Silversea Cruises Australia Pty Ltd v Mary Ann Abellanoza

[2018] NSWSC 1565

Supreme Court

New South Wales

Medium Neutral Citation:	Silversea Cruises Australia Pty Ltd v Mary Ann Abellanoza and Anor [2018] NSWSC 1565
Hearing dates:	6, 7, 27 September 2018
Decision date:	19 October 2018
Jurisdiction:	Equity - Expedition List
Before:	Sackar J
Decision:	see paras [147]-[151]
Catchwords:	EQUITY – knowing receipt of property to which fiduciary obligations attached – test of Barnes v Addy or test of knew or ought to have known – requisite content of knowledge – whether Second Defendant knew or ought to have known of First Defendant’s fraud or bank accounts
Legislation Cited:	Evidence Act 1995 (NSW) Real Property Act 1900 (NSW)
Cases Cited:	Baden Delvaux & Lecuit v Societe Generale pour Favoriser le Development du Commerce [1992] 4 All ER 161 Barnes v Addy (1874) 9 Ch 244 Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42; [2009] NSWCA 186 Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252 Lipkin Gorman v Karpnale [1991] 2 AC 548 National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251; [1986] HCA 21 Russell Gould Pty Ltd v Ramangkura (2014) 87 NSWLR 552; [2014] NSWCA 310
Texts Cited:	J D Heydon, M J Leeming and P G Turner (eds) Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015)
Category:	Principal judgment
Parties:	Silversea Cruises Australia Pty Ltd (plaintiff) Mary Ann Abellanoza (first defendant) Perven Salas Abellanoza (second defendant)
Representation:	Counsel: D Mahendra (plaintiff) D Roberston (second defendant)   Solicitors: HWL Ebsworth (plaintiff) GTC Lawyers (first defendant) Roberston Saxton Osborne Lawyers (second defendant)
File Number(s):	2018/129773
Publication restriction:	n/a

Judgment

Procedural history

Background facts

Legal principles

The rule in Barnes v Addy

Money had and received

Tracing of money had and received

Briginshaw standard

Parties’ submissions

Plaintiff

First Defendant

Second Defendant

Evidence

Plaintiff’s Lay Evidence

Mr Jose Julio Solvas Santos

Ms Sian Patricia Gilbert

Plaintiff’s Expert Evidence: Ms Myriam Elizabeth Perez

First Defendant

Second Defendant

Consideration

Impression of the witnesses

Knew or ought to have known

Conclusion

Judgment

Procedural history

1. By way of Summons filed on 24 April 2018 Silversea Cruises Australia Pty Ltd (Plaintiff) sought and obtained freezing orders against Ms Mary Ann Abellanoza (First Defendant). On 4 May 2018 those orders were extended to include Mr Perven Salas Abellanoza (Second Defendant) and the amount frozen was increased to $2,299,401.99.

2. On 17 July 2018 the Plaintiff filed a Statement of Claim setting out the relief it sought against each of the Defendants:

1. The relief sought against the First Defendant included proprietary (constructive trust) and personal remedies (money had and received, breach of contract, breach of fiduciary duties, and compensation under s 1317H of the Corporations Act 2001 (Cth));

2. The relief sought against the Second Defendant included a proprietary remedy (constructive trust) and a personal remedy (monies had and received); and

3. The Plaintiff sought an order that an inquiry be held as to the amount of damage suffered by the Plaintiff by the conduct of the First Defendant and liberty to apply for any further relief as may be necessary to enforce its entitlement to recover all monies transferred from the Plaintiff.

3. The Plaintiff is a company in the group known as Silversea Cruises Group. The group is a privately owned group of companies that specialises in luxury cruises across a range of international destinations.

4. The Plaintiff alleges that during her employment the First Defendant defrauded it of amounts totalling $3,565,862.95, which was done by the First Defendant arranging electronic funds transfers from the Plaintiff’s bank account to 7 bank accounts controlled by her in circumstances where she had no lawful entitlements.

5. The First Defendant did not file a Defence.

6. The Second Defendant filed a Defence on 7 August 2018.

7. On 17 September 2018 I gave the Plaintiff leave to file an Amended Statement of Claim (after one previous iteration).

Background facts

8. The First Defendant was employed by the Plaintiff as Branch Accounting Supervisor during the period 5 April 2010 to 14 March 2018.

9. The First Defendant is married to her husband the Second Defendant.

10. The First Defendant’s duties as recorded in her position description dated August 2017 included:

1. Coordinating accounting for the Sydney office of the Plaintiff on a monthly corporate calendar;

2. Liaising with external auditors, banks and other external agents;

3. Preparing annual budgets;

4. Rolling forecast and variance analysis as requested;

5. Assisting local commercial directors in any financial aspects of ad hoc requests;

6. Collating all invoices for payment;

7. Reconciling bank accounts weekly;

8. Reconciling all creditor accounts;

9. Conducting a monthly review of aged trial balance for all vendors, including coordinating resolution of abnormal items.

11. The First Defendant was the only employee working in the Accounting Department in the Sydney office of the Plaintiff during the following periods:

1. 5 April 2010 to June 2016; and

2. August 2017 to 14 March 2018.

12. On 22 February 2018 the First Defendant emailed Mr Elvire Gallicchio Corporate Treasury Manager stating that she had been subject to an online scam that ended in payments being made in USD and GBP. The total value of the purported scam was for USD $56,100 and GBP £63,390.

13. After the First Defendant reported this alleged fraud an investigation by a forensic accountant revealed that the First Defendant had set up fake vendor accounts and fake invoices generated by a downloadable invoice generator and thereby transferred in excess of $3,500,000 to various bank accounts in her name and in the joint name of both Defendants (Fraudulent Payments). As the First Defendant has filed no evidence it may be taken that there is no contest as to these findings and in particular to the findings of the expert evidence and report of the Plaintiff compiled by Ms Myriam Elizabeth Perez.

14. Two of the 7 bank accounts into which the Fraudulent Payments were deposited are in the joint names of the First and Second Defendants namely:

1. St George Bank Account Number 482817021 (St George Account) into which amounts totalling $299,588.90 were deposited from the Plaintiff’s bank account in the period 3 November 2014 to 11 December 2017 (CB4 12); and

2. ANZ Account Number 510675147 (ANZ Account) into which amounts totalling $511,976.63 were deposited from the Plaintiff’s bank account in the period 28 January 2014 to 3 October 2017 (CB4 19).

15. Below is a summary of the Fraudulent Payments made to bank accounts belonging to the First Defendant and in some cases her relatives as provided by the Plaintiff’s expert evidence (CB4 11) (noting the first account number appears to be 48281721 not 482817021):

Bank	Bank Account Number	Account Name	Authorised persons on account	2014	2015	2016	2017	2018	Total
St George	48281721	P&M Abellanoza	First Defendant Second Defendant	44,422.06	130,107.00	74,675.71	50,354.13	-	299,558.90
NAB	397821789	Mrs M Antonino	First Defendant Maria Antonio	-	-	-	125,814.88	-	125,814.88
NAB	130766469	Mrs M Abellanoza	First Defendant Maria Paz H Antonio	152,490.35	217,293.52	365,775.71	460,510.69	61,016.00	1,257,086.27
NAB	397821623	Mrs M Antonino	-	-	-	100,562.80	127,532.32	228,095.12
ANZ	510675147	Perven S Abellanoza Mary Ann Abellanoza	First Defendant Second Defendant	118,224.73	138,261.14	136,290.76	119,200.00	-	511,976.63
ANZ	503918278	Mrs M Abellanoza	First Defendant	138,082.99	196,234.13	204,191.49	410,204.41	28,719.57	977,432.59
ANZ	571940354	Mary Ann Heyrosa Abellanoza	Mary Ann Heyrosa Abellanoza	-	-	-	165,898.56	-	165,898.56
453,220.13	681,895.79	780,933.67	1,432,545.47	217,267.89	3,565,862.95

16. In July 2013 the Defendants and the family went to the Philippines (T15/9-12).

17. In August 2013 the Second Defendant returned from the Philippines and was made redundant (T14/5-12). He did not obtain work until 2014 apart from working as a contractor (T14/40-50).

18. The following broad periods of travel were referred to by the Plaintiff with reference to the evidence, noting that on the evidence it was unclear to determine precisely which party or family member was travelling on the following dates (T135/29-31) (and see the discussion at T137/1-T138/7):

1. In December 2013 the Defendants and their family travelled to Surfers Paradise, Cairns and Darwin (T15/1-24, T134/46-50);

2. In April 2015 the Second Defendant went to the United States including Hawaii and Las Vegas (T134/44-46);

3. In about September 2016 and November 2016, there was further travel to the Philippines (T135/1-7);

4. In January 2016 the Defendants went to Singapore with their daughter as a holiday (CB 763, T20/9-45, T134/50-T135/1);

5. In February 2017 there was travel to Fiji (Second Defendant’s Affidavit [45], T135/8-10);

6. In April 2017 the Defendants went to Surfers Paradise for their anniversary (T21/20-21, T135/6-7);

7. In May 2017 and June 2017 the Defendants went to the Philippines and Taiwan on holidaying trips (T21/23-38, T135/7-8);

8. In June to July 2017 there was travel to the Philippines (CB 581-3, T135/10-12);

9. In August 2017 there was travel to the Philippines and then to Melbourne (CB 594-5, T135/12-14);

10. In September 2017 there was travel to Brisbane (CB 606, T135/14-15);

11. In October 2017 there was travel to Melbourne (T135/15-16);

12. In November 2017 the Defendants again travelled to the Philippines (T23/26-45, T135/16-17);

13. In November 2017 there was travel to Melbourne (CB 615, T135/17-18);

14. In December 2017 there was travel to the Gold Coast and Philippines (CB 626-7, T135/18-20);

15. There was travel in January 2018 to the Philippines, although it is unclear whether this was a continuation of the travel in December 2017 (CB 632-3, T135/17-23); and

16. In April 2018 there was travel to the Gold Coast (CB 654, T135/23-24).

19. On 14 March 2018 the First Defendant resigned from her employment with the Plaintiff.

20. On 24 April 2018 the First Defendant was served with a Summons (T48/26-28).

21. On 25 April 2018 the Second Defendant accepted he was carrying boxes from his house stating they were clothes because he wanted to move out, where he dropped the boxes at his niece’s house (T50/1-7; T63/28-32).

22. On 26 April 2018 the Second Defendant withdrew $20,000 from his Commonwealth Bank Account (T50/43-50).

23. As at 14 June 2018 the St George Account had a balance of $87,811.77 and the ANZ had a balance of $699.41 (Second Defendant’s submissions [5]).

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.

Legal principles

The rule in Barnes v Addy

25. In Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ said (at [111]) (citations omitted):

The “rule in Barnes v Addy” stated. In Barnes v Addy Lord Selborne LC said:

“Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.”

The form of liability referred to in the first part of the last sentence is often called the “first limb” of Barnes v Addy, and the form of liability referred to in the second part of the last sentence is often called the “second limb”. In Barnes v Addy itself, the Court of Appeal in Chancery (Lord Selborne LC, James and Mellish LJJ) upheld the decision of Wickens V-C that two solicitors, Mr Preston and Mr Duffield, had not received any trust property and had no knowledge of any dishonest and fraudulent design to make them parties to the breach of trust by the sole trustee. It was insufficient that Mr Preston had been alive to the danger of the course of appointing a sole trustee and that Mr Duffield had prepared the appointment of that trustee.

26. Their Honours also stated (at [163]) (citations omitted):

Thirdly, whilst the different formulations of principle may lead to the same result in particular circumstances, there is a distinction between rendering liable a defendant participating with knowledge in a dishonest and fraudulent design, and rendering liable a defendant who dishonestly procures or assists in a breach of trust or fiduciary obligation where the trustee or fiduciary need not have engaged in a dishonest or fraudulent design. The decision in Royal Brunei has been referred to in this Court several times but not in terms foreclosing further consideration of the subject in this Court, in particular, further consideration of the apparent necessity to displace the acceptance in Consul Development Pty Ltd v DPC Estates PtyLtd of the formulation of the second limb of Barnes v Addy were Royal Brunei to be adopted in this country. Until such an occasion arises in this Court, Australian courts should continue to observe the distinction mentioned above and, in particular, apply the formulation in the second limb of Barnes v Addy.

27. Applying the dicta of Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8 their Honours said a recipient is only liable if he or she has knowledge on any of the first four points of the “Baden scale” (as from Baden Delvaux & Lecuit v Societe Generale pour Favoriser le Development du Commerce [1992] 4 All ER 161) (at [174]-[178]) (citations omitted):

Against this background, it has been customary to analyse the requirement of knowledge in the second limb of Barnes v Addy by reference to the five categories agreed between counsel in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l’Industrie en France SA:

“(i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry.”

In Bank of Credit and Commerce International (Overseas) Ltd v Akindele (BCCI), Nourse LJ observed that the first three categories have generally been taken to involve “actual knowledge”, as understood both at common law and in equity, and the last two as instances of “constructive knowledge” as developed in equity, particularly in disputes respecting old system conveyancing. After noting that in Royal Brunei the Privy Council had discounted the utility of the Baden categorisation, Nourse LJ in BCCI went on to express his own view that the categorisation was often helpful in identifying the different states of knowledge for the purposes of a knowing assistance case.

Although Baden post-dated the decision in Consul, the five categories found in Baden assist in an analysis of that for which Consul provides authoritative guidance on the question of knowledge for the second limb of Barnes v Addy.

Thus, support in Consul can be found for categories (i), (ii) and (iii). Further, Consul also indicates that category (iv) suffices. However, in Consul, Stephen J held that knowledge of circumstances which would put an honest and reasonable man on inquiry, later identified as the fifth category in Baden, would not suffice. Gibbs J left open the possibility that constructive notice of this description would suffice. Barwick CJ agreed with Stephen J.

The result is that Consul supports the proposition that circumstances falling within any of the first four categories of Baden are sufficient to answer the requirement of knowledge in the second limb of Barnes vAddy, but does not travel fully into the field of constructive notice by accepting the fifth category. 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.

These conclusions in Consul as to what is involved in “knowledge” for the second limb represent the law in Australia. They should be followed by Australian courts, unless and until departed from by decision of this Court.

Money had and received

28. In Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42; [2009] NSWCA 186 Allsop P and Young JA said (at [121]-[125]):

The relevant enquiry as to the availability of the order for payment or repayment does not cease with the identification of the relevant qualifying consideration, such as mistake. The enquiry is as to the injustice of the retention of any money or benefit. This lies at the root of the claim and of any defence such as change of position: Lipkin Gorman v Karpnale Ltd [1988] UKHL 12; [1991] 2 AC 548 at 560 (per Lord Templeman) and 578 (per Lord Goff). The High Court has recognised this element of the injustice or otherwise of retention in the operation of defences: David Securities at 385-386 and ANZ v Westpac at 673. Lord Goff, similarly, in Lipkin Gorman examined the question of the injustice or otherwise of retention in the context of defences. Lord Templeman examined the question in evaluating the primary right of recovery. (It is to be noted that the balance of the House of Lords in Lipkin Gorman – Lord Bridge of Harwich, Lord Griffiths and Lord Ackner agreed with both Lord Templeman and Lord Goff.)

A similar emphasis on retention as the foundation for the restitutionary action can be seen in the cases dealing with voluntary receipt of moneys belonging to another and the later discovery of that fact: Black & Black v S Freedman & Co [1910] HCA 58; 12 CLR 105; Banque Belge pour l’Etranger v Hambrouck [1921] 1 KB 321; and see also Port of Brisbane Cooporation v ANZ Securities Ltd (No 2) [2002] QCA 158; [2003] 2 Qd R 661 at 670 [9].

The question of request, payment, receipt and benefit should be viewed as matters of substance and not form or legal technicality: ANZ v Westpac at 673-674. A good illustration of the legitimacy of this approach can be found in National Commercial Banking Corporation of Australia Ltd v Batty [1986] HCA 21; 160 CLR 251. In that case, Davis and Batty were accountants practising in a partnership. Davis wrongly deposited a cheque from the plaintiff to the partnership’s account and then used the proceeds for his own purposes. The trial judge found that Davis, in depositing the cheque, was not acting in the ordinary course of business of the firm. On appeal the High Court held that the fact of partnership was not enough in the circumstances to make Mr Batty liable, and that there needed to be consideration of the alternative claim for money had and received by the members of the firm to the use of a bank. Gibbs CJ started his consideration of this issue at 263. His Honour analysed cases where a partner is sued because the partnership’s bank account had a payment into it otherwise than in the ordinary course of business of which the innocent partner had no knowledge. Gibbs CJ then said at [268-269]:

“[T]he emphasis on justice and equity in both old and modern authority on this subject supports the view that the action will not lie unless the defendant in justice and equity ought to pay the money to the plaintiff: Moses v Macferlan [(1760) 2 Burr 1005 at 1012; 97 ER 676 at 680-681]; Campbell v Kitchen & Sons Ltd andBrisbane Soap Co Limited [[1910] HCA 50; 12 CLR 515 at 531]; R v Brown [[1912] HCA 6; 14 CLR 17 at 25]; Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Limited [[1943] AC 32 at 61 and 64]; Watney v Mass [(1954) 54 SR (NSW) 203 at 205-206]; and Fischler v Administrator of Roumanian Property [1960] 1 WLR 917 at 946-947; (1960) 3 All ER 433 at 446-447]. Where, because of the action of a servant or agent acting outside the scope of his authority, or for that matter because of the action of a complete stranger, money has been paid into the account of the defendant, who has technically received it, although he is quite unaware of the fact, and the money is then misappropriated, still without the knowledge or intervention of the defendant, there seems to be no reason in justice or equity why the defendant should be answerable for the money simply because theoretically he had the means of knowing that the money was in the account. In principle, in those circumstances, the defendant ought not to be liable unless, before the money was misappropriated, he knew or ought to have known that he had possession or control of it. In other words, where the defendant has not had the benefit of the money, has not played any part in disposing of it and was ignorant of the fact that it was theoretically under his control, he should not be liable in the absence of fault on his part.”

Wilson J agreed with the Chief Justice as did Dawson J. Brennan J said at 274 that merely because the cheque without Mr Batty’s knowledge passed through the account was not enough for a successful claim against him for money had and received.

Batty is authority for the proposition that in circumstances where funds have been placed in a bank account of a party, that party will not be taken to have received the funds unless he, she or it ought to have known of their presence through some fault. In those circumstances, the relevant fault of the recipient and the consequent conclusion that he, she or it ought to have known of the receipt will then suffice for non repayment of the funds to be unjust or against justice and equity.

In other areas, actual receipt will not be viewed as receipt giving rise to an obligation to repay. The receipt by an agent is a well-known example: Stephens v Badcock (1832) 3 B & Ad 354; 110 ER 133; ANZ v Westpac; though, mere payment on will not suffice, of itself, to deny the plaintiff’s entitlement: Tugman v Hopkins (1842) 4 Man & G 389; 134 ER 159; Portman Building Society v Hamlyn Taylor Neck [1998] 4 All ER 202 at 207; and see generally Neilson v Moss (1905) 22 WN (NSW) 116 (FC); Vella v Permanent Mortgages Pty Ltd at 25,391 [462] and cases there cited and Mason, Carter and Tolhurst Restitution Law in Australia, 2nd Ed (2008 Butterworths) at 163 [435].

29. See National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251 at 268-9 (Gibbs CJ); [1986] HCA 21 (“Batty”) and David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48.

30. In Batty, Wilson J provided further explanation of the content of what “ought to have known” means (at 269-71) (citations omitted):

I have had the advantage of reading the reasons for judgment prepared by the Chief Justice. I agree in substance with those reasons and with the conclusion to which they lead. Save for the observation I am about to make there is nothing that I wish to add.

Counsel for the appellant, in advancing the claim for money had and received, argued that it was sufficient to show that the respondent had the means of knowledge that the money had been credited to the firm's account notwithstanding that he neither knew nor ought to have known of that fact. The phrase "means of knowledge" appears to have its origin in the opinion of the judges which was provided by Park J to the House of Lords in the case of Marsh v Keating. It was repeated in Jacobs v Morris and again in this Court in James v Oxley. A consideration of the context of the references to "means of knowledge" in these cases inclines me to the view that it is a misconception to perceive any distinction between a case where it is said that a person had the means of knowledge and a case where it is said that a person "ought to have known". In Marsh v Keating, Park J, speaking of the defendants, said:

"If they had not the actual knowledge, they had all the means of knowledge; and there is no principle of law upon which they can succeed in protecting themselves from responsibility, in a case wherein, if actual knowledge was necessary, they might have acquired it by using the ordinary diligence which their calling requires."

By coupling the means of knowledge available to the defendants with the diligence which their calling required his Lordship was plainly saying that if the defendants did not have actual knowledge of the payment of the money, they ought to have known of it. In Jacobs v Morris the finding of Farwell J at first instance is expressed to be an application of the "means of knowledge" test enunciated in Marsh v Keating illuminated by the principles of equity and justice to which Lord Mansfield referred in Moses v Macferlan. The decision was upheld in the Court of Appeal and it is unnecessary to repeat the analysis of the reasoning of their Lordships that appears in the reasons of the Chief Justice. It suffices to say that there is no authority to be found in Jacobs v Morris for the proposition that the means of knowledge available to a defendant is a criterion of liability independent of any consideration of what, in the circumstances of a particular case, a defendant ought to have known. Of course a finding that a defendant, having no means of knowledge, could not have known of the payment will render any further consideration of the element of knowledge unnecessary.

Finally, I understand Dixon J in James v Oxley to take up the references in the earlier cases to "means of knowledge" and to accord to them an operation consistent with that which I have indicated. His Honour said:

"The explanation of the introduction into the question of the element of 'means of knowledge' may lie in the peculiarity of the position of partners in relation to a partnership bank account upon which each partner may be empowered to draw by himself. In substance, money, though temporarily there, may never be in the actual de facto control of any member of the firm except the fraudulent partner. He may pay a cheque to the credit of the account and immediately draw against it. In such circumstances the technical 'receipt' by the firm may be considered as insufficient to make payment into the account a receipt to the use of the plaintiff unless the other partners knew or ought to have known of the credit and of its nature."

In other words, that which in the circumstances of a particular case a defendant ought to have known is intimately related to the means of knowledge available to him.

31. In Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252 Allsop P (with Campbell JA and Handley AJA agreeing) said (at [74]-[75] and [153]-[154]):

Thus, for Ms Belle to be liable, the appellants must show that she ought to have been aware that she had possession or control of the funds in question in the account. In Marsh v Keating the ordinary diligence that was required of the firm in the conduct of its broking business would have disclosed it. Jacobs v Morris is a difficult case, as the discussions of it by Gibbs CJ (at 216-267) and Brennan J (at 277-279) in Batty show. As Gibbs CJ said at 267, Jacobs v Morris does not decide that means of knowledge are enough to render liable a person into whose account money has been paid. The notion that Ms Belle “ought to have known” of the presence of the funds required, as Gibbs CJ said at 269, some “fault” on her part conformable with the proposition that she ought to have known of the presence of the moneys. The relevant fault of the recipient and the consequent conclusion that he or she ought to have known of the receipt will then suffice for retention of the funds to be unjust or against justice and equity: see Moses v Macferlan (1760) 2 Burr 1005 at 1012; 97 ER 676 at 680-681; Campbell v Kitchen & Sons Ltd and Brisbane Soap Co Limited [1910] HCA 50; 12 CLR 515 at 531; R v Brown [1912] HCA 6; 14 CLR 17 at 25; Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Limited [1943] AC 32 at 61 and 64; Watney v Mass (1954) 54 SR (NSW) 203 at 205-206; and Fischler v Administrator of Roumanian Property [1960] 1 WLR 917 at 946-947 all cited by Gibbs CJ in Batty at 268; see also Australia and New Zealand Banking Group Limited v Westpac Banking Corporation [1988] HCA 17; 164 CLR 662 at 673; and Perpetual Trustees at [126]-[128]. It is unnecessary to enter into any discussion invoked by Farah Constructions at 156 [150] as to the need for categories or principled analysis, rather than unstructured judicial discretion, for any conclusion as to injustice in this context: see the discussion in K Mason, J Carter and G Tolhurst, Mason and Carter’s Restitution Law in Australia, ((2nd Ed) 2008 Lexis Nexis Butterworths) at 63-71 [164]-[175] (herein “Restitution Law in Australia”). Here, on the authority of Batty, fault of a recipient leading to the conclusion that he or she ought to have known of the receipt of the funds such that it would be unjust or inequitable to retain the funds is the required analysis.

The content of the required degree of fault and the standard by reference to which the person “ought” have known of the funds may, perhaps, be informed by the cognate principles as to when in restitution a party is to be denied a defence based on good faith change of position, short of actual knowledge of the factors giving rise to the right of restitution: see Restitution Law in Australia at 870 [2421]; and see Niru Battery Manufacturing Co v Milestone Trading Ltd (No 2) [2003] EWCA Civ 1446; [2004] QB 985 at 998-1003 [145]-[162] per Clarke LJ (as his Lordship then was) with which Butler-Sloss P agreed (at 1013 [193]). As appears from that discussion and from Batty itself mere means of knowledge is inadequate. Another way of putting the standard underpinning “ought” in this context is expressed in R Meagher, J D Heydon and M Leeming, Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies, ((4th Ed) 2002 Lexis Nexis Butterworths) at 342 [8-270] (herein Equity: Doctrines and Remedies) as:

“… 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.”

…

Thus, the approach of the Court of Appeal in Banque Belge and of Lord Templeman in Lipkin Gorman (supported by Professor Smith in “Simplifying Claims to Traceable Proceeds” (2009) 125 LQR 338 at 340) is entirely supportive of an obligation at law to restore, in money terms, the value of the retained proprietary benefit derived (as here) from the receipt of funds traceable in equity from cheques misappropriated from the appellants. The importance of retention of benefit, as a matter of substance, can be seen in Ford v Perpetual Trustees Victoria Limited [2009] NSWCA 186 at [119]-[131].

A similar result flows from the application of equitable doctrine. There is no impediment to concurrent remedies at law and in equity being available: Stephens Travel Service at 341. Black v S. Freedman is clear authority for the equitable obligation upon the innocent volunteer to restore to the plaintiff the fund identified and remaining (whether in original form or traceable product) in his or her hands. The equitable obligation arises from the later discovered position, not from wrongful conduct. Therefore, the extent of the personal equity involved, created by the circumstance in question, is the touching of the conscience of the volunteer recipient to deal with the property of another conformably with the interests of the owner, now discovered. The expression of view of O’Connor J as to constructive trust (as to which see the views of Spigelman CJ in Robb Evans that the characterisation is better expressed as resulting trust) should be seen in this light. To call the volunteer recipient a constructive trustee and to call upon him or her to account as a constructive trustee (because he or she upon discovery of the fund or asset belonging to another has become one) does not mean the volunteer comes under personal liabilities, independently of, or beyond, the obligation to restore the fund or asset and any attendant obligation. He or she does not, for instance, become liable to pay damages for the moneys received that led to the fund or asset being created, as if he or she were a knowing participant in the fraud.

32. In the context of a discussion on what constitutes a “bona fide purchaser for value without notice” J D Heydon, M J Leeming and P G Turner (eds) Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015) provides (at [8-270]) (citations omitted):

A person is deemed to have constructive notice of all matters: (a) of which the person would have received notice if the person had made the investigations usually made in similar transactions; and (b) of which the person would have received notice had the person investigated a relevant fact which had come to that person's notice and into which a reasonable person ought to have inquired. It follows that all cases in which a person is said to have constructive notice of a fact or thing are cases in which the person has failed to inquire, either sufficiently or at all. The criterion of whether a total failure to make inquiries will affect a person with constructive notice is whether the person has neglected to do that which is usually done by business people in similar circumstances, as a matter of prudence with a view to their own security. It covers not only the case where there has been a deliberate abstention from inquiry in order to avoid possible notice, but on the view expressed in Ashburner on Equity, all other cases in which, intentionally or otherwise, a person abstains from inquiry in circumstances where a reasonable person would inquire. Thus, as was held in Robson v Flight, a purchaser who enters into a contract to accept a shorter title than the purchaser could have insisted on under an open contract, has constructive notice of all facts the purchaser would have discovered on an investigation of the title for the full period.

Tracing of money had and received

33. In Russell Gould Pty Ltd v Ramangkura (2014) 87 NSWLR 552; [2014] NSWCA 310 Barrett JA (with Bathurst CJ and Ward JA agreeing) said (at [28]-[32]):

The essence of the common law action for money had and received to the use of the payer was recognised by Lord Mansfield in Moses v Macferlan (1760) 2 Burr 1005; 97 ER 676 as the notion that retention of the money by the payee would be against conscience. In David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; 175 CLR 353, a case of payment under mistake, it was said by Mason CJ, Deane, Toohey, Gaudron and McHugh JJ (at 379) that the mistake gave rise to a prima facie obligation on the part of the recipient to make restitution. The action thus lies principally against a receiving party.

The action may, however, lie against a party to whom the immediate receiving party has in turn made payment. But as Lord Goff of Chieveley pointed out in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 572, any ability to maintain the action against such a third party depends on the plaintiff's showing that money or property in that third party's hands is the legal property of the plaintiff - a matter that, in a case such as the present, involves common law rules (as distinct from rules of equity) regarding following and tracing. In Agip (Africa) Ltd v Jackson [1990] Ch 265 at 285, Millett J said that, for the purposes of an action for money had and received, "[t]racing at common law enables the defendant to be identified as the recipient of the plaintiff's money and the measure of his liability to be determined by the amount of the plaintiff's money he is shown to have received".

If, in the present case, the true characterisation of events is that the Company paid money to Mr Gould and he paid equivalent money to the Defendant, a claim for money had and received cannot avail the Company, as against the Defendant, unless the requirement identified by Lord Goff in Lipkin Gorman is satisfied and the Company can, according to common law rules, follow or trace its money into the hands of the Defendant.

In any discussion of common law following and tracing, a valuable starting point is the following statement by Lord Millett in Foskett v McKeown [2001] 1 AC 102 at 127-8:

"[Tracing and following] are both exercises in locating assets which are or may be taken to represent an asset belonging to the plaintiffs and to which they assert ownership. The processes of following and tracing are, however, distinct. Following is the process of following the same asset as it moves from hand to hand. Tracing is the process of identifying a new asset as the substitute for the old. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner.

...

Tracing is also distinct from claiming. It identifies the traceable proceeds of the claimant's property. It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim. But it does not affect or establish his claim. That will depend on a number of factors including the nature of his interest in the original asset. He will normally be able to maintain the same claim to the substituted asset as he could have maintained to the original asset. ... But his claim may also be exposed to potential defences as a result of intervening transactions."

As is here made clear, principles concerning following and tracing do not of themselves define or determine substantive rights. They facilitate the identification of particular property in someone else's hands as either the plaintiff's property or as a substitute for the plaintiff's property. Property is treated as identifiable as long as it has not become mingled with other property. The common law therefore does not allow tracing into a mixed fund (equity, by contrast, may grant or recognise a charge over such a fund in order to preserve an equitable interest arising from an addition or contribution to it).

34. In Lipkin Gorman v Karpnale [1991] 2 AC 548 Lord Goff of Chieveley likewise observed (at 572) “at common law, property in money, like other fungibles, is lost as such when it is mixed with other money”.

Briginshaw standard

35. Given the seriousness of the allegations against the Defendants the Court must come to a comfortable satisfaction about material aspects of the case. Section 140 of the Evidence Act 1995 (NSW) provides:

140 Civil proceedings: standard of proof

(1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.

(2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:

(a) the nature of the cause of action or defence, and

(b) the nature of the subject-matter of the proceeding, and

(c) the gravity of the matters alleged.

36. In Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 Dixon J said (at 361-2):

The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality. No doubt an opinion that a state of facts exists may be held according to indefinite gradations of certainty; and this has led to attempts to define exactly the certainty required by the law for various purposes. Fortunately, however, at common law no third standard of persuasion was definitely developed. Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect inferences.

Parties’ submissions

Plaintiff

37. The Plaintiff submits its case against the First Defendant is relatively straightforward in that the evidence demonstrates that the First Defendant made payments in excess of $3,500,000 to bank accounts of which she and/or her husband were beneficiaries. This conduct was not authorised by the Plaintiff and the First Defendant engaged in the conduct deliberately and in breach of her contractual, fiduciary and statutory obligations to the Plaintiff (submissions [1.1]-[1.9], [1.11], closing submissions [1.1]-[1.9]). The Plaintiff states it is clear the First Defendant has dishonestly misappropriated a total of $3,565,862.95 from the Plaintiff. It contends she had no entitlement to the money, nor has provided any defence or explanation and the appropriate inference should be drawn (closing submissions [3.1]-[3.3]).

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 the St George Account (for the amount of $299,588.90 from 3 November 2014 to 11 December 2017) and ANZ Account (for the amount of $511,976.63 from 28 January 2014 to 3 October 2017) jointly held in his and his wife’s name (opening submissions [3.2]). The Plaintiff also submits the Second Defendant received the benefit of monies transferred into NAB account number 130766469 of which he had either actual knowledge or constructive knowledge (opening submissions [1.10], [3.2]).

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 10620475 and 10316831 (closing submissions [1.11], [4.5]).

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 (submissions [2.1], closing submissions [2.6]).

41. Further the Plaintiff submits where notice that the money or property was the proceeds of an unauthorised receipt is acquired by a third party, he or she will not be relieved of personal liability by later disposing of the money or property into which its benefit is traceable. The content of the required degree of knowledge is determined by reference to that which the person ought to have known if informed of all matters (a) which he or she would have received notice if they had made the investigations usually made in similar transactions; and (b) of which he or she would have received notice had he or she investigated a relevant fact which came to their notice and into which a reasonable person ought to have enquired (submissions [2.2]-[2.4], closing submissions [2.6]-[2.8]).

42. The Plaintiff contends payments made in respect of a mortgage are usually only of direct benefit if they reduce the principal loan, however in a rising market it could be said preservation of a loan may be linked to a proprietary benefit, or if it can be said without misappropriated monies a mortgage debt could not have been met (closing submissions [2.9]).

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 (closing submissions [4.1]-[4.2]). 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 (closing submissions [4.3]).

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, or had knowledge of circumstances which would put an honest and reasonable person on inquiry (closing submissions [4.4]).

45. The Plaintiff submits the Second Defendant had knowing receipt (actual or constructive) of the misappropriated funds (submissions [3.1]-[3.3]).

46. Accordingly, by receiving and withdrawing monies from each of the Commonwealth Bank accounts after 24 July 2017 the Second Defendant dealt with monies obtained by dishonest means and is personally liable to the Plaintiff for those monies (closing submissions [4.5]).

47. In the alternative, the Plaintiff submits since 24 April 2018 the Second Defendant has had knowledge that the amounts deposited into each of the Commonwealth Bank accounts were obtained by dishonest meanings. This was because his date informed him of the contents of the Summons filed on 24 April 2018 (closing submissions [4.6]-[4.8]). He is liable to the Plaintiff for these amounts totalling $20,000 (closing submissions [4.8]).

48. Further still, the Plaintiff asserts the Second Defendant had knowledge of payments made to maintain mortgages held by the family for the following loan account numbers, paid from the St George Account (closing submissions [4.9]-[4.10]):

1. Loan account number S211.1449379.00;

2. Loan account number S211.1449379.01;

3. Loan account number S211.1449379.02; and/or

4. Loan account number: S211.1449379.03.

49. The Plaintiff asserts the Second Defendant is personally liable to account to the Plaintiff as constructive trustee for any benefit he has retained in the property at 9 Winsome Avenue Plumpton, which includes the mortgages held with the St George Bank above and the increase in value of the Plumpton property (closing submissions [4.11]-[4.12]).

50. In addition, the Plaintiff contends 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 (1874) 9 Ch 244 constructive trust (closing submissions [2.1]-[2.5]).

First Defendant

51. As indicated the First Defendant did not file a defence and Mr Hardy solicitor for the First Defendant indicated that he did not wish to make any separate submissions on behalf of his client, but adopted as far as relevant as I understood it, the submissions made by the Second Defendant (T119/35-41).

Second Defendant

52. After briefly outlining the background to the proceedings (submissions [1]-[5]) the Second Defendant makes a number of submissions with respect to the Plaintiff’s claim and pleadings (closing submissions [1]).

53. The Second Defendant submits 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 (submissions [6]-[11], closing submissions [2]).

54. The Second Defendant further submits the Plaintiff has not sought, and has not provided evidence proving, any tracing in respect of any assets owned by the Second Defendant (submissions [12]-[13]). To this extent the Second Defendant accepts he is liable only to $1,829.08 as money had and received for the use of the Plaintiff for both the ANZ Account and St George Account as the remaining amounts in those two accounts of the Fraudulent Payments have been withdrawn (submissions [15]-[18], closing submissions [10]-[15]).

55. In any event the Second Defendant submits the claims against him by the Plaintiff should be dismissed (closing submissions [3]).

56. The Second Defendant denies that he had any knowledge (actual or constructive) of any of the Fraudulent Payments over which he had possession or control made into the St George Account or ANZ Account, and only became aware of the Plaintiff’s claims when proceedings were commenced (that is on or about 24 April 2018) (submissions [14], closing submissions [16]-[26]). He denies he had actual knowledge or control over the St George Account or ANZ Account (closing submissions [27]-[37]) and denies there is any evidence relating to the supposed extravagant lifestyle of the Defendants or their gambling habits that provides evidence for the Court to make the inference that he ought to have known of the deposit of the Fraudulent Payments into the two jointly owned accounts (closing submissions [38]-[56]).

57. He denies he is required to give restitution to the Plaintiff for any greater amount than $1,829.08, and denies he is liable to the Plaintiff for damages or any other relief (submissions [19]). He submits the Plaintiff’s claim with respect of the property at 9 Winsome Avenue Plumpton is misconceived. The property is jointly owned by the Defendants and mortgaged to the St George Bank, and given the effect of s 42 of the Real Property Act 1900 (NSW) the Plaintiff cannot seek any proprietary remedies against the Second Defendant in respect of mortgage repayments. As the Second Defendant did not know and had no reason to have known about the deposit of the Fraudulent Payments the claim with respect against the property should likewise be dismissed (closing submissions [57]-[63]).

58. With respect to the monies deposited into the Second Defendant’s Commonwealth Bank accounts, he contends that as the Plaintiff has conceded all of the cheques deposited into these two accounts were drawn from the poker clubs’ bank accounts not from any other source, none of the monies were Fraudulent Payments. As soon as the Fraudulent Payments were deposited or paid into the poker machines, those monies became mingled with the clubs’ monies and cannot be traced into any of the amounts paid out by the clubs to either of the Defendants: Russell Gould Pty Ltd v Ramangkura (2014) 87 NSWLR 552; [2014] NSWCA 310 (closing submissions [4]-[9]).

Evidence

Plaintiff’s Lay Evidence

Mr Jose Julio Solvas Santos

59. Mr Santos swore one affidavit in the proceedings on 23 April 2018.

60. In this affidavit Mr Santos outlined how since 2017 he has been employed by the parent company of the Australian company of the Plaintiff in the position of Vice President – Corporate Accounting and Tax. This parent company is part of a group of companies known as the Silversea Cruises Group which is a privately owned group of companies that specialises in gold standard luxury cruises.

61. In Australia, the Silversea Cruises Group operates through the Plaintiff in its office at 8 Spring Street Sydney NSW, and employs approximately 35 employees with a turnover in Australia of approximately $15,000,000 per annum. Prior to February 2018, Mr Santos said Ms Amber Wilson (Managing Director), the First Defendant (Branch Accounting Supervisor) and Ms Megan Booker (Marketing Executive, Digital and Trade) worked in the office of the Plaintiff in Sydney.

62. He said the First Defendant was employed by the Plaintiff from 5 April 2010 to 14 March 2018, with terms of employment set out in her employment contract executed on 15 March 2010. Immediately prior to the cessation of her employment, the First Defendant had a base salary of $88,167 and worked as the only employee in the Accounting Department of the Plaintiff from 5 April 2010 to June 2016, and August 2017 to 14 March 2018.

63. From September 2013 to 26 April 2016, the First Defendant reported to Ms Christensen and himself. During her employment, the First Defendant had access to “NAV” software to process invoices received from suppliers at the Sydney Office, of which she had a unique user profile and login.

64. Mr Santos said that on various occasions during the First Defendant’s employment, Silversea Cruises Group reprimanded her for her failure to act in accordance with the required policies and procedures for purchase orders and payment processing.

65. On 22 February 2018, the First Defendant emailed Elvire Gallicchio the Corporate Treasurer Manager stating that she had been subject to an online scam ending in scam payments of USD $56,100 and GBP £63,390.

66. On 26 February 2018 Mr Santos received a call from Ms Wilson who conveyed to him that the First Defendant had offered to pay $195,000 to the Plaintiff to repay the purported scam payments. He thought this was unusual as the First Defendant on her account was not at fault because she had been the innocent victim of an “email scam”. This led to further investigations, where in March 2018 Ms Cernoglazova Senior Accountant of Silversea Cruises Group informed Mr Santos of a number of discrepancies in the First Defendant’s invoice practices in the Sydney office, including numerous payments to illegitimate accounts

67. On 14 March 2018 the First Defendant resigned from her employment.

68. Mr Santos engaged forensic experts on April 2018 to conduct a forensic review of the First Defendant’s activity. On 16 April 2018 he was informed by Ms Cernoglazova that in the days prior to the First Defendant’s resignation, she had observed her placing large quantities of hard copy documents in the shredding bin in the Sydney office. Mr Santos unlocked the secure destruction bin and observed that the bin contained numerous documents of unopened vendor correspondence and documents indicating the First Defendant had utilised an accounting software known as “FreshBooks” an unofficial software used to create invoices and available for download online.

69. Mr Santos was not required for cross-examination.

Ms Sian Patricia Gilbert

70. Ms Gilbert swore one affidavit in the proceedings on 4 May 2018.

71. Ms Gilbert outlined how she is the responsible partner on this matter for solicitors for the Plaintiff.

72. She asserted the forensic evidence obtained in this matter to date indicates the First Defendant used her position with the Plaintiff to misappropriate company funds, including by making what appears to be fraudulent supplier payments and payments to a purported “ATO Direct Credit Account” which is fact an account with NAB number 130766469.

73. As at 24 April 2018 she said the forensic evidence indicated the First Defendant had misappropriated $1,590,348.82 of company funds. She further described the freezing orders made by Kunc J on 24 April 2018 and subpoenas issued to the various banks relating to the First Defendant’s account activity.

74. Ms Gilbert was not required for cross-examination.

Plaintiff’s Expert Evidence: Ms Myriam Elizabeth Perez

75. Ms Perez swore on affidavit on 15 August 2018 annexing in various forms her expert report. She is an Equity Partner at Moore Stephens NSW which specialises in audit, accounting, tax and business advisory services.

76. In her Second Supplementary Report dated 14 August 2018 Ms Perez set out the summary and process behind her findings and concluded:

8.1 It is my professional opinion that given the nature, the size and the frequency of the transactions, these have not occurred from simple oversight or error but are indicative of deliberate and calculated fraud investigated by Mary Ann.

…

8.5 Table 5 shows that a total of $3,565,862.95 was paid from the Silversea BOA account to the seven bank accounts belonging to Mary Ann between 1 January 2014 and 31 March 2018. These payments were listed in Navision as being vendor payments, which was definitely not the case. They were fraudulent misappropriation of funds made to bank accounts belonging to Mary Ann or people related to her.

77. Ms Perez was not required for cross-examination.

First Defendant

78. Unsurprisingly the First Defendant did not give evidence.

Second Defendant

79. The Second Defendant filed two affidavits on 14 June 2018 and 31 August 2018.

80. In his first affidavit the Second Defendant provided a list of his assets. The most significant asset was his half share (owned jointly with the First Defendant) in his house at 9 Winsome Ave Plumpton NSW 2761 with value estimated at $600,000. His most significant liabilities were two home loan accounts with St George Bank secured over his house estimated at $169,709.03 and $254,264.59 (half share with his wife the First Defendant).

81. In his second affidavit the Second Defendant described how he was born on 11 April 1963 in Cebu in the Philippines. In about 1985 he was in his last year of a bachelor of electrical engineering at Cebu Technical School in the Philippines but decided to quit, and entered the workforce as an electrical technician.

82. He met the First Defendant in 1986 in the Philippines when she was on a scholarship studying industrial engineering at Cebu Institute of Technology. They married in 1990 with their son Nathan born on 13 March 1992 and Nadine on 23 December 1993.

83. He asserted that from the beginning of their marriage, the couple decided the First Defendant would be responsible or the household finances and paying household bills. In 1996 the family emigrated to New Zealand and in 2002 emigrated to Australia.

84. The Second Defendant said when he came to Australia he worked assembling air conditioning for trains, and then for Quirks Refrigeration where he designed refrigerators. In 2004 he started studying refrigeration and air conditioning at TAFE which he finished in 2007, allowing him to work as a contractor. He stopped working in May 2018 due to some health reasons.

85. The Second Defendant asserted when they moved to Australia he and his wife opened the ANZ Account. However since opening the account he said he has not known the banking details or card PIN, as he does not have access to internet banking or a debit card for the ANZ Account.

86. He said he opened his own account with the Commonwealth Bank of Australia in 2004 with the assistance of his wife. He said he does not know how to use an ATM and his wife has access to this account to pay for household expenses and she has the debit card for this account. He asserted he does not know the PIN for the debit card nor the details of his credit card account because he is hopeless with technology.

87. The Second Defendant said he knew his wife had several accounting supervisor jobs but did not know how much she was being paid as she was responsible for household finances.

88. He asserted he and his wife started gambling in 2013 because of a string of personal tragedies including the deaths of relatives. They started going to the RSL and gambling on poker machines in Rooty Hill, Lakemba or Canterbury. When they went to the RSL or club they would go their separate ways. His wife would give him an amount of cash to use, or he would have some cash still in his wallet.

89. The Second Defendant described the various trips he and his family took in 2014 to the present, estimating since 2014 he had been to the Philippines approximately 10 times. He asserted he was not suspicious of how these trips were paid for because he said he thought his wife paid for these from her salary and some large gambling wins.

79. He said his sister solely owns and operates a business in the Philippines called DongPerven which sells medical refrigerators which was started in about May 2015. He said he would sometimes buy equipment and parts for refrigerators to take to the Philippines to assist his sister, paying for these parts with his credit card, cash or some gambling winnings.

80. The Second Defendant asserted he was not aware until these proceedings started of any allegation or suspicion that his wife had misappropriated money from the Plaintiff.

81. In cross-examination, the Second Defendant denied that on 4 September a payment into the joint ANZ Account labelled “pay salary from Rural Co Limited” was his salary, asserting it was the First Defendant’s pay. He denied his salary ever went into this account. He denied that the First Defendant ever told him this account had gone into debit (T8/10-44). He denied knowing that on 3 June proceeds of a loan draw down were paid into the account (T9/6-8).

82. In cross-examination the Second Defendant further said he could not remember when he and his wife started gambling, but accepted it “maybe” could have been late 2011. He said she first started gambling, and he assumed he got the money to gamble from her wages although he did not ask her (T9/38-T10/1). He said they started gambling “all of a sudden” (T10/18-24). He said when she started gambling all of a sudden, he did not ask her where she was getting the money to gamble (T10/28-31).

83. However the Second Defendant admitted that before 2013 his wife had gambled on occasion and that they started with gambling on the weekend then going up to seven nights per week three years ago (T93/20-35). He said she started gambling earlier than him (T105/20-24).

84. The Second Defendant said he did not know how to explain why there was a visa purchase in Rooty Hill RSL and ATM withdrawal in the Philippines on the same day in May 2012 because he did not have a debit card (T12/4-6). He said the withdrawal from the Philippines had to be his wife, so he could not explain who withdrew from Rooty Hill RSL (T12/17-24). He said he used a credit card and his wife would leave him money when she went away (T12/46-50).

85. The Second Defendant accepted there was an increased amount of travel that he and his wife were doing in around 2012, and said he did not ask where the money was coming from for the extra travel (T13/20-26) He said he recalled travelling to the Philippines in July 2013 around when his father died (T13/33-34). When he returned he was made redundant and did not work until 2014 other than working as a contractor (T14/5-50). When describing his trips to Surfers Paradise and Darwin in December 2013, he said as an employee of Silversea his wife got one free cruise each year (T15/1-24). Upon further cross-examination he said he also went to Cairns in December 2013 (T16/24-25). He denied he remembered about a withdrawal of $99.50 in December 2013 but said he thought it was his wife (T17/17-23).

86. Although first denying he had a player’s account, the Second Defendant accepted both he and his wife had membership cards with Rooty Hill RSL, but only his wife used the card when she played on poker machines because he was always losing it (T18/1-11). He denied on 19 December 2013 he used an ATM for the ANZ Account because he said he does not have an ANZ card (T18/29-38).

87. The Second Defendant denied remembering going to the Philippines in late 2015 (T19/29-31). He accepted he went to Singapore in January 2016 with his wife and daughter and booked accommodation for the Philippines, but said he could not remember if he went to the Philippines or not during that trip (T20/9-32). Although first denying he stayed at the City Park Hotel he accepted he and the whole family stayed there (T20/40-45). He accepted going to Surfers Paradise in April 2017 and the Philippines and Taiwan in May 2017 (T21/20-38).

88. When outlined the various holidays he and his family went on, he said he thought they were paid from “gambling money” because they had big wins and he did not ask (T22/32-38). He said he could not remember when he went to the restaurant Buffet 101 but denied spending $264 at this restaurant in the Philippines was a large amount of money, because it depended if he brought his family there (T26/4-20). In November 2017 the Defendants again travelled to the Philippines (T23/26-45).

89. He said his wife sometimes gave him cash to pay for things put not much larger than $500, although “a few times” she gave him thousands of dollars of winnings to put in the bank mostly last year (T27/6-43). He accepted his wife would only gamble on poker machines (T27/48-50). He said he did not think this was unusual as he thought it was “a proper winning” from poker machines (T28/15-17).

90. The Second Defendant accepted he was worried his wife was gambling at this level, as he was scared she might “hook up with gambling too much” however he accepted he thought she was reasonably successful at gambling (T28/21-28). He said he and his wife had been gambling probably before 2013 but could not remember, and only knew a few people who were successful at gambling as his wife (T28/32-38). He thought it was just luck and that she was lucky for four years with gambling winnings (T28/40-49). He denied he ever thought to ask her where the money was coming from although accepted he was worried about his wife, and denied this account was a lie and denied he turned a blind eye to the money (T29/4-33). He said he thought the money was coming solely from poker machines (T29/37-39).

91. He said he and his wife always flew economy except on the occasions where they were upgraded for no charge because he was a member of the Marco Polo rewards club (T30/1-13) He again denied he asked her where the money was coming from (T31/15-22). He repeated his wife controlled the money (T32/10-11).

92. The Second Defendant said it would have been unusual if his wife gave him winnings to bank more than once a month (T32/19-29). However he accepted between 21 May 2017 and 14 April 2018 he cashed out a total of $100,220.99 (T33/48-50). He denied he thought this was unusual and repeated he thought these were poker machine winnings (T34/1-16; T35/3-27). He said he did not think it was unusual to receive $100,000 in cheques in one year (T35/44-46). He said his wife never allowed him to play beside her at the poker machines, but that she would call him over on the phone if she got a large win. He did not think this was unusual because she said he was “bad luck” (T46/46-50).

93. The Second Defendant accepted he had been living with his wife in the same house for 12 years, and they slept in the same bedroom (T37/23-27). He said 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 (T37/38-T38/2; T39/11-21). He said he had no idea how much you would expect to get from a poker machine after putting through $10,000 (T39/3-9). He asserted he did not think it was unusual that between August 2016 and February 2018 Dooleys Lidcombe Catholic Club paid out $115,191 to his wife (T44/8-14).

94. Upon accepting on 24 April 2018 he and his wife were served with a Summons, and being told he was observed on 25 April 2018 carrying two large cardboard boxes he said “I think that was my clothes” because he wanted to move out (T50/1-7). He said he was so upset he tried to kill himself a few times (T50/9-10). He accepted he withdrew $20,000 out from an ATM for his wife on 26 April 2018 and said this was to pay for her lawyer (T50/40-T51/2).

95. He repeated the deposits he made were not unusual because he thought they were from winnings (T53/35-37).

96. He accepted he would have withdrawn $42,000 from his account in December 2017 upon instructions from his wife, but said he could not remember doing this (T54/1-23). He asserted the $140,000 that went through his account in less than one year was what he thought was just winnings and “a pure luck” (T57/5-15). He said he opened an account purely for his winnings with the Commonwealth Bank (T56/3-6). He repeated although he saw the balance of the account every time he withdrew money, he did not turn a blind eye to the $140,000 going through his account in less than a year (T57/5-15).

97. The Second Defendant said he could not recall driving to a storage facility on 25 April 2018 and said he had no storage facility (T58/47-T59/8). He denied he and his wife drove to Storage King (T58/53-50). He agreed however he dropped the cardboard boxes to a house in Lloyd Street Blacktown where his niece and nephew lived (T60/4-19). He said the boxes were full of clothes because he was upset, however said this was the first time he had suspicions against his wife (T59-3-37). He said he was so upset he tried to kill himself “a few times” because he lost trust in the First Defendant (T59/36-38).

98. He accepted he went to a conference in Taiwan in 2017 and dressed in a uniform at a trade conference, asserting he would not have been let in unless he was dressed in a uniform (T61/1-19)

99. He denied knowing about transfers his wife made to accounts of his relatives in the Philippines (T62/1-32). He said his wife has not ever explained to him why she transferred money into the DongPerven account owned by his sister (T62/-1-32).

100. He reiterated his wife handled everything to do with banking (T73/49-50) however accepted he had an account opened in 2018 which had gambling monies placed into it (T74/32-43). He said his limit when gambling was $500, and if when gambling with his wife he hit that limit he would stop playing and wait in the car for his wife (T77/18-20).

101. The Second Defendant accepted he understood his wife was an in-house accountant at Silversea Cruises, but asserted the amounts he was depositing into accounts were what he thought were winnings because his wife never informed him of any salary increases she received (T90/1-50). He denied that he knew from his own experience that if his wife was spending many hours at the poker machines she must either have been winning a lot or putting a lot of money through the poker machines (T92/16-19). He accepted his wife did not appear to have a limit at gambling (T91/21-39). He repeated his concern was not where the money was coming from, only that he was worried his wife was gambling too much (T91/21-24). He asserted he did not know whether his wife had the “golden touch” with poker machines, however repeated that his wife was winning most of the time (T93/13-43). He said he thought his wife was winning every single night (T93/7-8).

102. According to the Second Defendant, his wife played on $6-10 per press poker machines (T94/20-43). He said he understood that on poker machines more often than not you lose, and that in his experience he had seen some people that were better than his wife in terms of luck in gambling jackpots on poker machines (T95/33-T96/12).

103. He repeated his denial that he did not know the money was coming from somewhere other than poker machine winnings, because if he had known he would have been the first one to stop it or divorce his wife immediately (T97/1-25). He denied he knew the money was coming from somewhere other than poker machines (T97/8-20). He repeated his wife handled the finances and did not doubt anything from her (T97/27-30).

104. He denied it did not make any sense that, on his evidence, when his wife received the Summons he did not know she had done anything wrong, but still was so upset that he wanted to leave his wife (T100/1-27). He said he never asked his wife why she directed him to put her winnings and deposit money into his account (T101/34-45). He said most of the time his wife received winnings it was under his name, because she was scared to carry the money and said he never asked his wife why she deposited money into his account not her own (T101/26-40).

105. The Second Defendant said “she’s not successful per year. It’s just luck” (T105/26-28). He accepted he noticed an increase in the amount of cheques and gambling winnings, but denied he ever asked her where the money was coming from because he thought they were just winnings (T105/44-50).

106. In a brief re-opened cross-examination following the filing of an Amended Statement of Claim (of which leave was given on 17 September 2018) the Second Defendant said that from 2013 onwards he and his wife did not really have a sudden increase in gambling, but they played a bit more (T116/38-40). He accepted there was an increased amount of gambling (T117/1-2). He said the increase was at its worse around 2016 and 2017 (T117/8-9). He said he could not remember noticing an increase in the amount of money that was being deposited into the Commonwealth Bank accounts (T117/38-40). He denied he must have known in order to gamble and travel his wife was getting money via dishonest means (T117/29-34).

Consideration

Impression of the witnesses

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.

Knew or ought to have known

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.

133. 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.

134. 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.

135. 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.

136. 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.

137. 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.

138. 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.

Conclusion

147. Given the lack of filed Defence on behalf of the First Defendant, and on the basis of an expert report filed by the Plaintiff which comprehensively sets out the basis for the conclusion that she misappropriated a total of $3,565,862.95, I am of the view the Plaintiff should be entitled to whatever remedy is appropriate to facilitate recovery if possible of that amount. I will hear the Plaintiff on the precise form of orders in due course.

148. I am not satisfied that the Second Defendant had knowledge or constructive knowledge of receipt of the Fraudulent Payments.

149. However the Second Defendant did concede knowledge of the receipt of some $1,829.08 and I am satisfied he should be liable to pay this amount to the Plaintiff.

150. I would invite the parties to prepare short minutes to give effect to these reasons.

151. I will also hear the parties on costs if necessary.

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Decision last updated: 19 October 2018