Sino Iron Pty Ltd v Worldwide Wagering Pty Ltd
[2017] VSC 101
•15 March 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2016 2297
| SINO IRON PTY LTD (ACN 058 429 708) & CAPE PRESTON PORT COMPANY PTY LTD (ACN 147 842 153) | Plaintiffs |
| v | |
| WORLDWIDE WAGERING PTY LTD (a company incorporated in Norfolk Island with a registered number 01/12) (and others according to the Schedule) | Defendants |
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JUDGE: | HARGRAVE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 12–15, 19-21 & 27 September 2016, final written submissions filed 19 October 2016 | |
DATE OF JUDGMENT: | 15 March 2017 | [First revision: 29 March 2017] |
CASE MAY BE CITED AS: | Sino Iron Pty Ltd & Anor v Worldwide Wagering Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2017] VSC 101 | |
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UNJUST ENRICHMENT – Third party fraudster caused plaintiffs’ funds to be paid by mistake to fourth defendant – Fourth defendant a volunteer recipient – Fourth defendant a wagering company – Fourth defendant credited stolen funds to client’s betting account and allowed client to bet away stolen funds on international sporting events – Defence of change of position based on acceptance of bets and payment of winnings – Whether fourth defendant acted in good faith when accepted bets and made payments – Held: (1) fourth defendant wilfully and recklessly failed to make such enquiries as an honest and reasonable person would have made in the circumstances, and thus had knowledge of the fraud, prior to accepting bets; (2) change of position defence rejected; (3) fourth defendant liable to restore stolen funds to plaintiffs – Australian Finance Services Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560, 568 [1], 593 [66]–[67], 602–3 [97]–[98], 625–6 [157]; Southage Pty Ltd v Vescovi (2015) 321 ALR 383, 399 [65]; Foskett v McKeown [2001] 1 AC 102, 129 (Millett LJ), 108–9 (Lord Browne-Wilkinson), 115 (Lord Hoffman) discussed and applied.
UNJUST ENRICHMENT – Whether other defendants who indirectly received traceable proceeds of the stolen funds as volunteers are liable to make restitution – Held: in the absence of change of position defence, other defendants liable as indirect recipients – Fistar v Riverwood Legion & Community Club Ltd (2016) 91 NSWLR 732 , 746 [62]–[64] applied.
TRUSTS – Innocent recipient of stolen funds by fourth defendant – Fourth defendant a volunteer – Fourth defendant became constructive trustee of funds when obtained sufficient knowledge of fraud – Whether other defendants who received traceable proceeds of stolen funds as volunteers also liable to account as trustees – Held: defendant recipients held traceable proceeds of stolen funds on trust for the plaintiffs – Black v S Freedman & Co (1910) 12 CLR 105; Heperu Pty Ltd & Ors v Belle (2009) 76 NSWLR 230, 253 [92], 264–8 [145]–[163]; Fistar v Riverwood Legion & Community Club Ltd (2016) 91 NSWLR 732, 746 [62]–[64] discussed and applied.
TRUSTS – Knowing receipt of trust funds – Knowing assistance in breach of trust – Whether defendants had sufficient knowledge to become liable for knowing receipt of trust funds or knowing participation in breaches – Held: defendants had requisite knowledge at relevant times – Baden v Société Générale pour Favouriser le Développment du Commerce et de l’Industrie en France SA [1993] 1 WLR 509, 575-6 [250]; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 163–4 [171]–[178] discussed and applied.
REAL PROPERTY – Torrens system title – Indefeasibility of title – Real estate purchased with traceable proceeds of stolen funds – Whether natural defendants obtained title to real estate as a result of fraud, so that the statutory exception to indefeasibility applies – One natural defendant had actual knowledge of both the fraud and the use of the stolen funds before property purchased with traceable proceeds – Other natural defendant had actual knowledge of fraud but not of use of proceeds of stolen funds to complete the purchase – Held: fraud exception applied to both natural defendants – Knowledge of first mentioned defendant brought home to other defendant on agency principles – Bahr v Nicolay (No 2) (1988) 164 CLR 604, 614; Farah ConstructionsPty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 163 [174]; Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd [1998] 3 VR 133, 143–4; Cassegrain v Cassegrain (2015) 254 CLR 425, 437–45 discussed and applied.
REAL PROPERTY – Torrens system land – Indefeasibility of title – Real estate purchased with traceable proceeds of stolen funds – Whether plaintiffs have in personam remedy against defendant proprietors of land so as to fall within exception to the indefeasibility principle – Held: in personam exception established – Farah ConstructionsPty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 169 [193]; Bahr v Nicolay (No 2) (1988) 164 CLR 604, 637–8, 653 discussed and applied.
EQUITY – Tracing – Plaintiffs’ stolen funds mixed in bank account containing funds of others with beneficial claims on money in account – Whether first-in first-out rule in Clayton’s case should be applied – Prospect that all other beneficial claims satisfied by time of judgment – Held: (1) Clayton’s case inappropriate for use as tracing method; (2) Court required further evidence to determine appropriate tracing method and amount – Re Global Finance Group Pty Ltd (in liq); Ex Parte Read and Herbert (2002) 26 WAR 385, 406–411 [93]–[120]; Heperu Pty Ltd & Ors v Belle (2009) 76 NSWLR 230, 256–7 [112]–[114], 259 [121]; Re Sutherland: French Caledonia Travel Service Pty Ltd (in liq)’ (2003) 59 NSWLR 361 discussed and applied.
GAMBLING – Whether stolen funds ‘paid to a person as or on account of a wager or bet’ placed in Victoria – Bets placed in New South Wales – Whether Gambling Regulation Act 2003 (Vic) s 2.6.3 applied to bets – Held: section not intended to have extra-territorial operation and thus inapplicable – Gambling Regulation Act 2003 (Vic) s 2.6.3, Interpretation of Legislation Act 1984 (Vic) s 48(b) – Horgan v Sieber [1976] Qd R 25 discussed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S J Maiden | Clayton Utz |
| For the Defendants | Dr A Hanak with Mr J L-M Leung | Cooper Mills (as town agents for Sullivan Fernan Lawyers) |
TABLE OF CONTENTS
The fraud and summary of the issues............................................................................................ 1
Background facts.............................................................................................................................. 13
The Pinnaclebet business model............................................................................................... 13
Prior knowledge of and dealings with Mr Sigalla................................................................. 22
The La Trobe University fraud.................................................................................................. 35
When did the defendants first have sufficient knowledge of the fraud?............................. 38
Mr Sigalla claims the stolen funds............................................................................................ 45
The stolen funds are credited to Mr Sigalla’s betting account............................................. 58
Findings on admitted knowledge at the time stolen funds credited.................................. 66
Was the failure to inquire wilful and reckless?...................................................................... 70
Further factors bolstering findings as to knowledge............................................................. 75
Alternative findings as to time of sufficient knowledge....................................................... 100
Conclusions on knowledge.......................................................................................................... 106
Must Worldwide make restitution of the stolen funds? Must the other defendants make restitution of any traceable proceeds of the stolen funds received by them?.................... 107
Did Worldwide hold the stolen funds on trust for the plaintiffs at the time of receipt or at any time thereafter?........................................................................................................................................ 113
Did The Odds Broker or Mr Hill hold any traceable proceeds of the stolen funds on trust for the plaintiffs?......................................................................................................................................... 121
Did Mr Hill and/or Mr O’Connell knowingly assist in any breach of trust?.................... 122
Are the stolen funds traceable into the Bondi Junction property?...................................... 131
Are the plaintiffs’ claims against the Bondi Junction property defeated by s 42 of the Real Property Act 1900 (NSW)?............................................................................................................................. 133
Are the stolen funds traceable into the Worldwide ANZ account?..................................... 142
What amount of the stolen funds was used to purchase the Bondi Junction property?.. 155
Must Worldwide account to the plaintiffs for any profit that it made on the use of the stolen funds?............................................................................................................................................................ 156
Can the stolen funds be recovered under s 2.6.3 of the Gambling Regulation Act 2003?. 157
Did Worldwide receive and hold the stolen funds as a bona fide purchaser for value without notice?............................................................................................................................................... 160
Summary of conclusions.............................................................................................................. 160
Orders............................................................................................................................................... 162
HIS HONOUR:
The fraud and summary of the issues
The plaintiffs, Sino Iron Pty Ltd and Cape Preston Port Company Pty Ltd, are part of the Citic Pacific Mining group of companies. They are involved in the development of Australia’s largest magnetite mining and processing project, known as the Sino Iron Project, conducted at Cape Preston in the Pilbara, Western Australia. In the course of the development of that project, the plaintiffs incurred large debts to Monadelphous Engineering Associates Pty Ltd and received invoices for those debts.
On 30 May 2016, the plaintiffs were defrauded by a person pretending to be an authorised representative of Monadelphous. That person contacted the plaintiffs and requested that amounts invoiced by Monadelphous to the plaintiffs be paid into a new bank account (‘the fraud’). The fraudster gave the bank account details for the fourth defendant, Worldwide Wagering Pty Ltd, a company incorporated in Norfolk Island. At the time, Worldwide carried on a wagering business specialising in international sporting events under the unregistered business name ‘Pinnaclebet’.[1]
[1]There was initial confusion about which company conducted the Pinnaclebet business and was the Worldwide ANZ account holder. In these circumstances, two Australian companies owned and controlled by Mr Hill, Pinnaclebet Pty Ltd and another company, also named Worldwide Wagering Pty Ltd, were joined as the first and second defendants. When it later became clear that Worldwide was the correct defendant, all allegations against these defendants were withdrawn and a notice of discontinuance against them was filed. It is unnecessary to refer to them again. I will refer to Worldwide, The Odds Broker, Mr Hill and Mr O’Connell as, collectively, ‘the defendants’.
Worldwide’s sole director is the fifth defendant, Robert Hill. Its general manager is the sixth defendant Nicholas O’Connell. They hold the same positions in respect of the third defendant, The Odds Broker Pty Ltd, which conducts another wagering business specialising in Australian horse, harness and dog racing.
As a result of the fraud, on 30 May 2016 the plaintiffs paid a total of $2,147,689.40 (the ‘stolen funds’) into Worldwide’s bank account at the Bondi Junction, New South Wales, branch of the ANZ Bank (‘Worldwide ANZ account’). The stolen funds were comprised of $1,750,189.65 paid by Sino Iron and $397,499.77 paid by Cape Preston.
Mr O’Connell and Mr Hill initially suspected that the stolen funds may have been fraudulently paid, as a similar fraud, involving a theft from La Trobe University, had occurred about two weeks earlier. They reported the fraud to the police. However, after they spoke with the Worldwide customer who claimed an entitlement to bet with the funds, Andrew Sigalla, they arranged for Worldwide to credit the stolen funds to Mr Sigalla’s betting account. The two amounts comprising the stolen funds were credited to Mr Sigalla’s betting account on 1 June 2016 at 1:51 pm and 1:57 pm respectively.
The stolen funds were then gambled on international sporting events and most of them were lost. The defendants had actual knowledge of the fraud at 1:13 pm on 7 June 2016. Before then, Worldwide paid out $550,000 to Mr Sigalla on winning bets. The remaining credit in Mr Sigalla’s betting account ($70,479.40) has been repaid to the plaintiffs. What happened with the balance of the stolen funds ($2,077,210) is explained below. A diagram of the money flows is also attached to these reasons.
Between the time the stolen funds were credited to Mr Sigalla’s betting account and the time the defendants had actual knowledge of the fraud, the stolen funds were used by the defendants or related companies in accordance with the table set out below. The numbers in brackets refer to the last three digits of each bank account number.
# | Date and time | Amount | From Bank Account | To Bank Account |
| 1 | 1 June — 3:56 pm | $500,000 | Worldwide ANZ (291) | Worldwide Westpac (440) |
| 2 | 1 June — 4:14 pm | $800,000 | Worldwide ANZ (291) | Odds Broker (109) |
| 3 | 2 June — 6:17 pm | $500,000 | Odds Broker (109) | Hill ANZ (677) |
| 4 | 2 June — 6:24 pm | $500,000 | Hill ANZ (677) | Hill CBA (356) |
| 5 | 3 June — 1:42 pm | $300,000 | Odds Broker (109) | Hill ANZ (677) |
| 6 | 3 June — 1:46 pm | $296,000 | Hill ANZ (677) | Hill CBA (356) |
| 7 | 3 June — 5:30pm | $100,000 | Worldwide ANZ (291) | Andrew Sigalla |
| 8 | 6 June — 9:23am | $500,000 | Worldwide ANZ (291) | Worldwide Westpac (440) |
| 9 | 6 June — 1:21 pm | $200,000 | Worldwide Westpac (440) | Freyr Corporation |
| 10 | 7 June — 12:02 am | $450,000 | Worldwide Westpac (440) | Andrew Sigalla |
After the defendants had actual knowledge of the fraud, the stolen funds were used by them or related companies in accordance with the table set out below.
| # | Date and time | Amount | From Bank Account | To Bank Account |
| 11 | 7 June | $763,000 | Hill CBA (356) | Hill CBA (358). |
| 12 | 10 June | $763,000 | Hill CBA (358) | Hill CBA (356) (part of a larger transfer of $797,681.54). |
| 13 | 10 June | $796,000 | Hill CBA (356) | Withdrawal for the purchase of a property at Bondi Junction (part of a larger transfer of $797,681.54). |
| 14 | 13 June | $345,000 | Worldwide Westpac (440) | Total Access Payments, another company owned and controlled by Mr Hill. |
| 15 | 22 June | $300,000 | Total Access Payments | Worldwide Westpac (440). |
| 16 | 24 June | $45,000 | Total Access Payments | Worldwide Westpac (440) (part of a larger transfer of $70,000). |
| 17 | 22 June — 8 July | $345,000 | Worldwide Westpac (440). | Disbursements paid to various recipients for Worldwide’s debts, including settling customer winning bets. |
The activity on Mr Sigalla’s betting account may be summarised as follows:
| Date and time | Amount | Event |
| 2 June 2016 — 9:13–9:17pm | $936,000 | Losing bet on French Open quarterfinals. |
| 3 June 2016 — 3:21 am – 3.26am | $229,000 | Seven bets on American baseball games. Four winning bets. Three losing bets. |
| 3 June 2016 — 3:29am – 11.37am | $760,000 | Winning bets on American basketball game. |
| 3 June 2016 | $1,920,479.40 | Balance of Mr Sigalla’s betting account. By this time, Mr Sigalla had placed total bets of $1,925,000. |
| 3 June 2016 — 5:45pm | $100,000 | Mr Sigalla was paid $100,000 from the Worldwide ANZ account, as part payment of the credit balance in his betting account. |
| 6 June 2016 — 9.17pm | $450,000 | Mr Sigalla was paid $450,000 from the credit balance in his betting account. |
| 6 June 2016 | $1,370,749.40 | Credit balance in Mr Sigalla’s betting account. |
| 7 June 2016 — 8:45am | $1,370,749.40 | Mr Sigalla meets Mr O’Connell and endeavours to withdraw all or most of the credit balance in his betting account. Request refused. |
| 7 June 2016 — 9:59–10:02am | $1.3 million | Mr Sigalla bets on American basketball game. Bets lost. |
| 7 June 2016 — 1:13pm | Worldwide obtains actual knowledge of the fraud. | |
| 9 June 2016 | $70,479.40 | Credit balance of Mr Sigalla’s betting account following result of American basketball game. |
| 12 July 2016 | $70,479.40 | Balance of Mr Sigalla’s betting account paid by Mr Sigalla’s domestic partner to the plaintiffs’ solicitors’ trust account. |
In summary, following Mr Sigalla’s betting account being credited with the amount of the stolen funds, but before any bets were placed by Mr Sigalla on that account, Worldwide paid $800,000 to The Odds Broker (‘the $800,000’) and $500,000 to another bank account maintained by Worldwide, with Westpac Banking Corporation at its Norfolk Island branch (the ‘Worldwide Westpac account’). Later, during the course of Mr Sigalla’s betting activity, Worldwide transferred another $500,000 from the Worldwide ANZ account to its Worldwide Westpac account on 6 June 2016. I will refer to these two amounts of $500,000 as ‘the $1 million’
The $1 million transferred to the Worldwide Westpac account was utilised in the following way:
(1) $200,000 was paid to an international bookmaker with whom Worldwide maintained a wagering account for the purposes of laying-off bets placed with it. This payment was made on 6 June 2016, before Worldwide had actual knowledge of the fraud;
(2) $450,000 was paid to Mr Sigalla from the net balance of his betting account at 12:02 am on 7 June 2016, shortly before Worldwide had actual knowledge of the fraud; and
(3) $345,000 was paid to Total Access Payments, another company owned and controlled by Mr Hill, after actual knowledge of the fraud. That sum was later returned to Worldwide’s Westpac account and used to pay Worldwide’s creditors, including wages to employees and pay-outs to Pinnaclebet customers.
The $800,000 paid to The Odds Broker was paid to Mr Hill in two tranches on 2 and 3 June 2016 and, following transfers of that amount or its traceable proceeds between Mr Hill’s personal bank accounts, $796,000 of the stolen funds was used by Mr Hill to purchase a bank cheque for $797,681.54 on 10 June 2016. The bank cheque was used on 14 June 2016 to settle the purchase by Mr Hill and Mr O’Connell, as tenants in common in equal shares, of a property in Bondi Junction (the ‘Bondi Junction property’). That bank cheque was purchased after Worldwide had actual knowledge of the fraud.
The plaintiffs claim the balance of the stolen funds ($2,077,210), or specific traceable proceeds of them, on a number of grounds.
The plaintiffs’ third further amended statement of claim (‘statement of claim’) contains a range of allegations within a series of broad or rolled-up allegations and some more specific allegations. Having identified the parties and their respective roles, the statement of claim pleads the fraud and the resulting mistaken payments of the stolen funds to Worldwide. These are defined as ‘the Payments’.
Paragraphs 6 and 7 of the statement of claim allege:
6.The Payments were received by Worldwide, in breach of a trust that arose upon and as a result of the [fraud].[2]
7.Worldwide credited the Payments to the wagering account of one of its customers, Andrew Sigalla, in its books of account, and allowed Mr Sigalla to make wagers on that account and withdraw funds from that account.
[2]Emphasis added.
Paragraphs 7A to 7D allege payments of the $800,000 by Worldwide to The Odds Broker, by The Odds Broker to Mr Hill, and the use of the $800,000 (in fact, the $796,000) towards the purchase price for the Bondi Junction property.
Paragraph 8 of the statement of claim is in the following terms:
8.In receiving and dealing with the Payments and their traceable proceeds, each of the defendants:
(a)wilfully shut [his or] its eyes to the obvious fact that the Payments had been misappropriated, alternatively wilfully and recklessly failed to make such inquiries as an honest and reasonable person would have made, alternatively acted with knowledge of circumstances that would have indicated the fact of the misappropriation to an honest and reasonable person; and
(b)had constructive knowledge of the fact that the Payments had been misappropriated.[3]
[3]Emphasis added.
The receipts and dealings alleged in paragraph 8 are clearly all those alleged in paragraphs 6 to 7D. This includes: the initial receipt by Worldwide; crediting the stolen funds to Mr Sigalla’s betting account; allowing him to place bets on, and to withdraw funds from, that account; and the payments and receipts dealing with the $800,000.
Paragraph 9 of the statement of claim alleges that the defendants had actual knowledge of the fraud by 1:13 pm on 7 June 2016. Paragraphs 9A to 9G build upon that allegation, and allege that after actual knowledge was obtained Worldwide used $345,000 of the traceable proceeds of the stolen funds to pay its personal liabilities, that this conduct was a fraudulent and dishonest design in breach of the trust alleged in paragraph 6 and that, accordingly, Mr Hill and Mr O’Connell assisted Worldwide in that fraudulent and dishonest design. These are the more specific allegations.
Paragraph 10 alleges a series of causes of action based on the above allegations, as follows:
10. As a result of the matters set out above:
(a)the Payments, alternatively so much of them as remain in the Worldwide [ANZ] Account or otherwise in the possession of the defendants, remain the property of the plaintiffs and the plaintiffs are entitled to their repayment;
(b)the defendants hold any traceable proceeds of the Payments on trust for the plaintiffs;
(ba)the Bondi Junction Property:
(i)is held by [Mr Hill and Mr O’Connell] on trust for the plaintiffs; alternatively
(ii)is held by [Mr Hill and Mr O’Connell] on trust for the plaintiffs and [them] in proportions that reflect the contributions that each of them made to the purchase price of that property; alternatively
(iii)is charged or subject to an equitable lien in favour of the plaintiffs to secure payment of that part of the proceeds of the Payments as can be traced into that property;
(bb)the sum of $1,750,189.65 is recoverable by Sino Iron from Worldwide pursuant to s 2.6.3 of the Gambling Regulation Act 2003 (Vic).
(bc)the sum of $397,499.75 is recoverable by Cape Preston from Worldwide pursuant to s 2.6.3 of the Gambling Regulation Act 2003 (Vic).
(c)Worldwide has had and received:
(i)$1,750,189.65 to the use of Sino Iron; and
(ii)$397,499.75 to the use of Cape Preston;
(d)Worldwide has had and received [the] $1,000,000 to the use of the plaintiffs;
(e)The Odds Broker has had and received [the] $800,000 to the use of the plaintiffs;
(ea)Mr Hill and Mr O’Connell have had and received [the ] $800,000 to the use of the plaintiffs;
(f)the plaintiffs are entitled to equitable compensation from the defendants for any loss that they suffer as a result of the Payments being used as set out above; and
(g)the plaintiffs are entitled to an account of profits from the defendants for any profits that they made as a result of their use of the Payments.
The prayer for relief is in the following terms:
AND THE PLAINTIFFS CLAIM
A. In so far as the first plaintiff is concerned, $1,750,189.65, further or alternatively equitable compensation in that amount.
B.In so far as the second plaintiff is concerned, $397,499.75, further or alternatively equitable compensation in that amount.
C.An order that the defendants account to the plaintiffs for any profits that they have made on or as a result of the use of the Payments.
D. Interest.
E.A charge over the Worldwide Account and the Bondi Junction Property to secure payment of any amounts found to be owing to the plaintiffs.
EA.Orders for the sale of the Bondi Junction Property and the payment of the proceeds to the plaintiffs.
F. Costs.
In summary, the plaintiffs claim amounts representing the whole of the stolen funds from each of the defendants, an account of profits, and proprietary relief in respect of the Bondi Junction property. Read in the context of paragraph 10 of the statement of claim, the claims for all the stolen funds should be understood as including alternative claims for lesser amounts, traceable to the stolen funds, for which any defendant may be found liable on the causes of action pleaded in paragraph 10.
The defendants’ defence admits the receipt of the stolen funds and the subsequent dealings with those funds between them. The other allegations are denied. The following positive defences are raised:
(1) The defendants did not have any knowledge of the fraud until 1:13 pm on 7 June 2016. Prior to that time, they were entitled to rely on statements from Mr Sigalla that the stolen funds belonged to him (or those for whom he was acting as agent)[4] and were legally obtained. Accordingly, the stolen funds were received by Worldwide, and thereafter dealt with by it and the other defendants, as a bona fide purchaser for value without notice of the fraud.
[4]Although the agency was not pleaded, the case was run on that basis and supported by the evidence.
(2) By:
(a) crediting Mr Sigalla’s betting account;
(b) accepting bets on that account;
(c) laying-off those bets with ‘back-to-back-bets’ or ‘bet backs’ made with international bookmakers with whom Worldwide maintained ‘wagering accounts’ using its own funds; and
(d) paying Mr Sigalla $550,000 in respect of winning bets,
Worldwide changed its position on the faith of the receipt of the stolen funds (the ‘change of position acts’). As a result, Worldwide’s liability to the plaintiffs is limited to the $70,479.40 balance of Mr Sigalla’s betting account, being the only traceable proceeds of the stolen funds in its possession, which sum has been paid to the plaintiffs. This change of position defence involves the contention that, once bets totalling more than the amount of the stolen funds were accepted on Mr Sigalla’s betting account, the amount of the stolen funds became the property of Worldwide to deal with as it saw fit; and, as a result, even dealings by the defendants with the stolen funds after they had actual knowledge of the fraud are not subject to challenge.
(3) Worldwide did not receive the stolen funds on trust as alleged, because at the time of receipt it had no knowledge of the fraud.
(4) None of the other defendants (The Odds Broker, Mr Hill or Mr O’Connell) received the stolen funds or any part thereof.
(5) Insofar as part of the proceeds of the stolen funds may be traceable into the Bondi Junction property, the proprietary and other relief sought by the plaintiffs over that property is barred by the indefeasibility principle in s 42 of the Real Property Act 1900 (NSW).
With the exception of the strict liability claim under the Gambling Regulation Act 2003, which fails, all of the claims, or the defences to them, involve close scrutiny of the facts relating to the defendants’ actual or constructive knowledge of the fraud at the time of relevant dealings with the stolen funds. The onus of proof as to the defendants’ knowledge, or lack of knowledge, at relevant times varies depending on the claim or defence under consideration. The Court’s determination of these knowledge issues is central to the outcome of the various issues in the proceeding.
Given the importance of knowledge issues, and the serious nature of the plaintiffs’ allegations in that regard, the defendants complained in final submissions that the plaintiffs’ evidence and puttage in cross-examination extended beyond the precise scope of the particulars of knowledge in the statement of claim, and that the plaintiffs were bound by the particulars given. After the conclusion of closing submissions, the defendants filed a document listing the matters they considered the plaintiffs had relied upon in submissions which were outside their particulars. The parties filed further submissions concerning whether the plaintiffs should be permitted to rely on the allegedly unparticularised matters.
I ruled on the papers that, in all the circumstances, there was no unfairness to the defendants resulting from the matters which were unparticularised. In my view, having regard to the pleaded and particularised claims, and the conduct of the trial, the knowledge claims advanced against the defendants at trial were sufficiently clear so that the defendants could answer them.[5] On this basis, I allowed the plaintiffs to file amended particulars to correspond with the case advanced at trial, and allowed the defendants to file further written submissions in response to the amended particulars.
[5]Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356, 375 [55]; CFMEU v BHP Coal Pty Ltd (2015) 320 ALR 61, 73 [65]; Bass v TCN Channel Nine Pty Ltd (2006) NSWCA 343, [44].
In order to make findings as to the knowledge issues, it is convenient to first summarise the relevant categories of knowledge which will suffice for the various claims and defences. In Baden v Société Générale pour Favouriser le Développment du Commerce et de l’Industrie en France SA,[6] Peter Gibson J summarised the relevant categories (which I will refer to as the ‘Baden categories’) as follows:
[6][1993] 1 WLR 509, 575-6 [250] (‘Baden’); Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 163–4 [171]–[178] (‘Farah Constructions’).
(1) actual knowledge;
(2) wilfully shutting one’s eyes to the obvious;
(3) wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make;
(4) knowledge of circumstances which would indicate the facts to an honest and reasonable person; and
(5) knowledge of circumstances which would put an honest and reasonable person on inquiry.
The Baden category which constitutes sufficient knowledge for the purposes of a relevant claim or defence varies according to that particular claim or defence.
The allegations in the proceeding include that the defendants knowingly received and dealt with stolen funds, and that Mr Hill and Mr O’Connell knowingly assisted a fraudulent and dishonest design by Worldwide in breach of trust. Where serious allegations of this kind are made in a civil case, the Court must be persuaded to what is often called ‘the Briginshaw standard’.[7] While the balance of probabilities remains the standard of proof, the Briginshaw standard requires the Court to feel an ‘actual persuasion’ as to an allegation made by a party.[8] Actual persuasion does not, however, require that the Court exclude every rational inference which is inconsistent with a finding of serious impropriety.[9]
[7]Farah Constructions (2007) 230 CLR 89, 162 [170].
[8]Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336, 361 (‘Briginshaw’).
[9]Chong v CC Containers Pty Ltd & Ors [2015] VSCA 137 [41]–[54].
As the majority stated in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd & Ors:
The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary ‘where so serious a matter as fraud is to be found’. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a Court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.[10]
[10](1992) 67 ALJR 170, 170–1 (citations omitted).
It is accepted that the Briginshaw standard has not been displaced by the Evidence Act 2008. In particular, s 140(2)(c) of that Act requires the Court, in determining factual issues on the balance of probabilities, to take into account ‘the gravity of the matters alleged’.[11]
[11]Nom v DPP & Ors [2012] VSCA 198 [113]–[124].
I turn to consider the facts in detail and to make relevant findings. Some repetition of the above summary is necessary.
Background facts
The Pinnaclebet business model
It is first necessary to describe how the Worldwide (Pinnaclebet) business operated.
The business was under the day-to-day control of Mr O’Connell as general manager, with Mr Hill’s involvement generally being limited to receipt of regular reports from Mr O’Connell while Mr Hill engaged in his other business interests. Mr O’Connell managed a team of 10 to 12 staff at Worldwide’s Bondi Junction offices. Those staff were also engaged in the business conducted by The Odds Broker. Mr O’Connell was also responsible for 14 staff working in offices in Manila, the Philippines.
The Manila staff were directly managed by Karren Cad. Ms Cad was the Manila Operations manager for the businesses of both Worldwide and The Odds Broker. Her role was to manage the staff and ensure that the websites and other computer systems for the two businesses included all necessary information concerning sporting events on which authorised customers could bet and were otherwise operating as designed.
The Filipino staff included customer support staff, who would deal with customers by a variety of means, including online ‘live chat’ sessions and email inquiries. There were also ‘payments staff’ who were responsible for ensuring that payments from customers were verified, that payments due to clients were paid, that all payments were correctly recorded in the systems, and for balancing both the bank accounts and ‘wagering accounts’ of the two businesses.
Worldwide did not operate the Pinnaclebet business as an ordinary bookmaker would. Rather than accepting direct responsibility for bets that were placed with it, Pinnaclebet would instead lay off all bets by placing an identical bet on one of its wagering accounts with various international bookmakers. The Pinnaclebet computer systems were programmed to only accept a customer’s bet if that bet was bet back in this way. Within the Pinnaclebet business, this process was referred to variously as ‘betting back’, placing ‘back-to-back bets’ or a ‘bet back’. By placing back-to-back bets Pinnaclebet neither absorbed the risk of paying out on bets that were successful nor made any significant profit from individual bets which were lost. Instead, as described in more detail below, Pinnaclebet generated revenue from commissions on the bet backs with international bookmakers, or by arbitraging the odds offered to customers against those which applied to the bet backs.
‘Pre-funding’ of Worldwide’s wagering accounts with international bookmakers was central to the Worldwide business model, as it enabled customers to bet on international sporting events immediately after deposits to their betting accounts had been verified. Pre-funding was required as international bookmakers would not give credit. Initially, to get the Worldwide business started, it was necessary for Mr Hill to pre-fund Worldwide’s wagering accounts by lending the necessary funds to Worldwide. Further loans were made from time to time as required. Worldwide kept no accounts or other business records of these loans and nor did Mr Hill. In substance, Mr Hill’s pre-funding loans represented his investment in Worldwide’s Pinnaclebet business. Notwithstanding that no records of the loans were kept, Mr Hill treated the amount of credit balances in wagering accounts which were not required to keep the business running as his own to deal with.
As the Worldwide business grew, it became increasingly unnecessary for Mr Hill to lend money to Worldwide to pre-fund wagering accounts, because money deposited by customers to the credit of their betting accounts was used to pre-fund bookmakers as required.
Worldwide maintained two principal bank accounts for the receipt of funds to be credited to its customers’ betting accounts:
(1) the Worldwide ANZ account; and
(2) the Worldwide Westpac account. One purpose of this account was to receive large bets placed by ‘big players’, such as Mr Sigalla.
The funds in these bank accounts were also used for other purposes, including receiving credit balances from wagering accounts to enable payments to be made to customers on winning bets, for general business purposes such as payment of Worldwide’s staff and business creditors, and repaying Mr Hill for his loans that enabled ‘pre-funding’.
As appears in the above table of payments made after the defendants had actual knowledge of the fraud, Total Access Payments Pty Ltd also maintained a bank account. Mr Hill gave evidence that Total Access Payments was a non-trading entity which was deregistered in May 2016, and that this account was not one which was used frequently.
Worldwide’s Pinnaclebet computer systems included a separate accounting of each customer’s betting account and an administration system, which showed the net position between Worldwide and the international bookmakers on the wagering accounts. Ms Cad monitored the wagering accounts and reported to Mr O’Connell as to the state of those accounts. Mr O’Connell would decide how much was required to replenish the wagering accounts with sufficient pre-funding to enable the business to continue, and instruct Ms Cad as to the amounts to be transferred between wagering accounts or from the Worldwide bank accounts to the wagering accounts. Mr O’Connell also made decisions as to the amount of the credit balances in Worldwide’s wagering accounts required to fund payments to Pinnaclebet customers of their winnings and instructed Ms Cad accordingly. Mr O’Connell had the banking ‘token’ for Worldwide’s bank accounts and, I infer, the Total Access Payments account. He would give the relevant code to Ms Cad to enable her to effect the transfers as required.
The Pinnaclebet computer systems interfaced with the computer systems of the international bookmakers. This enabled the customer’s proposed bet to be bet back in about five seconds. On acceptance of a bet back, the bookmaker’s computer system would send a bet identification number to the Pinnaclebet computer system which would accept the customer’s bet and issue a bet slip to the customer with information relating to the bet, including an identifier number of the bet. If the bet back was refused by the international bookmaker for some reason, the customer’s proposed bet would not be accepted by the Pinnaclebet system. Mr O’Connell and Ms Cad described this process as ‘the logic’ in the Pinnaclebet computer system.
The international bookmakers utilised by Worldwide for most bets were Top Sport and Pinnacle Sports (which, despite its similar name, was not related to Pinnaclebet). The odds that were offered by Pinnaclebet to its customers came directly from a live ‘feed’ from these bookmakers.
For larger bets by big players, Ms Cad gave evidence that Worldwide had a ‘trading team’ of ‘about three’ staff. Ms Cad said that Mr O’Connell managed the trading team and that, by a system with which she was ‘not really particular’, the trading team configured the Pinnaclebet computer systems to redirect large bets from certain customers to ‘probably a dozen bookmakers’ located in the Philippines. Ms Cad explained that the Pinnaclebet computer systems accepted customers’ bets which were placed by the trading team with one of these bookmakers in the same way as bets placed with Top Sports or Pinnacle Sports, because the computer systems of the bookmakers who accepted bets in this fashion:
[gave] us a feed and a response of a reference ID for that particular bet to show it was accepted. So the trading team is just like a provider for us.
Mr Hill gave evidence that the trading team was established about four or five months before he gave evidence at trial in September 2016, through one of his contacts with licenced bookmakers in the Philippines. Mr Hill said that he was not involved in setting up the trading team, but said that he would ‘probably know a number of the bookmakers that are involved’.
Mr O’Connell gave evidence about the trading team, as follows. He first met with different betting shops in Manila in October or November 2015 with a view to establishing a relationship with traders there. A trading team was formed comprising three men, and Mr O’Connell was responsible for dealings with them. The trading team placed bets with between eight to twelve bookmakers, and facilitated bets with ‘bigger limits’ than other bookmakers in Australia were capable of. As with Top Sport and Pinnacle Sports, Pinnaclebet maintained a wagering account with the Manila trading team. That account was pre-funded through an intermediary.
Betting customers could deposit funds into their betting account with Pinnaclebet in a number of ways, designed to ensure security and avoid fraud, as follows.
(1) About 70 per cent of customers utilised the ‘POLI payment gateway’ to deposit funds from their bank accounts. The advantage of this method over direct deposits into one of the two Worldwide bank accounts was that a customer’s betting account could be credited instantly at no fee. A customer could log into his or her account on the Pinnaclebet website, click on the ‘POLI’ deposit method, and the customer would be directed to his/her own internet banking portal to make a payment in real-time. The resulting credit to the Worldwide ANZ account would appear the next day, depending on the time the transaction took place.
(2) Most other customers deposited by logging into their betting account and using their credit cards. Pinnaclebet only accepted Visa or MasterCard, which Ms Cad believed were the most secure credit card options for depositing money.
(3) Customers could also transfer money to one of the Worldwide bank accounts by direct deposit from their bank account without using the POLI gateway. Ms Cad said that this was ‘very rare’. When this deposit method was used, the Pinnaclebet website directed the customer to use their Pinnaclebet account number in the ‘reference/transaction detail’ section of their internet or other bank transfer form, and then:
…inform Customer Service of the deposit by emailing [email protected] and advise us of the following:
• Your Username
• Your Pinnaclebet Account Number
• Amount Transferred
• Date and Time of Deposit
•Reference used for deposit (Should be your Pinnaclebet Account Number)
• Customer’s Bank Name (e.g. ANZ)
• Customer’s Bank Branch Location (e.g. Suburb)
• Was transfer done on the Internet or at bank?
This is to enable the funds to be transferred into your Pinnaclebet account.[12]
In such cases, Ms Cad said that it was necessary to wait for the deposit to be cleared into the relevant Worldwide bank account and be verified against the information provided by the customer. Ms Cad said that it would normally take about two days before funds were credited to a customer’s Pinnaclebet account.
[12]Emphasis added.
The Pinnaclebet system included a number of other measures designed to protect against stolen money being deposited into a customer’s account or the winnings from betting such moneys being paid from a betting account:
(1) Each customer had to complete 100 points of identification, including name, date of birth, a photo of the customer, a signature, and current residential address. Normally, the business would request a copy of the customer’s passport, driver's licence and credit card. This information would be cross-checked by the support team with that provided at registration. The support team would also ensure the legibility of the identification provided. Customers would not be allowed to make withdrawals from betting accounts unless their identification had been verified.
(2) Worldwide had a policy of not accepting international customers, except for New Zealanders. Customers’ IP addresses were checked by the Pinnaclebet website to ensure the customer was not overseas.
(3) Funds could only be deposited using credit cards, the POLI direct transfer system or by direct bank transfer with Australian banks in Australian currency. Where bank transfers were used, Ms Cad said she would ‘always ask Mr Nick O’Connell or the Australian staff to call that customer to confirm that he is a legitimate customer and that is the amount that he deposited.’ Credit card payments were facilitated by 3D Secure, which meant that a customer would have to log into his or her credit card account to make the payment.
(4) Ms Cad and her staff checked the processing of bet payments by reconciling the Pinnaclebet administrative system with the betting providers’ systems three times per day. The team checked the bank accounts against Pinnaclebet’s own records two to three times per day.
There were also measures in place to ensure that withdrawals were made securely to verified customers. The Pinnaclebet website did not allow a customer to withdraw funds unless those funds had been ‘turned over’ at least once. ‘Turning over’ refers to the requirement that a customer bet deposited money at least once before withdrawing it. I will refer to this requirement as the ‘turnover rule’.
Differing evidence was given as to precisely what was required by the turnover rule. Both the terms and conditions and the general betting rules for the Pinnaclebet website suggest that a customer was required to bet the entire value of a deposit before they could withdraw an equivalent amount. The terms and conditions state:
The amount that you deposit must be turned over once (bet with) before a withdrawal or refund can be made.
Similarly, the general betting rules provided that:
PinnacleBet requires that any deposit into a Customer’s Account be turned over at least once prior to authorising a withdrawal from the Customer's Account.
There was other documentary evidence which confirmed this position, including the following statement by Mr Hill in an email to Mr Sigalla:
… funds need to transact at least once before they can request a withdrawal (rules in Australia are very stringent) eg deposit $1 million requires bet sales of $1 million before a request for a withdrawal can be facilitated.[13]
[13]Emphasis added.
The oral evidence of Ms Cad and Mr O’Connell was materially different. They said that customers could withdraw an amount equal to the amount that they had bet, regardless of whether they had bet the entire value of their deposit. For example, the following exchange occurred between counsel and Ms Cad:
If I deposit $100 into my account, I bet 50 and I lose 50, how much could I take out?---You bet $50 and you have $100 to start with, then you are eligible to withdraw the $50 because you turned over — you bet that particular amount of $50.
This evidence was corroborated by Mr O’Connell, who also said that this alteration to the published turnover rule was brought about because ‘our competitors changed their policy and we changed ours.’
Given their operational roles within the Pinnaclebet business, I accept Mr O’Connell’s and Ms Cad’s evidence as to the content of the turnover rule in practice. Further, I find that similar rules are a standard practice within the gambling industry. So much is evident from Mr Hill’s statement that the ‘rules in Australia are very stringent’, and Mr O’Connell’s evidence that the turnover rule was changed in order to bring it into line with the policies of their competitors.
Further, customers who had deposited funds by credit card could only withdraw funds by having them ‘pushed back’ to the same card as the deposit (ie withdrawals would be paid to the credit card used for the deposit). All customer withdrawals had to be authorised by Mr O’Connell.
The Pinnaclebet business generated revenue from bets placed through the business. For Top Sport and Pinnacle Sports, Pinnaclebet received a commission on turnover — usually about .33 per cent, although this was subject to change at the particular provider’s discretion. For bets placed with the Manila trading team, Pinnaclebet’s revenue was from arbitraging the difference between lower odds which were occasionally available from the Filipino bookmakers for the larger bets and the less favourable odds offered through the Pinnaclebet system (which odds were obtained directly through Top Sport or Pinnacle Sports). Mr O’Connell said that the margins for such ‘arbitrage’ arrangements averaged about 0.8 per cent. Ms Cad said in effect margins were between .50 to a maximum of .80 per cent.
This business model is substantially different to standard bookmaking businesses, where the bookmaker’s profit is represented by the net losses to gamblers. Mr O’Connell gave evidence that the Pinnaclebet business model was designed to attract as many winning bets as possible, as this would increase the betting turnover and hence the profits from commissions, and yield profits from arbitraging successful larger bets.
Mr Hill gave evidence that the Pinnaclebet business had not become profitable by the time of the fraud, as the turnover was not yet of sufficient magnitude. It is notable, however, that Mr Hill testified that he was not aware of Pinnaclebet’s commission and arbitrage arrangements until his cross-examination by counsel for the plaintiffs. In any event, Mr Hill and Mr O’Connell maintained that the business was growing. Mr Hill testified that this growth, together with the opportunity for improvements which were under consideration, had a present value of about $20 million. Mr O’Connell gave evidence of an offer for a share in Pinnaclebet that would have valued the business at $30 million.
Prior knowledge of and dealings with Mr Sigalla
The first step in ascertaining the defendants’ actual or constructive knowledge of the fraud at relevant times is to consider Mr Hill’s and Mr O’Connell’s prior knowledge of and dealings with Mr Sigalla.
It is first necessary to note that none of the parties alleges that Mr Sigalla was a party to the fraud. That remains an open question. Mr Sigalla did not give evidence.
In his evidence in chief, Mr Hill was asked how he knew Mr Sigalla. He said that he had attended the same school as Mr Sigalla — Sydney Grammar — but Mr Sigalla was a year or two younger than him and, although a friend of common friends, he was not one of Mr Hill’s friends. Mr Hill said that he would ‘bump into’ Mr Sigalla every three or four years at the ‘dog track … typically after [Mr Sigalla] had had a day at the horse track.’ Mr Hill said that, apart from these occasions, he ‘never saw [Mr Sigalla] but his name cropped up, you know, quite often amongst common colleagues.’[14] He said that Mr Sigalla was ‘definitely not’ a person he considered a friend as at the beginning of 2016.
[14]Emphasis added.
Mr Hill did, however, know of Mr Sigalla’s reputation as a large gambler on horse racing. Given Mr Hill’s involvement in the racing industry (gambling on greyhounds and horses) he heard anecdotally that Mr Sigalla ‘was a very big gambler by reputation’, and he considered Mr Sigalla to be a ‘big player’ whose name would come up frequently in the circles Mr Hill moved in. By a ‘big player’ Mr Hill understood Mr Sigalla to be ‘a player that gambles consistently, probably more than $50,000 to $100,000 a week.’
Mr Hill was also asked in evidence in chief as to his understanding of Mr Sigalla’s business reputation as at February 2016. He gave evidence that he would not have given much consideration to that question but ‘would say that he was quite a savvy businessman’. This opinion was also based upon anecdotal statements from Mr Hill’s colleagues in the racing industry, who would ‘regale [him] with stories of [Mr Sigalla’s] business acumen’. Mr Hill believed at the time that Mr Sigalla had been the CEO of ‘numerous companies’ and ‘presided over one, possibly two, IPOs’.
Mr Hill then described in his evidence in chief how he met Mr Sigalla at Mr Hill’s aunt’s funeral in early 2016. He said that Mr Sigalla initiated a conversation with him, asked about how the Pinnaclebet business was going, and mentioned that he had an extensive background in capital raising. He offered his services to assist Mr Hill in raising capital for the Pinnaclebet business. Mr Hill then described how, about four weeks later, following discussion with Mr O’Connell, Mr O’Connell commenced discussions with Mr Sigalla with a view to involving Mr Sigalla in a possible capital raising for the Pinnaclebet business.
Later, Mr Hill became involved in those discussions following receipt of email correspondence from Mr Sigalla directly to him. The two men met at a coffee shop close to Mr Hill’s home. The discussions came to no conclusion when Mr Hill became ‘too busy’. In his own words, he was by this time ‘fobbing [Mr Sigalla] off to a degree’, as he did not consider the capital raising was urgent at the time. He acknowledged, however, that he had no ‘lack of interest’ in possibly using Mr Sigalla’s services to raise capital in the future.
In cross-examination, a stronger degree of familiarity between the two men emerged. Mr Hill acknowledged that he knew the following matters before the fraud in this case:
(1) Mr Sigalla was married to Mr Hill’s cousin, Melissa Caplice. They divorced or separated between two and four years before 2016 (Mr Hill’s evidence differed in this regard). In re-examination, Mr Hill said he believed they were separated but not divorced.
(2) Melissa Caplice is the elder sister of another cousin of Mr Hill’s, Seamus Caplice, who is a director of and holds one share in Worldwide.
(3) Mr Hill and his domestic partner, Mary McGowan, are good friends with Melissa Caplice and her (and Mr Sigalla’s) children.
(4) Mr Sigalla had paid for Ms McGowan and Ms Caplice to holiday at a very expensive spa resort in Thailand. In re-examination, Mr Hill said that this was about ’15 or 20 years ago … very, very long ago’. (This demonstrates a very long and close friendship between the two women.)
(5) Mr Sigalla had sent money to Mr Caplice in Dubai for the purpose of investing it.
(6) Mr Sigalla said ‘frequently’ in conversation with Mr Hill that he was in court, and on more than one occasion indicated it was for cases where ‘he was going to get paid money’. Mr Hill did not say when these conversations occurred or in what circumstances.
(7) Mr Sigalla told him of a case the Australian Securities & Investments Commission (‘ASIC’) had against him ‘that ASIC lost and had to pay him an amount of money’. However, Mr Hill said he did not know what the subject matter of the case was and did not ask. Again, Mr Hill did not say when these conversations occurred or in what circumstances.
(8) Mr Sigalla had been the ‘CEO or the chairman’ of TZ Limited and there was ‘some issue with TZ at the time’ he met Mr Sigalla and his wife (his cousin, Ms Caplice) in New York in about 2009.
When it was put to Mr Hill that Mr Sigalla was ‘close enough’ to his family to come to his aunt’s funeral, he responded:
Look, he attended the funeral. I don’t know why he attended the funeral. I don’t know whether he felt obliged. I actually was impressed that he turned up. I would say [Mr Sigalla and Ms Caplice] have been separated or divorced for maybe two or three years so I haven’t seen him in the family unit for a very long time. I attended my cousin Melissa’s birthday earlier in the year. He was not present. So as far as I know, I haven’t seen him at any family gathering for a while.
What had you been told about the reason for their separation?---I hadn’t been told anything.[15]
[15]Emphasis added.
Apart from this evidence, in particular those parts in emphasis, Mr Hill gave no explanation as to why he had not mentioned his familial relationship with Mr Sigalla until cross-examination. There are two other noteworthy features of Mr Hill’s evidence as quoted above. First, he estimated the time of Mr Sigalla’s separation from Ms Caplice as ‘two or three years’ ago and not ‘three or four years’ ago as he had previously said. Second, given the close relationships between Mr Sigalla, Ms McGowan, Ms Caplice and Ms Caplice’s brother Seamus, it is implausible that Mr Hill had not been told anything about the reasons for Mr Sigalla and Ms Caplice separating. In my opinion, Mr Hill’s evidence concerning the nature of his relationship with Mr Sigalla, and his endeavour to downplay it, reflects poorly on his credit.
I infer that the purposes of Mr Hill’s endeavours to distance himself from Mr Sigalla included enabling him to claim that he knew nothing about the subject matter of newspaper articles in major daily newspapers circulating in Sydney which reported on fraud allegations against Mr Sigalla connected with his gambling habits. The relevant newspaper articles are summarised below:
(1) 2 September 2009 — The Australian newspaper — finance section. In an article titled ‘ASIC in the hunt for TZ millions’, it was reported that ASIC had joined the directors of TZ Limited ‘in the probe into millions of dollars allegedly missing from the small technology company’. The article named Mr Sigalla as one of several past directors of TZ who had received a letter of demand from the company ‘seeking the return of material sums of money’. Mr Sigalla reportedly denied any liability.
(2) 30 December 2009 — The Australian newspaper — finance section. In an article titled ‘Sigalla fined for contempt of court’, it was reported that Mr Sigalla had been found to be in contempt of court following his involvement in the sale of an industrial property owned by a family company. The contempt finding was described as ‘the latest legal worry’ for Mr Sigalla. The contempt finding related to a breach by Mr Sigalla of a freezing order obtained by TZ against him. The article noted that Mr Sigalla and other former members of TZ’s board were being sued by TZ ‘which is attempting to recoup almost $14 million from former directors and their related parties’. The report stated that Mr Sigalla had denied TZ’s claims and was suing the company for more than $1 million in termination fees.
(3) 15 January 2010 — The Sydney Morning Herald newspaper — business section. In an article titled ‘MISSING MILLIONS’, it was reported that: ‘TZ has launched action against former directors including Mr Sigalla seeking to recoup up to $14 million in loans and payments. The claims have been denied.’
(4) 8 February 2010 — The Australian newspaper — finance section. In an article titled ‘Sigalla faces further contempt charges’, it was reported that: ‘Troubled businessman Andrew Sigalla is facing a second batch of contempt allegations after the corporate watchdog [ASIC] accused him in court of breaching conditions of an order freezing his assets’. Reference was made to the previous contempt finding in respect of the freezing order obtained by TZ. The article noted that TZ was suing Mr Sigalla over missing funds and that Mr Sigalla was defending the claim and claiming $1 million from TZ in termination benefits.
(5) 15 February 2010 — The Australian Financial Review newspaper — Market Wrap section. In an article titled ‘Sigalla nears end of a long and winding road’, it was reported that Mr Sigalla, described as a ‘[h]orse flesh fancier and former TZ Ltd chief executive … is on the receiving end of a bankruptcy petition from bookmaker Tom Waterhouse … for what appears to be unpaid gambling debts of $2.59 million.’ The article stated that the bankruptcy petition was apparently based on a judgment Mr Waterhouse obtained against Mr Sigalla for that amount, shortly before Mr Sigalla was ousted from the TZ board. The article referred to the bankruptcy court seeking details of freezing orders against Mr Sigalla ‘such as the one imposed by TZ and [ASIC] last September, when the corporate plod joined the hunt for millions of dollars missing from the company’.
(6) 20 July 2010 — The Sydney Morning Herald — business section. In an article titled ‘ASIC’s each-way result on Sigalla’, it was reported that ASIC had accused Mr Sigalla of breaching the freezing order against him ‘by using his credit card to pay for “what are euphemistically called female models or escorts” and for betting on the TAB’. The article continued that the freezing orders obtained by ASIC were obtained ‘to prevent Mr Sigalla dissipating funds while it investigates his conduct as executive chairman of [TZ] from April 2004 to June [2009]’ and that a New South Wales Supreme Court judgment had ‘revealed that ASIC’s investigation includes suspicion of multiple criminal offences relating to the misappropriation of “many millions of dollars” from TZ’. The article referred to the civil action brought by TZ against Mr Sigalla, seeking to recover $13.2 million, and Mr Sigalla’s counterclaim for $1.2 million in unpaid entitlements.
(7) 8 February 2011 — The Sydney Morning Herald. In an article titled ‘TZ settles case against two directors’, it was reported that TZ had accepted a $500,000 settlement from two former directors in its civil action to recover $13.2 million, but the claim against Mr Sigalla and two of his companies were continuing. Mr Sigalla was described as ‘the now-bankrupt former chairman’ of TZ.
(8) 1 March 2012 — The Sydney Morning Herald — business section. In an article titled ‘ASIC nails Sigalla but pays a price’, it was reported that Mr Sigalla had been found guilty of contempt of court ‘as part of a long-running case brought against him by [ASIC]’. The article referred to a judgment in the New South Wales Supreme Court which found beyond reasonable doubt that Mr Sigalla had deliberately failed to disclose bank account and credit card transactions for escort services. The report quoted findings by the New South Wales Supreme Court judge expressly rejecting Mr Sigalla’s claims that the escort services had been used by a guest ‘who paid for them using his credit card and reimbursed him in cash’.
(9) 13 March 2012 — The Sydney Morning Herald — business section. In an article entitled ‘Sigalla to continue the fight with ASIC’, it was reported that Mr Sigalla had been ordered to undertake 120 hours of community service for his contempt of court in not fully disclosing all of his financial transactions, but planned to seek compensation from ASIC for ‘malicious prosecution’. The article quoted Mr Sigalla as saying that ASIC was yet to bring a charge against him and that he had settled TZ’s civil claim against him. It states that Mr Sigalla was then bankrupt and planned to fund his case against ASIC from ‘the 75 per cent of his $600,000 in legal costs in the contempt case that ASIC was ordered to pay’. The article reports ASIC was so ordered because Mr Sigalla was only found guilty of nine of the original 45 contempt charges, and the judge had found that ‘some of the charges were brought without reasonable cause’. The article concluded by referring to the settlement in 2011 of the civil case brought by TZ against Mr Sigalla for misappropriating funds.
(10) 17 May 2013 — The Sydney Morning Herald — business section. In an article entitled ‘Sigalla faces jail sentence over dishonest use of TZ funds’, it was reported that: ‘Bankrupt businessman Andrew Sigalla could face jail after being charged with dishonestly using more than $6 million belonging to the company he ran to pay gambling debts to bookmaker Tom Waterhouse.’ The report stated that Mr Sigalla had appeared in Sydney’s Central Local Court on 16 charges of breaching his duties as a director of TZ, and that ASIC alleged that ‘Mr Sigalla [had] dipped into the company’s bank accounts 16 times between March 2008 and March 2009, using most of the money to pay Mr Waterhouse and the remainder to pay off a mortgage.’ The article also referred to Mr Sigalla’s previous contempt conviction.
(11) 17 May 2013 — The Australian Financial Review — features section. In an article titled ‘July date for Sigalla — in court’, it was reported that Mr Sigalla had faced a Sydney court on charges brought by ASIC that he embezzled more than $6 million from TZ to repay gambling debts to Tom Waterhouse.
(12) 17 May 2013 — The Australian newspaper — local section. In an article titled ‘ASIC arrests former high-flyer on $6 million charges’, it was reported that Mr Sigalla had been arrested ‘at his “home” at the InterContinental Hotel overlooking Sydney Harbour on charges related to $6.1 million of company funds that allegedly were dishonestly channelled to him and his private companies’. The article stated that the arrest was ‘the latest in a series of battles’ between Mr Sigalla and ASIC and summarised the ASIC contempt proceedings against Mr Sigalla, his gambling debts to Mr Waterhouse and his settlement of TZ’s claim against him for an undisclosed sum.
(13) 17 July 2013 — The Australian newspaper — finance section. In an article titled ‘ASIC shows its hand in Sigalla fraud case’, it was reported that Commonwealth prosecutors had compiled 37 folders of evidence against Mr Sigalla ‘detailing the alleged defrauding of $6.1 million’. This article also contained a summary of the 16 charges facing Mr Sigalla, each carrying a maximum sentence of five years’ jail, and referred to the legal proceedings between TZ and Mr Sigalla and Mr Waterhouse and Mr Sigalla.
(14) 25 November 2014 —The Daily Telegraph newspaper — news section. In an article titled ‘Executive to face trial for $8.7m fraud’, it was reported that Mr Sigalla had been ordered to stand trial for using $8.7 million of TZ funds to pay his gambling debts to Mr Waterhouse and for other loans, and that Mr Sigalla had ‘declined to respond’ at his committal hearing in relation to ’24 embezzlement-related charges’. The article stated that the magistrate was satisfied there was sufficient evidence for a jury to hear the case, noted that seven further charges had been filed, and noted that Mr Sigalla had represented himself and been granted bail.
(15) 25 November 2014 — The Australian newspaper — business section. In the column titled ‘Margin Call with Ben Butler’ the committal hearing at which Mr Sigalla was committed to stand trial was reported, referring to the trial as a ‘celebrity trial’. The charges against Mr Sigalla were colourfully described as ‘ripping off the struggling TZ … to the tune of more than $6.7 million, most of which went to pay gambling debts to his bookie, Tom Waterhouse.’
(16) 6 May 2016 — ABC News — article by police reporter. In an article titled ‘Former executive Andrew Sigalla says he cannot afford lawyer in fraud case’, it was reported that Mr Sigalla had sought to delay his criminal trial for dishonestly using TZ funds to pay his multi-million dollar gambling debts because he could not afford legal representation. The article included a summary of Sigalla’s criminal charges and reported that Mr Sigalla was due to go on trial at the end of May 2016. Mr Sigalla’s barrister was reported as asking for the trial date to be adjourned until October ‘because Sigalla was insolvent and could not afford to pay for legal counsel’. The adjournment was sought to enable Mr Sigalla to find the money for legal representation. The article concluded by summarising the prosecutor’s opposition to the adjournment request and noting that the judge had reserved his decision on whether an adjournment would be granted.
As appears above, and below, at the time of the ABC article on 6 May 2016, Mr Sigalla had been in discussions with Mr O’Connell for about two months, and from about 2 May 2016 with Mr Hill, with a view to Mr Sigalla possibly assisting Worldwide in a capital raising for the Pinnaclebet business.
Mr Sigalla’s first email to Mr Hill on the subject was on 1 May 2016 concerning the proposed capital raising. Mr Sigalla said that he could not ‘afford to work for free !!!’ and said he would ‘want some fuel in the tank to be involved’. At this stage, Mr O’Connell was insisting on payment by commission on any money in fact raised by Mr Sigalla, and Mr Sigalla was wanting to be paid for his work upfront and to also receive a commission, as with the other deals he said he was then working on.
In these circumstances, Mr Sigalla involved Mr Hill and began dealing primarily with him on this issue. On 2 May 2016, Mr Sigalla emailed Mr Hill and asked him to call when he was free: ‘Preferably without Nick [O’Connell]’. After he got Mr Sigalla’s telephone number from him, Mr Hill called Mr Sigalla. The two men discussed the proposed capital raising at a number of meetings in early May at a coffee shop near Mr Hill’s home. Mr Hill described these conversations as involving a sense of urgency on Mr Sigalla’s part, as he tried to ‘push the envelope a bit harder’. Mr Hill agreed that Mr Sigalla was very keen to get paid work assisting Worldwide to raise capital for the Pinnaclebet business.
On 8 May 2016, Mr Sigalla sent an email to Mr Hill about the proposed capital raising. In that email, Mr Sigalla addressed Mr O’Connell’s request that he work on a commission basis if successful and stated:
I have 4 real prospects that I would be staggered if they did not proceed in some way
…
I’m not going to do all the work for free because I have legal fees coming out of my ass, and I need to survive
…
Have a think about it if you want my involvement
It will cost you less to pay me to do the work than it cost me to send Mary [Ms McGowan] and Melissa [Caplice] to Chiva Son all those years ago![16]
[16]Emphasis added.
When Mr Hill was taken in cross-examination to the 8 May email from Mr Sigalla, and earlier emails in which Mr Sigalla told him and/or Mr O’Connell that he could not afford to work on the proposed capital raising unless he was paid for his time, Mr Hill gave evasive and argumentative evidence. He returned to a repeated theme of his evidence, to the effect that he was extremely busy and ‘not one to read through’ emails or, if he had read the email at the time, he could not now recall it. He denied knowing that Mr Sigalla was in a ‘tight financial position’ at this time, on the basis of his lack of attention to Mr Sigalla’s emails, and pointed to the fact that Mr Sigalla claimed to be working on two IPOs and being paid both for his time and on a commission basis.
Both Mr Hill and Mr O’Connell denied reading any of the press reports concerning Mr Sigalla’s alleged embezzlement from TZ, the resulting civil and criminal proceedings against him, or his convictions for contempt of court. In cross-examination, Mr Hill admitted that his cousins, Seamus and Melissa Caplice, were co-defendants with Mr Sigalla in TZ’s civil proceeding, but denied that he knew this until after he knew of the fraud.
In cross-examination, Mr O’Connell said that he heard of the allegations for the first time when the plaintiffs’ counsel read from the newspaper articles in his opening. He said he found the information in the articles ‘shocking’, although he did admit that he knew Mr Sigalla ‘was into hookers and things’, and described his impression of Mr Sigalla in the following terms:
As far as I knew, Mr Sigalla was a rich guy, a very well-to-do businessman. He spent a lot of money on hookers and parties and drugs and things like that but I knew the guy to be a high flying guy and I thought he was, like, I don’t know, some sort of Wall Street like stockbroker. The guy lived a big life.
Mr O’Connell was taken to text messages from Mr Sigalla to him on 19 April 2016, in which Mr Sigalla apologised for being unable to meet Mr O’Connell because he had to ‘prepare some evidence for a court hearing tomorrow’ and arranged to call Mr O’Connell when he finished. Mr O’Connell said that he recalled this conversation well, and said Mr Sigalla told him that the court case related to him suing a bookmaker named Frank Hudson.
In re-examination, Mr O’Connell said that he did not read any newspapers ‘in the period 2015 to 2016’ because he was too busy to read anything except, occasionally, articles relating to sport or work he was doing. He did not read the business section of The Australian or the Financial Review at any time.
In short, Mr O’Connell denied even hearing rumours about the matters referred to in the newspaper articles.
Mr Hill also denied having read any of the newspaper reports concerning Mr Sigalla. Like Mr O’Connell, he maintained in cross-examination that he first learned of the subject matter of the newspaper articles, with one exception, when he heard relevant aspects of the articles read out by the plaintiffs’ counsel as part of his opening address. The one exception was that he recalls Mr Sigalla telling him that ASIC had brought a case against him and ‘that ASIC lost and had to pay him an amount of money’. He said in substance that Mr Sigalla did not tell him why ASIC brought the proceeding and he did not ask. Further, although he ‘may have heard on the grapevine … aside from Mr Sigalla that there was ASIC action against him’, he said that he was ‘not sure’ what that action ‘was to do with’.[17]
[17]The transcript reads: ‘I do believe I may have heard on the grapevine an aside from Andrew Sigalla that there was some ASIC action against him but what it was to do with I’m not sure.’ (emphasis added). The word ‘an’ makes no sense in the context of the answer as a whole. I infer that Mr Hill likely mumbled ‘ah’, ‘umm’ or some other speech disfluency while he searched for the right words. Alternatively, the word is a mere transcription error. Both Mr O’Connell and Mr Hill spoke extremely quickly and placed considerable pressure on the transcriber.
Mr Hill mentioned on three occasions that Mr Sigalla ‘frequently’ volunteered in conversation ‘that he was in court’ or ‘was frequently in court’. In this context, Mr Hill said that Mr Sigalla would tell him ‘about cases that he was involved in where he was going to get paid money’. Mr Hill said that, in these frequent conversations, Mr Sigalla:
made me aware of a case that ASIC had against him and he told me that ASIC lost and had to pay him an amount of money.
He did mention ASIC to me as an organisation that had pursued him for whatever — he didn’t mention what — and that he had won a successful claim against them.
I certainly wouldn’t ask him what he was in court for but he would, in general conversation, throw in that, ‘ASIC paid me this’ and ‘This bloke owes me that’. He certainly didn’t talk about any criminal allegation against him.
One of the ‘blokes’ Mr Hill was referring to was likely Frank Hudson. Like Mr O’Connell, Mr Hill recalled Mr Sigalla mentioning that he had sued Mr Hudson and won ‘a large sum of money … as a result’.
Mr Hill also denied knowledge of other matters involving the relationship between Mr Sigalla and his cousins. In particular, as appears above, he denied knowing until recently that TZ’s civil action to recover embezzled funds included Seamus and Melissa Caplice as co-defendants with Mr Sigalla. In my opinion, this evidence, like Mr Hill’s statement that he did not know anything about the reasons for Mr Sigalla and Ms Caplice’s separation, and other statements diminishing the apparent proximity of his relationship with Mr Sigalla, was implausible in all the circumstances.
The La Trobe University fraud
On 16 May 2016, an amount of $2,520,948.38 was deposited directly into the Worldwide ANZ account from the account of La Trobe University. Mr O’Connell explained why such payments into the Worldwide ANZ account were not in accordance with the Pinnaclebet business model, as referred to above. He gave evidence that the Pinnaclebet website had an inbuilt betting limit which was too small for the big players. It was for this reason that these gamblers were asked to deposit large amounts into the Worldwide Westpac account, and he and Ms Cad would then make arrangements for the Manila trading team to bet back large bets by these customers through a ‘conglomerate [of] Manila bookmakers’ or a ‘multitude of bookmakers’.
The deposit from the La Trobe University account was the result of a similar fraud to the fraud in this case. Following the deposit, a Pinnaclebet customer named Tom Simpson claimed the deposit for his account. It appears that name is a fictitious alias for the fraudster. The first contact from the person purporting to be Mr Simpson was on 15 May 2016. He contacted a member of the Pinnaclebet support team by ‘livechat’ and said he had joined the Pinnaclebet website that day (ie become a Pinnaclebet customer) and deposited $2,520,948. He asked when that deposit would be credited to his Pinnaclebet account and was told that it ‘usually takes 24–48 hours’ and the amount would ‘then be automatically credited to [his] Pinnaclebet account’. Given the amount of the deposit, the Pinnaclebet support representative informed Mr Simpson that he would need to notify his manager regarding the transfer and would keep Mr Simpson posted.
Mr O’Connell gave evidence that he recalled being informed by a support staff member of an earlier telephone call from a customer, about two or three days before the deposit, in which the customer said he ‘would be sending [$2.5 million] and could we take large bets’. The staff member told him that the customer had said he wanted to ‘bet big on American sport’ and it was ‘nothing for him to have $300,000 — $400,000’ on a single event. Mr O’Connell recalled that he told the staff member:
he’s probably a fantasist. We’ll believe it when we see it … [w]hen the money arrives we’ll talk about it then.
Mr O’Connell’s evidence in this regard was challenged in cross-examination by reference to information which Worldwide later supplied to Victoria Police in connection with the La Trobe University fraud. In answer to a question from the investigating officer, Detective Senior Constable Michael Howard, Ms Cad supplied information which did not specifically mention this telephone call:
Q: The details of phone numbers used to contact your business by these individuals and what phone number they would have dialled to reach your staff.
The customer contacted via livechat confirming that he had made a deposit to us of $2,520,948.38. Our support staff notified our management and the exact amount advised by Mr. Simpson had been credited to our ANZ bank account, accordingly the funds were credited to Mr. Simpson’s betting account.
There are two senses of ‘have claims which are equal’ which apply here. The first concerns whether, in relation to the amount of money of a beneficiary which has gone into a mixed fund, and for which that beneficiary has in one sense a claim, the beneficiary has a charge over whatever property remains from that fund for the whole of the amount of his money which went in. If it can be demonstrated that some beneficiaries have a charge over those assets for the whole amount of their money which went into the fund, while others have a charge over those assets for only part of their money which went into the fund, their claims are not equal …
The other sense in which claims might be unequal arises once the amount of the various charges of beneficiaries on the fund has been established. Then a question arises of whether in accordance with the equitable principles concerning priorities, or indeed whether by reference to any personal equities whatever which exist between the various claimants, there is any reason to treat any of the claimants as postponed to any of the others.[191]
[191]Ibid 418–19, [176]–]178].
I note that this principle shuts the defendants out from any claim against the fund. Given the inadequacy of the fund in this case, there can be no claim by the defendants to participate in it. For example, they cannot make a claim on the fund based on the fact that one or more of them paid out Pinnaclebet customers from their own funds. Any such claims by the defendants or their privies could not be equal, given their breaches of trust or participation in breaches by others.
Fourth, a relevant factor in deciding the appropriate tracing method is the extent to which any beneficial claimant on the fund has a proprietary claim in rem against another asset or fund:
The appropriate way of dividing available assets between beneficiaries whose money has been mixed in an account might also depend upon what other remedies in rem the various beneficiaries have. If there is a situation where the money of A and B is mixed in an account, some of it is withdrawn and used to purchase an asset, and then the money of C is placed in the account, and both the asset, and the account, are available at the time of trial, a liquidator might be directed to administer the fund in accordance with principles of marshalling, so that A and B satisfied themselves from the asset (which only they could trace into) to the extent that they could, leaving C to claim a higher percentage of his claim from the account balance than A and B are permitted to claim from the account balance. In Re Global Finance Group Pty Ltd, McLure J held that, on the facts of the case before her, a division of available monies pari passu between all claimants was inappropriate.[192]
[192]Ibid 420 [184] (emphasis added) (citations omitted).
I note that the reference to a proprietary claim by one beneficiary in rem, with the consequent need to apply marshalling principles, may have application in this case to the plaintiffs’ claims against the Bondi Junction property. Those claims will likely be unavailable to any other beneficiaries claiming on the fund.
Fifth, in considering the beneficial claims against the relevant fund, it may be relevant to consider the time of payments into the fund by a beneficiary, and the level of the fund’s assets after that time:
Sometimes, however, there might be facts which show that claimants fall into particular classes, such that the amount of the charge which one class has on the assets which remain is likely to be a smaller proportion of the amount of their money which went in than is the case with another class. If, for instance, there was a time when a trust account was completely depleted, beneficiaries whose money went into that trust account before the day of depletion could not have any equitable right at all to the sum which stands in the account at the date of trial. If the account in which the mixing occurred at any time reached a particularly low level, it may be that those people whose money was paid into the account before that low level was reached ought be accorded a smaller dividend on the amount of their claim than people whose money was paid in after that low level was reached. In carrying out such calculations, estimation and inference can be appropriate if precise evidence is not available.[193]
[193]Ibid 420–1 [187] (emphasis added).
I note that this statement is relevant to any claim by La Trobe University against the fund, as discussed above.
Sixth, as to the appropriateness of applying the ‘lowest intermediate balance rule’:
(1) it is a question of degree, to be assessed on the facts of each case, whether the ‘lowest intermediate balance rule’ is an appropriate method to apply or is too complex;
(2) where a relevant trust fund is wrongly depleted by the trustee, the whole of the fund at that time is affected, ‘not any particular beneficiary’s contributions’; and
(3) accordingly, the making of further payments into the account containing the relevant fund after the wrongful depletion of the fund by the trustee, is no barrier to the method applying to the fund as it stood before the wrongful depletion; as the further payments are not affected by the depletion:
In Law Society of Upper Canada v Toronto-Dominion Bank, the Ontario Court of Appeal held that beneficiaries whose money had been mixed in an account, and wrongly depleted, should share whatever balance remained in the account pro rata to their contributions, without regard to the ‘lowest intermediate balance rule’. One reason for this conclusion was pragmatic — that performing the calculations required to identify the proportions in which the fund was held following each deposit or withdrawal would be extremely complicated in principle, and often not achievable in fact. The second was that the fund was a blended fund, and when it was wrongly depleted it was the fund as a whole which was wrongly depleted, not any particular beneficiary's contributions.
I do not accept that either of these reasons leads to a conclusion that, always and regardless of the facts of the individual case, the lowest intermediate balance rule has no part to play in deciding how a mixed fund of several beneficiaries should be distributed in specie. As to the first reason, whether performing the calculations to carry out a full tracing exercise is complicated, or achievable, will depend upon the particular case being considered. Further, it is not as though the only available alternatives are full analysis of every transaction in the account, and dividing between all claimants equally. As to the second reason, while it is true that, when a depletion occurs from a fund, it is the fund as a whole, as it exists at that time, which is depleted, accretions to the fund after that time are, self evidently, not affected by that depletion.[194]
[194]Ibid 421–2 [191]–[192] (citation omitted).
As appears below, the evidence before the Court is unsatisfactory and incomplete, such that the Court cannot be confident that it will choose the most appropriate tracing method or conduct a reliable tracing exercise on the facts as they now stand. Armed with full information, the Court will be in a position to determine which is the most appropriate tracing method to adopt in the circumstances of this case. I turn to consider the extent of the missing information.
The following issues need to be the subject of evidence and submissions. Is there still any amount owing by Worldwide to Pinnaclebet betting customers? If so, how much and what documents support the current position? Mr O’Connell gave evidence that the Pinnaclebet betting customers’ accounts had been paid in full with the exception of only $20,000 to $30,000, and that there were, at the time of the trial, some bets by Pinnaclebet customers which had not ‘resulted’:
I think the customers we paid out on that week [ie the week Worldwide shut down the Pinnaclebet computer systems and website]. We looked at their account balances and it was about $1.3 million or $1.4 million and there was another, I think, maybe $600,000 or $800,000 that was rolling around that hadn't been resulted. So I am not sure of the exact amount. We have still got payments to make now. I think we still owe customers $20,000 to $30,000. We are happy to pay it. They haven’t given their ID and some of them are just stragglers. We have contacted them. Some of them have got bets on the NRL for who is going to win the competition and it still hasn’t finished yet. Some of them haven’t resulted.[195]
[195]Emphasis added.
Mr O’Connell also gave evidence that Worldwide (he and Mr Hill) wanted to pay Worldwide all the betting customer entitlements for reputational reasons, in circumstances including where The Odds Broker was continuing to trade. It appears likely that they have all been repaid by now, but this should be readily verifiable by admissible evidence.
Moreover, to the extent that there were outstanding bets at the date the Pinnaclebet website was shut down, the evidence does not indicate what has transpired in respect of those bets. Have they resulted and, if so, has this led to credits to the Worldwide ANZ account? Or were the winnings paid directly to the customers from or through the wagering accounts or other means? In this respect, Mr O’Connell gave evidence that there were still some outstanding debts in respect of the National Rugby League Premiership for the 2016 season. Presumably, the results of those bets are now known. The Court does not know where the proceeds of any winning bets have been paid.
Inference, or forensic examination of bank statements by the Court, should not be necessary where proof of what in fact happened is within the defendants’ knowledge and possession. Ms Cad gave evidence that, prior to the Pinnaclebet website being closed down, she ensured that Worldwide retained information including customers’ names, dates of birth, addresses, the available balance on each customer’s account, details of any pending bets on those accounts which had not yet resulted, and whether the customer had deposited funds to the credit of his or her account via credit card. Mr O’Connell said that this information needed to be retained so that customers could be paid their entitlements. Although this information has been retained, it is not before the Court.
Is the credit balance of the so-called Simpson betting account held in the Worldwide ANZ account? If so, how is that fact to be established? As appears above, the evidence points in favour of the La Trobe University debt not forming part of the fund. Again, hard evidence supported by documents is required; not evidence of Mr Hill’s belief. Given the role of another innocent party, La Trobe University, the defendant should be given a further opportunity to establish their contention in this respect. If necessary, I will hear from the parties following these reasons as to whether it is appropriate to give notice to La Trobe University so it can make submissions on the issue.
The fact that this missing information is not available prevents the Court from conducting a reliable tracing exercise. All of the missing information which will enable a reliable tracing exercise to be completed is in the hands of the defendants. In these circumstances, the Court cannot now determine the appropriate tracing method to apply or now undertake the tracing exercise. Instead, the defendants will be ordered to produce the missing information, including all supporting documentation, and further submissions made as to tracing issues. If all other claimants on the fund have been paid, and there is a separate account containing the money owing to La Trobe University, it is possible that no tracing exercise of any kind will be necessary. For the reasons given, the plaintiffs will likely be entitled to all of the fund in such circumstances.
If tracing remains necessary in order to formulate the relief to be granted to the plaintiffs, it may be necessary for the Court to appoint an appropriately qualified special referee to conduct the tracing exercise and report to the Court if the parties cannot agree on the result of the Court’s determination of the appropriate method. This approach is consistent with the comments of Allsop P in Heperu where, after referring to the submissions and evidence of the parties concerning a difficult tracing exercise, his Honour stated:
The submissions of the appellants and the evidence did not conveniently undertake these tasks. Detailed schedules were handed up at trial and on appeal identifying the entry of money into the various mortgage accounts from the Westpac account. However, there was no assistance given to enable one to be confident of the precise amount[s] ... This task is no doubt a tedious one. It is not one that it is appropriate for the Court to undertake unaided, in circumstances where the parties can undertake it.[196]
[196](2009) 76 NSWLR 230, 259 [121]..
What amount of the stolen funds was used to purchase the Bondi Junction property?
The plaintiffs contend that the traceable amount of the stolen funds used to purchase the Bondi Junction property is $763,000. This contention appeared to involve the following steps:
(1) No account is required for the mixing of the stolen funds in the Worldwide ANZ account or The Odds Broker’s bank account, as there is no evidence any of those beneficiaries remain unpaid.
(2) On this basis, the traceable proceeds of the $800,000 in Mr Hill’s hands should not be discounted.
(3) $763,000 of the $800,000 can be seen from the bank statements to have been paid towards payment for the bank cheque used to complete the purchase of the property.
If these contentions are accepted, the attached diagram and above tables demonstrate that the correct amount would be $796,000, not $763,000.
The defendants contend that the traceable proceeds of the stolen funds comprised in the $800,000 which were used to fund the purchase of the bank cheque were $731,349.45. This calculation involved accepting (perhaps incorrectly) that all of the $800,000 paid to The Odds Broker was traceable proceeds of the stolen funds and applying the Clayton’s case first-in-first-out tracing method to take account of the entitlements of other beneficiaries to The Odds Broker bank account at the time the $800,000 was paid to it. For the reasons given above, and in the absence of evidence that any of those other beneficiaries remain unpaid, I reject the defendants’ contention.
Although I infer it is likely that any beneficiaries of The Odds Broker bank account at the relevant time have been paid in full, I will adopt the same approach as I have with the tracing exercises involving the Worldwide ANZ account. The proceeding will be adjourned to allow further evidence and submissions as to the amount of the traceable proceeds used to purchase the Bondi Junction property.
I turn to consider the plaintiffs’ claims for an account of profits.
Must Worldwide account to the plaintiffs for any profit that it made on the use of the stolen funds?
The plaintiffs submitted as follows:
A trustee is accountable to the trust for profits derived by reason of either or both the opportunity and knowledge acquired by virtue of his or her position as trustee.[197] On the defendants’ evidence, Worldwide earned profits of $8,000 to $9,000 on the Citic Funds wagered. If the Court were to find that the wagers occurred, the plaintiffs would be entitled to an account of all such profits.[198]
[197]Chan v Zacharia (1984) 154 CLR 178, 204–5.
[198]Plaintiffs’ closing submissions [156] (citations in original).
No contrary submission was made. I have found the wagers on Mr Sigalla’s betting account were made.
The loss of profits are assessed at $8,500.
I turn to consider whether the stolen funds can be recovered under s 2.6.3 of the Gambling Regulation Act 2003.
Can the stolen funds be recovered under s 2.6.3 of the Gambling Regulation Act 2003?
Section 2.6.3 of the Gambling Regulation Act 2003 provides as follows:
If money is stolen or embezzled and paid to a person as or on account of a wager or bet, the person from whom it was stolen or embezzled may recover it, or a sum not exceeding its amount, in a court of competent jurisdiction from the person to whom it was paid.[199]
[199]Emphasis added.
Section 2.6.3 creates a strict liability regime for bookmakers and others engaged in the gambling industry who receive stolen or embezzled funds for the emphasised purpose. In my opinion, the payment and receipt must relate to a wagering or betting transaction which takes place in Victoria or is governed by the laws of Victoria. My reasons follow.
First, s 2.6.3 was not intended to have extraterritorial operation. The plaintiffs’ arguments effectively conceded as much, although they contend that the relevant ‘matter or thing’ giving rise to the operation of the section took place in Victoria. The basis of this submission, considered below, is s 48(b) of the Interpretation of Legislation Act 1984 which relevantly provides that:
In an Act or subordinate instrument, unless the contrary intention appears …
(b)a reference to a locality, jurisdiction or other matter or thing shall be construed as a reference to such locality, jurisdiction or other matter or thing in and of Victoria.[200]
[200]Emphasis added.
A review of the Act as a whole establishes that it is directed at regulating gambling in Victoria, including by the placing of a wagers or bets in a variety of circumstances, with the exception of ‘interactive gaming’ which is governed by Chapter 7 of the Act. Section 7.1.6 provides that Chapter 7 applies both within and outside Victoria and, to the extent it applies outside Victoria, it applies ‘to the full extent of the extra-territorial legislative power of Parliament’.[201] There is no similar provision extending the operation of other chapters of the Act outside Victoria. Section 2.6.3 is contained in Chapter 2.
[201]Section 7.1.6(2).
Second, the following elements must be established in order for the section to operate:
(1) Money must be stolen or embezzled. In my opinion, it matters not whether that occurred in or outside Victoria. It is simply a pre-condition to the section operating at all.
(2) The stolen money must be paid to a person for the specified purpose: ‘as or on account of a wager or bet’. The purpose of the payment is the critical matter or thing.
The plaintiffs’ contend that the critical matter or thing is the place of payment of the stolen money. For the reasons given above, I do not accept that contention.
Moreover, even if the critical matter is the place of payment, I do not accept the plaintiffs’ contrived contention that the stolen funds were paid in Victoria. The stolen funds were paid from the plaintiffs’ bank accounts maintained at a branch in Western Australia and received by Worldwide into the Worldwide ANZ account maintained in New South Wales. The plaintiffs contend that, because the ANZ Bank has its registered office in Victoria, the stolen funds were paid to Worldwide in Victoria. The basis of this argument is said to be that, upon receipt of the stolen funds by ANZ for the credit of the Worldwide ANZ account, ANZ became indebted to Worldwide for the amount of the stolen funds and that debt was situated in Victoria because the registered office of the ANZ Bank is in Victoria.
This artificial contention is rejected. Where stolen money is paid to a person’s bank account, the section is clearly intended to refer to payment to the account holder as ‘the person’ and not to the bank. The bank does not receive the payment for the specified purpose, namely ‘as or on account of a wager or bet’ placed in Victoria. The existence of that purpose is determined by the proper characterisation of the payment in the context of the relationship and dealings between the payer of the stolen money and the recipient account holder.
The claim under s 2.6.3 of the Gambling Regulation Act 2003 fails.
My reasoning is consistent with the decision of the Queensland Full Court in Horgan v Sieber.[202] In that case, the relevant offence under Queensland legislation governing racing and betting prohibited a person from possessing ‘any instrument of betting’. Instruments of betting included documents or writings kept or used for any purpose connected with betting on horse racing. The defendant was charged with possession of instruments of betting found in his possession in Queensland but relating ‘only [to] betting transactions which had occurred in New South Wales, after which the “instruments” were brought into Queensland’.[203]
[202][1976] Qd R 25.
[203]Ibid 33.
The Full Court held that the legislation was directed against unlawful betting in Queensland only, and because the betting transactions occurred in New South Wales the charge should be dismissed.[204] Although this case concerned the Queensland legislation at issue, it is consistent with my interpretation of s 2.6.3 as requiring for its operation that the stolen money be paid for the purpose of a betting transaction in Victoria, irrespective of where the relevant event on which the bet is or may be placed is to occur.[205]
Did Worldwide receive and hold the stolen funds as a bona fide purchaser for value without notice?
[204]Ibid 30–1 (Matthews J), 33–4 (Dunn J).
[205]Ibid 30 (Matthews J).
For the reasons given above in rejecting the defences based on change of position, this question does not arise for determination.
Summary of conclusions
The plaintiffs have established an entitlement to relief on various common law and equitable causes of action. In Fistar v Riverwood, Leeming JA considered that relief based on both equitable and common law causes of action is available in circumstances such as the present, because ‘there are many overlapping claims against recipients of stolen property’.[206] Leeming JA stated that recipients of trust property may be liable for co-existing causes of action based on knowing receipt of trust property, knowing assistance in a breach of trust or fiduciary obligation, or on a proprietary basis in accordance with Black v Freedman principles.[207] To this catalogue of available causes of action, I would add Foskett v McKeown principles and the simple case of money had and received. Accordingly, it was open to the plaintiffs to prosecute overlapping or concurrent claims and seek to have judgment entered on the proven claims which yield a result most advantageous to them.[208]
[206]Fistar v Riverwood Legion & Community Club Ltd (2016) 91 NSWLR 732, 740–44 [36]–[51].
[207]Ibid.
[208]Astley v Austrust Ltd (1999) 197 CLR 1, 20–3 [44]–[48].
The plaintiffs have established an entitlement to relief on the following grounds.
First, for $2,077,210 against Worldwide on the basis of:
(1) the common law claim for money had and received;
(2) the proprietary claim under Foskett v McKeown principles; and
(3) breach of its Black v Freedman trust obligations.
Second, against Mr Hill and Mr O’Connell for $2,077,210 for knowingly assisting Worldwide to breach its Black v Freedman trust obligations.
Third, against The Odds Broker, for the traceable proceeds of the stolen funds comprised in the $800,000 paid to it by Worldwide on the basis of:
(1) money had and received; and
(2) knowing receipt of trust property.
Fourth, against Mr Hill for the traceable proceeds of the stolen funds comprised in the $800,000 paid to him by The Odds Broker on the basis of:
(1) money had and received; and
(2) knowing receipt of trust property.
Fifth, against Mr O’Connell for knowingly assisting Worldwide, The Odds Broker and Mr Hill to breach their respective Black v Freedman trusts by disposing of the traceable proceeds of the stolen funds comprised in the $800,000.
Sixth, against Mr Hill and Mr O’Connell for the traceable proceeds of the stolen funds comprised in the $345,000, for knowingly assisting Worldwide to breach its Black v Freedman trust obligations.
Seventh, against Worldwide for proprietary relief in the form of an equitable charge over the Worldwide ANZ account to secure the traceable proceeds of the stolen funds remaining in that account.
Eighth, against Mr Hill and Mr O’Connell for proprietary relief in the form of an equitable charge over the Bondi Junction property to secure the traceable proceeds of the stolen funds used to purchase that property.
Ninth, against Worldwide for $8,500 as an account of profits made from its breach of trust.
Each of these findings involve rejection of the change of position and bona fide purchaser for value without notice defences, on the ground that the defendants did not act in good faith at relevant times because of their knowledge of the fraud in the third Baden category. The indefeasibility defence fails for the reasons given.
The proceeding will be adjourned to allow further evidence and submissions before determining tracing issues.
Orders
I will hear the parties as to the form of the Court’s judgment and as to further evidence and submissions concerning tracing issues.
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SCHEDULE OF PARTIES
| S CI 2016 2297 | |
| BETWEEN: | |
| SINO IRON PTY LTD (ACN 058 429 708) | First Plaintiff |
| CAPE PRESTON PORT COMPANY PTY LTD (ACN 147 842 153) | Second Plaintiff |
| - and - | |
| | |
| | |
| THE ODDS BROKER PTY LTD (ACN 145 721 017) | Third Defendant |
| WORLDWIDE WAGERING PTY LTD (a company incorporated in Norfolk Island with a registered number 01/12) | Fourth Defendant |
| ROBERT BLAIR HILL | Fifth Defendant |
| NICHOLAS O’CONNELL | Sixth Defendant |
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