary. His denial that he was appointed, his absence from the relevant meeting and the absence of a written consent are not, as the plaintiffs submit, irrelevant; they are “evidence to the contrary” which defeats the prima facie presumption created by s 1274B.
189 In my view the plaintiffs’ submissions must be preferred. The statutory presumption reinforced by the minutes of April 1997, lead me to find that Mr Kabriel was a director of the second plaintiff in October 1996. However, as Mr Coles QC and Mr Coleman recognize by the way their submissions were framed, it is necessary to go further than this to succeed.
190 On the broader issue, Mr Brereton SC submits that Mr Kabriel was not, relevantly, in a fiduciary relationship with, nor did he owe fiduciary duties to, the first plaintiff. The relationship was personal, not fiduciary. Although the plaintiffs submit to the contrary, there is no evidence that Mrs Rogers was vulnerable, susceptible to dominance, or reliant on others. Mr Kabriel did not have the representative character of a fiduciary. Alternatively, if there were in any respects a fiduciary relationship, the transactions the subject of these proceedings were outside its scope; Mr Kabriel did not advise or otherwise participate in Mrs Rogers’ decision-making in connection with either the $650,000 or the $1m investment.
191 Mr Brereton SC further submits that Mr Kabriel did not assist in or facilitate the investments, and had no relevant involvement in them at all. Although the plaintiffs submit that he “exploited his position both as a director of the second plaintiff and as Mrs Rogers’ trusted adviser and confidante”, they entirely fail to show how he did so: there is no evidence that he did anything to procure her decision to invest. The pleading against him is only that he “allowed” or “permitted” her to invest; it does not allege active involvement. This serious allegation - that he “exploited” her - was not put to him.
192 Furthermore, Fontana Films was not insolvent as shown by the accounts, annexure A to affidavit DA14. However, even if it was insolvent, that does not involve any liability on Mr Kabriel’s part as a fiduciary, because there was no relevant gain or profit made by Mr Kabriel as alleged fiduciary for which he can be made to account: Chan v Zacharia (1984) 154 CLR 178, 198-9.
193 The other basis on which it is said that Mr Kabriel is personally liable to the plaintiffs is because of a knowing participation in the breach of Mr Prasad’s fiduciary duty to Mrs Rogers and the second plaintiff; see Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378.
194 The plaintiffs further submit that the knowledge and conduct of Mr Kabriel make it clear that:
(i) he was active in procuring the payment of the $1m by the second plaintiff;
(ii) he was aware that the plaintiffs had been told that the “investment” would be in “The Ugly Dumpling”;
(iii) he was aware that at the time the payment was made, the defendants had not done and were not in a position to do all things necessary to enable the plaintiffs to obtain a tax deduction (being the accepted purpose of the payment by the plaintiffs); and
(iv) he knew the plaintiffs’ cheque would be deposited into Fontana’s general account for expenditure on its general purposes.
195 From this, the submission goes, it can be readily inferred that he was conscious of the impropriety involved in respect of the obtaining of the $1m payment from the plaintiffs. He is thus liable for knowingly participating in the breach of Mr Prasad’s fiduciary duty to Mrs Rogers and the second plaintiff.
196 Mr Brereton SC submits that Mr Kabriel did not knowingly participate in the receipt of the said sums, in such circumstances, by Fontana Films. He further says that, even if Fontana Films had such knowledge, Mr Kabriel did not. He says that, contrary to the plaintiffs’ submissions, Mr Kabriel:
(a) was not involved in procuring the payment of the $1m;

(b) was not aware that the plaintiffs had been told that the investment would be in “The Ugly Dumpling” if indeed they were so informed;
(c) was not aware - and it was not put to him - that (if it were the case) not everything necessary to allow a tax deduction had been done;
(d) was not aware, in advance, that the cheque would be deposited into Fontana Films’ account for expenditure on its general purposes; but even if he was, that does not advance the plaintiffs’ case.

197 Mr Brereton SC also comments, properly in my view, that although the plaintiffs suggest that knowledge on his part of Mr Prasad’s breach of fiduciary duty can be inferred, why should so serious an inference be drawn in the absence of any evidence of knowledge?
198 In my view the defendants’ submissions should be preferred. The whole flavour of the evidence is that Mr Prasad gave advice to Mrs Rogers which she accepted and that Mr Kabriel was a rather reluctant beneficiary.
199 4. The claim against Fontana Films under the Corporations Law
This claim refers to both the First and Second Transactions.
200 Mr Coles QC and Mr Coleman put that Mr Prasad, when discussing the issue of the securities in the film investment and the use of the expired “The Ugly Dumpling” prospectus, engaged in conduct which was misleading or deceptive or likely to mislead or deceive Mrs Rogers. The plaintiffs are entitled to a refund of the monies paid is as a result of the defendants being in breach of Parts 7.11 and 7.12 of the Corporations Law as pleaded in paragraphs 30D and 30E of the second further amended statement of claim. They say that Mrs Rogers’ investment was for a “prescribed interest” as defined in s 9 of the Corporations Law in that it was a “participation interest” as defined in that section. They say that necessarily the making of an investment to enable deduction under Division 10BA of the Income Tax Assessment Act involves the acquisition by the investor of a proportionate share of the copyright in the film to be made by others for the purpose of exhibiting that film to gain or produce assessable income. All of the relevant features of a “participation interest” are thus attracted and the interest is accordingly a “security” in accordance with the definition in s 92(1) of the Law.
201 The defendants do not contest that investment of this kind involves the issue of prescribed interests. However, their counsel submits that because the investment exceeded $500,000 Parts 7.11 and 7.12 of the Corporations Law are inapplicable because of s 66(3) of the Corporations Law.
202 The plaintiffs say that s 66(3) does not affect the position because according to some of the defendants’ documents, they were to be issued with 1700 “units” of $1,000 each. Mr Brereton SC says that this is irrelevant, one looks to the total amount of the investment, not the unit price. The sum involved exceeds $500,000, so that those provisions are inapplicable.
203 In my view, s 66(3) applies to invitations. If there is no invitation to accept less than $500,000 the invitation is exempt. If this is not the case, the sub-section does not apply even though a particular person makes an investment exceeding $500,000.
204 In view of the fact that the only real defence to this head of claim was an appeal to s 66(3) of the Corporations Law which I have rejected, the plaintiffs are entitled to an order under s 1005 of the Corporations Law to recover the loss and damages suffered through the non-compliance with the Law. This would appear to be $1,650,000 plus interest.
205 5. The result of the case
It must follow from what I have said that the plaintiffs are entitled to succeed against Fontana Films in respect of both transactions. There thus must be a verdict for the relevant plaintiff for $1,650,000 plus the relevant amount of interest.
206 It also follows that, as against Mr Prasad, the proper order is that it be referred to a Master to assess the proper amount of damages that he must pay.
207 It also follows that there should be a verdict for Mr Kabriel.
208 As to costs, I would have thought that it follows that Mr Kabriel should have his costs and that Fontana Films must pay the plaintiffs’ costs, but as the same counsel appeared for both those defendants, some more mature consideration may have to be given to this question. Again, the fact that the plaintiffs only succeeded against Fontana Films over the Second Transaction on one of a number of attacks, might be significant on the question of costs.
209 It is thus appropriate that I now merely publish these reasons and then stand the matter over for the plaintiffs to bring in short minutes of order. I will tentatively fix Thursday, 6 May 1999 at 9:30 am for this purpose, but this date may be changed by arrangement with my Associate.

*******

Last Modified: 04/23/1999