Shaw-Stuart Pty Ltd v Walker
[2010] VCC 1139
•24 August 2010
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
GENERAL DIVISION - COMMERCIAL LIST
Case No. CI-09-02650
| SHAW-STUART PTY LTD (ACN 109 550 307) | First Plaintiff |
| (AS TRUSTEE FOR THE SHAW-STUART SUPERANNUATION FUND) | |
| and | |
| BARUDA PROPERTIES PTY LTD (ACN 005 286 466) (AS TRUSTEE FOR THE SHAW-STUART FAMILY TRUST) | |
| v | |
| JOHN HENRY WALKER | First Defendant |
| and | |
| JOHN H WALKER & ASSOCIATES PTY LTD (ACN 006 272 804) | Second Defendant |
| JCAT (AUST) PTY LTD (ACN 116 087 462) | Third Defendant |
| CLAUDETTE ELISE PASSON | Fourth Defendant |
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| JUDGE: | HIS HONOUR JUDGE LACAVA |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 6 and 9 August 2010 |
| DATE OF JUDGMENT: | 24 August 2010 |
| CASE MAY BE CITED AS: | Shaw-Stuart Pty Ltd & Anor v Walker & Ors |
| MEDIUM NEUTRAL CITATION: | [2010] VCC 1139 |
REASONS FOR JUDGMENT
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Catchwords: Claim for money had and received against third parties – unjust enrichment – accessorial liability against third parties with actual or constructive knowledge of breach of trust or fiduciary duties.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D A Klempfner | Harry Szmerling & Co |
| For the Defendants | The Fourth-named defendant appeared in person | |
| HIS HONOUR: |
Introduction
1 This proceeding was commenced by Writ in the Commercial Division of the Court on 15 June 2009. The first-named plaintiff is the trustee of the Shaw- Stuart Superannuation Fund. The second-named plaintiff is the trustee of the Shaw-Stuart Family Trust. Incorporation of each of the plaintiffs is not in issue.
2 The first-named defendant at all material times carried on practice as an accountant. He conducted his practice through a company, John H Walker & Associates Pty Ltd, the second-named defendant. Incorporation of that company is also not in issue. The first-named defendant was the director of the second-named defendant, and at all times acted as an agent of the second-named defendant as principal of the second-named defendant. There is no issue that the first-named defendant or the second-named defendant acted as the accountant for each of the plaintiffs.
3 The first-named defendant is presently an undischarged bankrupt. The plaintiffs have not sought leave to proceed against him in this proceeding and they do not seek any remedy against him.
4 The fourth-named defendant, Ms Passon, is the wife of the first-named defendant. She is also the sole director and shareholder beneficially entitled of the shares in the third-named defendant, JCAT (Aust) Pty Ltd (“JCAT”). There is no issue in the proceeding that JCAT is a body corporate incorporated pursuant to the provisions of the Corporations Act.
5 Early in the proceeding the plaintiff entered judgment in default of appearance against the second and third-named defendants and obtained judgment in default of defence as against the first and fourth-named defendants. There were applications to have the judgment entered against the third and fourth- named defendants set aside and that was done. The proceeding before me was therefore a claim by the plaintiffs against each of the third and fourth- named defendants.
The Plaintiff’s Claims
6 Before continuing further, I need to set out how the claims by the plaintiffs are put as against each of the named defendants as set out in the Statement of Claim. Much of the factual matrix is not contested by either of the third or fourth-named defendants for the purposes of the argument before me. However it is important that the claim by the plaintiffs, as against each defendant, be laid out.
7 The plaintiffs’ claim, as against the first and second-named defendants, arises because the first-named defendant or the second-named defendant acted as the plaintiff’s accountant. In the course of so acting, it is alleged, and not contested before me, that one or other of the first or second-named defendants provided accountancy services and, in addition, provided advice to the plaintiffs relating to investment of their monies.
8 The plaintiffs’ plead, in paragraph 9 of the Statement of Claim, that the first and/or second-named defendants acted as their accountants and financial advisors and, in so doing, provided accountancy services and advice and financial planning advice from time to time. The plaintiffs plead that the first and second-named defendants acted pursuant to a retainer from the plaintiffs.
9 The plaintiffs also plead, in paragraph 11 of the Statement of Claim, that as the plaintiffs’ accountants and financial advisors, the first and second-named defendants owed to the plaintiffs a duty of care to exercise all the skill, care and diligence of competent accountants and financial advisors and to act in good faith and with fidelity towards the plaintiffs.
10 The plaintiffs plead that in consequence of the relationship between them and the first and second-named defendants of accountants and clients, the plaintiffs, acting on the advice of the first and second-named defendants, made various short-term loans between September 2006 and March 2008. It is alleged in the Statement of Claim that the amount of the loans ranged between $85,000, being the lowest amount loaned, and $988,000, being the highest sum loaned. It is alleged that the loans, on the advice of the first and second-named defendants, were secured by registered first mortgages over residential real estate.
11 In making the loans, the plaintiffs paid cheques for the amount to be invested to a company known as “Eighty First Vilmar Pty Ltd”, another company controlled by the first-named defendant and other persons associated with him. The plaintiffs allege that in each instance of loan between September 2006 and March 2008, pursuant to the terms of the loans arranged, the plaintiffs were paid interest shortly after each of the loans were given and each of the loans were repaid in full and on time. The plaintiffs did not have a solicitor acting for them in respect of each of the loans.
12 The plaintiffs allege that because each of the loans which I have just referred to were successful, the plaintiffs came to place trust and confidence in each of the first and second-named defendants.
13 With this background, the plaintiffs allege in their Statement of Claim that in March 2008 they were advised and induced to grant a further loan which was not repaid. They plead that the first and/or second-named defendants advised and represented to the plaintiffs that the plaintiffs ought to loan the sum of $370,000 for one year at an interest rate of ten per cent per annum payable in advance, secured by a first mortgage over a property in Queensland said to be valued in the sum of $470,000. It is pleaded that at all times the first and/or the second-named defendants intended and knew, or ought reasonably to have known, the plaintiffs would rely upon the advice and representations made by the first and/or second-named defendants to them.
14 In paragraph 16 of the Statement of Claim the plaintiffs plead, relying upon the advice and representations made by the first and second-named defendants in March 2008, that the plaintiffs agreed to provide a bank cheque in the sum of $370,000 to the first-named defendant payable to the third-named defendant, JCAT, for investment as a loan secured on the terms as set out above.
15 The plaintiffs plead that this loan, unlike the earlier transactions, proved to be unsatisfactory and, in consequence, they have lost the sum of $370,000.
16 The plaintiffs plead the first and second-named defendants breached the terms of their retainer as accountants and financial advisors and breached their duty to the plaintiffs to act with skill, care and diligence.
17 They also plead that in breach of the retainer, the first and second-named defendants did not act in good faith and fidelity towards the plaintiffs. The factual basis for these allegations is pleaded in summary form as follows:
(i)
the loan made by the plaintiffs in the sum of $370,000 was not repaid in March 2009 or at all;
(ii)
the loan made by the plaintiffs in the sum of $370,000 was not secured by a mortgage over a property valued at $470,000 for the benefit of the plaintiffs;
(iii)
the loan made by the plaintiffs in the sum of $370,000 was used for the benefit of the first named defendant and/or the third and fourth-named defendants;
(iv)
JCAT, being the recipient of the loan monies invested by the plaintiffs, is a company whose sole director and shareholder is the fourth-named defendant;
(v)
The loan monies were in fact paid to a company JCAT of which the sole director and shareholder beneficially entitled was the fourth named defendant who is the wife of the first named defendant without this fact being revealed by the first named defendant to the plaintiffs.
18 In addition to the claims against the first and second-named defendants in breach of the retainer (contract) and/or breach of duty, the plaintiffs plead, as against the first and second-named defendants, that they engaged in misleading or deceptive conduct, or conduct likely to mislead or deceive in contravention of s.9 of the Fair Trading Act (1999) (Vic) and/or s.52 and/or s.53 of the Trade Practices Act 1974 (Cth).
19 The basis of the misrepresentation in summary form is an allegation that the loan of $370,000 would be fully secured by a registered first mortgage over a property valued at $470,000 and that was not done. Further, it is alleged that instead the first-named defendant, with the knowledge of the third and fourth- named defendants, paid the sum of $370,000 to the third-named defendant without advising the plaintiffs that the third-named defendant, JCAT, was a company associated with the first and fourth-named defendants.
20 At paragraph 25 of the Statement of Claim under the heading “Breach of Fiduciary Duties”, the plaintiffs begin to set out their case against each of the defendants named in the proceeding on the basis of breach of fiduciary duties. The plaintiffs plead that the first and second-named defendants, by virtue of their relationship with the plaintiffs as their accountants and financial advisors, were in a relationship of trust and confidence which attracted fiduciary obligations on the part of the first and second-named defendants. Those fiduciary obligations are said to be:
(a)
not to prefer the interests of the first or second-named defendants ahead of the interests of the plaintiffs if there be a conflict; and
(b) at all times to act in good faith and with fidelity towards the plaintiffs; and (c)
to make full and fair disclosure to the plaintiffs in relation to any conflict of interest, whether actual or potential, in the course of acting for the plaintiffs.
21 The plaintiffs plead that the first and second-named defendants breached their fiduciary duties to the plaintiffs. It is pleaded that in representing and/or advising the plaintiffs to pay the sum of $370,000 to JCAT, the first and/or second defendants:
(a) preferred their own interests to the interests of the plaintiffs where there was a conflict of interest; and (b) did not act in good faith and with fidelity towards the plaintiffs; and (c) did not make full and just disclosure to the plaintiffs in relation to any conflict of interest, whether actual or potential, in the course of acting for the plaintiffs. 22 In consequence, as against the first and second-named defendants, the plaintiffs plead that they breached their fiduciary duties and in consequence the plaintiffs are entitled to be restored to the position that they would have been in had the loan of $370,000 not been made, including reimbursement of the sum of $370,000, together with interest on that sum.
23 At paragraph 29 of the Statement of Claim, the plaintiffs’ claim against the fourth-named defendant, Ms Passon, is set out. The first basis upon which the claim is put by the plaintiffs against Ms Passon is that she knowingly received the sum of $370,000 from the plaintiffs in circumstances where she is liable to make equitable compensation to the plaintiffs. The particulars of that allegation are provided and are as follows:
“The fourth defendant is the wife of the first defendant and was on constructive notice by reason of the first defendant’s role as the plaintiffs’ accountant of the fact that the sum of $370,000 was advanced by the plaintiff[s] as a result of the first and second defendants’ breach of fiduciary duties pleaded above.”
24 The claim against the fourth defendant as pleaded is thus a restitutionary claim based on money had and received within the second limb of Barnes v Addy.[1] That is, it is a “knowing assistance case”.
[1] (1874) LR9ChApp 244
25 Paragraph 30 of the Statement of Claim puts the claim as against each of the 3rd and 4th named defendants in the alternative as a claim for money had and received by the first and/or second and/or third and/or fourth-named defendants to the plaintiffs’ use. Again, the particulars are as follows:
“The plaintiffs’ investment loan of $370,000 has been applied by the third defendant for the benefit of the first and/or fourth defendants by the purchase of the property.”
The Defences of the Third-named and Fourth-named Defendants
26 When the matter came on for hearing before me on Friday, 6 August 2010, the fourth-named defendant appeared in person unrepresented. There was no appearance for any of the other parties when called. The fourth-named defendant applied for an adjournment of the proceeding and in separate Reasons, I refused that application. Thereafter, the fourth-named defendant took full part in the proceeding representing herself.
27 At an earlier time in the proceeding the fourth-named defendant was represented by Mills Oakley Lawyers which firm filed a Defence on her behalf. In that document the fourth-named defendant admitted, in paragraph 7, that the third-named defendant, JCAT, had received the sum of $370,000, and she further stated in the Defence, that:
“She received the money in the belief that the third defendant was
lawfully entitled to that money.”
28 There is therefore on the pleadings an acknowledgment by the fourth-named defendant that she has received the sum of $370,000.
29 As to the pleadings in paragraphs 29 and 30 of the Statement of Claim, the fourth-named defendant pleaded she only received the sum of $26,300 and she expended that sum in the belief that she was entitled to the money and has thereby changed her position and acted to her detriment in the belief that the money was hers and the plaintiffs are thereby estopped and/or precluded from recovery of such sum from her.
30 The third-named defendant was also previously represented by Mills Oakley Lawyers. In paragraph 16 of the Defence delivered on behalf of the third- named defendant by that firm the third-named defendant, JCAT, admitted it received the sum of $370,000 into its account. It pleads that it received the money in the belief that it (JCAT) was lawfully entitled to that money. The Particulars provided are as follows:
“At the time of receipt of the payment of $370,000, Claudette Passon, the director of JCAT, believed that the $370,000 payment was from, or associated with a company named Eighty First Vilmar Limited, which is a company of which the first defendant is a director.”
31 The third-named defendant denied the allegations in paragraph 29 of the Statement of Claim and also denied the allegation in paragraph 30 of the Statement of Claim, adding that the third-named defendant has expended the sum of $370,000 in the belief it was entitled to the money and has thereby changed its position, and it went on to state the sum of $370,000 received on 14 March 2008 was not applied by the third-named defendant for the benefit of the first and/or fourth-named defendants by the purchase of the property.
Further and Better Particulars of Defences
32 As a result of a request for Further and Better Particulars of the Defence filed by the fourth-named defendant, the fourth-named defendant provided further particulars on 7 May 2010. In paragraph 2(b) she provided particulars as to her belief at the time that the sum of $370,000 was paid into the bank account of the third-named defendant, JCAT. She said as follows:
“The sum of $370,000 was received into the third defendant’s ANZ Bank Account No. 4963-87148 by deposit on 14 March 2008. At the time of receipt of the $370,000, the fourth defendant believed that the payment was from, or associated with, a company named Eighty First Vilmar Limited (Eighty First Vilmar) which is a company of which the first defendant is a director. Eighty First Vilmar was engaged in the business of property development. The fourth defendant was aware at the time that Eighty First Vilmar was in the process of selling properties owned and developed by it. The proceeds of sale of those properties were being distributed between the directors of Eighty First Vilmar. The first defendant had from time to time over a period of approximately two years deposited his personal funds into the third defendant’s account. The fourth defendant did not know the source of the monies paid into the third defendant’s account and believed that they were paid by Eighty First Vilmar from the proceeds of sale of the properties owned by it.”
33 The fourth-named defendant, in her Further and Better Particulars of Defence, also gave particulars relating to her alleged entitlement to spend monies from the account of the third-named defendant. She said:
“The fourth defendant refers to and repeats the particulars subjoined to paragraph (2) above. She says further that at that time the fourth defendant was owed consultancy fees by the third defendant, and the third defendant had a liability to the fourth defendant pursuant to the company’s shareholder loan account. The fourth defendant drew on the third defendant’s account as repayment of monies owing to her by the third defendant.”
34 Soon I will summarise evidence given before me by the fourth-named defendant. In that evidence, there was no evidence produced as to the basis of her belief that Eighty First Vilmar Pty Ltd was in the process of selling properties owned and developed by it or which showed any money flowing into the account of the third-named defendant from Eighty First Vilmar Limited.
35 Nor was there any evidence produced by the fourth-named defendant to substantiate the allegation in the Further and Better Particulars that the first- named defendant had from time to time over a period of two years deposited his personal funds into the bank account of the third-named defendant, JCAT.
36 There was no evidence produced by the fourth-named defendant to substantiate her alleged belief that the sum of $370,000 received from the plaintiffs into the bank account of the third-named defendant represented “the proceeds of sale of the properties owned by Eighty First Vilmar Limited”. Further, apart from a general allegation viva voce there was no documentary evidence produced by the fourth-named defendant that she was owed “consultancy fees” by the third-named defendant, or that the third-named defendant had a liability to her pursuant to a company shareholder loan account in her name. Indeed, there were no documents relating to the third- named defendant in the nature of books of accounts, minutes or resolutions or taxation returns produced before me by the fourth-named defendant.
37 There was produced by the Plaintiffs copies of bank statements relating to the third-named defendant JCAT and this was used as a basis for some evidence given by her. But these copy bank statements related to a limited period. They did not extend to the period before the loan money was paid into the JCAT bank account. I will return to these issues later.
Evidence for the Plaintiffs from Mr Harry Szmerling
38 Mr Klempfner of counsel, who appeared on behalf of the plaintiffs, commenced the evidence in the plaintiffs’ case by tendering, through the evidence of the plaintiffs’ solicitor, Mr Harry Szmerling, a number of documents discovered by the fourth-named defendant and referred to in her Affidavit of Documents filed and sworn on 7 May 2010.
39 Exhibit “A” consists of a Contract of Sale dated 11 September 2007 between Eighty First Vilmar Pty Ltd and the fourth-named defendant. The Schedule to the Contract, which sets out the particulars of the parties, initially showed that the vendor was Eighty First Vilmar Pty Ltd and the purchaser was the first- named defendant. However, his name has been crossed out and initialled and replaced by the name of the fourth-named defendant. The contract is a Contract of Sale in the form used in Queensland and relates to a Queensland property, being Unit 6, 6 Alexandra Street, North Ward, Townsville (“the Townsville property”). Pursuant to the contract, the fourth-named defendant purchased the property from Eighty First Vilmar Pty Ltd on 11 September 2007 for the sum of $450,000.
40 The significance of the Townsville property is that this is the property which later evidence would reveal was the property represented by the first-named defendant to the plaintiffs as being the property over which their loan of $370,000 would be secured by a registered first mortgage. The plaintiffs, in that regard, were provided with a Valuation by the first-named defendant at or shortly after the time when the loan of $370,000 was made. The Valuation went into evidence as Exhibit “F” and I shall refer to it later.
41 Part of Exhibit “A” is a Transfer relating to the Townsville property, showing that property was transferred to the fourth-named defendant by Eighty First Vilmar Pty Ltd on or about 7 September 2007. Also part of Exhibit “A” is a title search relating to the Townsville property showing that after the fourth-named defendant became registered as the proprietor of the Townsville property, there was never any mortgage registered to the plaintiffs.
42 Instead, there was a mortgage registered to Perpetual Trustees Limited, as first mortgagee, on 30 April 2008, about six weeks after the plaintiffs loaned the sum of $370,000. The plaintiffs lead this evidence to prove the representations made to them about the loan by the first-named defendant were false. They also lead the evidence to show that the ultimate beneficiary of their loan monies was the first-named defendant and/or the third-named defendant and/or the fourth-named defendant.
43 Mr Klempfner also tendered, through his instructor as Exhibit “B”, the copy bank statements relating to Account No. 4963-87148 in the name of the third- named defendant, JCAT “as trustee for the Passon Family Trust” (the “JCAT account”).
44 Exhibit “C” is the copy bank statements for the account of the fourth-named defendant at the ANZ Bank, being Account No. 5878-98437 (the “Fourth- named defendant’s bank account”).
45 Exhibit “D” is an ASIC company search result giving the organisational search on the third-named defendant, JCAT, as at 28 July 2010. It reveals that the third-named defendant was registered on 5 September 2005, on which date the fourth-named defendant was appointed as a director. She ceased to be a director on at least two occasions but was reappointed on 10 August 2007. There are twelve issued ordinary shares in the third-named defendant, each of which is held by the fourth-named defendant beneficially owned.
46 Exhibit “E” is a similar ASIC search and relates to the company, Eighty First Vilmar Limited. It shows that at all relevant times the first-named defendant and one Roy Allen Watts were directors, ceasing on 5 May 2010.
47 Exhibit “F”, as I indicated earlier, is a property Valuation prepared by Herron Todd White and relating to the Townsville property, with the valuation date being 20 December 2007. It is the document that was provided to the plaintiffs, and values the Townsville property in the sum of $470,000.
Evidence for the Plaintiffs from Ms Dale Maree Shaw-Stuart
48 The plaintiffs called Dale Maree Shaw-Stuart to give evidence. She is a director and shareholder in each of the plaintiff companies. She is the person who had all of the dealings with the first named defendant relating to the loan of $370,000. She said that she met the first-named defendant in 2003, having been introduced to him as a practising Accountant. He prepared the annual taxation returns for a business operated by herself and her husband and advised her and her husband to set up each of the plaintiff companies.
49 Up until 2003, Ms Shaw-Stuart and her husband had operated a hotel/resort in north-eastern Victoria and they had sold that business, initially on the basis that the proceeds remained in the business, but they were repaid after one year.
50 In 2005, the plaintiffs started investing monies earned by them through the sale of their business through the first and/or second-named defendants. Ms Shaw-Stuart told me that the first-named defendant advised the plaintiffs to make loans arranged by the first and second defendants secured by a first mortgage which she said were “backed by Perpetual Trustees”. The loans, she said, were also guaranteed by Eighty First Vilmar Pty Ltd.
51 The first-named defendant agreed to pay, through Eighty First Vilmar Pty Ltd, interest in advance. This occurred on a number of occasions and each loan transaction proceeded satisfactorily. The loans were made and secured and interest paid and the principal repaid when due. As a result, the plaintiffs, through Ms Shaw-Stuart and her husband, grew to trust the advice of the first- named defendant and acted on it. She told me that she had no solicitor and that her and her husband were happy with the way things were arranged by the first-named defendant. She told me that her and her husband always took the advice given to them by the first-named defendant. If they had money available they would invest it, acting on his advice. She said that Mr Walker, the first-named defendant, knew when they had money available, because he was their accountant and he was familiar with their investments. She told me that the amount of loans ranged from $85,000, being the lowest loan, and $988,000, being the amount of the highest loan made by them. She said that her and her husband, through the plaintiffs, used Mr Walker as a financial advisor to maximise financial return. She said the loan/value ratio, which I understood to be the percentage of the loan as against the value of the property which secured it, was always under sixty per cent.
52 Ms Shaw-Stuart gave evidence that in March 2008, she received a telephone call from the first-named defendant who asked her to loan $370,000. He told her he needed the money straight away as settlement of a property for which he needed the money to be loaned was occurring almost immediately. He said the loan would be secured by a mortgage over a property in Queensland valued at $470,000. He asked her to get a bank cheque straight away. He said that he would send someone to collect the cheque. He said the valuation relating to the property which would be security was underway and he would get the valuation to her.
53 Ms. Shaw-Stuart said she agreed on behalf of the plaintiffs to loan the sum of $370,000 as advised by the first-named defendant and she went to the plaintiff’s bank and arranged a bank cheque for that amount which was contributed as to $270,000 by the first-named plaintiff and as to $100,000 by the second-named plaintiff. She said that she received the Valuation, which was Exhibit “F”, from the first-named defendant shortly after she obtained the bank cheque for $370,000 payable to the third-named defendant and handed it to persons whom she understood to be the parents of the receptionist of the first-named defendant. She understood they had been sent to collect the bank cheque from her by the first named defendant.
54 Ms Shaw-Stuart was shown the Valuation, Exhibit “F”. It showed that the borrower was the fourth-named defendant, “C Passon”. She said that she did not know, nor was she told, that the borrower was in fact JCAT a company controlled by the wife of the first-named defendant. She said that she was asked to make the bank cheque payable to JCAT by the first-named defendant who told her at the time “That’s my company”.
55 Ms. Shaw-Stuart gave evidence which was not contradicted that previous loans had been made out to Eighty First Vilmar Limited. She told me that she agreed with the first-named defendant that the terms of the loan would be for one year at ten per cent interest, payable in advance with the loan being secured by a registered first mortgage over the Townsville property. She said that the first-named defendant had never sent anyone before to pick up a cheque from her and she had no reason to think that this loan was any different.
56 Ms Shaw-Stuart told me that she trusted the first-named defendant and acted on his advice. He seemed to be interested in a lot of things and he and the fourth-named defendant had entertained her and her husband at the Mornington races. She thought she had been introduced to the fourth-named defendant on that occasion but apart from the introduction the contract between her and Ms Passon went no further. She said that the fourth-named defendant was not introduced by the name “Passon”.
57 Ms Shaw-Stuart told me that unlike the earlier loan transactions, the interest of ten per cent on the amount of $370,000 loaned was not paid immediately but was paid in three stages over about a month or longer after the bank cheque for $370,000 was paid over. She asked the first defendant for the mortgage or a copy of it but he could not provide it. He said that he would give it to her in a couple of weeks. She never received it.
58 When the loan money was not repaid after one year, she spoke with the first- named defendant, who asked for time to repay it and thereafter he refused to answer her calls. When he did take her telephone calls he said he needed more time to repay but the money loaned was not repaid. Ms. Shaw-Stuart said that she knew the fourth-named defendant by sight only. Whilst she knew the identity of the wife of the first-named defendant she did not know her by the name “Passon”. She said that when the plaintiffs paid over the sum of $370,000 she did not know who “C Passon” was and neither she nor anyone connected with the plaintiffs was ever told that the property which was to be the security was registered in the name of “C Passon” the wife of the first- named defendant. She said that the plaintiffs paid the first-named defendant for his services and her and her husband thought investing money through the first-named defendant was a good way for the plaintiffs to invest the money that they had in their retirement.
59 Ms Shaw-Stuart agreed in cross-examination by the fourth-named defendant in person that, in respect of any of the loans, she had never had to sign anything and never had her name or the names of the plaintiffs on any registered mortgage. She said that in previous loan transactions monies had been paid directly to Eighty First Vilmar Limited and the cheques were posted to Frankston. She said that when she did ask for paperwork she only ever got a Valuation.
60 The plaintiffs called no further evidence.
Evidence for the Third-named and Fourth-named Defendants - Ms Claudette Passon
61 Ms Passon gave evidence before me and was cross-examined. She told me that she has never had any involvement with the accountancy firm operated by her husband or the second-named defendant. She said that she has never been a director or shareholder of that firm. She said that she had been to his accountancy office only on a limited number of occasions. She said that she has had no prior business or personal relationship with the plaintiffs. She said that she assisted her husband with social events connected with his business.
62 Ms Passon said her husband is presently physically incapacitated with a terminal illness, motor neurone disease, but his mental capacity is otherwise unaffected. She said that her husband continued to look after all of his own business affairs.
63 Ms Passon told me that her husband’s business was always successful and there were never any issues relating to it which were cause for concern and she had no reason ever to question his business dealings. She told me in evidence that she was first made aware of the alleged nature of the transaction relating to the $370,000 loan when the papers, which I understood to mean the Writ in this proceeding, were served upon her. She said in evidence that she questioned her husband, who informed her that he was handling the matter. She told me that she asked her husband if she needed to brief lawyers and he told her that that was not necessary.
64 Ms Passon gave evidence that her husband organised for Mills Oakley to act and to file an entry of appearance. She said that he continued to advise her there was no need for concern and that “the matter was under control”. Later in 2009, Ms Passon told me that she felt that the matter was not under control and that she needed to get her own legal advice. Her husband arranged for her to see Mills Oakley, a firm she said he had had a long relationship with.
65 She said that she had endeavoured to co-operate to the best of her ability. She said that her ability to co-operate with the plaintiffs was limited as she was the primary carer for her terminally-ill husband who was currently ventilated and incapacitated to the point of being able only to move one hand. This seemed to differ from other evidence put before me, to the effect that the first-named defendant had, in the days leading up to the trial, written to the solicitors for the plaintiffs threatening action if they did not withdraw the proceeding. It further conflicted with other evidence given by the fourth- named defendant that her husband would shortly be travelling to Zurich in Switzerland. No medical evidence was put before the Court as to the medical condition of the first-named defendant or which explained why he was not called as a witness by the fourth-named defendant.
66 The fourth-named defendant told me she has three children under ten and she presently has her own health issues which were initially diagnosed some thirteen years ago. Her health problems are exacerbated by stress. I had previously heard evidence about these matters on the application for an adjournment which I rejected.
67 Ms Passon told me that whilst the plaintiffs’ money was allegedly loaned to be secured by a mortgage over the Townsville property, she had never seen any documentation supporting this allegation. That is not surprising because the only relevant mortgage given by her over that property was to Perpetual Trustees the following month in April 2008.
68 Ms Passon also said that whilst the plaintiffs claimed that the money was loaned to her to facilitate the purchase the Townsville property, that was not the case because that property had been purchased by her well prior to the loan transaction. She said that the property in Townsville had been in her name for a significant period of time prior to the advancement of the money. That is true. The point is however that the representation as to the purposes for which the money loaned would be used was not denied and it was in fact false.
69 She said that the loan monies were not used to make any mortgage payments in relation to the Townsville property. She said that she understood the plaintiffs’ case to be that the loan was a private loan similar to those in which they had previously been involved in twelve previous similar transactions.
70 In evidence, Ms Passon told me that she had been informed by a previous director of Eighty First Vilmar Limited, Roy Watts, that all of the loans which were the subject of the plaintiffs’ other transactions were set up in the following manner. First, the plaintiffs would receive a telephone call from Watts Eagle Services advising there was a loan available to invest in. Before investing the plaintiffs would receive a valuation which contained the borrower’s name and the interest rate and the loan value ratio and the terms of the loan. She said that the cheques were always made payable to Watts Eagle Services or Eighty First Vilmar Limited. This evidence was hearsay and Ms Passon did not call Mr Watts, nor did she call or produce any other evidence in admissible form to support her evidence.
71 Ms Passon said that considering the manner in which the earlier successful loans were conducted and the plaintiffs’ previous experience, she found it unusual that any monies advanced in the last transaction, being the $370,000 transaction, would be advanced to an unknown company before the usual information was provided. She said in evidence:
“I was not a party to this transaction and was not aware of the alleged
nature of the transaction or alleged breach of fiduciary duties.”
72 She said she first became aware of the plaintiffs’ allegations when she was served with the Writ in the proceeding.
73 Ms Passon told me in evidence she did not direct monies to be deposited into JCAT’s account and at no point in time did she handle the cheque of $370,000 or deposit the cheque into the JCAT account.
74 Ms Passon said her husband, the first-named defendant, used JCAT’s account and he was a signatory for the depositing and withdrawing of funds in that account. I pause here to note that as the first-named defendant was not an office bearer or shareholder in JCAT, he could only have been authorised to deal in the JCAT account either by depositing or withdrawing by authority of Ms Passon. She had knowledge of her husband’s dealings in the account including full knowledge of the nature of the transactions. I find she had full knowledge of the source of funds credited into the JCAT account and full knowledge of the ultimate destination of funds debited to the JCAT account.
75 Ms Passon told me that the amount of $370,000 being deposited into the JCAT account did not alarm her, because in the previous twelve months there were regularly large deposits and withdrawals of money into this account. Again, I pause. Ms Passon did not produce any further bank statements for the JCAT account other than those that were produced by the plaintiffs and which became exhibit “B”. They were the documents discovered by Ms Passon. There is no documentary evidence whatsoever to corroborate or support her viva voce evidence given. I conclude that had that evidence in fact been produced it would not have assisted Ms Passon’s case.
76 Further, neither the first-named defendant nor Mr. Watts the other director of Eighty First Vilmar was called by Ms Passon to give evidence or to produce documents which could be reasonably expected to be in the possession of Eighty First Vilmar that would relate to the evidence given by Ms Passon. Again, I conclude that had that evidence in fact been produced it would not have assisted Ms Passon’s case.
77 Ms Passon told me that Eighty First Vilmar Pty Ltd was in the process of selling a number of assets as the partnership between her husband and Mr Watts, which used Eighty First Vilmar as a partnership vehicle, was winding up. She said property valued in excess of $4 million was sold or was divided amongst the two directors and a significant portion of that went towards paying an existing debt of her husband.
78 She said that she was told by her husband that the sum of $370,000 paid into the JCAT account “was from the sale of property either owned or developed by Eighty First Vilmar”. Ms Passon did not say when she was told this by her husband. There is no evidence as to whether the conversation occurred at the time of the deposit of $370,000 into the JCAT account or later when she said she first became aware of the plaintiff’s claim. Again, I pause. There was no documentation whatsoever produced by Ms Passon to support this allegation. I repeat what I said earlier about Ms Passon’s failure to call either her husband or Mr. Watts to give evidence to support her evidence about the sale and distribution of the assets of Eighty First Vilmar and the ultimate destination of monies derived from any sale. I conclude that had that evidence in fact been produced it would not have assisted Ms Passon’s case.
79 There was no connection whatsoever between Eighty First Vilmar Pty Ltd and the bank cheque for $370,000. Absent evidence from either the first-named defendant or Mr. Watts, and absent evidence of the financial and other records of either JCAT or Eighty First Vilmar, Ms Passon could not explain why the bank cheque of $370,000 was paid into the JCAT account. She was the person who beneficially owned the shares in JCAT and she was its sole director. None of the company accounts of either company was produced or discovered by Ms Passon. No attempt was made to produce any documentation from Eighty First Vilmar Limited. Ms Passon did not seek to call her husband or Mr Watts to support her evidence.
80 Ms Passon told me that she has not been a director of Eighty First Vilmar at any point in time and this is reflected in the ASIC search which I earlier referred to. She told me in evidence that at all times “I would make reasonable enquiries of my husband as to the origin of any funds deposited into the account”, meaning the JCAT account. She went on: “At all times I received responses that were satisfactory and did not cause me suspicion of any dishonest acts on his behalf.” She said that she had no suspicion that the alleged facts in the plaintiffs’ Statement of Claim existed and did not make a deliberate decision to avoid confirming the existence of those facts. Ms Passon did not elaborate on what she meant by “reasonable enquiries”. She did not produce any bank documentation relating to deposits.
81 Ms Passon told me the relationship between her husband and herself had been strained from time to time and she had discussed a number of issues over the past year that he had not previously made her aware of. Ms Passon did not elaborate as to what these issues were. She said that whenever she had questioned him she had been reassured by her husband that there was nothing untoward about his business dealings. She said that prior to this she had never had any reason to doubt his responses to her questions. She said that because of her husband’s financial circumstances, she has had to withdraw her children from private schooling and relocate to the country. She said that she was now taking all of these matters into her own hands rather than relying on her husband’s managing these matters.
82 When Ms Passon gave evidence she did so by reference to prepared handwritten statements or notes. She said that she had had no help from any person preparing that document. I very much doubt that to be the case. I do not accept her evidence in that regard. Her evidence was carefully crafted so as to deny all knowledge of the source of the sum of $370,000 being the plaintiff’s money. That evidence may be contrasted with her detailed knowledge of most other transactions detailed on the JCAT account bank statements. I watched her carefully whilst she was giving evidence. I do not accept any of her evidence unless corroborated by an independent source. Ms Passon did not at any time offer any evidence which was corroborated by documentation which must exist to support her evidence if it were true.
83 In particular, and as I have said earlier, there was no evidence of any of the business dealings of Eighty First Vilmar Pty Ltd which related in any way to the sale or division of its assets. Had there in fact been other large deposits into the JCAT account before the sum of $370,000 was deposited such evidence may have enabled me to accept Ms Passon’s evidence as to why she accepted and acted upon her husband’s explanation as to the source of $370,000 in the JCAT account. No such evidence was produced.
84 Further, there were no financial statements of Eighty First Vilmar produced which might explain the value of its assets and the value of any assets either distributed or sold by it prior to march 2008. The same might be said of JCAT as I have already said. I conclude that had such evidence in fact been produced it would not have advanced the case of either the third or fourth named defendants.
Cross-examination of Ms Passon
85 In cross-examination, Ms Passon said she believed she received the Townsville property when Eighty First Vilmar Pty Ltd was disbursing its assets. She believed that she received the property as part of a distribution in specie. Because of the fact of the contract which I have earlier referred to, Exhibit “A”, and the Transfer, it would seem prima facie that Ms Passon did not come by the Townsville property as part of a distribution in specie. She did not produce before me any documentation which showed that she in fact purchased the property by a consideration wholly-paid. Had there in fact been a payment by her of the consideration in the Contract, one would have expected in this proceeding that that would have been proved by proper evidence. It was not. Whilst the transfer purports to show a consideration paid by Ms Passon as the transferee there is no evidence as to the source of funds paid by her to Eighty First Vilmar.
86 Ms Passon said in her evidence in cross-examination that when she was the registered proprietor of the property a valuation was obtained for her to borrow from Perpetual Trustees. In cross-examination, Ms Passon was asked about the JCAT account. She acknowledged that $370,000 was credited to the JCAT account on 14 March 2008. She agreed that at the time that the sum of $370,000 from the plaintiffs was deposited into the JCAT account that account was at that point overdrawn to the extent of $6,730.46.
87 She agreed that immediately following the deposit of $370,000, there was, by means of a telephone banking transfer, a debit against the account of $5,000 transferring that amount into her personal account (exhibit “C”), with the last four digits “8437”. Then, almost immediately after the telephone banking transaction, there was a further “card entry” at the South Yarra branch of the ANZ Bank when $8,000 was withdrawn by her.
88 So the evidence is that immediately after JCAT received the plaintiffs’ money into its account, the fourth-named defendant dealt with at least $13,000 of it. The JCAT bank statement reveals, and it is not contested by Ms Passon, that on 17 March 2008, a cheque was drawn against the JCAT account in the sum of $3,640.
89 The following day, on 18 March 2008, the JCAT account was debited in the sum of $191,371.49. Ms Passon said that that was to pay for share transactions by her husband. She gave no explanation as to why money in the JCAT account would or could be used to finance her husband’s share acquisitions. She made it clear that she had authorised him to use the JCAT account for such transactions.
90 On both 17 March and 18 March 2008, there were debits for the leasing payments or finance payments on motor vehicles used variously by both Ms Passon and her husband.
91 On 19 March 2008, there were two separate transactions by Bpay to pay American Express a total of $46,000. Again, Ms Passon made it clear that she had authorised the use of the JCAT account for such payments. It must be remembered that all these debits or payments from the JCAT account had been financed by the misuse of the plaintiffs’ money.
92 On 27 March 2008, the sum of $13,000 was transferred into the fourth-named defendant’s personal account. On the same date, $9,076 was used to pay the rent on the Toorak property rented and occupied by Ms Passon and her husband and their family.
93 There are also debit transactions crediting into accounts for separate trusts for each of the three children.
94 On 28 March 2008, a further $20,000 was paid in two transactions to American Express. There were various other debits to the JCAT account through March and the early part of April 2008. The JCAT account was restored to debit on or about 21 April 2008 by the payment of $27,000 from the account. At this time all of the plaintiff’s money had been expended from the JCAT account for expenses and other purchases directly related to the first and fourth-named defendants or for the benefit of themselves or their family. Of course that was all unknown to the plaintiffs who did not authorise anyone to use their money in this way.
95 After the JCAT account went into debit on 21 April 2008, it was quickly restored into credit by a series of transactions which took place on 23 April 2008. One of those transactions was a credit of $391,054 into the account of JCAT on that date. In evidence, Ms Passon agreed that that was receipt of monies borrowed in her name against the security of the Townsville property from Perpetual Trustees Limited. She agreed that the money borrowed ostensibly by her had been paid into the JCAT account. Exhibit “B” reveals that soon after receipt of the sum of $391,054.00 from Perpetual there was a debit in the form of a cheque for $390,000.
96 Despite this evidence, Ms Passon was unable to say what she did with the amount of $391,054 borrowed ostensibly by her from Perpetual. She said: “I can’t say.” “I believe some was used to buy shares.” She also said: “I would have used some of those funds but I can’t say where they went.” The loan documentation between Ms Passon and Perpetual was not discovered by her and was not produced. I do not accept Ms Passon’s evidence on this matter, or indeed on any matter in which she has given evidence unless it is independently corroborated. There is no evidence of any independent corroboration of her evidence. I do not accept her evidence that she cannot explain what the sum of $391,054 borrowed from Perpetual was used for.
97 Ms Passon told me that she signed documents authorising Perpetual to pay the sum of $391,000 into the JCAT account. She said that she had never been to the Townsville property which was occupied by her father-in-law. She said that she was in the midst of appointing an agent to sell the property and that she was in a hurry to sell it.
98 Exhibit “B”, as I have indicated, consists of the copy of some of the bank statements for the JCAT account. The Exhibit extends from 10 March 2008 to 9 June 2009, a period of about fifteen months. I have examined the entries in the whole of the exhibit closely. The amount paid in by the plaintiffs of $370,000 on 14 March 2008 and the amount credited to the account of $391,000, being the proceeds of the borrowing by the fourth-named defendant from Perpetual Trustees Limited on 23 April 2008, are by far the largest transactions recorded as credits in the Exhibit. No other entries in the exhibit compare as to amount with either of those two transactions. There are no other entries in the account which could be said to record the proceeds of sale of properties of the dimension referred to by the Ms Passon in her evidence. As I have said, Ms Passon did not produce the bank statements for JCAT for the period prior to 10 March 2008 and there is no documentary evidence whatsoever to support her evidence that she thought that the sum of $370,000 represented the proceeds of a sale of a property by Eighty First Vilmar Pty Ltd.
99 In evidence, Ms Passon said that she allowed the first-named defendant, her husband, to use the JCAT account “as if it was his own”. She said that she “let him withdraw and deposit into the account which is why he was a signatory”. I accept that part of her evidence. She said that if money ever came into the account she would ask and her husband would always provide a reasonable explanation. I do not accept that part of her evidence.
100 On a number of occasions in the hearing of evidence in this matter the fourth- named defendant was asked to produce a Deed of Trust relating to the Passon Family Trust. This arises from the fact that the bank statement for JCAT, Exhibit “B”, shows the account details as “JCAT (Aust) Pty Ltd astf The Passon Family Trust”. I read the document on the basis that the account was opened by JCAT as trustee for the Passon Family Trust. No evidence was led by the fourth-named defendant of the existence of the trust or its terms. The Court was left wondering whether the trust was a discretionary trust or a unit trust. Ms Passon said at first that she would produce the Trust Deed and later she told me that it was unavailable. There was no evidence of who the beneficiaries of the trust might be. Also there was no evidence as to who controlled the so called trust.
101 I find that Ms Passon has used the monies advanced by the plaintiffs into the JCAT account for her own purposes or for the purposes of her husband. She allowed her husband to use the account as she said “as if it was his own”. She did likewise. The account seems to have been used to pay all manner of expenses for Ms Passon and the first-named defendant and their family. In evidence, Ms Passon confirmed that some of those payments included payment of rent on the home occupied in Bruce Street, Toorak, the children’s private school fees, hire purchase payments or rent on family motor vehicles.
102 I accept the argument advanced by Mr Klempfner, on behalf of the plaintiffs, that it would appear that at all relevant times the first-named defendant, Ms Passon’s husband, acted as the agent for JCAT. This is consistent with the evidence of Ms Passon.
103 In her evidence, Ms Passon told me that she did not discuss with her husband the nature of the evidence she would give in the proceeding. I do not accept that evidence. I have reached the firm view, having seen Ms Passon give evidence in the witness box, that she has tailored her evidence to suit her case. Her evidence was clearly designed to show that she had no knowledge of the source of the $370,000 and little knowledge about the way it was expended. On the contrary however, the money went into the account of a company wholly-owned and controlled by her. She allowed her husband to use the monies in it as he saw fit and she seemed to freely spend the monies as she desired. She agreed that the evidence showed that JCAT a company associated with her had been improved to the extent of $370,000. She said: “I didn’t give this a second thought.” I do not accept that evidence, nor do I accept her evidence that she believed that the Townsville property was a distribution in specie. There is simply no evidence to support that evidence.
Submissions and Findings
104 Ms Passon did not make any submissions to me.
105 In his submissions, Mr Klempfner, on behalf of the plaintiffs, said the plaintiffs’ primary position was that the third and fourth-named defendants were liable to pay the plaintiffs $370,000 on the basis of money had and received.
106 He submitted that for all intents and purposes JCAT was the alter ego of Ms Passon, the fourth-named defendant. I accept that submission. Exhibit “D” shows she is the sole director and shareholder beneficially entitled to the shares in JCAT.
107 I also accept Mr Klempfner’s further submission was that the way the JCAT account operated demonstrates that JCAT it was no more than a foil for the plaintiff. The fact that the first-named defendant, Ms Passon’s husband, was able to use the JCAT account as his own further supports the plaintiffs’ submission.
108 I accept Mr. Klempfner’s submission that money paid by the plaintiffs to the JCAT account was as good as being money paid to Ms Passon directly, and as such she has been unjustly enriched to the extent of $370,000.
109 I accept the evidence of Ms Shaw-Stuart that the first-named defendant acted at all times as the plaintiffs’ accountant and gave them financial advice.
110 I accept the evidence that Ms. Shaw-Stuart gave as to the representations made to her by the first-named defendant about the loan of $370,000. I accept the evidence of Ms Shaw-Stuart and I accept that the representations made by the first-named defendant to her as to the $370,000 loan in March 2008 were knowingly false to the first-named defendant. The first-named defendant knew that the sum of $370,000 would never at any stage be secured by a registered first mortgage. The first-named defendant knew that the property which was allegedly the property providing the security was in fact owned by his wife. The first-named defendant directed that the funds be paid into the JCAT account. The first-named defendant knew that the funds would be used either by him or his wife as either of them saw fit.
111 All of these facts placed the first-named and second-named defendants in a position of conflict with the plaintiffs as their clients, yet the first-named defendant did not advise them of the existence of that conflict, nor did he take any steps to protect the position of the plaintiffs. I find that the first-named defendant breached his fiduciary duties to the plaintiffs. He preyed upon the plaintiffs, who were his clients. He knew from past dealings that the plaintiff’s relied upon his financial advice and followed it. He also knew that the plaintiffs trusted him so much they were not legally represented.
112 The first-named defendant put pressure on the plaintiffs to pay him the money and he was able to do so because of his knowledge of their financial affairs, which knowledge he abused to his advantage and the advantage of his wife. His relationship with his clients went further than being a mere accountant- client relationship. This was not a matter where he was in a relationship preparing their taxation returns only. He was their financial advisor and confidante. The relationship was one where he was obliged to act as a fiduciary.[2]
[2] Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165 at paragraph 74
113 I accept the submissions of Mr Klempfner that the fourth-named defendant, Ms Passon, had knowledge of the misuse of the plaintiffs’ money by the first- named and second-named defendants. Her knowledge of the dealings between the plaintiffs and the first-named and/or second-named and/or third- named defendants as to the loan of $370,000 in March 2008 was actual or constructive.
114 Given the way that the JCAT account operated and given the relationship between the plaintiffs and the first-named defendant, and given the way the amount of money was used for personal use by the first-named defendant and the fourth-named defendant, I find that the first-named defendant was working as an agent for JCAT at all times in receiving the plaintiffs’ money.
115 The first-named defendant being JCAT’s agent his knowledge as to the transaction is JCAT’s knowledge.[3] Ms Passon being the sole director and shareholder of JCAT she was the one who was for legal purposes the mind of JCAT. She was its alter ego. She cannot as such turn a blind eye to the dealings of the JCAT account.[4] I find she had either direct or constructive knowledge that the plaintiffs were the source of the deposit of $370,000 into the JCAT account on 14 March 2008. I find she had either direct or constructive knowledge that the sum of $370,000 was borrowed by the first- named and/or second-named and/or third-named defendants from the plaintiffs without security having been given.
[3] NIML Ltd v MAN Financial Australia Ltd (2006) 15 VR 156 per Nettle JA at [38] – [40]
[4] Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 at 143 per Tadgell JA.
116 I accept the submissions of Mr. Klempfner that the evidence shows that Ms Passon was intimately involved in the workings of the JCAT account and allowed her husband to use it to both his and her advantage. She was closely involved in the breach of fiduciary duties by the first-named and second- named defendants and is liable as an accessory for damages that flow to the plaintiffs from any breach of those duties. Because of the breach of fiduciary duties by the first-named and second-named defendants the third-named and fourth-named defendants have been unjustly enriched.[5]
[5] See: Meagher, Gummow and Lehane’s ‘Equity: Doctrines and Remedies’ (4th ed.) at paragraph 5-005 et seq. See also Intertransport International Private Ltd v Donaldson [2005] VSCA 303 per Chernov JA at paragraph 27. Also Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221. Further, see ‘Restitution Law in Australia’, Mason and Carter (2nd ed.) at [141].
117 In my judgment, the plaintiffs must succeed in each aspect of their claim, namely under the Barnes v Addy[6] principle and as a cause of action against the third and fourth-named defendants for monies had and received. As I have already said the fourth-named defendant was intimately involved in the affairs of JCAT as was the first-named defendant. The fourth-named defendant cannot be wilfully blinded to the facts of what was happening with the bank account of JCAT. She allowed the account to be used for her benefit. She herself is liable in the circumstances.[7]
[6] (supra). See also Spangaro v Corporate Investment Australia Funds Management Ltd [2003] FCA 1025 per Finkelstein J at [50]
[7] Consul Development Pty Ltd v DPC Estates Pty Ltd (1975)132 CLR 373.
Orders 118
There will be judgment for the plaintiffs on the claim against each of the third- named and fourth-named defendants.
119 The defences of the third-named and fourth-named defendants are dismissed. 120 I will hear the parties as to orders for interest and costs.
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