FEDERAL COURT OF AUSTRALIA
Suzlon Energy Ltd v Bangad
[2014] FCA 1105
Citation: Suzlon Energy Ltd v Bangad [2014] FCA 1105 Parties: SUZLON ENERGY LTD AND OTHERS NAMED IN THE SCHEDULE v SANJEEV BANGAD AND OTHERS NAMED IN THE SCHEDULE File number: NSD 1670 of 2008 Judge: RARES J Date of judgment: 15 October 2014 Catchwords: ADMIRALTY – maritime fraud – breach of employee’s fiduciary obligation to not put himself in a position of conflict or to obtain a benefit without employer’s fully informed consent – fraudulent and dishonest conduct of employees and companies they controlled – use of interposed companies controlled by employees to carry employer’s or principal’s cargo at undisclosed inflated prices – employee without any disclosure of true position procuring related company of employer to guarantee charterparty obligations of employee’s company – employee causing secret commissions and profits to be paid into Swiss bank accounts in names of companies he controlled – whether transactions gave rise to equitable debt, resulting trust or justified imposition of constructive trust – where employee’s secret commissions and profits held by company he controlled as volunteer Legislation: Evidence Act 1995 (Cth)
Federal Court Rules 2011 (Cth)Cases cited: Ardlethan Options Ltd v Easdown (1915) 20 CLR 285 applied
Beluga Shipping GmbH & Co KS “Beluga Fantastic” v Headway Shipping Ltd (No 2) (2008) 251 ALR 620 applied
Beluga Shipping GmbH & Co KS “Beluga Fantastic” v Suzlon Energy Ltd (No 5) (2011) 278 ALR 56 applied
Beluga Shipping GmbH & Co v Headway Shipping Ltd (No 3) [2008] FCA 1989 applied
Beluga Shipping GmbH v Headway Shipping Ltd [2008] FCA 1791 referred to
Beluga Shipping GmbH v Suzlon Energy Ltd (No 3) [2009] FCA 1347 applied
Beluga Shipping GmbH v Suzlon Energy Ltd (No 4) [2009] FCA 1568 applied
Beluga Shipping GmbH v Suzlon Energy Ltd [2009] FCA 1020 applied
Black v S. Freedman & Co (1910) 12 CLR 105 applied
Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 applied
Creak v James Moore & Son Pty Ltd (1912) 15 CLR 426 applied
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 applied
John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 applied
Pilmer v Duke Group Ltd (In Liq) (2001) 207 CLR 165 applied
Suzlon Energy Ltd v Bangad (No 2) (2011) 198 FCR 1 referred to
Suzlon Energy Ltd v Bangad (No 3) [2012] FCA 123 referred to
Suzlon Energy Ltd v Bangad (No 5) [2012] FCA 1505 referred to
Suzlon Energy Ltd v Bangad (No 6) [2013] FCA 759 referred toDate of hearing: 18 and 19 September 2014 Date of last submissions: 23 September 2014 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 83 Counsel for the Second Cross-Claimants: Mr J A Hogan-Doran Solicitor for the Second Cross-Claimants: HWL Ebsworth Lawyers Solicitor for the Third, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh and Twelfth Second Cross-Defendants: The Third, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh…
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Details
- Case
- [2014] FCA 1105
- Decision Date
CaseChat Overview and Summary
Suzlon Energy Ltd and its associated entities brought an action against Bangad and seven others in the Federal Court of Australia. The plaintiffs sought recovery of losses suffered as a result of the alleged fraudulent conduct of the defendants. The defendants were employees and associated with entities that had conducted business with Suzlon Energy. The fraud allegedly involved the use of interposed companies to transport cargo at inflated prices, undisclosed commissions, and secret profits paid into Swiss bank accounts controlled by the defendants. The plaintiffs claimed that these actions constituted a breach of fiduciary duties, including conflicts of interest and obtaining benefits without informed consent. The court had to decide whether the transactions resulted in an equitable debt, a resulting trust, or justified the imposition of a constructive trust, and whether the credit balances in Swiss bank accounts should be held on trust for Suzlon Energy.
The court examined the evidence and found that the defendants had engaged in fraudulent and dishonest conduct. They used interposed companies to transport cargo at undisclosed inflated prices and procured guarantees from related companies without full disclosure. Secret commissions and profits were paid into Swiss bank accounts controlled by the defendants. The court concluded that the transactions gave rise to a constructive trust in favour of Suzlon Energy. The only effective remedy was to hold the credit balances in the Swiss bank accounts on constructive trust for Suzlon Energy. The defendants were liable for various sums, including secret commissions, lost profits, and costs.
In summary, the court found that the defendants were liable for various sums due to their fraudulent conduct and breaches of fiduciary duty. The court ordered that the credit balances in the Swiss bank accounts be held on constructive trust for Suzlon Energy and that the defendants pay the plaintiffs' costs.
The court examined the evidence and found that the defendants had engaged in fraudulent and dishonest conduct. They used interposed companies to transport cargo at undisclosed inflated prices and procured guarantees from related companies without full disclosure. Secret commissions and profits were paid into Swiss bank accounts controlled by the defendants. The court concluded that the transactions gave rise to a constructive trust in favour of Suzlon Energy. The only effective remedy was to hold the credit balances in the Swiss bank accounts on constructive trust for Suzlon Energy. The defendants were liable for various sums, including secret commissions, lost profits, and costs.
In summary, the court found that the defendants were liable for various sums due to their fraudulent conduct and breaches of fiduciary duty. The court ordered that the credit balances in the Swiss bank accounts be held on constructive trust for Suzlon Energy and that the defendants pay the plaintiffs' costs.
Orders
Orders of the court
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Background
Background to the litigation
Relevantly, apart from the possible difficulty in enforcing a judgment by default, there is no evidence to suggest that the law of any other jurisdiction, including that of India, is different to the law of Australia in respect of the substantive causes of action on which the Suzlon parties rely.The litigation background There is a very large body of affidavit and documentary evidence before me. I have considered that evidence to the extent that it is admissible at a final hearing, as it has been deployed over the years that the proceedings have been in my docket, including over 13 lever arch files that the Suzlon parties extracted as salient for the purposes of the argument on the final hearing. I am satisfied that the substance of the Suzlon parties’ claims against each of the 8 defendants and their associates has been established by that evidence. The evidentiary material is too large to summarise in detail in these reasons. I will refer to some salient examples of each of the principal types of activities on which the Suzlon parties relied to establish the liability of the 8 defendants. During the course of these reasons I will also refer to other judgments that I have given in these proceedings concerning the 8 defendants and the actions of Messrs Sridhar, Bangad and Kummar and companies and others associated with them based on evidence then before me, and I also adopt, without repeating, all of those findings, none of which have been contradicted. For the reasons I have given previously in granting the Suzlon parties leave to serve each of the 8 defendants outside the jurisdiction, I am satisfied that the claims made against each defendant fall within the jurisdiction of the Court. The reasons for each of their joinders appear in the following judgments: Beluga Shipping GmbH & Co KS “Beluga Fantastic” v Headway Shipping Ltd (No 2) (2008) 251 ALR 620 (Beluga (No 2)) (as to Mr Bangad); Beluga Shipping GmbH & Co v Headway Shipping Ltd (No 3) [2008] FCA 1989 (Beluga (No 3)) (as to Genus); Beluga Shipping GmbH v Suzlon Energy Ltd [2009] FCA 1020 (Suzlon) (as to Mr Sridhar, Bluewind, STS and Mr Kummar); Beluga Shipping GmbH v Suzlon Energy Ltd (No 3) [2009] FCA 1347 (Suzlon (No 3)) (as to BIP); Beluga Shipping GmbH v Suzlon Energy Ltd (No 4) [2009] FCA 1568 (Suzlon (No 4)) (as to Manning). In those judgments, I made findings of a prima facie case justifying the joinder of the relevant new party and his or its association with the matters now in issue. The evidence on which I arrived at those findings has not been contradicted and I adopt, without repeating, all of those findings in respect of each such party for the purposes of these reasons. Each of the 8 defendants had been served originally soon after he or it was joined between 2008 and 2009. Of the 8 defendants, only Mr Sridhar has ever appeared in the proceedings. That occurred in 2012 when he applied for a stay of the proceedings against him. Mr Sridhar appeared unconditionally when he sought the stay and did not challenge the jurisdiction of the Court in respect of the Suzlon parties’ claims for relief against him. I granted his application but only if he met certain conditions (Suzlon Energy Ltd v Bangad (No 5) [2012] FCA 1505) (Suzlon (No 5)) that he subsequently failed to satisfy (Suzlon Energy Ltd v Bangad (No 6) [2013] FCA 759).
Evidence
Evidence Before The Court
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Decision
Reasons for decision
Moreover, there is no effective remedy other than the imposition of a constructive trust in favour of Suzlon Energy over the accounts in the 3 Swiss banks to which I have referred in [50]. I am satisfied, on the substantial evidence of their fraudulent and dishonest conduct that is before me, that the credit balances of the above accounts in the 3 Swiss banks should be held by the account holder on constructive trust for Suzlon Energy as the employer of each of Messrs Sridhar and Bangad.Conclusion It is clear that the Suzlon parties have not been able to perform a full or comprehensive examination of the amounts that Messrs Sridhar and Bangad and the companies they controlled obtained by their frauds and the breaches of their fiduciary obligations and other duties owed to Suzlon Energy and the other Suzlon parties. In summary, I have found that the 8 defendants are liable as follows:(1)Mr Sridhar and STS are liable to Suzlon Energy for USD4,887,060 and €10,712,978 as secret commissions received by them (see [26] above) and BIP is liable to Suzlon Energy for €2,000,000 that it received from those moneys (see [24] above).(2)Mr Kummar is liable to Suzlon Energy for USD1,000,000 in respect of his direction to MIT to transfer that sum to BIP on 1 October 2007 and BIP, Mr Sridhar and Mr Bangad are liable to Suzlon Energy for €3,027,291 (including the USD1,000,000 also payable by Mr Kummar referred to [35]–[36] above) in respect of remittances to BIP (see [34], [38] above).(3)Bluewind, Mr Sridhar and Mr Bangad are liable to Suzlon Energy in the sum of €2,000,000 in respect of the remittances to Bluewind from the MIT account (see [37] above).(4)Genus, Mr Sridhar and Mr Bangad are liable to Suzlon Infrastructure in the sum of USD1,379,000 (see [41]-[43], [48] above).(5)STS, Mr Sridhar and Mr Bangad are liable to Suzlon Infrastructure in the sum of USD1,000,000 (see [39] above).(6)Mr Sridhar and Mr Bangad are liable to Suzlon Energy in the sums of USD605,000 (see [48] above) and USD1,126,089 (see [40] above).(7)Mr Sridhar and Mr Bangad are liable to Suzlon Infrastructure in the sum of USD339,166.29 (see [46] above).(8)Mr Sridhar and Mr Bangad are liable to SE Shipping for USD8,146,907.71 representing its lost profits (see [70] above).(9)Mr Sridhar and Mr Bangad are liable to Suzlon Energy for the marshal’s and other costs and expenses associated with the interpleader in the sum of AUD100,966.07 and in the sum of USD650,000 for the amounts paid to the Headway companies and Capt Malhotra to settle their claims (see [73]-[74] above).(10)each of Bluewind, STS, BIP, Manning (personally and in its capacity as trustee of the MSRS trust) and Mr Sridhar (including in respect of moneys held in the name of Rodney Marsh) is liable to Suzlon Energy in respect of all moneys standing to the credit of each account in its or his name with each of the 3 Swiss banks. I will also make orders declaring that each of the accounts with each of the 3 Swiss banks is held by the respective account holder on constructive trust for Suzlon Energy absolutely and that the 8 defendants pay the Suzlon parties’ costs of the proceedings.
Ratio Decidendi
Legal Principle Established
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