Silversea Cruises Australia Pty Ltd v Abellanoza

[2019] NSWCA 306

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Silversea Cruises Australia Pty Ltd v Abellanoza [2019] NSWCA 306

Hearing dates:

1 July 2019

Date of orders:

20 December 2019

Decision date:

20 December 2019

Before:

Bathurst CJ at [1]; Basten JA at [62]; Gleeson JA at [106]

Decision:

(1)   Appeal allowed in part.

 

(2)   The orders made by the primary judge on 13 December 2018 are amended by the addition of the Order 1A.

 

1A   Order that the Second Defendant is liable to account to the Plaintiff for the sum of $20,000 withdrawn by him from Commonwealth Bank Account No. 06 2293 10316831 on 26 April 2018, together with interest on the said sum at the rate of 5.5% from 26 April 2018 up to the date of this judgment and thereafter at the rate of 7.5% until payment.

 (3)   If not resolved by agreement, direct the parties to make submissions as to the appropriate costs orders within 7 days.

Catchwords:

EQUITY – fraud - respondent’s wife defrauded employer of over $3.5 million and deposited into bank accounts in her name and accounts held jointly by herself and respondent - respondent’s wife paid money realised from gambling into respondent’s bank accounts - appellant sought various orders in aid of the recovery of the amount defrauded – primary judge dismissed all claims except one against respondent – whether primary judge erred in finding that respondent did not knowingly deal with monies obtained by dishonest means and is not personally liable to appellant – whether primary judge erred in failing to find that the respondent knowingly dealt with monies obtained by dishonest means when withdrew $20,000 after receiving summons and is personally liable to appellant for this amount – whether primary judge erred in failing to find that respondent personally liable to account to the appellant as a constructive trustee.

Legislation Cited:

Evidence Act 1995 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Agip (Africa) Ltd v Jackson [1990] Ch 265
Banque Belge pour L’Etranger v Hambrouck [1921] 1 KB 321
Banque Commerciale SA En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11
Barnes v Addy (1874) LR 9 Ch App 244
Barros Mattos Jnr v MacDaniels Ltd [2004] 3 All ER 299; [2004] EWHC 1188
Black v S Freedman and Co (1910) 12 CLR 105; [1910] HCA 58
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22
Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81
Foskett v McKeown [2001] 1 AC 102
Fox v Percy (2003) 214 CLR 118; [2003] HCA 22
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6
Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252
In re Diplock [1948] Ch 465
Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548
Metwally v University of Wollongong (1985) 60 ALR 68
Robb Evans v European Bank Ltd (2004) 61 NSWLR 75; [2004] NSWCA 82
Russell Gould Pty Ltd v Ramangkura (2014) 87 NSWLR 552; [2014] NSWCA 310
Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462
Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669

Texts Cited:

K Mason, J W Carter, G J Tolhurst, Mason and Carter’s Restitution Law in Australia (3rd ed, 2016, LexisNexis Butterworths)
R P Meagher, J D Heydon, M J Leeming, Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (4th ed, 2002, LexisNexis Butterworths)

Category:

Principal judgment

Parties:

Silversea Cruises Australia Pty Ltd (appellant)
Perven Salas Abellanoza (respondent)

Representation:

Counsel:
D Mahendra (appellant)
D Robertson (respondent)

  Solicitors:
HWL Ebsworth Lawyers (appellant)
Robertson Saxton Osborne (respondent)

File Number(s):

2018/393798

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity

Citation:

[2018] NSWSC 1565

Date of Decision:

19 October 2018

Before:

Sackar J

File Number(s):

2018/129773

HEADNOTE

[This headnote is not to be read as part of the judgment]

Silversea Cruises Australia Pty Ltd (the appellant) has appealed against the decision of the primary judge to dismiss all claims against Mr Perven Salas Abellanoza (the respondent) for various orders in aid of the recovery of moneys defrauded by the respondent’s wife, except for one claim of $1,829.08 which the respondent conceded that he had knowledge of.

The respondent’s wife, Ms Mary Ann Abellanoza, was an employee of the appellant. Ms Abellanoza fraudulently transferred over $3.5 million from the appellant’s bank accounts between 2014 and 2017 to various other bank accounts in her own name or into accounts jointly held by her and the respondent. Most of the defrauded moneys appear to have been dissipated by Ms Abellanoza through gambling. Payments of $299,588.90 were identified as having been made into a joint account held by the respondent and Ms Abellanoza with St George Bank Limited (St George Bank) and $511,967.63 into a joint account also held by them with the Australia and New Zealand Banking Group Limited (ANZ). The balance of the defrauded moneys was paid into bank accounts not held by the respondent, including accounts with the National Australia Bank (NAB).

The appellant brought proceedings against Ms Abellanoza as the first defendant and the respondent as the second defendant seeking to freeze the funds in the accounts referred to above and for various orders in aid of the recovery of the amount defrauded. The Statement of Claim described the type of claim as “[m]oney had and received, breach of contract (employment related), breach of fiduciary duty”. The only claim initially made against the respondent was that creditor payments made to the defendants were payments made by the appellant under a mistake of fact or law and is money had and received which the defendants are liable to pay to the appellant. It was not disputed that Ms Abellanoza gambled with moneys withdrawn from the accounts into which the defrauded moneys were paid into. The ‘gambling winnings’ were subsequently paid into two bank accounts with the Commonwealth Bank of Australia (CBA) held by the respondent. The Statement of Claim was amended to make claims against the respondent in respect of moneys paid in and withdrawn from these accounts.

The primary claim by the appellant related to cheques totalling $154,030.71 in respect of gambling payouts which Ms Abellanoza provided to the respondent to deposit into one of his two CBA bank accounts. The essential allegation by the appellant was that the respondent ought to have known that the moneys that his wife had provided to him to deposit into his two CBA accounts had been obtained by dishonest means.

The alternative claim by the appellant related to $20,000 withdrawn by the respondent from his second CBA account and given to Ms Abellanoza after she provided him with a copy of the summons seeking asset freezing orders against her. The essential allegation in respect of the alternative allegation was that the respondent knowingly dealt with the moneys obtained by dishonest means by withdrawing $20,000 from his second CBA account and giving this amount to Ms Abellanoza.

There were three main issues on appeal. First, whether the claim of knowing receipt was pleaded or conducted at trial. Second, whether the appellant’s claim for knowing receipt was entitled to succeed. Third, whether the appellant’s claim for money had and received was entitled to succeed.

Pleadings of knowing receipt at trial

1. Leaving aside the payment of $20,000 on 26 April 2018, the case was neither pleaded nor conducted as a first limb Barnes v Addy knowing receipt type claim. The appellant should not be permitted on appeal to advance a new claim that was not pleaded or pursued at trial. It would be unjust to the respondent to determine the case on this basis: [45]-[49], [58] (Bathurst CJ); [111]-[114], [119] (Gleeson JA).

Barnes v Addy (1874) LR 9 Ch App 244; Commerciale SA En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11 referred to.

2. The equitable claim for knowing receipt was pleaded at trial. Sufficient allegations were included to provide an adequate pleading of an equitable claim for knowing receipt of moneys which, being fraudulently obtained, were impressed with a constructive trust. There is no basis for rejecting the appellant’s claims on appeal on the ground of inadequate pleading at trial: [77]-[88] (Basten JA dissenting).

Barnes v Addy (1874) LR 9 Ch App 244; Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 referred to.

Claim for knowing receipt

3. With respect to the payment of $20,000, the respondent’s failure to make inquiry of the source of the funds prior to paying the amount to Ms Abellanoza makes him liable to account to the appellant for that amount. Receipt of the summons was sufficient to give the respondent notice of the fact that the poker machine winnings in the July CBA account may have resulted from gambling with funds obtained by fraud on the appellant. An honest and reasonable person in the circumstances would have made inquiry of the source of the funds: [59] (Bathurst CJ); [118] (Gleeson JA).

4. The trial judge erred by failing to address the question of whether the respondent had knowledge of circumstances which would tell a reasonable and honest person that Ms Abellanoza had an unexplained source of income. The appellant is entitled to succeed on its equitable claim for knowing receipt of fraudulently obtained payments against the respondent. The inference that an honest and reasonable person in the respondent’s circumstances would have formed a view as to Ms Abellanoza’s source for the moneys with which she was gambling is inescapable: [92]-[103] (Basten JA dissenting).

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 referred to.

Claim for money had and received

5. The claim for money had and received failed because the funds once withdrawn from the ANZ and St George Bank accounts and gambled in the poker machines lost their character as funds to which the appellant had legal title: [51]-[52] (Bathurst CJ); [115]-[116], [119] (Gleeson JA).

Russell Gould Pty Ltd v Ramangkura (2014) 87 NSWLR 552; [2014] NSWCA 310 referred to.

6. The appellant is entitled to succeed on its claim for money had and received. The respondent was a volunteer and did not give valuable consideration for the money which he recovered from Ms Abellanoza’s gambling and paid into his own account [67]-[73], [103] (Basten JA dissenting).

Black v S Freedman and Co (1910) 12 CLR 105; [1910] HCA 58; Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; In re Diplock [1948] Ch 465; Westdeutsche Landesbank Girocentrale v Islington London Borough Council [1996] AC 669; Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81 referred to.

Judgment

1. BATHURST CJ: In Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81 (Fistar v Riverwood), Leeming JA with whom the other members of the Court agreed, pointed out that “there are many overlapping claims against recipients of stolen property”. This case provides an example of why it is necessary to plead with precision which of the overlapping claims are relied upon.

Factual background

2. There does not seem to be a significant dispute concerning the background facts. The respondent’s wife, Ms Mary Ann Abellanoza (Ms Abellanoza) was for some years an employee of the appellant. She was responsible for the oversight of the appellant’s accounts department. Between 2014 and 2017, she defrauded the appellant of over $3.5 million by generating false creditor statements and false invoices and transferring company funds applied in the purported payment of those invoices into bank accounts in her name or in the joint names of her and the respondent. At the trial, payments of $299,588.90 were identified as having been made into a joint account held by the respondent and Ms Abellanoza with St George Bank Limited (St George Bank) and $511,967.63 into a joint account also held by them with the Australia and New Zealand Banking Group Limited (ANZ). The balance of the defrauded money was paid into bank accounts in the name of Ms Abellanoza or accounts in her name and that of her mother, including accounts with the National Australia Bank (NAB). Ms Abellanoza was an authorised signatory on all accounts.

3. The appellant brought proceedings seeking to freeze the funds in the accounts referred to at [2] above and for various orders in aid of the recovery of the amount defrauded. The proceedings below were brought against Ms Abellanoza as the first defendant and Mr Abellanoza (the respondent in these proceedings) as the second defendant. Paragraph 1 of the Statement of Claim described the type of claim as “[m]oney had and received, breach of contract (employment related), breach of fiduciary duty”. The relief claimed included a claim for a declaration that all monies transferred from the appellant into the NAB, ANZ and St George Bank accounts were held on trust for the benefit of the appellant. It also sought orders that included that the respondent and Ms Abellanoza hold money on constructive trust for the appellant, an inquiry be held as to the amount of damage suffered by the appellant and equitable compensation or an account of profits for Ms Abellanoza’s breach of fiduciary duty.

4. However, the only claim initially made against the respondent in the proceedings was in the following terms:

“27.   The Creditor Payments made to the Defendants in the premises of paragraphs 17 to 26 above were payments made by the Plaintiff under a mistake of fact or law and is money had and received which the Defendants are liable to pay to the Plaintiff.”

5. As appears below, it emerged during the course of the trial of the proceedings that money realised from gambling on poker machines by Ms Abellanoza was paid into two bank accounts held by the respondent with the Commonwealth Bank of Australia (CBA), one of which was opened on 24 July 2017 (the July CBA account) for the purpose of paying poker machine winnings into it, and the other which had been open at an earlier time (the first CBA account). The Statement of Claim was amended to make claims against the respondent in respect of monies paid in and withdrawn from these accounts.

6. The primary judge dismissed all claims against the respondent, including those made in respect of the CBA accounts, except for one receipt of some $1,829.08 that the respondent conceded that he had knowledge of. This appeal is brought from the primary judge’s dismissal of the claims relating to these accounts.

The course of the trial

7. According to the appellant’s chronology, the evidence which first disclosed the existence of the CBA accounts and the fact that funds which were paid into those accounts were poker machine winnings, came from the evidence of the respondent in cross-examination. In particular, the following evidence was referred to:

“Q.   You indicated earlier that you had received some gambling wins?

A.   Yes, sir.

Q.   Can you just tell me what the process is? If you want to collect those winnings, what would you do?

A.   If it is a large amount, sir, put it in my bank account which is in Commonwealth, I just opened that this year.

Q.   Sorry, you may have misunderstood me?

A.   Sorry, sir.

Q.   In order to get that money from the club, what is the process to obtain it? Do you get it by cheque or by cash? What happens?

A.   Okay, sir. If it’s below $5,000 you can cash it out straight on any like machine there, like a money machine there, like an ATM. Just put your card, give your card. But if it is more than $5,000 you need to get it by cheque.

Q.   Right. How do you know this?

A.   Because I always, not always, if she got a big wins [sic], she give it to me and I’m the one changing it to get the cash.

Q.   Sorry, what do you mean by that, you’re the one changing it to get the cash?

A.   Like if she got a winnings, let’s say $10,000, or $12,000 win, the operator will come around and write your name and then she give it to me with a cheque, I have to go for the winnings and transfer it to get into a cheque.

HIS HONOUR

Q.   But do I understand you to say that sometimes she gave you a cheque and sometimes she gave you large amounts of cash?

A.   Yes, sir. I am sorry, your Honour, yes, your Honour.

MAHENDRA

A.   Then what would you do with that money?

A.   Put in the bank if it is a large amount, but if only like $2,000 I give it to her. She is the one handling it.

Q.   Because she controlled the money?

A.   Yes, sir.

Q.   But if it was a large amount then it went into your account, is that right?

A.   Yes, save it, yeah.

Q.   What happened to those savings?

A.   I answered, she took it, sorry.

Q.   How often would you receive these payouts?

A.   A few times. I can’t really remember, sir, but a few times.

Q.   Once a month, twice a month, once a month?

A.   No, not once a month, maybe once every two months.

Q.   Once every two months?

A.   Yes.

Q.   Because it would be unusual if you won it twice a month, correct?

A.   Yes, sir.

…

Q.   When you withdraw money from your Commonwealth Bank account how do you do that?

A.   Manually, sir. I have to go there because I don’t have a card.

…

Q.   How often do you take money out of that account?

A.   Can you be more specific, sir? I’ve got two savings, one is for my winning, gambling money, savings and one for my wages.

Q.   Are they both the same Commonwealth Bank account or are they different?

A.   My wages is – she’s handling my card. She’s holding my card for my savings and the gambling winnings I was the one controlling that, I had to go manually.

Q.   So how often would you withdraw money from your gambling money account?

A.   If she needs money, if she asks money I just go there and get the money for her.

Q.   So you would only go there if she asked you to?

A.   Yes, sir.

Q.   Did you go there on 26 April?

A.   Yes, sir.

Q.   Did she ask you to take out $20,000?

A.   Yes, sir.

Q.   And you did that?

A.   Yes, sir.

Q.   Did you ask her why?

A.   To pay for the lawyer, her lawyer.

Q.   That’s what she told you?

A.   Yes, sir, because her other account she said has been frozen and then her lawyer is asking for money otherwise they won’t process.

Q.   So she told you her account had been frozen, there was no way she could pay for her lawyer so she needed $20,000 from your account?

A.   Yes, sir.

Q.   Is that right?

A.   She took the money, yeah.

Q.   Did you look at the orders that the Court had made?

A.   I’m sorry, sir?

Q.   Did you look at the orders that the Court had made?

A.   No, sir, because at that time I’m spiralling like – no, I don’t.

…

Q.   Before the adjournment, we were talking about what you would do with your gambling winnings, whether they were from Mrs Abellanoza or yourself, and you indicated that what you would do is go to your Commonwealth Bank account and deposit them by cash or by cheque; is that right?

A.   The cheque.

Q.   It was always a cheque?

A.   (No verbal reply)

Q.   What did you do with the cash?

A.   I gave it to her.

Q.   So these cheque deposits, these are the cheques that were provided to you from the gambling venues?

A.   I’m sorry?

Q.   The cheques that you were depositing, were cheques that were provided to you from the gambling venues; is that right?

A.   Yes, sir.

…

Q   Now, can you see on 24 July 2017 there’s a cheque deposit of $15,401.89?

A.   Yes, sir.

Q.   So when you go to the bank, do you go to the teller?

A.   Yes, sir.

Q.   And you hand over the cheque, and you fill out a deposit slip; correct?

A.    Yes, sir.

Q.   And they deposit the cheque, and they give you back a little deposit slip indicating what’s left in the account; correct?

A.   The balance you’re talking about?

Q.   The balance; correct?

A.   Sometimes – I don’t know. Yeah.

Q.   And then on 31 July you went in?

A.   31 July.

Q.   You made a withdrawal at the same time as depositing a cheque. Do you see that?

A.   At the same? What deposits are continuing last year? The $4,000 are you talking about, sir?

Q.   Correct. You withdrew $4,000?

A.   Yes, sir.

Q.   But at the same time you were deposit[ing] $4,162.75. Why did you do that?

A.   That’s another cheque maybe, sir. From the gambling.

Q.   Do you recall why you withdrew the $4,000?

A.   No, sir.

Q.   Is that because Mrs Abellanoza told you to?

A.   Yes, sir. Mostly she took the money.

Q.   If you go down to 25 August, there’s another $2,200 deposit; correct?

A.   Which one? 5 September?

Q.   25 August?

A.   25 August. Yes, sir.

Q.   And at the same time you withdrew $2,200. You can see that in the entry below.

A.   Yes, sir.

Q.   Do you recall why you did that?

A.   No, sir.

Q.   You were simply doing what you were told?

A.   Yes, sir.

Q.   And then you’ll see a series of deposits in September on 5, 8 and 11 September?

A.   Yes, sir. Yep.

Q.   Did you think that was unusual to be depositing those sums of money into your bank account?

A.   No, sir. Because I thought they were from winnings. Cheques.

Q.   Can I take you down to 8 December?

A.   8 of September?

Q.   December. The last entry on that page.

A.   Yes, sir.

Q.   $42,370.19. A withdrawal. What was that for?

A.   I’m sorry, sir, again?

Q.   $42,370.19. What was that for?

A.   8 December. I don’t know. He just – she just told me to withdraw it.

Q.   She just told you to withdraw $42,000 from your account and you just did what you were told?

A.   Yes, sir.

Q.   You didn’t ask any questions about the unusual amount?

A.   No, sir. No.

8. The reference to the CBA account into which gambling monies were paid is a reference to the July CBA account. That account was opened on 24 July 2017 and in the period between that date and 16 April 2018, there were total credits of $142,157.14. It should be noted that if the deposit of $15,401.89 made on 24 July 2017 is deducted, the total credit amounts to $127,115.25.

9. Evidence was also tendered of gambling records of various clubs. These records which comprise some 429 pages of material were tendered without any analysis and any explanation. When the primary judge asked what use he should make of the records he received, counsel for the appellant made the following response:

“MAHENDRA: All the records do is demonstrate that there was a significant amount of gambling activity being conducted by each of the defendants, and certainly significant amounts of money being withdrawn, or paid out, I should say. In terms of the timing of that, really we’re depending on the bank statements which show where money is coming out and also the evidence given by the second defendant.”

10. The records from the Lidcombe Catholic Club are perhaps the most informative. They contain monthly records of gambling and do show significant gambling by the respondent and his wife. For example, in July 2017, Ms Abellanoza played the poker machines for 4 hours and 11 minutes investing $35,350.30 and incurred a net loss of $6,014.85. Similarly in August 2017, she invested $56,475.50 for total winnings of $52,442.44 and a net loss of $4,033.06. A similar pattern can be seen from September 2017 to January 2018, the total amount invested being $198,331.32 with a net loss of $32,032.91. By contrast, in February 2018 the total amount invested was $68,399.50 with total wins of $81,867.12, resulting in a net gain of $13,467.62, whilst in April 2018, a net loss of $6,012 was incurred on a turnover of $19,335.

11. It should be noted that no attempt was made at the trial or on the appeal to link directly any of the money used for such gambling to money withdrawn from the accounts into which the proceeds of the fraud were originally paid, whilst the only evidence that the poker machine winnings were paid into the CBA accounts came from the respondent. Nonetheless it appears not to have been disputed by the parties that the money used for the gambling came from the accounts into which the proceeds of the fraud were paid and the money which went into at least the July CBA account was what remained from gambling with these funds, taking into account the losses incurred.

12. At the end of the second day of the trial, counsel for the appellant indicated that he wished to amend the Statement of Claim to include the monies which were paid into the CBA accounts.

13. The Statement of Claim was amended. Paragraph 1 remained the same. Paragraph 2 was amended to claim that monies held in the accounts referred to in Annexure B were held on trust. Annexure B referred to deposits from 19 July 2013 up to 16 April 2018 and included deposits, not only made into the July CBA account but also deposits to the first CBA account, totalling $11,513.57. No evidence was led to suggest that these funds were the proceeds of Ms Abellanoza’s gambling with the defrauded monies. In the passage of cross-examination to which I have referred at [7] above, the respondent indicated that the first CBA account was used to deposit his wages.

14. The principal amendments to the Statement of Claim are contained in paragraphs 28-38. It is convenient to set them out in full:

“28.   The Creditor Payments made to the Defendants in the premises of paragraphs 18 to 27 above were payments made by the Plaintiff under a mistake of fact or law and is money had and received which the Defendants are liable to pay to the Plaintiff.

29.   In the period between 2013 to February 2018:

(a)   The First Defendant withdrew monies (that had been transferred from the Plaintiff’s account) from one or more of the bank accounts referred to in paragraph 3 above for the purpose of depositing the monies in poker machines at the Rooty Hill RSL Club, Dooley’s Catholic Club Lidcombe, Canterbury Leagues Club, the Lakemba Club and/or Blacktown Workers’ Club;

(b)   On the dates set out in Annexure B to this Amended Statement of Claim, the First Defendant informed the Second Defendant that she had ‘won’ money on the poker machine that the plaintiff’s money had been deposited into and asked the Second Defendant to withdraw monies from the poker machine via the procedures in place at each gambling venue in cash (if less than $5,000) and / or by cheque (for any amount greater than $5,000).

(c)   In the period between 2013 to 23 July 2017, and on 17 January 2018, the cheques that the Second Defendant obtained via the process set out in paragraph (b) above were deposited into his CBA bank account with account number XXXX on the dates specified in Annexure B to this Amended Statement of Claim.

(d)   On or about 24 July 2017, the Second Defendant opened a second bank account with the CBA (which he had exclusive control of) with account number XXXX.

(e)   From on or about 24 July 2017 to 16 April 2018 (with the exception of 17 January 2018), the cheques that the Second Defendant obtained via the process set out in paragraph (b) above were deposited into the bank account referred to in (d) above on the dates specified in Annexure B to this Amended Statement of Claim.

(f)   From on or about 24 July 2017 to February 2018, the Second Defendant withdrew monies from each of the bank accounts referred to in (c) and (d) above and provided the same to the First Defendant.

30.   From on or about 24 July 2017, the Second Defendant had knowledge that the amounts deposited in to each of the bank accounts referred to in 29(c) and 29(d) above had been obtained by dishonest means. In this regard, the Second Defendant:

(a)   knew that the First Defendant worked as an accountant and was the only person in the accounts department of the Plaintiff’s Sydney office;

(b)   knew that the First Defendant had not obtained any significant increase to her salary during the period she was employed by the Plaintiff;

(c)   knew that it was unusual for any person to have 2 or more ‘wins’ per month on poker machines;

(d)   deliberately opened the CBA bank account with account number XXXX for the purpose of depositing the First Defendant’s gambling proceeds; and

(e)   did not make any inquiries of the First Defendant as to the circumstances in which she had ‘won’ the monies.

31.   In light of the matters set out in paragraph 30 above, the Second Defendant had knowledge that the amounts deposited in to each of the bank accounts referred to in 29(c) and 29(d) above had been obtained by dishonest means on the basis that he:

(a)   wilfully shut his eyes to the obvious;

(b)   wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make;

(c)   had knowledge of circumstances which would indicate the facts to an honest and reasonable person; or

(d)   had knowledge of circumstances which would put an honest and reasonable person on inquiry.

32.   In the premises, by receiving and withdrawing monies from each of the bank accounts referred to in 29(c) and 29(d) above after 24 July 2017 and providing the same to the First Defendant, the Second Defendant dealt with monies that he ought to have known had been obtained by dishonest means and is personally liable to the plaintiff for monies had and received.

33.   Further and / or in alternative to 32 above, by receiving and withdrawing monies from each of the bank accounts referred to in 29(c) and 29(d) above after 24 July 2017, the Second Defendant is personally liable to account to the plaintiff as a constructive trustee for those amounts.

34.   In the alternative:

(a)   Since 24 April 2018, the Second Defendant had knowledge that the amounts deposited in to each of the bank accounts referred to in 29(c) and 29(d) above had been obtained by dishonest means by reason of the First Defendant informing of the contents of the Summons filed on 24 April 2018.

(b)   On 26 April 2018, the Second Defendant withdrew $20,000 from the CBA account with account number XXXX and provided the same to the First Defendant at the First Defendant’s request.

(c)   In the premises:

(i)   the Second Defendant knowingly dealt with monies obtained by dishonest means and is personally liable to the plaintiff for monies had and received in the amount of $20,000; or, in the alternative,

(ii)   the Second Defendant is personally liable to account the plaintiff as a constructive trustee in the amount of $20,000.

35.   Further, since on or about 24 April 2018, the Second Defendant has had knowledge that the amounts deposited into the St George Bank account (held jointly with the First Defendant) with the account number XXXX were, in large part, obtained by dishonest means.

36.   The Second Defendant had knowledge that the payments made to maintain the mortgages with loan account number XXXX, XXXX, XXXX and/or XXXX with the St George Bank in respect of the property at [address omitted], were made from the St George Bank account (held jointly with the First Defendant) with the account number XXXX.

37.   But for the monies obtained by the First Defendant by dishonest means, the First and Second Defendant would not have been able to maintain the mortgage payments for the property at [address omitted].

38.   In the premises, the Second Defendant is personally liable to account to the plaintiff as constructive trustee for any benefit he has retained in the property at [address omitted] including:

(a)   any increase to the value of the property since at least July 2014; and / or

(b)   any payments made that reduced the principal amounts owing on the loans referred to in paragraph 36 above.”

15. In a written outline of submissions dated 24 September 2018 counsel for the appellant put the appellant’s case in relation to the CBA accounts in the following terms:

“4.5   Accordingly, by receiving and withdrawing monies from each of the CBA accounts after 24 July 2017 and providing the same to the first defendant, the second defendant dealt with monies obtained by dishonest means and is personally liable to the plaintiff for monies had and received or as a constructive trustee.

4.6   Alternatively, since 24 April 2018, the second defendant had knowledge that the amounts deposited in to each of the CBA accounts had been obtained by dishonest means by reason of the first defendant informing of the contents of the Summons filed on 24 April 2018.”

16. In closing written submissions filed on behalf of the respondent, the following submissions were made:

“2.   Furthermore, it is noted that the only claims pleaded against the second defendant are common law claims for money had and received: see ASOC [28]-[38]. The plaintiff does not plead any equitable ‘knowing receipt’ or ‘knowing assistance’ claims against the second defendant.

…

4.   In seeking leave to file the ASOC to raise the claims in respect of the CBA Accounts, the plaintiff’s counsel made an important concession on the plaintiff’s behalf. He said that the plaintiff accepts that all of the cheques deposited into the CBA 1 Account [first CBA account] and the CBA 2 Account [July CBA account] were cheques drawn on the clubs’ bank accounts as payouts for gambling winnings, not from any other source.

5.   Given this concession, the plaintiff’s claims in respect of the monies deposited into the CBA Accounts are hopeless and must be dismissed, for the reason that the second defendant has not received any of the plaintiff’s money. Rather, the monies deposited into CBA Accounts are the relevant clubs’ monies, drawn from the clubs’ accounts when the cheques issued/written by the clubs were deposited into the CBA Accounts.

6.   This is made clear by the plaintiff’s pleading at ASOC [29], which pleads that:

(a)   The first defendant withdrew Stolen Funds (presumably in the form of cash) from one of her bank accounts (ASOC [29(a)]);

(b)   The first defendant ‘deposited’ that cash into poker machines at one or other of the various clubs that she attended (ASOC [29(a)]);

(c)   After depositing the cash into the poker machines (and presumably playing the poker machines), the first defendant or the second defendant received winnings from the poker machines, such winning[s] paid out by the club in cash (if less than $5,000) or by cheque (if greater than $5,000) (ASOC [29(b)]);

(d)   The first defendant or the second defendant deposited the cash and cheques obtained from the clubs into one or other of the CBA Accounts (ASOC [29(c)]-[29(e)]).

7.   Therefore, according to the plaintiff’s pleaded case, the monies deposited into the CBA Accounts (whether cash or cheques) were not Stolen Funds, but rather monies that had been paid to the first defendant or the second defendant by one of the clubs as poker machine winnings.

8.   As soon as the Stolen Funds were deposited/paid into a poker machine, those monies became mingled with the club’s monies in a mixed fund, and therefore the plaintiff cannot trace those funds into any monies paid out by the clubs to the first defendant or the second defendant in cash or cheques: see eg Russell Gould Pty Ltd v Ramangkura [2014] NSWCA 310; (2014) 87 NSWLR 552 at [28]-[32] per Barrett JA (with whom Bathurst CJ and Ward JA agreed).

9.   For that reason, the plaintiff’s claims pleaded at ASOC [29]-[34] must be dismissed. No Stolen Funds were deposited into the CBA Accounts and nor can the plaintiff cannot trace any Stolen Funds into the CBA Accounts. Therefore, the second defendant is not liable to account to the plaintiff for any monies that were deposited into the CBA Accounts.”

17. Although the respondent’s closing written submissions dealt with the other claims made against him on the basis that they were proprietary claims, this was the sole submission made in respect of the claim against the CBA accounts.

18. Oral submissions were made on the following day. In the course of those submissions, the following interchange took place between the primary judge and counsel for the appellant:

“HIS HONOUR: Okay. Just so that I’m on the same page, partly what’s put against you – I’m not going to distract you, I just wanted to ask from the pleading point of view, because I’m not on top of your pleading. In para 2, Mr Robertson says you don’t plead, knowing receipt or knowing assistance against the second defendant.

MAHENDRA: We do, in terms of knowing receipt, in the sense that we say he ought to have known that he was receiving moneys that had been obtained dishonestly. As opposed to actual knowledge.

HIS HONOUR: Yes, but para 2 says, ‘The plaintiff does not plead knowing receipt or knowing assistance.’ Now, certainly 32 pleads ‘ought to have known, by dishonest means’, but strictly, that’s an ought to have known allegation, which is really a knowledge allegation, in the sense that, on one or the other aspects of whether he’s turning a blind eye, or whatever it is, on the facts of the case. But what’s put against you is that you don’t explicitly allege in the Barnes v Addy sense, knowing receipt or knowing assistance.

MAHENDRA: Correct, yes.”

19. Counsel for the respondent in his written submissions maintained that there was no Barnes v Addy (1874) LR 9 Ch App 244 knowing assistance or knowing receipt type claim brought in respect of the CBA accounts. His oral submissions were in the following terms:

“Can I deal with the submissions about the CBA account, and this is where, in my submission, it is important to point out that, as I’ve emphasised in my written submissions, that the only claim brought against my client, and that was confirmed by Mr Mahendra this morning, is a claim for money he had [and] received. The claim at law. Now fundamental to that, is that- -

HIS HONOUR: He pleads a constructive trust.

ROBERTSON: But that can only be as a remedy, it is not a cause of action in its own right. And money had [and] received, it only is attracted or only claims the money in specie or the traceable proceeds thereof. Now as I have set out in the written submissions, the problem with the claim to the moneys in the CBA account is that the plaintiff accepts that all of that money was deposited from a club, either as a cheque or as a cash deposit. But the claim to money had [and] received is defeated as soon as the first defendant puts the stolen funds into the poker machine, because the stolen funds are then intermixed with the club’s funds and what comes out from the club, in either a cheque for winnings or cash for winnings, cannot be traced to those stolen funds. And I’ve provided the Court with a recent authority to that effect, which is a decision of Barrett JA in the case of Russell Gould Pty Ltd v Ramangkura.

HIS HONOUR: He refers to Lipkin Gorman v Karpnale, that was a solicitor, wasn’t it, who stole money and gambled it?

ROBERTSON: Yes. That case was slightly different because the claim for money had and received was against the casino.”

20. It should be noted that the amendment to the Statement of Claim was allowed on the basis of a concession made by the appellant that all the cheques deposited into the CBA account were drawn on the clubs’ bank accounts not from any other source (see primary judgment at [58]). Further, the primary judge correctly pointed out at [134] that although the Amended Statement of Claim “referred vaguely to ‘constructive trust’ there was no clear assertion in the pleadings of ‘knowing assistance’ or ‘knowing receipt’ to satisfy [him] that any type of Barnes v Addy constructive trust ha[d] been pleaded”.

The primary judgment

21. The primary judge noted that the relief sought against the respondent included a proprietary remedy (constructive trust) and a personal remedy (money had and received).

22. His Honour, after referring to the uncontroversial facts surrounding the fraud and the relatively extensive international and domestic travel undertaken by the respondent, Ms Abellanoza and their family at [18], referred to the fact that on 17 September 2018, he gave leave to file an Amended Statement of Claim which included the account details of the respondent and alleged the respondent knew or ought to have known of the dishonest payments by Ms Abellanoza.

23. The primary judge set out the relevant legal principles including those relating to the rule in Barnes v Addy at [25]-[26], money had and received at [28]-[32] and tracing of money had and received at [33]-[34].

21. The primary judge noted at [38] that the appellant submitted that the respondent was liable for the amount of $811,565.53 as money had and received by him on the basis that at all relevant times he had the requisite knowledge that the money paid into the St George Bank account and the ANZ Bank account had been obtained by fraud.

22. The primary judge noted at [43] that the appellant contended that the respondent was not a credible witness, contending that it was clear that the respondent knew or ought to have known that the monies that Ms Abellanoza gave him to deposit into the two CBA accounts were obtained by dishonest means.

23. The primary judge noted that that in those circumstances, the appellant submitted that by receiving and withdrawing money from each of the CBA accounts, the respondent dealt with money obtained by dishonest means and was personally liable for those monies or alternatively, he was liable for the withdrawal of $20,000 made on 26 April 2018 at which time the respondent had notice of the proceedings brought against Ms Abellanoza.

24. The primary judge also noted that the appellant contended that payments made to maintain mortgages held by the family were made out of the misappropriated funds and contended that the respondent was personally liable to account as a constructive trustee for the benefit received. He noted at [50] the contention by the appellant that “there is a sufficient connection between the First Defendant’s breach of fiduciary duty and the Second Defendant’s knowing assistance giving rise to a Barnes v Addy constructive trust” (citation omitted). The first defendant is of course Ms Abellanoza and the second defendant is the respondent.

25. The primary judge noted at [53] the submission of the respondent that the only cause of action against him was a claim for money had and received. He also noted at [58] that in relation to the monies deposited into July CBA account, all the cheques were drawn from the poker clubs’ bank accounts and were intermingled with the clubs’ monies and could not be traced into any of the amounts paid out by the clubs to the respondent or Ms Abellanoza.

26. The primary judge then extensively reviewed the evidence and reached the following conclusions:

“[133]   As I have said, notwithstanding my serious concerns with the Second Defendant’s evidence, the key question is whether he knew or ought to have known of the monies being deposited into those accounts held solely or jointly by him.

[134]   Although in the pleadings the Plaintiff referred vaguely to ‘constructive trust’ there was no clear assertion in the pleadings of ‘knowing assistance’ or ‘knowing receipt’ to satisfy me that any type of Barnes v Addy constructive trust has been pleaded.

[135]   The key problem in this case from the perspective of the Plaintiff is the Second Defendant’s unswerving assertion that he did not have access to his wife’s bank account and in particular had no access to the ANZ Account and St George Account held jointly by the two Defendants. The Plaintiff has been unable to show that he had access to the ANZ Account and/or St George Account.

[136]   There was no evidence to suggest the Second Defendant did or could have had knowledge of his wife’s other accounts.

[137]   The Second Defendant denies he ever received in the mail or otherwise printouts of his wife’s gambling activity at the various clubs they frequented. The only money he was aware of was therefore the winnings that his wife made, and not knowledge of the Fraudulent Payments at the point they were directly deposited into the joint bank accounts or those accounts held in his wife’s and/or her mother’s name.

[138]   All of the cheques he received came from the various clubs. None came from his wife directly into his personal Commonwealth Bank accounts.

[139]   Further the Plaintiff has not been able to provide any tangible evidence that the Second Defendant had access to the two joint accounts or access to bank statements or PIN details for those two accounts. Significantly, the Second Defendant knew what was coming out of the poker machines to some extent, but not what was going into them in the first place to produce those winnings.

[140]   All the Second Defendant had knowledge of was his wife’s apparent increased ability to gamble and travel. That could however be theoretically explained by reason of her success in gambling alone.

[141]   Therefore in my view despite my misgivings and suspicions the Second Defendant’s story does have a reasonable amount of corroboration. There is strictly no evidence before me from which I am satisfied I can reasonably draw the inference that his wife’s sudden and increased gambling ability acts as constructive knowledge of the Fraudulent Payments themselves. To this extent the Plaintiff has not established a clear link between the money coming out of the poker machines (of which the Second Defendant had knowledge) and the source of the money going into the poker machines (of which in my view the Second Defendant did not have knowledge or constructive knowledge). This further defeats the case that the Second Defendant should be liable for monies going into his two Commonwealth Bank Accounts as these were monies obtained from monies going out of the poker machines, not monies going in.

[142]   There is no evidence the Defendants lived an extravagant lifestyle, and no evidence for example of who bought the airfares. There is no evidence to seriously contradict the Defendants’ case that they flew economy apart from the one Facebook post of an upgrade to business class.

[143]   Due to the seriousness of the allegations made against the Second Defendant, on balance I am not satisfied the Plaintiff has discharged its onus that the Second Defendant had knowledge of the Fraudulent Payments to constitute money had and received. Accepting he had knowledge of an increased ability on the part of his wife to gamble and to travel, it does not follow he had knowledge of the Fraudulent Payments.

[144]   In any event the Second Defendant was not given anything other than winnings, and there is no evidence before me to indicate that his wife could not have won those amounts without spending vast amounts of money. I have been provided with no information as to the odds expected of certain poker machines in the various clubs.

[145]   The Second Defendant only had knowledge of the seemingly legitimate wins of his wife, and there is no suggestion the winnings produced by the poker machines were somehow illegitimate, other than the source of the money to be put into the machines.

[146]   Importantly I am satisfied the Second Defendant trusted his wife, and his wife was demonstrating to him that she was indeed lucky, confirming his belief. Given his educational background, there is no suggestion he would be able to make some calculation as to the probabilities of these winnings or any calculation other than an assessment of luck or randomness.”

30. The primary judge thus concluded that irrespective of the manner in which the case was put, the respondent was not liable because he did not have notice in a relevant sense of Ms Abellanoza’s fraud or breach of fiduciary duty.

The grounds of appeal

31. The appellant relied on the following grounds of appeal:

“1   His Honour erred by finding that the Respondent did not knowingly (whether by virtue of actual or constructive knowledge) deal with monies obtained by dishonest means after 24 July 2017 and is not personally liable to the Appellant for $154,030.71.

2   In the alternative, his Honour erred by failing to find that:

a.   the Respondent knowingly dealt with monies obtained by dishonest means when he withdrew $20,000 from Commonwealth Bank account number XXXX on 26 April 2018; and

b.   the Respondent is personally liable to the Appellant for this amount.

3   His Honour erred by failing to find that the Respondent was personally liable to account to the Appellant as a constructive trustee for the amount set out in appeal ground 1 above, or alternatively, the amount set out in appeal ground 2 above.”

32. The grounds of appeal do not contend that the primary judge erred in finding that a claim for knowing receipt of trust property in the sense discussed in Barnes v Addy was not pleaded. However, in the appellant’s written submissions on the appeal (paragraphs 2.2-2.5), reliance is placed on the principle in that case to found the claim that the respondent is liable as a constructive trustee.

33. In written submissions, the appellant contended that the respondent was liable to account for the funds paid into the bank as monies had and received. However, the submission did not deal with the contentions raised in the Court below that because the money the subject of the CBA accounts had come from mixed funds, it could not be traced at common law from the misappropriated funds.

34. This issue was raised by the respondent in his written submissions and in oral submissions at the hearing. No point was taken that a notice of contention to raise this issue had not been filed.

The submissions on appeal

35. In its written submissions in respect of ground 1, the appellant stated without elaboration that the case turned on whether the respondent had actual or constructive knowledge of receipt of monies that were dishonestly obtained. The submissions noted that the claim was limited to the monies deposited in the CBA accounts.

36. The appellant in its written submissions focused almost entirely on a knowing receipt claim based on the first limb in Barnes v Addy. However, in the alternative it contended, without elaboration, that a person who innocently receives trust property other than a bona fide purchaser for value without notice and thereafter acquires notice of the trust and deals with the property in a manner inconsistent with the trust will also be liable as a constructive trustee, citing Fistar v Riverwood at [47]. It also contended that an action for money had and received was available against an entirely innocent person who did not receive the money as a bona fide purchaser without notice, citing Barros Mattos Jnr v MacDaniels Ltd [2004] 3 All ER 299; [2004] EWHC 1188.

37. The appellant also contended that the primary judge erred in his conclusion that the respondent did not have the requisite knowledge to affix him with liability. He relied on the following matters:

“(a)   The Respondent accepted that he and his wife were increasing their amount of travel but illogically stated that he did not ask his wife where the money was coming from for the extra travel;

(b)   The Respondent stated that his wife had been providing him with large sums of money to deposit into his CBA bank accounts and that he was worried about his wife’s level of gambling;

(c)   The Respondent stated that he was using the gambling winnings to travel everywhere;

(d)   The Respondent accepted that it would be unusual for a gambler to win twice a month on poker machines;

(e)   The Respondent stated that he knew he was depositing monies on average about twice a month since July 2017 (noting that the total deposits totalled $154,030.71 between July 2017 and April 2018);

(f)   In relation to a $42,370.19 cash withdrawal in December 2017, the Respondent stated that he did not ask his wife what this money was for;

(g)   The Respondent admitted that he was a regular gambler and had a nightly gambling limit and his wife would continue gambling for many hours after he had finished his limit (gambling the whole time). She would continue gambling for so much longer than him that he would go and sleep in his car;

(h)   The Respondent stated that he knew his wife was an accountant for the Appellant but did not know what she otherwise did (or why she instructed him to deposit and withdraw significant amounts of money for her);

(i)   The Respondent stated that he noticed an increase in the amount of cheques and ‘winnings’ he received from his wife but did not ask her where the money was coming from; and

(j)   The Respondent stated that he opened the second CBA account in July 2017 because of the gambling winnings he was receiving from his wife.”

38. The appellant did not attempt to grapple with the fact that the primary judge found that he was not satisfied that “any type of Barnes v Addy constructive trust” had been made, or the difficulty, at least at common law, in tracing the misappropriated funds into both accounts.

39. At the hearing, counsel for the appellant contended that the pleading was sufficient to make a claim based on the so-called first limb of Barnes v Addy. He submitted that the respondent had constructive knowledge that the property was trust property because “he wilfully shut his eyes to the obvious”, particularly after 24 April 2018 when he received the summons. He accepted that the respondent was not aware that the funds that Ms Abellanoza withdrew were part of the fraudulent proceeds at the time they were withdrawn, but submitted that the frequent winnings ought to have, or did put him on notice that Ms Abellanoza had been obtaining money “by dishonest means”.

40. Counsel for the appellant submitted that the finding by the primary judge related to the respondent’s actual knowledge and he was not bound by a “Fox v Percy constraint” in respect of his claim based on constructive knowledge: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [27]-[28]. He accepted that it had to be shown that the constructive knowledge was that the funds used for the gambling resulted from a fraud carried out by Ms Abellanoza on her employer. He accepted that the primary judge found to the contrary, but emphasised that the respondent knew that his wife was an accountant for the appellant, although he “did not know what she otherwise did”.

41. The respondent in his written submissions contended that the money in the CBA account was not the appellant’s money or the traceable proceeds. The respondent contended that in a claim for money had and received, it was necessary to show that the money or property in the defendant’s hand was the legal property of the plaintiff. The respondent submitted that at least when Ms Abellanoza was paid her winnings in cash or by cheque out of the clubs’ bank accounts, which necessarily contained mixed funds, it lost that character.

42. The respondent submitted that the claim also must fail because it depends entirely on the assessment of the respondent’s credibility.

43. The respondent also submitted that the claim that the respondent was liable as a constructive trustee did not add anything because it depended on the respondent being liable to account for the monies as monies had and received. At the hearing, counsel for the respondent submitted that what was pleaded in paragraph 33 of the Amended Statement of Claim was that any money the respondent continued to hold was held on a constructive trust.

44. Counsel for the respondent submitted that the money which went into the poker machines came from the mixed funds from one of Ms Abellanoza’s bank accounts. Counsel for the respondent submitted that the amount that the clubs paid out was not part of the funds put in by Ms Abellanoza but winnings on that amount which was “a separate and discrete item”. He accepted that the defrauded funds were held by Ms Abellanoza on a constructive trust and that the winnings resulting from the use of those funds were also held on a constructive trust. He accepted that the winnings Ms Abellanoza gave to the respondent to deposit into the CBA accounts were trust money. He accepted that the question then became whether the respondent had “the requisite degree of notice or knowledge that that was trust money at that point”. However, he stated that was not the way that the claim was put against the respondent. He seemed to accept however, that the claim was put against the respondent in that way in relation to the $20,000 withdrawn by the respondent.

Consideration

45. It is well established that a party is bound by his or her pleaded case, unless the parties have chosen to conduct the proceedings on a different basis. The position was succinctly stated by Mason CJ and Gaudron J in Banque Commerciale SA En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286-287; [1990] HCA 11:

“The function of pleadings is to state with sufficient clarity the case that must be met: Gould and Birbeck and Bacon v. Mount Oxide Mines Ltd. (In liq.), per Isaacs and Rich JJ. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party's right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities. See, e.g., Browne v. Dunn; Mount Oxide Mines.”

46. In the present case, the respondent consistently asserted both in oral and written submissions that the case of knowing receipt of trust property had not been pleaded: see [16] and [19] above. The question asked by the primary judge, to which I have referred at [18] above, was asked in that context and counsel for the appellant accepted that proposition by the trial judge that the pleadings did not “explicitly allege in the Barnes v Addy sense, knowing receipt or knowing assistance”. The primary judge was correct in concluding that no such case had been pleaded.

47. The pleading with respect is obscure. In contrast to the pleaded claim against Ms Abellanoza in respect of the ANZ and St George Bank accounts which alleged breach of fiduciary obligations and alleged the monies misappropriated by her were held on a constructive trust (see Amended Statement of Claim at paragraphs 42-47), the only claim made in respect of those funds against the respondent was the monies had and received claim in paragraph 28.

48. Further, although paragraph 29 of the Amended Statement of Claim pleads that Ms Abellanoza withdrew monies from the accounts into which the defrauded payments were made “for the purpose of depositing the monies in poker machines”, there was no allegation that the winnings were the subject of a trust, constructive or otherwise, in favour of the appellant. The pleading in paragraph 32 goes no further than saying the respondent “dealt with monies that he ought to have known had been obtained by dishonest means”. So far as paragraph 33 is concerned, no facts are pleaded as to the basis on which it was said that the second defendant was personally liable to account as a constructive trustee.

49. In these circumstances, quite apart from the concession which has been made, the claim could not be said to be one that was dependent on knowing receipt of property impressed by a trust. Rather, paragraph 32 can only be seen in these circumstances as a common law claim for money had and received and the allegation in paragraph 33 as being ancillary to that claim.

50. The respondent, relying on what was said by this Court in Russell Gould Pty Ltd v Ramangkura (2014) 87 NSWLR 552; [2014] NSWCA 310 (Russell Gould), submitted that for a claim for money had and received to succeed it had to be shown that the money paid into the bank account was the legal property of the appellant. The respondent submitted that in the present case, the defrauded funds lost that character, at least by the time the money was withdrawn from the ANZ and St George Bank accounts and was gambled in the poker machines: see Russell Gould at [29]; see also Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 572-573; Agip (Africa) Ltd v Jackson [1990] Ch 265 at 285-286.

51. The decision in Russell Gould has been the subject of some academic criticism: see K Mason, J W Carter, G J Tolhurst, Mason and Carter’s Restitution Law in Australia (3rd ed, 2016, LexisNexis Butterworths) at [303]. Further, it must be remembered that in Foskett v McKeown [2001] 1 AC 102, Lord Millett at [128] suggested that there was “no sense in maintaining different rules for tracing at law and in equity”. However, it was not submitted that Russell Gould was wrongly decided.

46. It must be remembered that what was said in Russell Gould was limited to cases where there is no dishonesty or breach of fiduciary duty. That was made clear in the following passage by Barrett JA (Bathurst CJ and Ward JA agreeing):

“[26]   The stance thus taken by the Company means that any unauthorised action of Mr Gould must be taken to have been innocent, in the sense that it did not involve any breach of fiduciary obligation, any dishonesty or any other form of unconscientious conduct that would attract the attention of equity in a way calculated to protect the position of the Company. It follows that equitable principle plays no part in the adjudication of the Company's claim and that common law rules alone are to be applied.”

53. In the present case, Ms Abellanoza, the fraudster, held the proceeds of the fraud on trust for the appellant: Black v S Freedman and Co (1910) 12 CLR 105 at 110; [1910] HCA 58; Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 716; Robb Evans v European Bank Ltd (2004) 61 NSWLR 75; [2004] NSWCA 82 at [111]; Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252 at [93] (Heperu); Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [255] (Grimaldi); Fistar v Riverwood at [66]; Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [143]-[149] (Sze Tu).

54. Once it is recognised that the defrauded funds were held on trust, the equitable rules of tracing can be used to follow the trust property: see, for example, Heperu at [93]; Sze Tu at [146].

55. In the present case, assuming the funds used to gamble at the various clubs were the proceeds of the fraud, the funds could, in my view, be traced into the winnings derived from such gambling and placed in the CBA account. So much was conceded by the respondent.

56. Further, the respondent was a volunteer. Even if he did not know initially that the money used to play the poker machines was derived from fraud and thus impressed with the trust in favour of the appellant, he would be liable to account for the money at least from the time he was put on notice that the gambling winnings resulted from the use of the proceeds of Ms Abellanoza’s fraudulent activities: Heperu at [144] referring to Banque Belge pour L’Etranger v Hambrouck [1921] 1 KB 321; Fistar v Riverwood at [45]-[47]. Further as Allsop P (as his Honour then was) pointed out in Heperu at [144], the liability can be enforced by an action at law for monies had and received.

57. In Heperu at [74]-[75], Allsop P referring to R P Meagher, J D Heydon, M J Leeming, Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (4th ed, 2002, LexisNexis Butterworths) stated that the volunteer will be taken to have knowledge of “all matters: (a) of which he would have received notice if he had made the investigations usually made in similar transactions, and (b) of which he would have received notice had he investigated a relevant fact which has come to his notice and into which a reasonable man ought to have inquired”. That is a lower threshold than that required for a knowing receipt claim: see Fistarv Riverwood at [29]; Grimaldi at [268]-[269]. It is unnecessary to explore the reason for the difference in the present case.

58. The difficulty for the appellant is that, leaving aside the payment of $20,000 on 26 April 2018, the case was neither pleaded nor conducted as a knowing receipt type claim. There was no allegation that the money paid into the CBA account was held on a constructive trust for the appellant and that the respondent dealt with the money with knowledge of that fact. Importantly, the inquiry as to the respondent’s knowledge did not focus on what he knew or ought to have known at the time that he dealt with monies paid into the CBA account by making the withdrawals. Even if the primary judge’s finding that during the whole of the period in question, the respondent had no knowledge, actual or constructive, of the fact that the winnings paid into the CBA account were the proceeds of Ms Abellanoza’s fraud on the appellant were set aside, it would be necessary to investigate which of the withdrawals from the account were made by the respondent with knowledge, actual or constructive, that the monies in the account were derived from the proceeds of fraud. This was not something that was considered in the Court below having regard to the manner in which the case was run. It would be unjust to the respondent to determine the case on this basis.

59. The position is different with the payment of $20,000 referred to in paragraph 34 of the Amended Statement of Claim. Paragraph 34(a) pleads that the respondent had notice that the monies were obtained by dishonest means by virtue of his receiving the summons in these proceedings. The plaintiff named in the summons was the appellant and the respondent was aware that Ms Abellanoza was employed by that company. Receipt of the summons which sought freezing orders in respect of Ms Abellanoza’s assets up to the value of $1,590,348.82, and made claims against her that the monies in the ANZ, NAB and St George accounts were held on constructive trusts and claims for damages and equitable compensation, was sufficient, in my view, to give the respondent notice of the fact that the poker machine winnings in the July CBA account may have resulted from gambling with funds obtained by fraud on the appellant. An honest and reasonable person in these circumstances would have made inquiry of the source of the funds. The respondent’s failure to do so prior to paying the $20,000 to Ms Abellanoza out of the July CBA account makes him liable to account for that amount.

Costs

60. The appellant has had limited success in the appeal. In the circumstances, I am minded to order the appellant pay 75% of the costs of the respondent in this Court and the Court below. However, the parties should be given leave to make submissions on this issue.

Conclusion

61. In the result, I would make the following orders:

1. Appeal allowed in part.

2. The orders made by the primary judge on 13 December 2018 are amended by the addition of the Order 1A.

1A   Order that the Second Defendant is liable to account to the Plaintiff for the sum of $20,000 withdrawn by him from Commonwealth Bank Account No. 06 2293 10316831 on 26 April 2018, together with interest on the said sum at the rate of 5.5% from 26 April 2018 up to the date of this judgment and thereafter at the rate of 7.5% until payment.

3. If not resolved by agreement, direct the parties to make submissions as to the appropriate costs orders within 7 days.

62. BASTEN JA: It is not in dispute that between November 2014 and December 2017 Mary Ann Abellanoza fraudulently transferred more than $3.5 million from her employer’s bank accounts to various other bank accounts in her own name or into accounts jointly held by her and her husband, Perven Salas Abellanoza, the respondent to this appeal. Most of the moneys appear to have been dissipated by Ms Abellanoza through gambling at various clubs.

63. The appellant, her former employer, took steps to recover amounts from Ms Abellanoza and her husband. On 24 April 2018 it obtained freezing orders against Ms Abellanoza; those orders were extended to her husband on 4 May 2018. On 17 July 2018 the appellant filed a statement of claim against both persons to recover the stolen moneys. Ms Abellanoza did not defend the claim against her, but her husband did.

64. On 19 October 2018 the trial judge, Sackar J, dismissed the proceedings against the husband, except in relation to a small account of $1,829 which appears to have been the residue held in the joint accounts. Orders were entered on 13 December 2018. [1]

    1. Silversea Cruises Australia Pty Ltd v Mary Ann Abellanoza [2018] NSWSC 1565 (“Judgment”).

65. The present appeal challenges the refusal of the trial judge to grant relief against the respondent, with respect to amounts paid into two accounts in his name with the Commonwealth Bank of Australia (CBA). The total amount involved was in the order of $154,000.

66. The moneys paid into the respondent’s accounts were provided to him by his wife as the product of her gambling. They were referred to in the evidence as “gambling winnings”, which no doubt they were, in the sense that they were money value of chips purchased to allow her to gamble and paid out by the gambling machines (or perhaps not used); the overwhelming likelihood is that those amounts were less than the amounts paid in. To determine whether the appellant was entitled to the amounts paid into the respondent’s accounts, it is necessary to determine (i) how those amounts should be characterised in legal terms and (ii) what beliefs or knowledge about the source of the funds the respondent had or should have had.

Restitutionary claim

67. The funds withdrawn from the appellant’s accounts by Ms Abellanoza and paid into accounts she controlled changed their legal form and ownership. At that stage, in accordance with the principles established in Black v S Freedman & Co, [2] the possessory interests acquired by Ms Abellanoza were sufficient to create a trust of the stolen property. [3] As O’Connor J stated: [4]

“Where money has been stolen, it is trust money in the hands of the thief, and he cannot divest it of that character. If he pays it over to another person, then it may be followed into that other person's hands. If, of course, that other person shows that it has come to him bonâ fide for valuable consideration, and without notice, it then may lose its character as trust money and cannot be recovered. But if it is handed over merely as a gift, it does not matter whether there is notice or not.”

2. (1910) 12 CLR 105; [1910] HCA 58.

3. As to the justification for that approach, see Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81 at [36]-[39] (Leeming JA, Bathurst CJ and Sackville AJA agreeing).

4.    Black at 110.

68. In Black, the money was paid into an account, first in the name of the thief (the husband) and then into an account opened by his wife. Money was later withdrawn from the account by the wife and given to the husband, who purchased “circular notes” in her name and paid for them in cash. Griffith CJ had no doubt that “those notes were bought out of the stolen money, and can be identified also.” The Chief Justice continued: [5]

“I think that where a man pays a large sum of money to his wife, and no more appears, the inference is that it is a present. Therefore the doctrine of equity is applicable. The money is identified; it came into her hands as a volunteer, and she is liable to repay it.”

5.    Black at 109.

69. Broadly speaking, the only variation from the facts of Black is that in the present case the fraudster took the money from her account and gambled with it, so that the moneys were returned to her hands as gambling winnings, no doubt in reduced amounts. She asked her husband to cash in the chips and place the moneys in one of the CBA accounts opened in his name for that purpose. Unless the gambling provided a basis to distinguish Black, the appellant should succeed with respect to the amounts found in the respondent’s accounts. There is no doubt that he was a volunteer, in the sense that the money was given to him for no consideration.

70. Black was applied by the House of Lords in the case of Lipkin Gorman v Karpnale Ltd, [6] a case in which a solicitor had withdrawn cash from the firm’s account and gambled it at a club owned by the defendant. The solicitors succeeded in an action against the club for money had and received (a restitutionary claim). The steps involved in gambling identified in that case were much the same as the steps involved in the present case. Lord Templeman adopted the dissenting reasoning of Nicholls LJ in the Court of Appeal in the following terms: [7]

“the chips were not money or money's worth; they were mere counters or symbols used for the convenience of all concerned in the gaming. As tokens, the chips indicated that the holder had lodged cash with the club or, when a cheque had been used, had been given credit by the club, to the extent indicated by the tokens. It is as though the customer had been given a series of receipts in respect of the money handed over by him prior to beginning to play. The money was to go to the winners, or be returned to the customer if not spent on gaming. When the customer played at the table he was playing with the money he had brought with him to the casino, just as much as if he had used the banknotes themselves rather than the chips for which he had exchanged the banknotes preparatory to the start of play. I do not believe that this internal, preliminary, preparatory step, of issuing chips for cash, adopted for considerations of practical convenience, can have the effect in law that the club gave valuable consideration for the money it received, when the position in law under the statute is that if money rather than tokens had been used at the table, the club would not have given valuable consideration. I find such a conclusion repugnant to common sense.”

6. [1991] 2 AC 548.

7.    Lipkin Gorman at 567C-F.

71. Lord Goff of Chieveley provided more extensive reasons, having regard to separate arguments as to (i) title to the money; [8] (ii) whether the respondents gave consideration for the money; [9] (iii) whether there was a defence of “change of position”, and (iv) if so, whether it was made out by the club. [10] Lord Goff rejected the club’s case that it was not liable in an action for money had and received. (Other members of the bench agreed with the opinions of Lord Templeman and Lord Goff.) The defences available to the club were immaterial in the present case, the clubs at which the gambling took place not being joined. Relevantly, the fraudster, Ms Abellanoza, did not acquire a better title to the stolen moneys by transferring them into another form and then reconverting them into cash.

    8.    Lipkin Gorman at 572-574.

    9.    Lipkin Gorman at 574-577.

    10.    Lipkin Gorman at 577H-583.

72. Following the fraud of the respondent’s wife the appellant was deprived of its property, but retained an equitable interest as against the fraudster. It is clear from Black and Lipkin Gorman that the former owner can trace an entitlement to the property through changes in form and maintain a claim for money had and received against the thief or a volunteer in possession of the property in changed form. The respondent, as a volunteer, is bound to account to the former owner, though he lacked notice. [11] Lipkin Gorman adopted that approach in support of a claim for money had and received. The availability of such an approach was recognised in Fistar. [12]

    11. In re Diplock [1948] Ch 465 at 530 (Lord Greene MR); Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, 714-715 (Lord Browne-Wilkinson).

    12.    Fistar, fn 3 above, at [29]-[31].

73. This was not a case in which the appellant sought to recover money from the club or clubs at which the gambling took place. It follows from the reasoning in Lipkin Gorman that, if the firm of solicitors had sought to recover from the defaulting partner the value of the chips cashed in by him as a result of the gambling, he could not have resisted their claim for money had and received. The same must be true of Ms Abellanoza. On the basis, not challenged on the appeal, that her husband was a volunteer and did not give valuable consideration for the money which he recovered from his wife’s gambling and paid into his own accounts, the appellant must succeed.

Claim for knowing receipt of trust property

74. The appeal in this Court was run primarily on the basis that the appellant had failed on an equitable claim for knowing receipt of property obtained in breach of trust. That principle, commonly referred to as the first limb in Barnes v Addy,[13] depends upon the recipient having notice of the fact that the property has been obtained in breach of obligations owed to the equitable owner. For the reasons set out above, the appellant did not need to rely on this alternative cause of action. However, as it loomed large in the appeal, it is necessary to address it.

    13. (1874) LR 9 Ch App 244; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [111].

75. Although the judge stated that “there was no clear assertion in the pleadings of ‘knowing assistance’ or ‘knowing receipt’ to satisfy me that any type of Barnes v Addy constructive trust has been pleaded”,[14] the judge proceeded to dispose of the matter entirely by reference to such a claim. His conclusion in that regard was expressed as a lack of satisfaction that the respondent “had knowledge or constructive knowledge of receipt of the Fraudulent Payments.”[15] Accordingly, to succeed the appellant must demonstrate first, that the equitable claim was pleaded and, secondly, that it should have succeeded. The latter consideration requires a finding by this Court that the trial judge was in error in not accepting that the respondent had the relevant level of knowledge, actual or constructive, as to the fraudulent payments.

    14. Judgment at [134].

    15. Judgment at [148].

76. In my view, the appellant should succeed on both issues.

(a)   pleading of knowing receipt – judgment below

77. While it is true that the pleading may not have reached a high level of precision and may have involved some conceptual confusion, it is clear that the judge was content to deal with the matter on the basis that there had been a claim based on the first limb of Barnes v Addy and that the case had been run in that way. That approach was consistent throughout the judgment.

78. First, the judge commenced with a careful history of the relevant procedural aspects as they had developed, concluding:

“[24]   On 17 September 2018 I gave the Plaintiff leave to file an Amended Statement of Claim. This pleading went through previous iterations, but updated the account details of the Defendants and alleged the Second Defendant knew or ought to have known of the dishonest payments of the First Defendant.”

79. The judge then turned to a statement of the relevant “legal principles”, commencing with “the rule in Barnes v Addy”. That section was followed by a discussion of the principles in relation to “money had and received”, [16] and then principles relating to “tracing of money had and received”. [17] There followed a statement that, “[g]iven the seriousness of the allegations against the Defendants the Court must come to a comfortable satisfaction about material aspects of the case.” Reference was made to s 140 of the Evidence Act 1995 (NSW) and Briginshaw v Briginshaw. [18] These principles were expressly adopted in dealing with the evidence of knowing receipt; they were not otherwise relevant.

    16.    Judgment at [28]-[32].

    17.    Judgment at [33]-[34].

    18. (1938) 60 CLR 336 at 361-362 (Dixon J); [1938] HCA 34.

80. By that stage in the reasoning, there was no hint that the issue of knowing receipt was not in play. The judge then turned to the parties’ submissions in identifying the case against the respondent (the second defendant in the trial), the judge stated (omitting references to the submissions):

“[38]   The Plaintiff submits that the Second Defendant is liable (for the amount of $811,565.53) as money had and received by him on the basis that at all relevant times he had the requisite knowledge of this amount being deposited into [joint accounts]. The Plaintiff also submits the Second Defendant received the benefit of monies transferred into NAB account number … of which he had either actual knowledge or constructive knowledge ….

[39]   The Plaintiff also submits that it became clear during the course of cross-examination of the Second Defendant that the First Defendant had provided misappropriated funds to the Second Defendant via poker machines winnings, which were transferred into his personal Commonwealth Bank accounts ….

[40]   The Plaintiff asserts an action for money had received is not confined to stolen or misappropriated property. It is available against an entirely innocent recipient who did not receive the money as a bona fide purchaser without notice ….

…

[43]   The Plaintiff submits the Second Defendant was not a credible witness, pointing to purported inconsistences, evasions and illogical propositions given by the Second Defendant during cross-examination …. It contends it is clear that the Second Defendant knew or ought to have known that the monies that the First Defendant gave to him to deposit in his two Commonwealth Bank accounts were obtained by dishonest means ….

[44]   It submits the Second Defendant either wilfully shut his eyes to the obvious, wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make, had knowledge of circumstances which would indicate the facts to an honest and reasonable person on inquiry ….

[45]   The Plaintiff submits the Second Defendant had knowing receipt (actual or constructive) of the misappropriated funds….”

81. The judge then noted a submission of the respondent that “the only cause of action pleaded against him by the Plaintiff is a claim for money had and received, and that the Plaintiff has not pleaded with sufficient particularity any ‘knowing receipt’ or ‘knowing assistance’ claims against the Second Defendant”. [19] The summary of submissions continued by reference to evidence denying knowledge (actual or constructive) of any of the fraudulent payments. [20]

    19. Judgment at [53].

    20. Judgment at [56].

82. The judge addressed the evidence of the various witnesses. From [118]–[132] he set out his impression of the respondent, and assessed the credibility of his evidence. He then turned to what he described as “the key question” namely, “whether he knew or ought to have known of the monies being deposited into those accounts held solely or jointly by him.” That discussion continued through [133]–[146]. Apart from the criticism already noted as to the vagueness of the pleadings (at [134]), there was no hint that the judge did not consider a case based on knowing receipt was in play. The suggestion that the appellant should fail on the basis of inadequate pleadings is difficult to maintain.

(b)   content of pleadings

83. The relevant pleadings appear in the amended statement of claim under the heading “Money had and received/constructive trust (Second Defendant)”.

84. The pleading asserted that on particular dates Ms Abellanoza informed her husband that she had “won” money on the poker machine and asked her husband “to withdraw monies from the poker machine via the procedures in place at each gambling venue in cash (if less than $5,000) and/or by cheque (for any amount greater than $5,000).” [21] Those amounts were said to have been deposited into his CBA bank accounts. [22] Paragraph 30 identified specific matters on the basis of which it was alleged that the respondent “had knowledge that the amounts deposited in to each of the bank accounts … had been obtained by dishonest means,” namely that he had “(a) wilfully shut his eyes to the obvious; (b) wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make; (c) had knowledge of circumstances which would indicate the facts to an honest and reasonable person; or (d) had knowledge of circumstances which would put an honest and reasonable person on inquiry”. These allegations were clearly intended to reflect the five categories relevant to a claim of knowing assistance, discussed in Farah Constructions Pty Ltd v Say-Dee Pty Ltd. [23]

    21.    Amended Statement of Claim, par 29(b).

    22.    Ibid, par 29(c).

    23. See fn 13 above, at [174].

85. Paragraph 32 alleged that the respondent “dealt with monies that he ought to have known had been obtained by dishonest means and is personally liable to the plaintiff for monies had and received.” Paragraph 33 alleged that the respondent was “personally liable to account to the plaintiff as a constructive trustee for those amounts.”

86. Although the above may have elided personal and proprietary remedies, a proprietary remedy was sought with respect to the respondent’s interest in the family’s residential property, further pleaded at pars 37 and 38, though these paragraphs were not pressed.

87. For the sake of clarity it is often desirable that a pleading identify the cause of action and its relevant elements; however, subject to the requirements of Pt 15 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) as to particulars, it is nevertheless the factual allegations (though not the evidence for them) which are to be pleaded. Subject of course to the need to consider how the proceedings ran at trial, sufficient allegations were included to provide an adequate pleading of an equitable claim for knowing receipt of moneys which, being fraudulently obtained, were impressed with a constructive trust. Had more factual detail been required to put the defendant on notice of the claim against him, in accordance with UCPR r 15.1, that could and should have been sought.

88. I can see no basis for rejecting the appellant’s claims on appeal on the ground of inadequate pleading at trial.

(c)   legal principles

89. Of the five categories of knowledge pleaded by the appellant, and identified in Farah Constructions, only the first four were accepted as supporting a finding of knowing assistance in a dishonest and fraudulent design on the part of trustees, under the second limb Barnes v Addy. The fifth category (knowledge of circumstances which would put an honest and reasonable person on inquiry) was treated as “constructive” knowledge and not sufficient for such a cause of action. The distinction between the fourth and fifth categories and the acceptance of the fourth category was explained as follows:

“[177]   … In this way, there is accommodated, through acceptance of the fourth category, the proposition that the morally obtuse cannot escape by failure to recognise an impropriety that would have been apparent to an ordinary person applying the standards of such persons.”

The distinction between this category and wilfully shutting one’s eyes (category (ii)) and wilfully and recklessly failing to make inquiries (category (iii)) is a matter of emphasis and semantics, rather than substance.

90. Nevertheless, this case was not pleaded as one of knowing assistance, but rather as one of knowing receipt of funds, the source of which was the fraudulently obtained moneys. Constructive knowledge may be sufficient to deprive the recipient of trust funds of a defence based on a purchase in good faith for value and without notice. The respondent did not qualify as such. To the extent it is relevant, the principle was identified by the Full Court of the Federal Court in Grimaldi v Chameleon Mining NL (No 2). [24]

    24. (2012) 200 FCR 296; [2012] FCAFC 6 at [251] (Finn, Stone and Perram JJ).

91. On the other hand, Grimaldi held that the notice requirements for the two limbs of Barnes v Addy (if one accepted that dichotomous terminology), did not differ for the purpose of imposing personal liability. [25] In circumstances where the trial judge did not distinguish between actual and “constructive” knowledge in addressing a claim for knowing receipt, it may be assumed that the latter term referred to the concept identified in category (iv).

    25.    Grimaldi at [268], [270].

(d)   findings of fact

92. There is no doubt that, as counsel for the appellant recognised, there is a high hurdle to be overcome before an appeal court will interfere with factual findings by a trial judge based on an assessment of the credibility of a critical witness for the successful party. The constraints are commonly expressed, in the colourful language adopted in Fox v Percy, relying on other judgments,[26] that the findings are inconsistent with “incontrovertible facts or uncontested testimony” or are “glaringly improbable”, or “contrary to compelling inferences”.

    26. (2003) 214 CLR 118; [2003] HCA 22 at [28]-[29] (Gleeson CJ, Gummow and Kirby JJ).

93. However, it is not necessary, in order to uphold the appeal, to overturn the credit findings favourable to the respondent made by the trial judge. That is because the appeal should be upheld on the basis of circumstances to which the respondent turned a blind eye. It is, nevertheless, necessary to identify the circumstances from which the relevant inferences can be drawn by reference to the judge’s assessment of the evidence relating to the circumstances of the respondent.

94. The respondent met and married his wife in the Philippines. They migrated to New Zealand in 1996 and to Australia in 2002. He undertook a TAFE course in refrigeration and air conditioning and worked as a contractor in those fields thereafter, with some breaks in his employment, until he ceased working “in May 2018 due to some health reasons.”[27] He said at first that he and his wife started gambling in 2013. [28] In cross-examination he agreed that they could have started in late 2011. [29] He said that they started gambling on weekends, “then going up to seven nights per week three years ago”. [30] The respondent was unemployed between July 2013 and some time in 2014. [31] He agreed that he enjoyed trips to Surfers Paradise, Darwin and Cairns in that period. The respondent gave evidence that “his wife had been gambling on average seven nights a week over the last few years, staying until 10:00pm on weekdays and 2:00am on weekends”. [32]

    27. Judgment at [84].

    28. Judgment at [88].

    29. Judgment at [93].

    30. Judgment at [94].

    31. Judgment at [96].

    32. Judgment at [104].

95. The judge’s impressions of the respondent were set out in the following passages:

“[118]   I accept as truthful and accurate the evidence of those witnesses put forward by the Plaintiff, although I am not bound to do so. However their evidence is unchallenged and credible. In my view the outcome of this case is to be determined by whether the Plaintiff has discharged its onus of proof in light of serious allegations made in the context of the Second Defendant’s denial of relevant events.

[119]   In my view, the Second Defendant’s evidence was unsatisfactory for a number of reasons. It was my impression of him that in the witness box he had a convenient answer for everything and was too readily prepared to provide a quick response to each question posed to him.

[120]   It was my impression that to an extent he tried far too hard to project the image of a hapless male entirely unaware of his surroundings and what was happening on a daily basis, and whose wife at any or all relevant times controlled and held the purse strings.

[121]   However he clearly appreciated his family’s ability from about 2012 to go on increasing holidays beyond free cruises and said he did not ask his wife about where she was getting the money for this travel (T13/20-26). He also clearly appreciated that his wife started gambling ‘all of a sudden’ and that she was gambling excessively (T10/18-24).

[122]   For him a gambler himself to suggest all of a sudden his wife had an apparent arguably unconstrained capacity to gamble without a suspicion is to some extent disingenuous.

[123]   The Defendants share the same bedroom, lived obviously with a high level of daily interaction and on a nightly basis would go to gamble together although in the gambling rooms they would sit in separate areas. His reason in his affidavit for the couple commencing gambling was the preponderance of family tragedies, yet in cross-examination he said it never occurred for him to ask why they started gambling (T9/44-45) and indeed he said he could not remember when they started gambling (T9/20-21). These accounts are again to some extent inconsistent.

[124]   The Second Defendant did not state he believed his wife had a dramatic increase in her salary nor is there any suggestion of an inheritance providing a sudden influx of money.

[125]   There were therefore a number coincidences that must have been apparent to the Second Defendant: all of a sudden his wife started gambling, and all of a sudden she was receiving large wins from the poker machines which was and could only be a product of the first. In addition they enjoyed extensive and frequent travel.

[126]   The increase in travel, the increase in gambling and my assessment of the demeanour of the Second Defendant inclines me therefore to be somewhat suspicious of his evidence. His allegations that he attempted suicide on several occasions finds no support on the evidence before me other than his solicitor informing me from the bar table that there was some suggestion on one occasion he took some substances, and no evidence was called in re-examination to substantiate these claims. I am satisfied these were gross exaggerations.

[127]   By way of further example, the Second Defendant was confronted with a Facebook photo of his wife in a business class flight and was somewhat quick to suggest it was an upgrade from the Marco Polo rewards club, thereby attempting to allay any suggestion of his family’s sudden profligacy (T30/31-33). However, the inference I draw is that rewards from loyalty clubs such as Marco Polo come only from frequent travel.

[128]   Further, the Second Defendant was confronted with his activities on 25 April 2018 where he accepted he was carrying boxes from his home to the house of his relatives, however said they were boxes full of clothes because he wanted to move out (T50/1-16, T63/28-31). Although the Plaintiff did not seek to tender any surveillance report, the Second Defendant was cross-examined that his version of events regarding this incident did not make any sense, because on his case he did not know anything was wrong when his wife received the Summons and did not suspect anything, however still was so upset that he wanted to move out (T100/6-35).

[129]   He further did not satisfactorily explain the $42,000 he deposited under the directions of his wife in December 2017 which was comparatively only a short time ago (T53/45-T54/47).

[130]   There are several possible explanations for these examples of inconsistency and unreliability displayed by the Second Defendant. He could have been telling lies, or he could also have been upset, nervous and ashamed of what had occurred when he discovered it.

[131]   On balance however the evidence before the Court suggests to me that he did trust his wife the First Defendant. In addition the Plaintiff was unable to point to any substantial evidence to contradict the Second Defendant’s assertions that his wife had all the control over the finances.

[132]   Notwithstanding my serious misgivings about the credibility of the Second Defendant and not without some hesitation I am inclined to accept a number of the important things he did say.”

96. In discussing what the respondent knew, the judge stated:

“[135]   The key problem in this case from the perspective of the Plaintiff is the Second Defendant’s unswerving assertion that he did not have access to his wife’s bank account and in particular had no access to the ANZ Account and St George Account held jointly by the two Defendants. The Plaintiff has been unable to show that he had access to the ANZ Account and/or St George Account.

[136]   There was no evidence to suggest the Second Defendant did or could have had knowledge of his wife’s other accounts.”

97. Those statements, and the succeeding paragraphs, with one exception, did not address the question of the respondent’s knowledge as to moneys being deposited in his Commonwealth Bank accounts. The critical passages were the following:

“[140]   All the Second Defendant had knowledge of was his wife’s apparent increased ability to gamble and travel. That could however be theoretically explained by reason of her success in gambling alone.

[141]   Therefore in my view despite my misgivings and suspicions the Second Defendant’s story does have a reasonable amount of corroboration. There is strictly no evidence before me from which I am satisfied I can reasonably draw the inference that his wife’s sudden and increased gambling ability acts as constructive knowledge of the Fraudulent Payments themselves. To this extent the Plaintiff has not established a clear link between the money coming out of the poker machines (of which the Second Defendant had knowledge) and the source of the money going into the poker machines (of which in my view the Second Defendant did not have knowledge or constructive knowledge). This further defeats the case that the Second Defendant should be liable for monies going into his two Commonwealth Bank Accounts as these were monies obtained from monies going out of the poker machines, not monies going in.”

98. With respect to the first sentence in [141], it is not clear precisely to what the term “corroboration” referred, nor to what aspects of the respondent’s evidence it applied. With respect to the second sentence, it must surely be the fact that the extent and consistency of his wife’s gambling over at least three years, would itself put a reasonable and honest person on notice of the fact that she had large sums of money available to her. Contrary to the following sentence, if the respondent had knowledge of money coming out of the machines, which the judge found he had, there was a clear link with questions as to the source of the money going in. While no doubt a person may be lucky from time to time and obtain winnings, a reasonable and honest person would know that the house always wins over the longer term. His wife’s gambling was persistent over the longer term, that is years; it was not susceptible to the explanation of “luck”. The respondent was himself a gambler, although it appears at a less intense level than his wife. Even if one does not infer actual knowledge, a finding which was well open on the facts, the circumstances were sufficient to indicate to a reasonable and honest person that Ms Abellanoza had available to her very large sums of money for which neither salary, nor winnings could account.

99. The judge also stated:

“[144]   In any event the Second Defendant was not given anything other than winnings, and there is no evidence before me to indicate that his wife could not have won those amounts without spending vast amounts of money. I have been provided with no information as to the odds expected of certain poker machines in the various clubs.

[145]   The Second Defendant only had knowledge of the seemingly legitimate wins of his wife, and there is no suggestion the winnings produced by the poker machines were somehow illegitimate, other than the source of the money to be put into the machines.”

100. With respect to [144], in my view a reasonable and honest person would have known that the source of his wife’s gambling were inexplicable because the amounts being received bore no rational relationship with the modest amounts available to her as an employee of the appellant.

101. However, the two critical passages are the following:

“[143]   Due to the seriousness of the allegations made against the Second Defendant, on balance I am not satisfied the Plaintiff has discharged its onus that the Second Defendant had knowledge of the Fraudulent Payments to constitute money had and received. Accepting he had knowledge of an increased ability on the part of his wife to gamble and to travel, it does not follow he had knowledge of the Fraudulent Payments.

…

[146]   Importantly I am satisfied the Second Defendant trusted his wife, and his wife was demonstrating to him that she was indeed lucky, confirming his belief. Given his educational background, there is no suggestion he would be able to make some calculation as to the probabilities of these winnings or any calculation other than an assessment of luck or randomness.”

102. Accepting that the respondent did not have actual knowledge of his wife’s fraudulent behaviour, the critical question was whether he had knowledge of circumstances which would tell a reasonable and honest person that she had an unexplained source of income. In my view, such a person would not accept that years of gambling would give rise to consistent and substantial winnings, based on “luck”, without realising the obvious potential explanation of the “luck”. Further, it is relevant to assess the question of such constructive knowledge by reference to the social context. The fact that the money was being banked by the appellant for his wife, together with the fact that they had lived together and shared a bedroom for 12 years, provided every opportunity for a simple thought as to how she could afford the continual gambling. It appears that he was content to enjoy the benefits of financial comfort without questioning how they came about. That is, at best, wilful blindness or moral obtuseness. Furthermore, although the judge appears to have deprecated any significance in his educational background, depriving him of any ability to calculate the probability of winnings, he had completed part of a bachelor of electrical engineering at Cebu Technical School in the Philippines and had obtained a technical qualification over three years study at TAFE when he came to Australia.

102. In my view, the inference that an honest and reasonable man in his circumstances would have formed a view as to his wife’s source for the moneys with which she was gambling is inescapable. The conclusions of the trial judge set out at [101] above did not expressly address that question; those passages focused on actual knowledge of the fact that she was stealing from her employer and his “trust” of her. The latter provides an explanation, not a denial, of moral obtuseness. That constituted error.

Conclusions

104. In these circumstances, the appellant is entitled to succeed both on its claim for money had and received and on its equitable claim for knowing receipt of fraudulently obtained payments, against the respondent.

Orders

105. I would make the following orders:

1. Allow the appeal and set aside orders (2), (3) and (4) entered on 13 December 2018 in the Equity Division.

2. In place thereof:

1. give judgment for the plaintiff against the second defendant in an amount of $154,030.71;

2. order that the second defendant pay the plaintiff’s costs of the trial.

3. Order that the respondent pay the costs of the appeal.

4. Grant the respondent a certificate under the Suitors’ Fund Act 1951 (NSW).

106. GLEESON JA: The facts and circumstances giving rise to this appeal are set out in the judgment of Bathurst CJ.

107. The primary claim by the appellant, Silversea Cruises Australia Pty Ltd (Silversea), related to cheques totalling $154,030.71 in respect of gambling payouts from various clubs which Mrs Abellanoza provided to her husband, the respondent, to deposit into one of his two bank accounts with the Commonwealth Bank of Australia (CBA). The second CBA account was established by Mr Abellanoza on 24 July 2017, and the primary claim was limited to amounts paid in and withdrawn by Mr Abellanoza from his CBA accounts between 24 July 2017 and April 2018.

108. The alternative claim by Silversea related to the sum of $20,000 withdrawn by Mr Abellanoza from his second CBA account on 26 April 2018 and given to his wife, after she had provided him on or about 24 or 25 April 2018 with a copy of the summons and supporting affidavit filed by Silversea seeking asset freezing orders against her.

109. The essential allegation by Silversea was that Mr Abellanoza ought to have known that the moneys ($154,030.71) that his wife had provided to him to deposit into his CBA accounts had been obtained by dishonest means, namely, that she was stealing money from her employer, Silversea, to fund her gambling. With respect to the alternative claim, the essential allegation was that Mr Abellanoza knowingly dealt with the moneys obtained by dishonest means by withdrawing $20,000 from his second CBA account and giving this amount to his wife on 26 April 2018.

110. In this Court, the written submissions of Silversea referred to the availability of equitable claims for a defaulting fiduciary’s obligation of knowing receipt and knowing assistance under the first and second limbs of Barnes v Addy (1874) LR 9 Ch App 244, and the common law claim against a volunteer for money had and received. Ultimately, Silversea put its primary claim on appeal as a knowing receipt claim based on the first limb of Barnes v Addy. Silversea contended that such a claim had been pleaded in par 33 of the amended statement of claim, as an alternative to the claim for money had and received pleaded in par 32. The relevant parts of the amended pleading are reproduced in the judgment of Bathurst CJ at [14], and the relevant submissions of the parties are referred to at [15]-[20].

111. Whilst unduly technical pleading points are not to be encouraged, pleadings do matter, as they are important in identifying for both the parties and the Court the real issues in dispute. Differences between common law and equitable claims have continuing significance, including the rules for following and tracing of money or other assets at common law and in equity.

112. Despite the reference in the pleading at par 33 to Mr Abellanoza being liable to account to Silversea as a “constructive trustee” for the amounts received and withdrawn from his CBA accounts after 24 July 2017, I agree with Bathurst CJ that Silversea’s case was not pleaded or conducted as a first limb Barnes v Addy knowing receipt-type case. That conclusion is based on four matters.

113. First, whilst the pleadings are a little obscure, I agree with Bathurst CJ that the “constructive trustee” reference in par 33 of the amended statement of claim is properly understood as ancillary to the common law claim for money had and received which was pleaded in par 32. That this is the way in which Silversea put its claim at trial can be seen from its closing written submissions reproduced at [15] of the judgment of Bathurst CJ, where Silversea submitted at par 4.5 that Mr Abellanoza “is personally liable to account to the plaintiff for monies had and received or as a constructive trustee”. The remedy of a constructive trust was sought in support of the money had and received claim to the extent that any of the moneys remained in the CBA accounts.

114. Second, given Mr Abellanoza’s closing written submissions that Silversea’s pleading did not include any Barnes v Addy knowing receipt or knowing assistance-type claim, the response by Silversea (set out at [18] of the judgment of Bathurst CJ) should be taken as a concession that no such claim was pleaded. I do not read that response as merely an acknowledgement by Silversea of the pleading point taken by Mr Abellanoza. If Silversea disputed the pleading point, it needed to say so expressly. It did not do so.

115. Third, insofar as Silversea contended that the moneys stolen by Mrs Abellanoza could be traced into the CBA accounts of Mr Abellanoza, the authorities on tracing to which the primary judge was referred concerned tracing of moneys at common law: Russell Gould Pty Ltd v Ramangkura (2014) 87 NSWLR 552; [2014] NSWCA 310 and Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 572 (Lord Goff). That is consistent with Silversea only pursuing a claim for money had and received.

116. Fourth and although not determinative, the primary judge understood Silversea’s primary claim as being based on a claim for money had and received: Judgment at [39]-[41] and [143].

117. In the circumstances, Silversea should not be permitted to advance on appeal a new claim that was not pleaded or pursued at trial: Metwally v University of Wollongong (1985) 60 ALR 68 at 71.

118. As to the alternative claim by Silversea in respect of the withdrawal of $20,000 by from the second CBA account on 26 April 2018, I agree with Bathurst CJ that this claim should succeed for the reasons given by his Honour at [59] above.

119. I agree with the orders proposed by Bathurst CJ.

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Endnotes

Decision last updated: 20 December 2019